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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
TRIPLE S PLASTICS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed: July 13, 2001
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Notes:
[TRIPLE S LOGO]
[EIMO LOGO]
SPECIAL MEETING OF SHAREHOLDERS
MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
To the shareholders of Triple S Plastics, Inc.:
The boards of directors of Triple S Plastics, Inc. and Eimo Oyj, a
corporation organized under the laws of Finland, have approved an amended and
restated merger agreement between Triple S, Eimo and a wholly owned subsidiary
of Eimo, in which Triple S will become a wholly owned subsidiary of Eimo.
If the merger is completed, you will receive 4.5 Series A shares of Eimo for
each share of Triple S common stock you own. The Eimo Series A shares will be
issued to you only in the form of American Depositary Shares. At the time of
the merger, each Eimo American Depositary Share will represent ten Eimo Series
A shares or such lesser number as Eimo may elect. Assuming the exercise of all
outstanding Triple S options prior to the merger, we estimate that Eimo will
issue approximately 20,216,484 Eimo Series A shares in the merger. After the
merger, those shares will represent approximately 30% of the outstanding Eimo
Series A shares, the only class of shares of Eimo to be outstanding after the
merger.
The Eimo Series A shares are listed on the Helsinki Stock Exchange in
Helsinki, Finland under the symbol "EIMAV." The Eimo American Depositary Shares
to be issued in the merger will be listed on the NASDAQ National Market System
under the symbol "EIMO."
We cannot complete the merger unless Triple S shareholders approve the
merger agreement, and Eimo shareholders approve (1) the merger agreement, (2)
the issuance of Eimo Series A shares, Eimo American Depositary Shares and
options in the merger, (3) the waiver of pre-emptive rights in connection with
the issuance of Eimo Series A shares, Eimo American Depositary Shares and
options in the merger, and (4) the election of two members of the Triple S
board of directors to the Eimo board of directors in connection with the
merger. We will not complete the merger unless all of these proposals are
approved. We have each scheduled special meetings for our shareholders to vote
on these important proposals.
The Triple S special meeting will be held at the Michigan Technical
Education Center, in the Amphitheatre, Kalamazoo Valley Community College, 7107
Elm Valley Drive, Kalamazoo, Michigan 49002, on August 14, 2001, at 4:00 p.m.,
local time. The Eimo special meeting will be held on August 15, 2001.
After careful consideration, Triple S's board of directors has determined
that the merger and the merger agreement are fair to you and in your best
interests. Triple S's board of directors has approved the merger agreement and
unanimously recommends that you vote FOR the approval of the merger agreement
at the special meeting.
The accompanying proxy statement/prospectus provides you with information
about Triple S, Eimo and the proposed merger. In addition, you may obtain
information about Triple S from documents that we have filed with the
Securities and Exchange Commission. We encourage you to read the entire proxy
statement/prospectus carefully. In particular, you should read the section
entitled "Risk Factors" beginning on page 15 for a description of certain risks
that you should consider in evaluating the merger.
Your vote is very important. Whether or not you plan to attend the special
meeting, please take the time to vote by marking, signing and dating the
enclosed proxy card and returning it in the return envelope provided. It
requires no postage if mailed in the United States. If you sign, date and mail
your proxy card without indicating how you want to vote, your proxy will be
counted as a vote in favor of approval of the merger agreement. If you attend
the special meeting, you may vote your shares in person, even if you have
previously submitted a proxy.
Sincerely,
/s/ A. Christian Schauer
A. Christian Schauer
Chief Executive Officer
Triple S Plastics, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved the securities to be issued under the proxy
statement/prospectus or determined if the proxy statement/prospectus is
accurate or adequate. Any representation to the contrary is a criminal
offense.
The proxy statement/prospectus is dated July 13, 2001, and is first
being mailed to shareholders of Triple S on July 18, 2001.
TRIPLE S PLASTICS, INC.
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held August 14, 2001
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TO THE SHAREHOLDERS OF TRIPLE S PLASTICS, INC.:
A special meeting of shareholders of Triple S Plastics, Inc. will be held at
the Michigan Technical Education Center, in the Amphitheatre, Kalamazoo Valley
Community College, 7107 Elm Valley Drive, Kalamazoo, Michigan 49002, on
Tuesday, August 14, 2001 at 4:00 p.m., local time, for the following purposes:
1. To consider and to vote on a proposal to approve the Amended and
Restated Agreement and Plan of Merger, dated as of May 25, 2001, between
Triple S, Eimo Oyj and a subsidiary of Eimo, under which Eimo's
subsidiary will merge into Triple S, with Triple S surviving as a wholly
owned subsidiary of Eimo. A copy of the amended and restated merger
agreement is attached as Annex A to the proxy statement/prospectus.
2. To act on any other matters that may properly come before the special
meeting and any adjournment or postponement of the special meeting.
The Board of Directors of Triple S has unanimously approved the merger and
the merger agreement and unanimously recommends that Triple S shareholders vote
FOR approval of the merger agreement.
Only shareholders of record at the close of business on July 17, 2001 are
entitled to notice of and to vote at the special meeting and any adjournment or
postponement of the special meeting.
Approval of the merger agreement is a condition of the merger. We will not
complete the merger unless the merger agreement is approved by Triple S
shareholders.
You are cordially invited to attend the special meeting. Whether or not your
plan to attend, please act promptly to vote your shares with respect to the
proposals described above. You may vote your shares by marking, signing and
dating the enclosed proxy card and returning it in the return envelope
provided, which requires no postage if mailed in the United States. If you
attend the special meeting, you may vote your shares in person, even if you
have previously submitted a proxy in writing. If your shares are held in the
name of a bank or broker, you should follow the instructions on the form you
receive from your bank or broker.
By order of the Board of
Directors of Triple S Plastics, Inc.
Daniel B. Canavan
Secretary
July 13, 2001
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT APPROVING THE MERGER.......................... 1
SUMMARY................................................................... 4
The Companies............................................................ 4
The Merger............................................................... 4
Unanimous Recommendation of the Triple S Board of Directors.............. 5
Opinion of Triple S's Financial Advisor.................................. 5
No Appraisal Rights...................................................... 5
U.S. Federal Income Tax Consequences..................................... 6
Liquidity and Registration Rights Agreement.............................. 6
Interests of Members of the Triple S Board of Directors and Management... 6
Comparison of Rights of Holders of Triple S's Common Stock with Rights of
Holders of Eimo Series A Shares......................................... 7
Conditions to the Merger................................................. 7
Termination of the Merger Agreement...................................... 7
Termination Payments..................................................... 8
Accounting Treatment..................................................... 9
Listing of Eimo ADSs and Series A Shares................................. 9
Comparative Market Price Information..................................... 9
Currencies and Exchange Rates............................................ 9
Comparative Historical and Pro Forma per Share Data...................... 10
Selected Historical Financial Data....................................... 11
Selected Unaudited Pro Forma Combined Financial Information.............. 13
RISK FACTORS.............................................................. 15
Risk Factors Relating to the Merger...................................... 15
Risk Factors Relating to Ownership of Eimo ADSs.......................... 16
SPECIAL MEETING OF TRIPLE S SHAREHOLDERS.................................. 25
Date, Time and Place of the Special Meeting.............................. 25
Purpose of the Special Meeting........................................... 25
Record Date for the Special Meeting; Stock Entitled to Vote.............. 25
Vote Required for the Approval of the Merger Agreement; Share Ownership
of Management........................................................... 25
Proxies and Effect on Vote............................................... 26
Submission of Proxies.................................................... 26
Revocation of Proxies.................................................... 26
Solicitation of Proxies.................................................. 27
No Appraisal or Dissenters' Rights....................................... 27
EXTRAORDINARY GENERAL MEETING OF EIMO'S SHAREHOLDERS...................... 27
THE MERGER................................................................ 29
Background of the Merger................................................. 29
Triple S's Reasons for the Merger and Recommendation of the Board of
Directors of Triple S................................................... 34
Eimo's Reasons for the Merger............................................ 35
Considerations of the Eimo Board of Directors............................ 36
Opinion of Triple S's Financial Advisor.................................. 37
Interests of Certain Persons in the Merger............................... 44
Accounting Treatment..................................................... 46
Resales of ADSs.......................................................... 47
Regulatory Approvals Required for the Merger............................. 47
Listing of ADSs/Series A Shares.......................................... 48
Other Effects of the Merger.............................................. 49
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U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER........................ 52
General.................................................................. 52
Cash Received in Lieu of a Fractional Eimo ADS........................... 53
Five Percent Holders..................................................... 53
Backup Withholding....................................................... 53
Tax Consequences to U.S. Holders of Triple S Employee Stock Options...... 54
SUMMARY OF THE MERGER AGREEMENT........................................... 55
Form of the Merger....................................................... 55
Effective Time and Timing of Closing..................................... 55
Consideration to be Received in the Merger............................... 55
Exchange of Certificates Representing Triple S Common Stock.............. 56
Representations and Warranties........................................... 57
Conduct of Business Pending the Merger; Other Actions.................... 58
Offers for Alternative Transactions...................................... 59
Agreement Regarding Recommendations to Shareholders...................... 60
Stock Options and Other Employee Benefits................................ 60
Indemnification and Insurance............................................ 61
Conditions to Each Party's Obligations to Complete the Merger............ 61
Additional Conditions to the Obligations of Eimo......................... 62
Additional Conditions to the Obligations of Triple S..................... 63
Termination and Effects of Termination................................... 63
Termination Payments..................................................... 64
SUMMARY OF THE OTHER MERGER-RELATED AGREEMENTS............................ 66
The Triple S Shareholders' Agreement and the Eimo Shareholders'
Agreement............................................................... 66
The Conversion Agreement................................................. 67
The Employment Agreement................................................. 67
The Liquidity and Registration Rights Agreement.......................... 67
License Agreement........................................................ 67
MARKET PRICE AND DIVIDEND INFORMATION..................................... 68
Eimo Market Prices and Dividend Information.............................. 68
Price per Eimo Series A Share on the Helsinki Stock Exchange............. 68
Triple S Market Prices and Dividend Information.......................... 70
Price per Triple S Share on the NASDAQ National Market................... 70
CURRENCY AND EXCHANGE RATE INFORMATION.................................... 71
Euros per U.S. Dollar.................................................... 71
U.S. Dollars per Euro.................................................... 72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION........................ 73
Notes to the Unaudited Pro Forma Combined Financial Information.......... 77
INFORMATION ABOUT TRIPLE S................................................ 80
Background............................................................... 80
Business................................................................. 81
Markets and Products..................................................... 82
Sales and Marketing...................................................... 83
Operations............................................................... 83
Raw Materials............................................................ 84
Patents and Trademarks................................................... 85
Backlog.................................................................. 85
Competition.............................................................. 85
Employees................................................................ 85
Financial Information About Segments..................................... 85
Financial Information About Geographic Areas............................. 85
Properties............................................................... 85
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Directors of Triple S................................................... 86
Directors' Fees......................................................... 87
Meetings and Committees of the Triple S Board of Directors.............. 87
Compensation Committee Interlocks and Insider Participation............. 87
Triple S Executive Compensation......................................... 87
Certain Relationships and Related Transactions.......................... 89
Legal Proceedings....................................................... 89
TRIPLE S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 90
Results of Operations................................................... 90
Fiscal year ended March 31, 2001 compared to the fiscal year ended March
31, 2000............................................................... 91
Fiscal year ended March 31, 2000 compared to fiscal year ended March 31,
1999................................................................... 92
Liquidity and Capital Resources......................................... 93
Recent Accounting Pronouncements........................................ 93
Quantitative and Qualitative Disclosures About Market Risk.............. 94
OWNERSHIP OF TRIPLE S SECURITIES BY MANAGEMENT AND SIGNIFICANT
SHAREHOLDERS............................................................ 95
DESCRIPTION OF TRIPLE S CAPITAL STOCK.................................... 97
General................................................................. 97
Common Stock............................................................ 97
Preferred Stock......................................................... 97
General................................................................. 97
Limitation of Liability................................................. 99
Transfer Agent.......................................................... 99
INFORMATION ABOUT EIMO................................................... 100
General................................................................. 100
Spartan Acquisition Corp................................................ 100
Competitive Strengths................................................... 100
Business Strategy....................................................... 102
Eimo's Products......................................................... 103
Eimo's Markets.......................................................... 105
Customers............................................................... 105
Competition............................................................. 106
Customer Relationships.................................................. 107
Production.............................................................. 107
Intellectual Property................................................... 111
Raw Materials........................................................... 111
Marketing and Sales..................................................... 112
Eimo's Environmental Policy and Environmental Matters................... 112
Employees............................................................... 113
History of Eimo......................................................... 114
Industry Trends and Business Prospects.................................. 116
Properties.............................................................. 119
Legal Proceedings....................................................... 120
Management and Board of Directors of Eimo............................... 120
Management and Board of Directors Biographies........................... 121
Compensation of the Board of Directors and Executive Management Group of
Eimo .................................................................. 122
Interest of Management in Transactions with Eimo........................ 122
Eimo's Equity Based Compensation Plans.................................. 123
EIMO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 127
General................................................................. 127
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The three month period ended March 31, 2001 compared to the three month
period ended March 31, 1999............................................. 127
The year ended December 31, 2000 compared to the year ended December 31,
1999.................................................................... 129
The year ended December 31, 1999 compared to the year ended December 31,
1998.................................................................... 130
Liquidity and Capital Resources.......................................... 132
Inflation................................................................ 133
Financial Risks.......................................................... 133
Introduction of the Euro................................................. 134
Recent Accounting Pronouncements......................................... 135
TAXATION ON EIMO SERIES A SHARES AND EIMO AMERICAN DEPOSITARY SHARES...... 137
Finnish Taxation......................................................... 137
U.S. Federal Income Taxation............................................. 139
OWNERSHIP OF EIMO SECURITIES BY MANAGEMENT AND SIGNIFICANT SHAREHOLDERS... 143
DESCRIPTION OF EIMO SERIES A SHARES....................................... 144
General.................................................................. 144
Dividends and Other Distributions........................................ 144
Voting Rights............................................................ 145
Issuance of New Shares and Preemptive Rights............................. 146
Authority to Increase Share Capital; Share Issuance Authority, and Share
Repurchase Authority.................................................... 147
Transfers................................................................ 147
Liquidation Rights....................................................... 148
History of Share Capital................................................. 148
Business Purpose......................................................... 148
Redemption Obligations................................................... 149
DESCRIPTION OF EIMO AMERICAN DEPOSITARY SHARES............................ 150
General.................................................................. 150
Dividends and Other Distributions........................................ 150
Issuance of Eimo ADSs upon Deposit of Eimo Series A Shares............... 153
Transfer, Combination and Split Up of Eimo ADRs.......................... 154
Withdrawal of Eimo Series A Shares upon Cancellation of Eimo ADSs........ 154
Voting Rights............................................................ 155
Fees and Charges......................................................... 156
Amendments and Termination............................................... 156
Books of Depositary...................................................... 157
Limitations on Obligations and Liabilities............................... 157
Pre-Release Transactions................................................. 158
Taxes.................................................................... 158
Foreign Currency Conversion.............................................. 158
THE FINNISH SECURITIES MARKET............................................. 159
General.................................................................. 159
The Finnish Book-Entry Securities System................................. 159
Trading and Settlement................................................... 160
Custody of the Shares and Nominees....................................... 160
COMPARISON OF RIGHTS OF TRIPLE S SHAREHOLDERS AND EIMO SHAREHOLDERS....... 161
Voting Rights............................................................ 162
Action by Written Consent................................................ 162
Shareholder Proposals and Shareholder Nominations of Board of Directors.. 163
Sources and Payment of Dividends......................................... 163
Rights of Purchase and Redemption........................................ 164
Issuance of New Shares................................................... 164
Assessability............................................................ 165
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Meetings of Shareholders................................................. 165
Appraisal Rights......................................................... 166
Preemptive Rights........................................................ 167
Amendment of Governing Instruments....................................... 168
Preference Stock......................................................... 169
Shareholders' Votes on Certain Transactions.............................. 170
Rights of Inspection..................................................... 171
Standard of Conduct for Directors........................................ 171
Classification of the Board of Directors................................. 172
Removal of Directors..................................................... 173
Vacancies on the Board of Directors...................................... 173
Liability of Directors and Officers...................................... 174
Indemnification of Directors and Officers................................ 175
Shareholders' Suits...................................................... 175
Takeover Related Provisions.............................................. 176
Disclosure of Interests.................................................. 176
Limitation on Enforceability of Civil Liabilities under U.S. Federal
Securities Laws Ability to Bring Suits, Enforce Judgments and Enforce
U.S. Laws............................................................... 177
Short Swing Profits...................................................... 178
Proxy Statements and Reports, Notices and Reports to Shareholders........ 178
Reporting Requirements................................................... 179
ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS......................... 180
WHERE YOU CAN FIND MORE INFORMATION....................................... 180
EXPERTS................................................................... 181
LEGAL MATTERS............................................................. 181
INDEPENDENT PUBLIC ACCOUNTANT............................................. 181
FINNISH LISTING PARTICULARS AND CIRCULAR.................................. 181
INDEX TO EIMO CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
INDEX TO TRIPLE S CONSOLIDATED FINANCIAL STATEMENTS....................... F-33
ANNEX A--Amended and Restated Agreement and Plan of Merger ............... A-1
ANNEX B--Opinion of Pacific Crest Securities Inc. ........................ B-1
ANNEX C--Articles of Association of Eimo Oyj ............................. C-1
v
QUESTIONS AND ANSWERS ABOUT APPROVING THE MERGER
Q. When will I be asked to approve the merger?
A. Triple S will hold a special meeting of Triple shareholders on Tuesday,
August 14, 2001, at 4:00 p.m., local time, at the Michigan Technical Education
Center, in the Amphitheatre, Kalamazoo Valley Community College, 7107 Elm
Valley Drive, Kalamazoo, Michigan 49002. At the Triple S special meeting, you
will be asked to approve the amended and restated merger agreement.
You can vote at the Triple S special meeting if you owned Triple S common
stock at the close of business on July 17, 2001, the record date for the
special meeting.
Q. What Triple S shareholder vote is required to approve the merger?
A. In order to approve the merger, the merger agreement between Eimo and Triple
S must be approved by the affirmative vote of holders of a majority of the
outstanding shares of Triple S common stock at the special meeting.
As of July 6, 2001, the last date prior to the date of this proxy
statement/prospectus for which information was available, Triple S had
approximately 4,019,352 shares of common stock outstanding. Each share of
Triple S common stock outstanding on the record date entitles its holder to one
vote.
Q. Have any Triple S shareholders already agreed to vote in favor of the
merger?
A. Certain principal shareholders of Triple S, who are also directors and/or
executive officers of Triple S, entered into an agreement with Eimo under which
they agreed to vote all of their shares of Triple S common stock in favor of
the approval of the merger agreement at the special meeting. As of July 6,
2001, these shareholders beneficially owned and were entitled to vote 2,215,538
shares of Triple S common stock, which represented approximately 55.1% of the
shares of Triple S common stock entitled to be voted at the Triple S special
meeting. Accordingly, unless the merger agreement is terminated prior to the
special meeting, the approval of the merger agreement by Triple S shareholders
is, as a practical matter, assured as a result of the agreement by these
shareholders to vote for the approval of the merger agreement. For a
description of this shareholders' agreement and the parties to it, see the
information beginning on page 66.
Q. Must the merger also be approved by Eimo's shareholders?
A. Yes. At an extraordinary general meeting of Eimo's shareholders, Eimo
shareholders will be asked to:
. approve the merger, the waiver of Eimo shareholders' pre-emptive rights,
the issuance of Eimo Series A shares and the creation and issuance of
Eimo ADSs in connection with the merger;
. authorize the Eimo board of directors to issue Eimo options to replace
currently outstanding Triple S options; and
. elect as additional directors of Eimo, effective upon completion of the
merger, Daniel B. Canavan, Chairman of the Triple S board of directors,
and Evan C. Harter, an outside director of Triple S.
Q. What Eimo shareholder vote is required to approve the merger and the other
matters to be voted on at Eimo's extraordinary general shareholder's meeting?
A. The affirmative vote of a majority of holders of the Eimo Series A shares
and Eimo Series K shares by number present and voting as a single class in
accordance with their voting rights is required to approve the merger and to
elect Messrs. Canavan and Harter to the Eimo board of directors. However, the
affirmative vote of holders of two-thirds by number and voting power of the
Eimo Series A shares and the Eimo Series K shares by number present and voting
as a single class at the extraordinary general meeting is required to
1
approve (1) the issuance of Eimo Series A shares and corresponding Eimo ADSs in
the merger, (2) the authorization to grant stock options to replace currently
outstanding Triple S options and (3) the waiver of Eimo shareholders' pre-
emptive rights in connection with the issuance of Eimo Series A shares, Eimo
ADSs and Eimo options in the merger.
Q. Have any Eimo shareholders already agreed to vote in favor of the merger?
A. Certain principal shareholders of Eimo entered into an agreement with Triple
S pursuant to which they agreed to vote all of their Eimo shares in favor of
each of the proposals to be presented at Eimo's extraordinary general meeting,
including the merger. As of July 6, 2001, these shareholders owned and were
entitled to vote 7,751,244 Eimo Series A shares and 7,200,000 Eimo Series K
shares, which represented (1) approximately 83% of the votes entitled to be
voted at the Eimo extraordinary general meeting to approve the merger agreement
and the election of directors and (2) approximately 32% of the votes entitled
to be voted at the Eimo extraordinary general meeting to approve the waiver of
pre-emptive rights and the issuance in the merger of Eimo Series A shares, Eimo
ADSs and Eimo options.
Accordingly, unless the merger agreement is terminated prior to the Eimo
extraordinary general meeting, the approval of the merger agreement and the
election of directors at Eimo's extraordinary general meeting is, as a
practical matter, assured as a result of the agreement by these shareholders.
Eimo and Triple S will not complete the merger, however, if the Eimo
shareholders do not approve all of the proposals presented at Eimo's
extraordinary general meeting, including the waiver of pre-emptive rights and
the issuance in the merger of Eimo Series A shares and options. For a
description of the shareholders' agreement and the parties to it, see the
information beginning on page 66.
Q. What should I do now?
A. We urge you to read this proxy statement/prospectus carefully, including its
annexes, and to consider how the merger affects you. Then, mail your completed
and signed proxy card in the enclosed, postage-paid envelope so that your
shares can be voted at the Triple S special shareholders meeting in accordance
with your instructions on the proxy card. You may also vote in person at the
Triple S special shareholders meeting. If your shares are held in "street name"
by your broker or bank, you should instruct your broker or bank as to how to
vote your shares at the meeting.
Q. May I change my vote?
A. Yes. You may withdraw your proxy or change your vote by delivering a later-
dated signed written notice of revocation or proxy card before the Triple S
special shareholders meeting or by voting in person at the Triple S meeting.
Your attendance at the meeting alone will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow directions received
from your broker to change those instructions.
Q. What will happen if I abstain from voting or fail to vote?
A. An abstention or failure to vote, including by failing to instruct your
broker on how to vote your shares, will have the same effect as a vote against
the merger.
Q. Should I send in my Triple S stock certificates now?
A. No. After we complete the merger, we will send you instructions explaining
how to surrender your Triple S stock certificates in exchange for Eimo ADRs
evidencing your Eimo ADSs.
Q. What do I do if my broker or plan administrator holds my shares in "street
name" and I cannot mail them in?
A. In the event your Triple S shares are held in a "street name," your broker
or bank will surrender the Triple S stock certificates held by it on your
behalf after we complete the merger.
2
Q. Will a broker vote shares without instruction if shares are held in street
name?
A. No. Shares held in street name for which specific instructions are not
received will not be voted.
Q. When is the merger expected to be completed?
A. We are working as quickly as possible and expect to complete the merger
before August 31, 2001. Nevertheless, we cannot predict the exact timing of the
merger.
3
SUMMARY
You should read carefully this entire document and the additional documents
referred to in this document to fully understand the merger. We have included
page references parenthetically to direct you to a more complete description of
the topics presented in this summary.
The Companies (see pages 80 and 100)
Eimo Oyj
Norokatu 5
FIN-15101 Lahti
FINLAND
Telephone Number: 011 358 3 850 5430
Eimo is a manufacturer of precision-engineered plastic parts for the mobile
communications industry. Headquartered in Lahti, Finland, Eimo, together with
its subsidiaries, employs approximately 900 people and has six production
facilities, three in Finland, one in the Netherlands, one in Hungary and one in
the People's Republic of China.
Triple S Plastics, Inc.
7950 Moorsbridge Road
Suite 200
Portage, Michigan 49024
USA
Telephone Number: 616-327-2225
Triple S manufactures complex, highly engineered plastic parts and the molds
to produce such parts. Triple S manufactures these parts and molds primarily
for the telecommunications industry and other technology industries.
Headquartered in Portage, Michigan, Triple S, together with its subsidiaries,
employs approximately 750 full time employees and has manufacturing facilities
in Texas, Michigan, New York, and Brazil.
The Merger (see page 29)
Eimo and Triple S believe that the merger will create an international
manufacturing company that will be better able to supply mobile
telecommunications manufacturers with highly engineered precision plastic parts
and related services and in the long term create a powerful platform for future
growth.
In the merger, a wholly-owned subsidiary of Eimo will merge into Triple S
and, as a result, Triple S will become a wholly-owned subsidiary of Eimo. In
the merger, in exchange for each share of Triple S common stock you own, you
will receive 4.5 Eimo Series A shares in the form of American Depositary
Shares. Eimo will assume Triple S's existing indebtedness and acquire its
existing cash and cash equivalents at the time of the merger. At March 31,
2001, Triple S had total indebtedness of $10.3 million and cash and cash
equivalents of $1 million.
The Eimo Series A shares will be issued to you only in the form of American
Depositary Shares, or ADSs. An Eimo ADS is an American Depositary Share that at
the time of the merger will represent ten Eimo Series A shares, or such lesser
number of Eimo Series A shares as Eimo may elect. The Eimo ADSs will be issued
under the terms of a deposit agreement to allow Triple S shareholders who
reside in the United States to more easily hold and trade interests in Eimo
after the merger. Citibank, N.A. will be the depositary bank for the Eimo ADSs.
As depositary bank, Citibank will issue the Eimo ADSs to you and hold the Eimo
Series A shares represented by the ADSs on your behalf in a safekeeping account
with a custodian bank in Finland that Citibank chooses. The Eimo ADSs will be
evidenced by American Depositary Receipts, or ADRs. ADRs are certificates
similar to stock certificates and, after the merger, will represent your Eimo
Series A shares. The Eimo ADSs issued to you will be subject to certain
restrictions under the deposit agreement. For a description of the Eimo ADSs,
see "Description of Eimo American Depositary Shares."
4
Based on the U.S. dollar equivalent trading price of $1.20 per Eimo Series A
share on July 11, 2001, the latest practicable trading day for which
information was available prior to the date of this document, the 4.5 Eimo
Series A shares to be received upon the surrender of each share of Triple S
common stock in the merger would have a U.S. dollar value of approximately
$5.39 at the time of the merger, using the euro to U.S. dollar conversion rate
of (Euro)1.0 to $0.8611 on that date. You should note, however, that the value
of the Eimo Series A shares you receive in the merger upon the surrender of
your Triple S shares will be higher or lower than the $5.39 value to the extent
that (1) the trading price of the Eimo Series A shares at the time of the
merger is higher or lower than the trading price on July 11, 2001 and (2) the
euro to U.S. dollar conversion rate at the time of the merger is higher or
lower than the conversion rate on July 11, 2001.
In addition, assuming that (1) 4,019,352 shares of Triple S are outstanding
at the time of the merger, and (2) 473,200 additional shares of Triple S are
outstanding at the time of the merger as a result of the exercise of all
outstanding Triple S options prior to the merger, then the number of Eimo
Series A shares that Eimo will issue to Triple S shareholders in the merger
will be 20,216,484, which will represent approximately 30% of the Eimo Series A
shares outstanding immediately after the merger.
Eimo will not issue fractional shares in the merger, and the depositary bank
will not issue fractional Eimo ADSs. As a result, each Triple S shareholder
that otherwise would receive a fractional Eimo ADS in the merger will instead
receive a cash payment equal to (1) the fraction of an Eimo ADS that such
shareholder otherwise would have received in the merger, multiplied by (2)
$1.75, multiplied by (3) ten or such other number of Eimo Series A shares
represented at the time of the merger by a single Eimo ADS. No interest will be
paid on the cash paid in the merger in lieu of issuing fractional Eimo ADSs or
on any dividends or distributions declared or paid on the Eimo ADSs issued in
the merger.
Unanimous Recommendation of the Triple S Board of Directors (see page 34)
On May 24, 2001, after careful consideration, the Triple S board of
directors unanimously determined the merger to be fair to you and in your best
interests. The Triple S board of directors has unanimously approved the merger
agreement and recommends that you vote "FOR" approval of the merger agreement.
Opinion of Triple S's Financial Advisor (see page 37)
Pacific Crest Securities Inc. has delivered its written opinion to the
Triple S board of directors that, as of the date of its opinion, the merger
consideration to be received by the holders of Triple S shares was fair from a
financial point of view to those holders.
The full text of the written opinion of Pacific Crest, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is contained in Annex B. Pacific Crest provided
its opinion for the information and assistance of the Triple S board of
directors in connection with its consideration of the merger. The opinion of
Pacific Crest is not a recommendation as to how you should vote with respect to
the merger agreement. We urge you to read the opinion in its entirety.
No Appraisal Rights (see page 27)
Under Michigan law, you will not have the right to demand an appraisal of
the value of your Triple S shares in connection with the merger.
5
U.S. Federal Income Tax Consequences (see page 52)
Schiff Hardin & Waite, counsel to Triple S, issued an opinion to Triple S on
July 13, 2001 that, on the basis of the facts, representations and assumptions
set forth in the opinion:
. the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code; and
. U.S. Holders who exchange Triple S shares for Eimo ADSs will not
recognize any gain or loss other then in respect of cash received in
lieu of a fractional Eimo ADS, except for any of such shareholders who
will own, actually or constructively, five percent or more of Eimo,
whether in the form of Eimo ADSs or Eimo Series A shares, by vote or
value immediately after the merger, the tax consequences for whom are
described in "U.S. Federal Income Tax Consequences of the Merger -- Five
Percent Holders" beginning on page 53.
We urge you to consult your own tax advisor about your personal tax
situation to be certain of the U.S. federal income tax consequences applicable
to you.
Liquidity and Registration Rights Agreement (see pages 44, 45 and page 67)
As a condition to the merger, Eimo and Messrs. Schauer, Canavan and
Valentine, and Messrs. J. Paananen, E. Paananen, T. Paananen and Ms. Jukko,
will enter into a liquidity and registration rights agreement at closing, which
agreement is designed to facilitate the ability of Messrs Schauer, Canavan and
Valentine to reduce or dispose of their interest in Eimo should they so desire.
Interests of Members of the Triple S Board of Directors and Management (see
page 44)
When considering the recommendation of the Triple S board of directors, you
should be aware that Triple S's directors and officers may have interests in
the merger that are different from, or are in addition to, yours. In
particular:
. Daniel B. Canavan, Chairman of the Triple S board of directors, and Evan
C. Harter, an outside director of Triple S, will each become a director
of Eimo at the time of the merger;
. As a result of the merger, all Triple S stock options held by Triple S
outside directors will immediately vest and become exercisable ten days
prior to the effective time of the merger;
. Triple S's directors and officers will be entitled to the continuation
of insurance coverage and indemnification after the merger with respect
to acts and omissions in their capacities as directors and officers of
Triple S prior to the merger;
. Evan C. Harter, an outside director of Triple S, agreed to assist Triple
S in pursuing strategic alternatives, including the negotiation and
consummation of the merger, in return for $20,000 per month compensation
which commenced April 1, 2000 and continues until the merger is
completed;
. Messrs. Schauer, Canavan and Valentine, each of whom is a director and
senior executive of Triple S, will become parties to a liquidity and
registration rights agreement whereby they will be granted certain
rights to include the Eimo ADSs they receive in the merger in any
registration statement for equity securities filed by Eimo with the SEC
with certain limited exceptions, as well as co-sale rights in connection
with non-U.S. transactions; and
. In connection with the execution of the merger agreement, Mr. Schauer
entered into an employment agreement with Triple S which will become
effective upon completion of the merger.
6
Comparison of Rights of Holders of Triple S's Common Stock with Rights of
Holders of Eimo Series A Shares (see page 161)
As a result of the merger, you will receive Eimo ADSs following the
surrender of your Triple S shares after the merger. Each Eimo ADS will
represent ten Eimo Series A shares. There are numerous differences between the
rights of a shareholder of Triple S, a Michigan corporation, and the rights of
a holder of Eimo ADSs representing Series A shares of Eimo, a Finnish
corporation. For a discussion of some of these differences, see "Comparison of
Rights of Triple S Shareholders and Eimo Shareholders," "Description of Eimo
Series A Shares" and "Description of Eimo American Depositary Shares."
Conditions to the Merger (see page 61)
Eimo's and Triple S's respective obligations to complete the merger are
subject to the satisfaction or waiver of certain conditions, including the
following:
. Approval of the merger by the requisite vote of the shareholders of
Triple S and Eimo;
. All regulatory approvals and all other consents, approvals and
declarations and authorizations of other governmental entities shall
have been obtained, except for those which would not have a material
adverse effect as such term is defined in the merger agreement;
. No law, judgment or order having been enacted or entered, and no
injunction having been issued, by a governmental entity that restrains,
enjoins or otherwise prohibits the completion of the merger;
. The Eimo Series A shares to be issued in the merger having been
authorized for listing on the Helsinki Stock Exchange;
. The Eimo ADSs representing the Eimo Series A shares having been
authorized for listing on the NASDAQ National Market; and
. Schiff Hardin & Waite, counsel to Triple S, shall have issued another
opinion prior to the completion of the merger that the merger will
generally be tax free to Triple S shareholders.
All of the foregoing conditions are waivable under the terms of the merger
agreement, without the further consent of the shareholders of either Eimo or
Triple S, subject to applicable laws.
In particular, under the terms of the merger agreement, Triple S may waive
the condition that it receive Schiff Hardin & Waite's closing tax opinion.
However, Triple S does not currently intend to waive the condition, and, in any
event, will not waive the condition without first:
-- revising and recirculating the proxy statement/prospectus to indicate
that it has waived the condition; and
-- resoliciting the vote of Triple S's shareholders.
Termination of the Merger Agreement (see page 63)
The merger agreement may be terminated at any time before the closing in any
of the following ways:
. by mutual written consent
7
. by Eimo or Triple S, if:
-- the merger is not completed by February 28, 2002, provided that
neither Eimo nor Triple S may terminate the merger agreement if the
failure to complete the merger by that date is caused by the failure
of the company seeking termination to fulfill its obligations under
the merger agreement; or
-- a governmental authority issues a final non-appealable order or
injunction that prohibits the completion of the merger, and Eimo and
Triple S shall have used reasonable best efforts to prevent such
order or injunction from being issued; or
-- the other party breaches, in any material respect, any of its
representations, warranties or covenants contained in the merger
agreement, which, unless cured within 30 days following written
notice of breach from the non-breaching party, would result in
conditions to the merger not being satisfied, and which breach has
not been waived by the non-breaching party; or
-- the other party willfully and materially breaches its obligations
described under "Summary of the Merger Agreement--Offers for
Alternative Transactions" beginning on page 59; or
-- approval of the merger agreement by the shareholders of the other
party shall not have been obtained.
. by Eimo if Eimo receives an offer to engage in a merger, consolidation
or similar transaction or to purchase all or substantially all of Eimo's
shares or assets which further satisfies the conditions described under
"Summary of the Merger Agreement--Offers for Alternative Transactions"
to which Triple S objects; provided, that, Eimo pays the fees and
expenses described below under "--Termination Payments" and under
"Summary of the Merger Agreement--Termination Payments" on page 64.
. by Triple S, if Triple S receives an offer to engage in a merger,
consolidation or similar transaction or to purchase all or substantially
all of Triple S's shares or assets which satisfies the conditions
described under "Summary of the Merger Agreement--Offers for Alternative
Transactions" and Eimo and Triple S are unable to negotiate adjusted
terms for the merger within five business days after the receipt of such
offer which would enable Triple S to proceed with the merger; provided
that, Triple S pays the fees and expenses described below under "--
Termination Payments" and under "Summary of the Merger Agreement--
Termination Payments" on page 64.
Termination Payments (see page 64)
Termination Fees Payable
The terminating party shall pay the non-terminating party a termination fee
of $1.4 million and reimburse the non-terminating party for up to $1 million of
expenses incurred in connection with the merger, if:
. The terminating party terminates the merger agreement pursuant to any of
the termination rights described above under "Termination of the Merger
Agreement." Notwithstanding the foregoing, in the event of a non-willful
breach by the terminating party of its representations, warranties or
covenants giving rise to the termination right as described above, the
terminating party shall only be required to reimburse the non-
terminating party for its expenses up to $1 million.
. The terminating party terminates the merger agreement in connection with
a merger, consolidation, or similar transaction or a purchase of all or
substantially all of the shares or assets of the terminating party as
described under "Summary of the Merger Agreement--Offers for Alternative
Transactions."
8
Additionally, if the terminating party terminates the merger agreement and
consummates a merger, consolidation or similar transaction, or all or
substantially all of the shares or assets of the terminating party are
purchased within one year following its termination of the merger agreement as
described under "Summary of the Merger Agreement--Offers for Alternative
Transactions," the terminating party must pay an additional $0.8 million to the
non-terminating party.
Accounting Treatment (see page 46)
Eimo will account for the merger as a purchase under Finnish Accounting
Standards in accordance with Interpretation No. 1591/1999 by the Finnish
Accounting Board which makes the recording of goodwill optional. As a result,
Eimo will not record goodwill in connection with the merger under Finnish
Accounting Standards. Eimo will account for the merger as a purchase for U.S.
Generally Accepted Accounting Principles purposes in accordance with APB
Opinion No. 16, "Business Combinations." See the "Unaudited Pro Forma Combined
Financial Information" beginning on page 73.
Listing of Eimo ADSs and Series A Shares (see page 48)
Eimo has applied to list the Eimo ADSs you receive in the merger on the
NASDAQ National Market System and anticipates that the Eimo ADS will trade
there under the symbol "EIMO." Eimo Series A shares are traded under the symbol
"EIMAV" on the main market of the Helsinki Stock Exchange. Eimo Series A shares
underlying the Eimo ADSs will be admitted to trading on the Helsinki Stock
Exchange under the same symbol as additional listed shares.
Comparative Market Price Information
The following table presents per share closing market prices as reported on
the NASDAQ National Market for Triple S common stock and the closing price for
the Eimo Series A shares on the Helsinki Stock Exchange on:
. May 23, 2001, the last trading day on the Helsinki Stock Exchange for
Eimo shares, and May 24, 2001, the last trading day on the NASDAQ for
Triple S shares, prior to any public announcement of the reinstatement
of the merger agreement; and
. July 11, 2001, the latest practicable date for which information was
available prior to the date of this document.
The table also presents implied equivalent per share market values for the
Triple S shares on each of those dates by multiplying (1) the price per Eimo
Series A share by (2) the exchange ratio by (3) the closing price of the Eimo
Series A shares on that day, converted into U.S. dollars at the currency
exchange rate for that day published by the Bank of Finland. You should read
the information presented below in conjunction with the "Market Price and
Dividend Information" beginning on page 68.
We urge you to obtain current market quotations for the Triple S shares and
the Eimo Series A shares before making a decision with respect to the merger.
Eimo Triple S Implied value per
Series A share price share price Triple S share
-------------------- ----------- -----------------
May 23/24, 2001....... (Euro)2.11 $7.20 $8.39
July 11, 2001......... (Euro)1.39 $5.49 $5.39
Currencies and Exchange Rates
References in this document to "dollars," "$" or "USD" are to the official
currency of the United States and references to "euros," "EUR" or "(Euro)" are
to the official currency of the European Union's Economic and Monetary Union.
References to "Finnish markka" or "FIM," when used with respect to any time or
period before January 1, 1999 are to the official currency of the Republic of
Finland and, when used with respect to any time or period after January 1, 1999
are to the sub-unit of the euro.
9
Solely for your convenience, this proxy statement/prospectus contains
translations of selected euro amounts into U.S. dollars at specified rates. You
should not take these translations as assurances that the euro amounts
currently represent U.S. dollar amounts or could be converted into U.S. dollars
at the rate indicated or at any other rate, at any time.
In this proxy statement/prospectus, unless otherwise stated, euros have been
translated, solely for your convenience, into U.S. dollars at a rate of $0.8832
per euro, the closing exchange rate as reported by the Bank of Finland on March
31, 2001. On July 11, 2001, the latest practicable date for which exchange rate
information was available before the date of this proxy statement/prospectus,
the closing exchange rate in Finland as reported by the Bank of Finland was
$0.8611 per euro.
The period end, average and range of high and low U.S. dollar/euro exchange
rates for the years 1996 through 2000 and for specified periods during the year
2001 through the most recent practicable date are presented in the section
entitled "Currency and Exchange Rate Information" beginning on page 71.
Comparative Historical and Pro Forma per Share Data
The following tables present unaudited historical and pro forma per share
data that give effect to the completion of the merger based upon the historical
financial statements of Triple S and Eimo. The pro forma data is not indicative
of the results of future operations or the actual results that would have
occurred had the merger been consummated at the beginning of the periods
presented. You should read the data presented below together with the
historical consolidated financial statements, including applicable Notes, of
Eimo, which are included in this document beginning on page F-1, and of Triple
S, which are included in this document beginning on page F-34.
Historical figures for Eimo and Triple S are for the fiscal years ended
December 31, 2000 and March 31, 2001, respectively, and for the three month
periods ended March 31, 2001. For a description of the basis used in
calculating historical and pro forma data in the following two tables, see "--
Selected Unaudited Pro Forma Combined Financial Information, Basis of
Presentation" on page 13 of this document.
The pro forma per share data is based on 17,163,761 Eimo Series A shares
assumed to be issued in the merger, based upon 3,814,169 Triple S shares
outstanding on March 31, 2001 multiplied by the exchange ratio of 4.5. Solely
for your convenience, Eimo pro forma amounts have been translated into U.S.
dollars at the exchange rates of (Euro)1.00=$0.8832, the closing rate at March
31, 2001.
10
The tables include historical and pro forma dividend information. For a
description of Eimo's ability to declare future dividends, see "Description of
Eimo Series A Shares--Dividends and Other Distributions" on page 144 of this
document.
Equivalent Per
Historical Share(1)
----------------------------------- ----------------- Pro Forma
Eimo Triple S Triple S Combined
As of and for the As of and for the As of and for the As of and for the
fiscal year ended fiscal year ended fiscal year ended fiscal year ended
December 31, 2000 March 31, 2001 March 31, 2001 December 31, 2000
----------------- ----------------- ----------------- ------------------
(Euro) $ $ (Euro) $
(unaudited)
Amounts under U.S.
Generally Accepted
Accounting Principles
Earnings per share
Basic.................. 0.18 1.29 0.29 0.26 0.23
Diluted................ 0.18 1.08 0.24 0.24 0.21
Dividends............... 0.25 -- -- -- --
Book value.............. 1.17 10.27 2.28 -- --
- --------
(1) Equivalent per share data for Triple S, based on the exchange ratio of 4.5
Eimo Series A shares per Triple S share.
Equivalent Per
Historical Share(1) Pro Forma
------------------------------------- ------------------ Combined
Eimo Triple S Triple S As of and for the
As of and for the As of and for the As of and for the three months ended
three months ended three months ended three months ended March 31,
March 31, 2001 March 31, 2001 March 31, 2001 2001
------------------ ------------------ ------------------ ---------------------
(Euro) $ $ (Euro) $
(unaudited)
Amounts under U.S.
Generally Accepted
Accounting Principles
Earnings (loss) per
share
Basic.................. (0.02) (0.36) (0.08) (0.01) (0.01)
Diluted................ (0.02) (0.36) (0.08) (0.01) (0.01)
Dividends............... -- -- -- -- --
Book value.............. 1.19 10.27 2.28 -- --
- --------
(1) Equivalent per share data for Triple S, based on the exchange ratio of 4.5
Eimo Series A shares per Triple S share.
Selected Historical Financial Data
The following tables set forth:
. selected audited historical financial data for Eimo for each of the last
five fiscal years ended December 31, 2000, which has been derived from,
and should be read in conjunction with, Eimo's audited consolidated
financial statements, including those financial statements included in
this document beginning on page F-1;
. selected unaudited historical financial data for Eimo for the three
months ended March 31, 2000 and 2001, which has been derived from, and
should be read in conjunction with, Eimo's unaudited consolidated
financial statements included in this document beginning on page F-3;
and
11
. selected audited historical financial data for Triple S for each of the
last five fiscal years ended March 31, 2001, which has been derived
from, and should be read in conjunction with, Triple S's audited
consolidated financial statements, including those financial statements
included in this document beginning on page F-34.
The unaudited Eimo consolidated financial data reflects, in the opinion of
Eimo's management, all normal recurring adjustments considered necessary by
Eimo for a fair presentation of such results. Eimo's results of operations for
its three month period ended March 31, 2001 are not necessarily indicative of
the results which may be expected for its full fiscal year.
All balances prior to January 1, 1999 have been restated from Finnish markka
into euros using the conversion rate as of January 1, 1999. See Note 1 to the
Eimo consolidated financial statements.
Per share amounts for Eimo for 1999 and prior years have been restated to
reflect Eimo's one hundred-for-one and four-for-one stock splits effected on
February 22, 1999 and April 12, 2000, respectively.
Eimo reports in accordance with Finnish Accounting Standards and Triple S
reports in accordance with U.S. Generally Accepted Accounting Principles. The
significant differences between Finnish Accounting Standards and U.S. Generally
Accepted Accounting Principles that are relevant to Eimo's consolidated
financial statements are discussed in Note 17 to Eimo's historical consolidated
financial statements.
Eimo
As of and for the
As of and for the fiscal year ended three months ended
December 31, March 31,
--------------------------------------------- -----------------------
1996(1) 1997(1) 1998 1999 2000 2000 2000 2001 2001
------- ------- ------ ------ ------- ------ ------ ------- -------
(Euro) (Euro) (Euro) (Euro) (Euro) $ (Euro) (Euro) $
(in thousands, except per share data) (unaudited)
Finnish Accounting
Standards
Sales................... 18,129 22,353 59,630 78,011 105,530 93,204 18,958 26,954 23,806
Net profit (losses)..... (542) 1,160 10,398 13,583 8,779 7,754 1,997 (352) (311)
Earnings (loss) per
share--basic........... (0.01) 0.03 0.22 0.29 0.19 0.17 0.04 (0.01) (0.01)
Earnings (loss) per
share--diluted......... (0.01) 0.03 0.22 0.29 0.19 0.17 0.04 (0.01) (0.01)
Total assets............ 21,945 26,762 45,939 71,146 102,065 90,146 75,636 110,064 97,209
Long-term debt.......... 9,636 8,025 10,289 157 16,107 14,226 216 26,654 23,541
Dividends per share..... 0.00 0.00 0.03 0.25 0.07 0.06 -- -- --
U.S. Generally Accepted
Accounting Principles
Net sales............... 59,630 78,011 105,530 93,204 18,958 26,954 23,806
Net income.............. 10,660 14,295 8,526 7,530 2,000 1,056 933
Earnings per share--
basic.................. 0.27 0.32 0.18 0.16 0.04 0.02 0.02
diluted................ 0.27 0.32 0.18 0.16 0.04 0.02 0.02
Total assets............ 50,295 75,453 106,546 94,101 80,286 116,440 102,840
Long-term debt.......... 10,289 157 7,401 6,536 216 17,366 15,337
Dividends per share..... -- 0.03 0.25 0.22 -- -- --
- --------
(1) The historical financial data as of and for the years ended December 31,
1996 and 1997 include the consolidated financial position and consolidated
results of operations solely for Eimo's injection molding business, as
described in Note 1 to Eimo's consolidated financial statements.
12
Triple S
As of and for the fiscal year ended
March 31,
------------------------------------
1997 1998 1999 2000 2001
------ ------ ------ ------ -------
(U.S. $ in thousands, except per
share data)
U.S. Generally Accepted
Accounting Principles
Net sales................................. 64,608 67,414 67,772 95,102 155,168
Net income (loss)......................... 1,329 1,597 (1,052) 2,771 4,860
Earnings (loss) per share--basic.......... 0.36 0.43 (0.28) 0.74 1.29
Earnings (loss) per share--diluted........ 0.36 0.43 (0.28) 0.66 1.08
Total assets.............................. 48,870 50,030 50,809 51,486 67,255
Long-term debt............................ 7,251 6,603 6,862 4,618 7,706
Dividends per share....................... -- -- -- -- --
Selected Unaudited Pro Forma Combined Financial Information
We are providing the following pro forma combined financial information to
give you a better understanding of what the results of operations and financial
position of Eimo might have looked like had the merger occurred on an earlier
date. This information is provided for illustrative purposes only and does not
show what the results of operations or financial position of Eimo would have
been if the merger had actually occurred on the dates assumed. This information
also does not indicate what Eimo's future operating results or combined
financial position will be.
Please see "Unaudited Pro Forma Combined Financial Information" beginning on
page 73 for a more detailed explanation of this analysis.
Basis of Presentation
The unaudited pro forma combined financial information gives pro forma
effect to the merger, after giving effect to the pro forma adjustments
described in the notes to the unaudited pro forma combined financial
information. Eimo will account for the merger as a purchase under both Finnish
Accounting Standards and U.S. Generally Accepted Accounting Principles. The pro
forma presentation reflects U.S. Generally Accepted Accounting Principles
purchase accounting. The unaudited pro forma combined balance sheet at March
31, 2001 gives effect to the merger as if the transaction had occurred on
March 31, 2001. The unaudited pro forma combined income statement for the year
ended December 31, 2000 gives effect to the merger as if the transaction had
occurred on January 1, 2000.
The unaudited pro forma combined financial information is based on the
audited and unaudited historical consolidated financial statements of Eimo and
Triple S, which are prepared in accordance with the Finnish Accounting
Standards and U.S. Generally Accepted Accounting Principles, respectively. The
consolidated historical financial statement information of Eimo for the year
ended December 31, 2000 was derived from the audited financial statements of
Eimo which are included in this document. The consolidated historical balance
sheet information of Triple S was derived from the audited financial statements
of Triple S as of March 31, 2001. The consolidated historical income statement
information of Triple S for the twelve months ended December 31, 2000 was
derived by adding the unaudited income statement information of Triple S for
the nine months ended December 31, 2000 to the unaudited income statement
information of Triple S for the three months ended March 31, 2000. The
unaudited income statement information of Triple S for the three months ended
March 31, 2000 was derived by subtracting the unaudited income statement
information of Triple S for the nine months ended December 31, 1999 from the
audited income statement information of Triple S for the fiscal year ended
March 31, 2000.
13
The unaudited pro forma combined financial information is based on the
audited and unaudited historical consolidated financial statements of Eimo and
Triple S, which are prepared in accordance with Finnish Accounting Standards
and U.S. Generally Accepted Accounting Principles, respectively. The
consolidated historical financial statement data of Eimo as of and for the
three month period ended March 31, 2001 is derived from the unaudited financial
statements of Eimo which are included in this document. The consolidated
historical balance sheets of Triple S were derived from the audited financial
statements as of March 31, 2001 which are included in this document. The
consolidated historical income statements of Triple S for the three month
calendar period ended March 31, 2001 were derived by subtracting the unaudited
income statement information of Triple S for the nine months ended December 31,
2000 from the audited income statement information of Triple S for the year
ended March 31, 2001.
Finnish Accounting Standards differ in several respects from U.S. Generally
Accepted Accounting Principles. The unaudited pro forma financial information
for Eimo has been adjusted to U.S. Generally Accepted Accounting Principles for
all periods presented. Note 17 to Eimo's 2000 audited historical consolidated
financial statements provides a description of the principal differences
between Finnish Accounting Standards and U.S. Generally Accepted Accounting
Principles as applied to Eimo.
Selected Unaudited Pro Forma Combined Financial Statement Data
For the As of and for the
fiscal year ended three-month period ended
December 31, 2000 March 31, 2001
----------------- --------------------------
(Euro) $ (Euro) $
(in thousands, except per share data)
Net sales....................... 259,977 229,611 67,180 59,334
Net income (loss)............... 16,376 14,463 (428) (378)
Earnings (loss) per share--
basic.......................... 0.26 0.23 (0.01) (0.01)
Earnings (loss) per share--
diluted........................ 0.24 0.21 (0.01) (0.01)
Total assets.................... -- -- 194,226 171,541
Long-term debt.................. -- -- 25,820 23,437
14
RISK FACTORS
In addition to the other information contained in this document, you should
consider carefully the following factors in evaluating the merger agreement and
Eimo and its business.
Risk Factors Relating to the Merger
If we do not achieve the expected benefits from the merger, the earnings of
the combined company will suffer and the value of the Eimo ADSs may be
adversely affected.
We expect that the merger will result in revenue enhancement and other
benefits to the combined company. We also expect to realize the benefits we
describe below under "The Merger--Eimo's Reasons for the Merger" on page 35 of
this document. However, the merger involves the integration of two companies
that have previously operated independently and have geographically dispersed
operations. As a result, the merger will present challenges to management,
including:
. the integration of the operations, technologies and personnel of Triple
S and Eimo, and
. special risks, including
-- possible unanticipated liabilities,
-- unanticipated costs, diversion of management attention, and
-- loss of personnel
Eimo may not be able to successfully integrate or profitably manage Triple
S's business. Following the merger, the business of the combined company may
not achieve, or achieve as quickly as anticipated, expected sales levels,
profitability or cost savings, and the merger may not be accretive to earnings
in any future periods. If the expected benefits are not realized, it could have
a material adverse effect on the combined company's earnings and the value of
the Eimo ADSs.
You are being offered a fixed number of Eimo Series A shares for each share of
Triple S common stock you surrender in the merger, which exposes you to the
risk of market fluctuation.
You are being offered a fixed number of Eimo Series A shares in the merger,
rather than a number of Eimo Series A shares with a fixed market value.
Consequently, the market value of the Eimo ADSs, in which form the Eimo Series
A shares will be issued, may decrease significantly between the time of the
proxy statement/prospectus, the date of the Triple S special meeting and the
time of the completion of the merger. The market value of the Eimo ADSs to be
issued to you in the merger may thereafter fluctuate significantly from the
values indicated in this proxy statement/prospectus.
The value of the Eimo ADSs and the value of the underlying Eimo Series A
shares to be issued in the merger will fluctuate and will depend on, among
other things, the market price of the Eimo Series A shares, currency exchange
rates and the exchange ratio for the merger as specified in the merger
agreement. The market price of the Eimo ADSs and the underlying Eimo Series A
shares to be issued in the merger may vary as a result of, among other things,
changes in the business, operations or prospects of Eimo or Triple S or market
assessments of the impact of the merger. In addition, the stock markets have
recently experienced significant price and volume fluctuations, which could
have an adverse effect on the trading price of Eimo Series A shares prior to
the merger.
In addition, the exchange of certificates evidencing your Triple S shares
for Eimo ADRs evidencing the Eimo ADSs will not take place immediately upon
completion of the merger. Thus, the value of the Eimo ADSs you receive in the
merger may be lower or higher at the time you actually receive them, and become
able to sell them, than at the time of the merger.
15
The market price of the Triple S common stock may be subject to downward
pressure for a period of time as a result of sales of Triple S common stock.
Similarly, the market price of the Eimo ADSs and Eimo Series A shares after the
merger may be subject to downward pressure for a period of time as a result of
sales of Eimo ADSs by former Triple S shareholders.
In connection with the merger, shareholders of Triple S may sell, prior to
the merger, a significant number of shares of Triple S common stock, or, after
the merger, the Eimo ADSs they will receive in the merger. Such sales could
adversely affect the market price for the Triple S common stock prior to the
merger and the market price for Eimo ADSs and Eimo Series A shares for a period
of time after completion of the merger. Shareholders of Triple S who may sell
shares in connection with the merger include:
. such U.S. mutual funds, state pension funds and other investors who are
not permitted to hold equity securities of non-U.S. companies; and
. directors and officers of Triple S who hold Triple S common stock, stock
issuable upon the exercise of currently vested options and stock
issuable upon the exercise of options vesting upon, or in connection
with, the completion of the merger. As of July 6, 2001, the last date
for which this information is available, these persons held an aggregate
of approximately 2,303,291 shares of Triple S common stock and options
to acquire 427,200 shares of Triple S common stock. Assuming the merger
is completed by September 30, 2001, approximately 390,200 of these
options are expected to be fully vested and immediately exercisable upon
the completion of the merger.
Certain members of Triple S management have potential conflicts of interest in
recommending that you vote for the approval of the merger.
A number of directors of Triple S who have recommended that you vote in
favor of the approval of the merger have entered into employment agreements or
will receive benefits in connection with the merger that will provide them with
interests in the merger that differ from yours. Following the completion of the
merger, Daniel B. Canavan, Chairman of the Triple S board of directors and Evan
C. Harter, an outside director of Triple S, each will become directors of Eimo.
In addition A. Christian Schauer, Chief Executive Officer and a director of
Triple S has entered into an employment agreement with Triple S that will
become effective upon the completion of the merger.
The receipt of compensation or other benefits in the merger, including the
vesting of stock options, or the receipt of liquidity and registration rights
after completion of the merger, may influence these directors in making their
recommendation that you vote in favor of the approval of the merger. See "The
Merger--Interests of Certain Persons in the Merger" on page 44 of this
document.
Risk Factors Relating to Ownership of Eimo ADSs
The combined company will be dependent on certain key customers. The loss of
one such customer, Nokia Mobile Phones, would have a material adverse effect on
the combined company's results of operations and financial condition.
Revenues for both Eimo and Triple S are dependent upon the expenditures of a
small number of key customers, a number of which are common customers. Based on
the pro forma financial statements contained in this proxy
statement/prospectus, the largest customer of the combined company, Nokia
Mobile Phones, would have accounted for approximately 70% of the combined
company's revenues in calendar 2000 on a pro forma basis. We expect that this
customer concentration both with Nokia and with the mobile communications
industry will continue for the foreseeable future and may increase as the
combined company focuses on providing services to the mobile communications
industry.
Our dependence on Nokia as our key customer may increase for several
reasons:
. as part of our business strategy, we expect to continue to focus on the
mobile communications industry. While we will also seek business from
other similar industries which provide opportunities for growth, such
industries may not grow to the size of the mobile communications
industry or at rate similar to such industry. We also may not be
successful in our efforts in obtaining business from such other
industries;
16
. if Nokia gains market share from other mobile communications
manufacturers and those gains are from our other customers, our sales
concentration may be expected to increase; and
. the mobile communications equipment industry appears to be consolidating
which could result in a decision by one or more of our other mobile
communications customers to leave the market.
Our customer relationships are not based upon long term contracts, and our
customers, including the principal customer of the combined company, may
discontinue purchases of our products upon short notice.
Nokia announced on February 2, 2001 that it will shift a portion of its
mobile phone manufacturing from its facilities in Texas to its facilities in
Korea and Mexico. In connection therewith, Nokia shifted production of most of
the plastic injection-molded components for a significant existing program away
from Triple S's Ft. Worth, Texas facility to facilities located outside of the
United States run by other third party manufacturers. While Triple S was able
to continue to manufacture certain of the components through its Brazilian
joint venture, the loss of production of most of the components relating to the
program is expected to have a significantly adverse impact on Triple S's
results of operations in fiscal 2002. Eimo is, and the combined company will
be, subject to the same risks of the loss of business on short notice, whether
as a result of changes in the global demand for mobile phones or otherwise. See
"Information about Triple S--Business" beginning on page 81 of this document.
The future effect of the loss of certain business from the principle
customer of Triple S on the combined company still are not entirely certain.
The impact on the combined company of the loss of business by Triple S
described above will be dependent on:
. the extent to which production of mobile phones by the combined
company's principal customer which is shifted to Korea and Mexico
represents a net loss of existing sales;
. the extent to which the types of phones, the production of which is
shifted by the combined company's principal customer to Korea and
Mexico, includes phones for which Triple S currently produces plastic
parts;
. the extent to which the combined company either continues or increases
its role as a supplier to such customer's Korean and Mexican facilities;
and
. the impact of less rapid growth in the mobile communications market, in
general, on production by the combined company's principal customer in
Texas, Korea and Mexico and in the volume of orders awarded to the
combined company.
Eimo's success is dependent on continued growth in the mobile
telecommunications markets, and its revenues will be reduced if there are
reductions in such growth.
The revenues of Eimo and Triple S are heavily dependent on customers in the
mobile telecommunications industry. We expect that this will be true for the
combined company for the foreseeable future. The mobile telecommunications
industry has experienced a dramatic rate of growth both in the United States
and internationally. If the rate of growth materially slows or if the combined
company experiences negative growth, Eimo's business and results of operations
could be adversely affected. Although sales of mobile phones and other mobile
communications devices generally grew industry wide in 2000, the growth was
less than anticipated both in published estimates by some of such companies and
generally by industry analysts. Furthermore, recently reported results for many
manufacturers of mobile communications equipment did not meet anticipated
profit margins. Eimo has been subject to these industry wide trends in 2000 and
the combined company will likewise be subject to such trends. Even if sales by
Eimo's major customers remain strong, Eimo's results of operations may be less
than Eimo's management anticipates if sales to other customers do not grow or
grow slower than anticipated. Similarly, unfavorable market reaction to the
mobile communications industry in general or the results of operations reported
by Eimo's customers may cause a corresponding decline in the market price for
Eimo securities.
17
The slowdown in global demand for mobile phones may adversely affect our
sales, profit as a percent of sales and profits per production unit.
Published releases by Nokia, Motorola, Ericsson and industry analysts now
estimate the global market for mobile phones in 2001 will be substantially less
than has been previously estimated, even in recent months. See "Information
about Eimo--Industry Trends and Business Prospects" beginning on page 116 of
this proxy statement/prospectus. Estimates for the global market for 2001 by
various telecommunications companies and analysts have decreased from high
estimates for 2001 of 650 million phones to new low estimates of 380 million
phones. Currently, Nokia estimates the global market will reflect very modest
growth from 2000, for which Nokia estimates the global market for mobile phones
was 405 million. The combined company's sales could be adversely affected by
one or more of the following scenarios resulting from the slowdown in global
demand, all of which could lead to lower sales and reduced profits for the
combined company.
. First, global sales of mobile phones could be less than expected and the
sales impact could affect the combined company's customers and their
sales orders to the combined company proportionately.
. Second, the combined company's customers in the mobile communications
industry might not gain market share or, even if they gain market share,
such customers might order plastic parts from suppliers other than the
combined company.
. Third, the combined company's customers could outsource existing or new
phone production to third party manufacturers who, in turn, either do
not outsource the production of plastic parts or who might outsource
such production to someone other than the combined company.
. Fourth, one or more of the combined company's smaller mobile
communications customers could choose to exit the mobile phone market
entirely, resulting in a loss of sales.
. Fifth, the combined company could be subject to continued sales and
pricing pressure for one or more reasons, including customer attempts to
lower costs or to gain market-share, excess inventory held by
manufacturers and retailers of mobile phones or continued excess
production capacity, especially in Europe. One or more of these factors
could adversely affect the combined company's sales through lost or
lower sales or result in lower margins or lower profits per production
unit.
. Sixth, lower sales could adversely affect production efficiencies
leading to increased unit product costs due to the absence of economies
of scale and the spreading of fixed costs over a lower total base of
sales, resulting in lower margins and profits. The profitability of the
combined company's operations will continue to be significantly
sensitive to changes in production volume.
Our sales could be adversely affected by low replacement rates for mobile
phones.
One of the factors affecting the sales of mobile communications devices and,
hence, the sale of plastic parts for those devices, is the rate at which
consumers replace their existing mobile phones with new mobile phones. The
replacement rate is especially important in markets where a substantial number
of people already own mobile phones, such as Europe and, to a lesser extent,
the United States. Historically, the primary factors behind the sales of
replacement mobile phones have been functional and technological upgrades, such
as smaller, more light weight phones with longer battery lives and, to a lesser
extent, styling and other similar aesthetic considerations. The percentage of
historical global sales of mobile phones attributable to sales of replacement
phones is unknown and estimates by manufacturers and industry analysts vary
with respect to the percentage of total global sales attributable to sales of
replacement phones. For calendar 2000, Nokia estimated that sales of
replacement phones constituted 40% of its estimate of total global sales of
mobile phones. Estimates for replacement rates published by manufacturers such
as Nokia and Motorola and by industry analysts vary substantially from 38% to
50% for 2001, and Eimo is unable to predict what the actual rate will
ultimately be either for 2001 or afterward. Lower sales could have a material
adverse effect on our results of operations or financial condition. See
"Information about Eimo--Industry Trends and Business Prospects" beginning on
page 116 of this proxy statement/prospectus.
Delays in the adoption of a single next generation global communications
standard for mobile phones, as well as delays in the development and production
of mobile phones employing a next generation data
18
processing technology, which would give users the ability to easily receive and
send data, in addition to voice transmissions, could result in decreases in
anticipated replacement rates of mobile phones which, in turn, would lead to
lower sales by the combined company.
Additionally, consumer demand for a single global communications standard
and especially for data transmission may be less than it is generally believed
to be, either globally or in one or more significant markets. In such event,
estimates for replacement rates could prove to be too high and sales of mobile
phones and plastic parts for those phones could decrease.
Eimo's growth strategy depends in part on making successful acquisitions or
mergers and the failure to make successful acquisitions or mergers could have a
negative impact on its competitiveness. Additional acquisitions may expose Eimo
to new liabilities.
As part of its strategy, Eimo will seek further growth through acquisitions
of, or mergers with, other companies engaged in the same or similar lines of
business to stay competitive with its increasingly larger competitors or to
enhance its position in its core areas of operation. This strategy entails
risks that could negatively affect Eimo's results of operations or financial
condition. These risks include:
. unidentified liabilities of the companies Eimo may acquire or merge
with;
. the possible inability to successfully integrate and manage acquired
operations and personnel;
. the potential failure to achieve the economies of scale or synergies
sought; and
. the diversion of management's attention away from other ongoing business
concerns.
In addition, Eimo may not be able to identify attractive acquisition or
merger opportunities and might not be able to make acquisitions or mergers on
attractive terms. Regulation of merger and acquisition activity by the European
Union, the United States or other countries might also limit Eimo's ability to
make future acquisitions or enter into mergers. Eimo might also be required to
record significant amortization expenses related to goodwill or other
intangible assets in connection with possible future acquisitions.
Significant capital investments may be necessary to achieve Eimo's growth
plans, which may reduce earnings and negatively affect the value of your Eimo
ADSs.
Eimo's growth plans may require significant capital investments, in
particular, in relation to any major acquisitions that Eimo may undertake in
the future. Eimo's ability to meet these capital requirements depends on
numerous factors such as the availability of funds from operations and access
to additional debt and equity financing. No assurance can be given that the
necessary funds will be available. Moreover, incurrence of additional debt
financing may involve restrictive covenants that could negatively affect Eimo's
ability to operate the combined business in the desired manner, and raising
additional equity may be dilutive to shareholders. The failure to obtain funds
necessary for the realization of Eimo's growth plans could prevent Eimo from
realizing its growth strategy and, in particular, could force Eimo to forgo
acquisition opportunities that may arise in the future. This could, in turn,
have a negative impact on Eimo's competitive position.
Eimo must keep pace with rapid technological change, market conditions and
industry developments to maintain or grow its revenues.
The product markets of Eimo's customers are characterized by rapid change
and technological improvements. Eimo's future success will depend in part on
its ability to enhance its current product offerings to keep pace with
technological developments and to address increasingly sophisticated customer
needs. Eimo may not be successful in developing and marketing in a timely
manner products that respond to the technological advances by others, and
Eimo's products may not adequately or competitively address the needs of the
changing marketplace.
19
Eimo's operating results may suffer because of competition in the precision
plastics industry.
The precision plastics industry is highly competitive and is served by
numerous companies. Some of these competitors may have equal or significantly
greater financial, technical and marketing resources, generate greater revenues
and have greater name recognition and international experience than Eimo. Eimo
believes that the principal competitive factors in its market include
integrated operations, short lead-time mold delivery, product quality, pricing
and expertise in new and evolving technologies. Eimo may not be able to compete
effectively on these or other bases, and, as a result, Eimo may not be able to
maintain its current customer relationships or develop new customer
relationships.
Eimo may not be able to hire or retain a sufficient number of qualified
personnel to sustain its growth.
Eimo's future success will depend on its ability to attract and retain
additional highly skilled technical personnel. Highly skilled employees in both
Europe and the United States are in great demand. Competition for such
personnel is intense, and Eimo may be unable to attract sufficiently qualified
individuals in adequate numbers to meet the demand for its services. An
inability to hire an adequate number of individuals could limit Eimo's ability
to take on additional projects.
Exchange rate fluctuations may have a significant adverse impact on Eimo's
financial results.
As a consequence of the increasing internationalization of its business,
Eimo from time to time will be exposed to risks associated with changes in
foreign currency exchange rates which may have an adverse effect upon Eimo's
financial condition and operating results. Currency risk exposure will
primarily affect Eimo's operations to the extent its sales or capital
expenditures are denominated in currencies other than those in which Eimo
incurs manufacturing costs. A significant portion of the sales of the combined
company will be denominated in currencies other than the euro, consisting
primarily of the U.S. dollar. Certain production machinery and components
historically have been sourced and may be expected to continue to be sourced
under contracts denominated in currencies other than the euro, especially in
Japanese yen and, accordingly, are subject to currency exchange risks. In
addition, Eimo's reported earnings may be affected by fluctuations between the
euro, its reporting currency from the beginning of 1999, and the non-euro
currencies in which Eimo's various subsidiaries, including Triple S after the
merger, report their results of operations when results of operations are
translated into euros. In addition, appreciation of the euro compared with the
U.S. dollar would reduce the competitiveness of the products Eimo produces in
Europe against imports from the United States. The increased competition could
lead to lower sales and earnings. Furthermore, the euro value of Eimo's sales
and earnings in U.S. dollars would be reduced. As a result, currency exchange
rate fluctuations between the euro and other currencies, such as the U.S.
dollar, may have a material adverse effect upon Eimo's financial condition or
results of operations in the future.
Eimo may face high costs for compliance with and clean-up under environmental
laws and regulations, which would reduce profit margins and earnings.
Eimo is subject to various environmental laws and regulations in the
jurisdictions in which it operates, governing, among other things, different
forms of production discharges and emissions. The risk of substantial
environmental costs and liabilities is inherent in industrial operations,
including the plastic parts industry. Eimo could incur significant costs and
liabilities in the future including those resulting from the adoption of
increasingly strict environmental laws, regulations and enforcement policies
which might result in substantially increased costs and liabilities in the
future. Higher regulatory, environmental and similar costs would reduce Eimo's
profit margins and earnings. Eimo does not have insurance coverage for
environmental liabilities and does not anticipate obtaining coverage in the
future.
Power shortages in Brazil could curtail or shut down production at the
combined company's Brazilian operations.
In response to a shortage of electrical power, Brazil has ordered a ban on
new connections to the national power grid and an immediate reduction of 25% in
electrical consumption by companies and other non-residential users of
electricity. Violators face termination of their electrical service and fines.
20
The current power shortage in Brazil is partly caused by a two-year drought.
More than 90% of Brazil's electricity is generated from hydroelectric dams and
water reserves which are not sufficient to meet historical power requirements.
The power shortage could adversely affect production at Brazilian operations
for the combined company's customers or the combined company and could
adversely affect the plans of the combined company to increase production in
Brazil, all of which could have an adverse effect on the sales, results of
operations or profitability of the combined company.
The value of Eimo's investments in countries outside of Western Europe and
North America may be adversely affected by political, economic and legal
developments in these countries.
Eimo has manufacturing operations in countries outside of Western Europe and
North America, including Hungary and, the People's Republic of China and Triple
S is expanding its operations into Brazil. The political, economic and legal
systems in these countries may be less predictable than in countries with more
developed institutional structures. Political or economic upheaval, changes in
laws and other factors may have a material effect upon Eimo's operations in
these countries and, in turn, the amount of income from, and the value of, the
investments Eimo has made in relation to its operations in such countries. The
more significant risks of operating in emerging market countries arise from the
establishment or enforcement of foreign exchange restrictions, which could
effectively prevent Eimo from receiving profits from, or from selling its
investments in, these countries. Some of these countries in which Eimo operates
have imposed foreign exchange controls in the recent past and it is possible
that these controls could be reinstituted in the future.
Eimo's business operations could be significantly disrupted if it loses
members of its management team.
Eimo believes that its success depends to a significant degree upon the
continued contributions of its executive officers and other key personnel, both
individually and as a group. Eimo's future performance will be substantially
dependent on its ability to retain and motivate them. The loss of the services
of any of Eimo's executive officers, particularly Heikki Marttinen, President
and Chief Executive Officer of Eimo, could prevent the combined company from
executing its business strategy.
Eimo is a supplier of parts rather than end products. Accordingly, Eimo's
success is dependent on the outsourcing by its customers of the design,
engineering and manufacture of plastic parts for its current revenues and
future growth.
If existing outsourcing from Eimo's current customers was stopped, Eimo's
business, including its results of operations and financial condition, would be
adversely affected. Furthermore, Eimo's growth is dependent on the continued
trend by original equipment manufacturers, particularly in the mobile
telecommunications industry, to outsource their manufacturing needs for plastic
and related parts. If original equipment manufacturers or companies providing
them with assembled products were to perform more manufacturing services
themselves, Eimo's revenues may decline and its business and results of
operations would be harmed.
Consumer preferences or technological advances could reduce the utilization of
precision molded injection plastics by the mobile communications industry which
would have an adverse effect on Eimo.
As mobile phones become more of a mass market consumer item, consumer trends
and preferences likely will have an increased influence on the choice of
materials utilized in the manufacture of phones. For example, anodized
aluminum, chrome or other metal covers are offered on some phones strictly as a
marketing decision unrelated to functionality of the phone. If either consumer
demand for non-plastic parts or new technological developments leading to lower
cost substitutes for plastic parts cause the telecommunications industry to
switch to non-plastic materials in the production of material amounts of
covers, casings or other components of mobile telephones, Eimo's sales and/or
revenues could decrease and Eimo's costs, as a percent of sales could increase.
Furthermore, Eimo could find it necessary to expand into the production of non-
plastic parts to maintain its market share. This could give rise to new
production or operational risks, which could include risks associated with
using new or unfamiliar technology. Such risks, even if inherent in the
adoption of any new technology or production processing, could affect Eimo's
costs of production, efficiency, quality control or the integration of such new
operations with its existing operations.
21
The Paananen family will continue to be significant shareholders of the
combined company and may influence or control the direction of the combined
company's business.
As of the date of this proxy statement/prospectus, the Paananen family of
Finland or their affiliates collectively hold in excess of 80% of Eimo's voting
rights. Following the merger, Eimo estimates that the Paananen family and their
affiliates will hold approximately 23% of the combined company's outstanding
shares. Accordingly, the Paananen family, and their affiliates will have
significant power to influence matters submitted to a vote of shareholders of
Eimo following the merger, including:
. approval of the annual financial statements;
. declarations of annual reserves and dividends;
. capital increases;
. amendments to Eimo's articles of association;
. the election of the members of the board of directors of Eimo; and
. approval of significant corporate transactions, which may have the
effect of delaying or preventing a third party from acquiring control of
Eimo.
These transactions may include those that other shareholders deem not to be
in their best interests and in which those other shareholders might otherwise
receive a premium for their shares over then-current prices. For a description
of significant holdings in Eimo, see "Ownership of Eimo's Securities by
Management and Significant Shareholders" on page 143 of this document.
U.S. owners of Eimo ADSs may not be able to exercise any preemptive or
preferential rights or participate in future rights offerings.
Due to various Finnish and U.S. laws and regulations, U.S. owners of Eimo
ADSs may not be entitled to all of the rights possessed by Finnish or other
non-U.S. Holders of Eimo Series A shares. For instance, U.S. owners of Eimo
ADSs may not be able to exercise any preemptive or preferential rights in
respect of their shares, unless a registration statement under the Securities
Act is effective with respect to such rights or an exemption from the
Securities Act registration requirements is available. Eimo's management is
under no legal obligation to file a registration statement under the Securities
Act in order to facilitate the participation of U.S. owners of Eimo ADSs or
Eimo Series A shares in any rights offerings.
U.S. owners of Eimo ADSs may find it more difficult to exercise their voting
rights than other Eimo shareholders.
Due to Finnish legal restrictions on exercising voting rights attaching to
shares held through a nominee, U.S. Holders of Eimo ADSs may find it more
difficult to exercise their voting rights than shareholders who hold Eimo
Series A shares in an individual account in the Finnish book-entry system.
However, owners of Eimo ADSs will have the ability to instruct Citibank, N.A.,
as depositary bank for the Eimo ADSs, as to the voting of the Eimo Series A
shares underlying their Eimo ADSs. For a discussion of voting procedures, see
"Description of Eimo American Depositary Shares--Voting Rights" on page 155 of
this document.
U.S. Holders of Eimo ADSs or Eimo Series A shares may be subject to additional
tax liability.
Under the double taxation treaty between Finland and the United States, U.S.
Holders may be subject to Finnish withholding tax, which they may credit
against their U.S. federal income tax liability only if they meet complex
requirements regarding U.S. foreign tax credits. For a discussion of this
treaty and other tax aspects of owning Eimo ADSs, see "Taxation on Eimo Series
A Shares and Eimo American Depositary Shares" on page 137 of this document.
22
Finnish legal restraints on the payment of dividends may adversely affect the
amounts of dividends Eimo may pay in the future.
Under Finnish law, dividends on the shares of a Finnish company are
generally only paid annually after shareholder approval of both the company's
results and the amount of the dividend proposed by the board of directors. The
amount of any dividend is limited to the amount of distributable funds, which
generally includes:
. the profit from the preceding financial year;
. retained earnings from previous years and other unrestricted equity,
less the reported losses;
. capitalized incorporation costs;
. research and specified development costs;
. the acquisition costs of a company's own shares; and
. the amount that the articles of association may require be transferred
to a reserve fund or otherwise be left undistributed.
Eimo's articles of association do not contain any reserve fund or non-
distribution requirements. For a description of Eimo's ability to declare and
pay dividends, see "Description of Eimo Series A Shares--Dividends and Other
Distributions" on page 144 of this document.
Thus, Finnish law, the governing law of Eimo's domicile, is more restrictive
than Michigan law, the governing law of Triple S's domicile, with respect to
funds available to pay dividends, which may negatively affect the amount of
dividends Eimo may pay in the future.
Eimo's obligations concerning corporate disclosure and governance may be less
than those of Triple S.
The securities laws of Finland which govern publicly-traded companies such
as Eimo differ from those in the United States in certain important respects.
Publicly available information about issuers of securities listed on the
Helsinki Stock Exchange provides less detail in certain respects than
information regularly published by or about listed companies in the United
States or certain other countries. While Eimo will become subject to the
periodic reporting requirements of U.S. federal securities laws after the
merger, the periodic disclosure required of foreign issuers under U.S. federal
securities laws is more limited than the periodic disclosure required of U.S.
issuers. Furthermore, there is no obligation on Eimo's part, other than those
imposed by applicable U.S. securities laws, to remain subject to such U.S.
reporting requirements. In addition, the Finnish securities markets are not as
extensively regulated and supervised as the United States securities markets.
Minority shareholders of the combined company may also have fewer and less well
defined rights under Finnish law and the charter documents of Eimo than they
might have as minority shareholders of a corporation incorporated in a United
States jurisdiction, such as Triple S. See "Comparison of Rights of Triple S
Shareholders and Eimo Shareholders" on page 161 of this document.
The trading markets for the Eimo ADSs and Eimo Series A shares may be less
liquid than the market for Triple S shares.
Eimo ADSs have not previously been listed on NASDAQ and there can be no
assurance that an active market will emerge for the Eimo ADSs. In addition, the
main trading market for Eimo Series A shares, the Helsinki Stock Exchange, has
historically been less liquid than NASDAQ. You should not assume that following
the merger, the liquidity of the trading markets for Eimo ADSs and Eimo Series
A shares will equal the historical liquidity for Triple S shares on NASDAQ.
Further, Eimo is obligated to use its best efforts to keep the Eimo ADSs listed
on NASDAQ only for three months from the closing of the merger. In the event
the Eimo ADSs were delisted from NASDAQ, the liquidity of the Eimo ADSs would
be adversely affected.
23
Eimo's stock price may be particularly volatile because of the industry that
its major customers are in.
The United States and international stock markets in general have recently
experienced extreme price and volume fluctuations. In addition, the market
prices of securities of technology and mobile telecommunications companies,
including those of Eimo's and Triple S's customers, have been extremely
volatile and have experienced fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations could adversely affect the price of Eimo ADSs and Eimo
Series A shares.
Service of process upon Eimo in the United States may be difficult and
judgments of U.S. courts may not be enforceable against Eimo.
As Eimo is organized under the laws of Finland, it may not be possible to
effect service of process upon Eimo in the United States. Judgments of U.S.
courts, including those predicated on the civil liability provisions of the
federal securities laws of the United States, may not be enforceable in Finnish
courts. As a result, Eimo shareholders who obtain a judgment against Eimo in
the United States may not be able to require Eimo to pay the amount of the
judgment.
Forward-looking statements in this document may prove inaccurate.
This document contains forward-looking statements about Eimo, Triple S and
the combined company that are not historical facts but, rather, are statements
about future expectations. When used in this document, the words "anticipates,"
"believes," "expects," "intends," "should" and similar expressions as they
relate to Eimo, Triple S or the combined company, or the management of Eimo,
Triple S or the combined company, are intended to identify forward-looking
statements. However, forward-looking statements in this document are based on
management's current views and assumptions and may be influenced by factors
that could cause actual results, performance or events to be materially
different from those projected. These forward-looking statements are subject to
numerous risks and uncertainties. Important factors, some of which are beyond
the control of Eimo, Triple S or the combined company, could cause actual
results, performance or events to differ materially from those in the forward-
looking statements. These factors include those described above under "Risk
Factors" and:
. the impact of general economic conditions in Europe, North America,
South America and Asia, and in other regions in which Eimo and Triple S
currently do business;
. industry conditions, including competition and fluctuation in prices for
the products of Eimo and Triple S and the raw materials used to make
them (see "Information about Eimo--Raw Materials" on page 110);
. changes in laws and regulations, including monetary convergence and the
further implementation of the European Union's Economic and Monetary
Union;
. fluctuation in interest rates; and
. access to capital markets.
The actual results or performance of Eimo, Triple S or the combined company
could differ materially from those expressed in, or implied by, these forward-
looking statements and, accordingly, neither Eimo nor Triple S can predict
whether any of the events anticipated by the forward-looking statements will
transpire or occur, or if any of them do, what impact they will have on the
results of operations and financial condition of Eimo, Triple S or the combined
company.
24
SPECIAL MEETING OF TRIPLE S SHAREHOLDERS
Date, Time and Place of the Special Meeting
The special meeting of shareholders of Triple S is scheduled to be held on
August 14, 2001, 4:00 p.m., local time at:
Michigan Technical Education Center
Amphitheatre
Kalamazoo Valley Community College
7107 Elm Valley Road
Kalamazoo, Michigan 49002
Purpose of the Special Meeting
The special meeting is being held so that shareholders of Triple S may
consider and vote upon a proposal to approve the merger agreement among Triple
S, Eimo, and Spartan Acquisition Corp., a wholly owned subsidiary of Eimo, and
to transact any other business that properly comes before the special meeting
or any adjournment or postponement of the special meeting. The approval of the
merger agreement will also constitute approval of the merger and the other
transactions contemplated by the merger agreement. The completion of the merger
is subject to, among other things, the approval of the merger agreement by
shareholders of Triple S. See "Summary of the Merger Agreement--Conditions to
Each Party's Obligation to Complete the Merger" on page 61 of this document.
Record Date for the Special Meeting; Stock Entitled to Vote
The Triple S board of directors has fixed the close of business on July 17,
2001, as the record date for determination of Triple S shareholders entitled to
receive notice of and to vote at the special meeting. On July 6, 2001, the last
practicable date for which information was available, there were approximately
4,019,352 shares of Triple S common stock outstanding which were held by
approximately 200 holders of record. Holders of record of Triple S common stock
on the record date are each entitled to one vote per share on each matter to be
considered at Triple S's special meeting.
Vote Required for the Approval of the Merger Agreement; Share Ownership of
Management
A majority of the outstanding shares of Triple S common stock entitled to
vote at the special meeting must be represented at the special meeting, either
in person or by proxy, to constitute a quorum at the special meeting. In the
event that a quorum is not present at the special meeting, it is expected that
Triple S will adjourn or postpone the special meeting to solicit additional
proxies. The affirmative vote of the holders of at least a majority of Triple S
common stock outstanding and entitled to vote at the special meeting is
required to approve the merger agreement.
A. Christian Schauer, Chief Executive Officer and a director of Triple S,
Victor V. Valentine, Jr., President and a director of Triple S, Daniel B.
Canavan, Chairman of the Triple S board of directors, and David L. Stewart, a
director of Triple S, each have entered into a reinstated shareholders
agreement with Eimo on May 25, 2001 under which they have agreed to vote all of
the shares of Triple S owned by them in favor of the merger agreement and
against any proposal that would impede or prevent the completion of the merger.
These shareholders also agreed that they would own, in the aggregate, at least
50.1% of the outstanding shares of Triple S common stock on the record date for
the special meeting. At the close of business on July 6, 2001, these
shareholders beneficially owned and were entitled to vote 2,215,538 shares of
Triple S common, which represented approximately 55.1% of the shares of Triple
S common stock outstanding on that date. Accordingly, unless the merger
agreement is earlier terminated, the approval of the merger agreement by
Triple S shareholders is, as a practical matter, assured as a result of the
agreement by these shareholders to vote for the approval of the merger
agreement.
25
At the close of business on July 6, 2001, the board of directors and
executive officers of Triple S and their affiliates beneficially owned and were
entitled to vote approximately 2,303,291 shares of Triple S common stock,
including the shares subject to the Triple S shareholders agreement described
above, which shares represented approximately 57.3% of the shares of Triple S
common stock entitled to vote at the special meeting. Triple S's board of
directors and executive officers have informed Triple S that, as of the date of
this document, they intend to vote for approval of the merger agreement.
Proxies and Effect on Vote
All shares of Triple S common stock represented by properly executed proxies
received before or at the special meeting will, unless the proxies are revoked,
be voted in accordance with the instructions indicated on the proxy card. If
you return a properly executed proxy which does not indicate any instructions,
the Triple S shares represented by your proxy will be considered present at the
special meeting for purposes of determining a quorum and for purposes of
calculating the vote and will be voted FOR the approval of the merger
agreement.
If you return a properly executed proxy and you have specifically abstained
from voting on the adoption of the merger agreement, the Triple S shares
represented by your proxy will be considered present and entitled to vote at
the special meeting for purposes of determining the existence of a quorum but
will not be considered to have been voted in favor of the approval of the
merger agreement. If a broker or other nominee holding shares of Triple S
common stock in street name signs and returns a proxy but indicates on the
proxy that it does not have discretionary authority to vote certain shares on
the approval of the merger agreement, those shares will be considered present
at the meeting but not entitled to vote. They will, therefore, not be counted
for purposes of determining the presence of a quorum and will not be considered
to have been voted for the approval of the merger agreement.
Abstentions, failures to vote, and broker non-votes by Triple S shareholders
will have the same effect as a vote against the approval of the merger
agreement.
Triple S is not aware of any matters expected to be brought before the
special meeting other than as described in its notice of special meeting. If,
however, other matters are properly presented, the persons named as proxies in
the enclosed form of proxy will have discretion to vote or not vote in
accordance with their judgment with respect to those matters, unless
authorization to use that discretion is withheld. However, if a proposal to
adjourn Triple S's special meeting is properly presented, the persons named in
the enclosed form of proxy will not have discretion to vote in favor of the
adjournment proposal any shares which have been voted against the proposal(s)
to be presented at the special meeting.
Submission of Proxies
You may submit your proxy by attending the Triple S special meeting and
voting your shares in person at the meeting, or by completing the enclosed
proxy card, signing and dating it and mailing it in the enclosed postage pre-
paid envelope. If your shares are held in "street name", that is, in the name
of a broker, bank or other record holder, you must either direct the record
holder of your shares as to how to vote your shares or obtain a proxy from the
record holder to vote at the Triple S special meeting.
You should NOT send in any stock certificates with your proxy card. A
transmittal form with instructions for the surrender of Triple S stock
certificates will be mailed to you shortly after the merger is completed.
Revocation of Proxies
You may revoke your proxy at any time before it is voted by:
. notifying the secretary of Triple S in writing, including by telegram or
telecopy, that the proxy is revoked;
26
. sending a later-dated proxy to the secretary of Triple S or giving a
later-dated proxy to a person who attends the special meeting; or
. appearing in person and voting at the special meeting.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy. You should send any later-dated proxy or notice of
revocation of a proxy, which must be delivered before the taking of the vote
at the Triple S special meeting, to:
Triple S Plastics, Inc.
7950 Moorsbridge Road
Suite 200
Portage, Michigan 49024
Attention: Secretary
Solicitation of Proxies
In addition to solicitations by mail, directors, officers, and regular
employees of Triple S may solicit proxies from shareholders personally or by
telephone or other electronic means. These individuals will not receive any
additional compensation for doing so. Triple S will bear its own costs of
soliciting proxies. Triple S will also make arrangements with brokers and
other custodians, nominees and fiduciaries to send this prospectus/proxy
statement to beneficial owners of Triple S common stock and, upon request,
will reimburse those brokers and other custodians for their reasonable
expenses in forwarding these materials.
No Appraisal or Dissenters' Rights
You are not entitled to appraisal or dissenters' rights under Michigan law
in connection with the merger.
EXTRAORDINARY GENERAL MEETING OF EIMO'S SHAREHOLDERS
In connection with the merger, the Eimo board of directors will convene an
extraordinary general meeting of Eimo's shareholders to be held in Finland one
business day after the Triple S meeting. At the meeting, Eimo's shareholders
will be asked to approve:
. a resolution to approve the merger agreement;
. a resolution to waive the pre-emptive rights of Eimo shareholders and to
issue Eimo Series A shares that will allow for the creation and issuance
of ADSs in the merger;
. a resolution to waive the pre-emptive rights of Eimo shareholders and to
issue Eimo options in place of currently outstanding Triple S options;
and
. a resolution to elect Daniel B. Canavan and Evan C. Harter to the Eimo
board of directors and accept the resignation as a member of the board
of Markku Sulonen, in each case, effective upon the merger, and to
confirm the number of directors being set at seven effective upon the
merger.
The Eimo board of directors has approved the merger and will unanimously
recommend at the extraordinary general shareholders meeting that Eimo's
shareholders approve these resolutions. The affirmative vote of holders of
two-thirds of the Eimo Series A shares and the Eimo Series K shares by number
present and voting as a single class at the extraordinary general meeting is
required to waive the pre-emptive rights of Eimo shareholders, to approve the
issuance of Eimo Series A shares and corresponding ADSs in the merger and to
approve the issuance of stock options to replace currently outstanding Triple
S options. The affirmative vote of only a majority of holders of the Eimo
Series A shares and Eimo Series K shares by number present and voting as a
single class in accordance with their voting rights is required to approve the
merger and to elect Messrs. Canavan and Harter to the Eimo board of directors.
27
As of July 6, 2001, there were 39,200,000 Eimo Series A shares and 7,200,000
Eimo Series K shares outstanding. Pursuant to the merger agreement, each Eimo
Series K share will be converted into one Eimo Series A share near the
effective time of the merger.
In connection with the execution of the merger agreement, certain principal
shareholders of Eimo entered into an agreement with Triple S pursuant to which
they agreed to vote all of their Eimo Series A shares and Eimo Series K shares
in favor of each of the proposals to be presented at Eimo's extraordinary
general meeting. As of July 6, 2001, these shareholders owned and were entitled
to vote 7,751,244 Eimo Series A shares and 7,200,000 Series K shares, which
represented approximately 83% of votes entitled to be voted at the Eimo
extraordinary general meeting to approve the merger agreement and the election
of directors and 32% of the votes entitled to be voted at the Eimo
extraordinary general meeting to approve the waiver of pre-emptive rights and
the issuance of Eimo Series A shares and options. Accordingly, unless the
merger agreement is terminated prior to the Eimo extraordinary general meeting,
the approval of the merger agreement and the election of directors at Eimo's
extraordinary general meeting is, as a practical matter, assured as a result of
the agreement by these shareholders.
In the event approval of each matter to be considered and voted upon at the
Eimo extraordinary general meeting is not obtained at that meeting, Eimo
anticipates that, with the consent of Triple S, it would promptly call an
additional shareholders meeting to again seek the necessary approvals, although
the failure to obtain such approvals would permit Triple S to elect to
terminate the merger agreement.
For a description of Eimo's significant shareholders, see "Ownership of
Eimo's Securities by Management and Significant Shareholders" on page 143 of
this proxy statement/prospectus.
28
THE MERGER
Background of the Merger
Based on Eimo's strategic goal to grow and become a global supplier to the
mobile telecommunications industry, Eimo decided in February 1999 to expand its
manufacturing operations beyond Finland and to set up production in the
Netherlands. In the summer of 1999, the Eimo board of directors discussed
further internationalization and directed management to gather additional
information on further internationalization options, including through
discussions with other companies in the industry. Various peer group
discussions and site visits were carried out with approximately ten companies
during the latter part of 1999 and early 2000, many of which were conducted by
Eimo's Executive Vice Chairman, Elmar Paananen, who had been designated by the
Eimo board of directors to manage the initial stages of further
internationalization. One of the specific duties with which he was charged was
to identify potential merger partners or acquisition targets.
Eimo and Triple S first had contacts with each other in 1998 within various
development groups dedicated to serving a large customer of both companies. At
the top management level, the first contact took place in connection with a
supplier conference organized by a common customer in early September 1999,
when Mr. Paananen and Lauri Jalli, another Eimo officer, met A. Christian
Schauer, Victor V. Valentine, Jr. and two other Triple S executives.
On October 6, 1999, in connection with a trip to the United States, Mr.
Paananen met with Messrs. Schauer, Canavan and Valentine to explore potential
avenues of cooperation. As a result of the meeting, only some limited
discussions on technological cooperation occurred and such discussions ended in
November 1999.
Triple S realized, beginning in 1999 and continuing into 2000 that, as it
became more involved in supplying worldwide manufacturers of telecommunications
equipment, it would need access to greater capital resources and manufacturing
capabilities to compete in the market. On January 12, 2000, Mr. Canavan met
briefly with Mr. Paananen in Helsinki, Finland. Mr. Canavan mentioned that
Triple S might be interested in discussing more extensive cooperation or other
strategic alternatives.
On January 22, 2000, Mr. Paananen met with Mr. Schauer and Mr. Canavan in
Chicago, Illinois. Potential advantages of a combination of the two companies
were identified. The acquisition of Triple S by Eimo in a cash transaction was
discussed, but the meeting concluded without any agreement in light of
significant differences of opinion with respect to the value of Triple S.
On February 11, 2000, Triple S engaged an investment banking firm, Pacific
Crest Securities Inc., to assist Triple S in exploring its strategic
alternatives. At that time, the Eimo board of directors also recognized in its
deliberations that among the alternative ways of entering the U.S. market,
acquiring or merging with Triple S would be one of the fastest and most
promising possibilities.
On March 2, 2000, Mr. Paananen met with Erik Krieger, Managing Director of
Pacific Crest, and Evan Harter, an outside director of Triple S, in Kalamazoo,
Michigan. Potential synergies of a combined operation were evaluated in
general, as well as the future prospects for growth in the market served by
Triple S. After further negotiations, Eimo submitted a revised offer to Triple
S. The Triple S board of directors, after consultation with its legal and
financial advisors, concluded that the consideration offered in the revised
offer was insufficient in light of, among other things, Triple S's recent
growth in sales and profitability. Mr. Paananen, based on authority from the
Eimo board of directors, concluded that Eimo had no interest in pursuing a cash
transaction with Triple S. Accordingly, the parties terminated their
negotiations.
In early March 2000, Eimo retained Conventum Corporate Finance Oy, an
investment bank, to assist it in valuing Triple S.
After terminating negotiations with Eimo in March 2000, the Triple S board
of directors directed Pacific Crest to contact other parties who would
understand Triple S's position in the industry and would appropriately
29
value Triple S's future growth prospects. Triple S and Pacific Crest met with
representatives of one of these parties in March 2000, and, in April 2000,
Triple S and the party commenced negotiations with respect to the principal
terms of a business combination. The parties continued their negotiations
through April and May of 2000, but terminated negotiations on May 19, 2000. At
the time that Triple S's board of directors decided to terminate these
negotiations, certain of Triple S's directors were concerned about the
continued inability of the parties to agree on a definitive deal price, and
certain directors were also concerned about whether the proposed combination
would be well received by Triple S's customers, suppliers, employees and other
relevant interest groups. The Triple S board of directors ultimately concluded
that because of these concerns, the proposed transaction would not be in the
best interests of the Triple S shareholders.
Later in March and early April 2000, Mr. Paananen and Mr. Krieger informally
communicated via e-mail and telephone exchanging ideas with respect to a
possible all-stock transaction. Because of slow progress in the discussions,
management of Eimo informed the Eimo board of directors that the prospects for
a transaction between Eimo and Triple S did not appear to be favorable and Eimo
began evaluating alternative ways of entering the U.S. market. However, on May
22, 2000, Mr. Schauer and Mr. Canavan called Mr. Paananen to arrange a meeting
for June 1, 2000.
On May 30, 2000, the Eimo board of directors was briefed on the coming
meeting and it agreed that for the parties to reach any agreement on potential
pricing, additional information about the prospects of the respective companies
would be needed by the parties. The Eimo board of directors also revisited the
business logic of the possible transaction and concluded that, subject to the
results of further due diligence and assuming reasonable terms could be agreed
upon by the parties, a transaction was in the interests of Eimo.
On June 1, 2000, Mr. Paananen and Ms. Minna Alitalo, Eimo's project manager,
met with Mr. Harter and Robert Bedilion, another outside director of Triple S,
at a meeting in Miami, Florida, at which outside legal counsel for each company
was present. At the meeting, the companies signed confidentiality agreements
governing the exchange of confidential due diligence information, after which
both companies presented data on recent developments and future prospects. It
was agreed that some information with respect to business prospects was
insufficient and that a further meeting would be needed, following the exchange
of additional information on the companies' business prospects. A stock
transaction was discussed, including various ways of possibly agreeing on the
exchange ratio. It was decided that Mr. Krieger, who was not present, would
provide a "compromise proposal" the following week.
Between June 7 and June 9, 2000, Mr. Krieger provided a transaction model
with exchange ratios acceptable to the Triple S board of directors. The Eimo
board of directors discussed the situation in a telephonic meeting and
concluded the price being proposed by Triple S was in line with the view of
Eimo's investment bank, and authorized management to proceed with further
negotiations.
On June 12 and June 13, 2000, Mr. Paananen and Ms. Alitalo met with Messrs.
Schauer, Canavan, Harter and Krieger in Lahti, Finland. A large number of key
issues were agreed to in principle. Pacific Crest drafted a proposed memorandum
of understanding, including a proposed exchange ratio of Eimo shares for Triple
S shares. However, neither party executed the memorandum and the parties
decided to proceed to attempt to negotiate a merger agreement instead of
redrafting the proposed memorandum. Conceptually, the parties agreed that it
would be a requirement of any merger agreement that Mr. Schauer would become a
member of the board of directors of Eimo, that he would remain as the Chief
Executive Officer of Triple S, that employment agreements for Messrs. Schauer,
Canavan and Valentine would be required and that lock-up and co-sale rights
agreements likewise would be required. Also, during the meetings, additional
information on future prospects of the companies was provided and analyzed.
On June 14, 2000, mutual due diligence by the parties' legal counsel began
and Eimo's outside legal counsel started drafting and negotiating the text of
the original merger agreement and other transaction documentation with outside
counsel for Triple S. The boards of directors of both Eimo and Triple S were
regularly briefed on the key content of the planned agreements.
30
On or about July 11, 2000, the due diligence investigations were
satisfactorily completed, while drafts of the merger agreement and other
transaction documents were being negotiated by the parties and their counsels.
The merger consideration at that time was based upon a variable exchange ratio
pursuant to which Triple S shareholders would receive between 4.850 and 5.70
Eimo Series A shares for each share of Triple S common stock that they
surrendered in the merger.
On July 13, 2000, the Eimo board of directors held a meeting to approve the
transaction and the agreements. The key contents of the agreements were
reviewed. Following discussion, the Eimo board of directors unanimously
approved the merger and the transaction documents and authorized Mr. Paananen
to execute the original merger agreement and the other transaction documents to
be executed contemporaneously with the original merger agreement.
On July 13, 2000, the Triple S board of directors held a meeting to review
the proposed terms of the merger and the conditions of the original merger
agreement. During the meeting, Triple S's outside legal counsel reviewed the
status of the negotiations and the terms and conditions of the original merger
agreement, as then negotiated, and the legal duties and responsibilities of the
Triple S board of directors in connection with the proposed transaction.
Pacific Crest presented an analysis of the financial terms of the merger,
including a discussion of valuation methodologies and analyses used in
evaluating the proposed transaction. After its presentation, Pacific Crest
provided its initial written opinion to the effect that, on the date of its
opinion and based upon and subject to the various considerations set forth in
its opinion, the merger exchange ratio as set forth in the original merger
agreement was fair from a financial point of view to Triple S shareholders.
Following a thorough discussion, the Triple S board of directors unanimously
determined that the merger was in the best interests of the shareholders of
Triple S and, subject to Eimo's approval, approved the merger and the original
merger agreement, unanimously resolved to recommend that shareholders of Triple
S vote to approve the original merger agreement and authorized its executive
officers to execute the original merger agreement.
In the afternoon of July 13, 2000, representatives of Eimo's and Triple S's
management and legal advisors finalized the language for the original merger
agreement and the related documents. Thereafter, the parties executed the
original merger agreement and the other transaction documents.
On July 14, 2000, Eimo and Triple S issued press releases announcing the
transaction.
On January 18, 2001, Elmar Paananen and Heikki Marttinen met with Messrs.
Canavan, Schauer and Krieger in Amsterdam, the Netherlands, to discuss possible
changes in the original merger agreement and a related lock-up agreement. Such
meeting was prompted primarily due to:
. the reduction in the market price of Eimo Series A shares from
(Euro)6.82 at the time the merger agreement was executed on July 13,
2000 to (Euro)4.80 as of January 11, 2001;
. the reduction of Eimo's operating profit as a percentage of sales in
2000 compared to 1999 as demonstrated by Eimo's quarterly reports;
. the general deterioration of the market price of companies in the mobile
communications equipment sector; and
. recent announcements by major mobile phone manufacturers of a projected
slowing rate of growth in the global market for mobile phones in 2001
and excess production capacity in the European market. See "Information
About Eimo--Industry Trends and Business Prospects," "Information About
Triple S--Business" and "Risk Factors".
No agreement was reached at the January 18, 2001 meeting.
On February 2, 2001, Jalo Paananen and Heikki Marttinen met in Chicago with
Messrs. Canavan, Schauer, Valentine, Harter and Krieger. At that meeting, the
parties agreed in principle, subject to approval by their respective boards of
directors, to amend the original merger agreement to:
. provide for a fixed exchange ratio of 6.45 Eimo Series A shares for each
Triple S share;
31
. in addition to A. Christian Schauer, add Daniel B. Canavan, the Chairman
of the Triple S board of directors, and Evan C. Harter, an outside
director of Triple S, to Eimo's board of directors effective upon the
merger; and
. extend the date by which the merger must be completed from February 28,
2001 to June 30, 2001.
The parties to the lock-up agreement also discussed a revision to its terms
to restrict the sale of only 50% of the relevant shares owned by each
shareholder subject to the agreement and to limit the term of such restriction
to only one year after the merger.
On February 3, 2001, the Triple S board of directors held a meeting to
review the proposed terms of the amendment to the original merger agreement.
During the meeting, Triple S's outside legal counsel reviewed the status of the
negotiations and the terms and conditions of the amendment to the original
merger agreement. Pacific Crest presented an analysis of the financial terms of
the proposed amendment to the original merger agreement. After its
presentation, Pacific Crest provided a written opinion to the effect that, on
the date of its opinion and based upon and subject to the various
considerations set forth in its opinion, the merger exchange ratio of 6.45 Eimo
Series A shares for each Triple S common share was fair from a financial point
of view to Triple S shareholders. Following a thorough discussion, the Triple S
board of directors unanimously determined that the merger, as proposed to be
modified by the amendment to the original merger agreement, was still in the
best interests of the shareholders of Triple S and, subject to approval of
Eimo's board of directors, approved the proposed amendment to the original
merger agreement and authorized its executive officers to execute such
amendment. See "--Opinion of Triple S's Financial Advisor."
In the afternoon of February 3, 2001, representatives of Eimo's and Triple
S's management and legal advisors finalized the language of the amendment to
the original merger agreement and the related documents. Thereafter, the
parties executed the amendment to the original merger agreement and the parties
to the lock-up agreement executed the amendment to that agreement.
On February 5, 2001, Eimo and Triple S issued a joint press release
announcing the amendments to the merger agreement and the lock-up agreement.
In early March of 2001, Eimo notified Triple S that Eimo believed that
Triple S had materially breached certain of its representations in the merger
agreement and that Eimo intended to terminate the agreement if Triple S did not
cure the breaches within 30 days. Eimo indicated that the purported breaches
resulted primarily from Triple S's announcement in March 2001 that it
anticipated significantly weaker sales to its principal customer in fiscal 2002
and 2003 and, as a result, would be reviewing its manufacturing capacity needs
at its Texas facilities. Shortly thereafter, Triple S notified Eimo that Triple
S was terminating the merger agreement as a result of purported breaches by
Eimo of certain of Eimo's representations in the merger agreement. Triple S
indicated that the purported breaches related primarily to changes in Eimo's
operations, results of operations and financial condition. Eimo then notified
Triple S that Eimo believed that it had not breached the merger agreement and,
therefore, Triple S's termination of the merger agreement was improper and
resulted in an incurable breach of the agreement, and that Eimo was also
terminating the merger agreement.
After the termination of the merger agreement, a dispute arose between
Triple S and Eimo regarding the timing and legal effect of the termination of
the agreement, and Eimo filed an action in federal court in Delaware seeking
reimbursement of up to $1 million of merger expenses, as well as a termination
fee of $6.4 million and other unspecified damages.
At the end of March 2001, Heikki Marttinen and Chris Schauer initiated
informal discussions about the possibility of Eimo and Triple S working
together to better serve the needs of their common largest customer. These
discussions were prompted primarily due to the parties' belief that this
customer and certain of their other customers were increasingly channeling
existing and new business to global suppliers that had geographically diverse
manufacturing operations. Triple S and Eimo believed that they would be
significantly better positioned to retain existing business and obtain new
business on a combined basis, as a single-source
32
supplier with a greater global presence, than either company would be on a
stand-alone basis. In April and May of 2001, Messrs. Marttinen and Schauer
discussed, among other things, the possibility of a joint venture, technology
sharing arrangements, coordinated marketing campaigns, Eimo's purchase of
certain of Triple S's facilities and, ultimately, the reinstatement of the
merger agreement on modified terms.
On May 20 and May 21, 2001, Jalo Paananen, Elmar Paananen and Heikki
Marttinen met with Chris Schauer and Evan Harter in Stockholm, Sweden to
discuss reinstating the merger agreement on modified terms. At that meeting,
the parties agreed in principle, subject to approval of their respective boards
of directors, that:
. Eimo and Triple S would reinstate the merger agreement and amend the
merger agreement to, among other things:
-- reduce the exchange ratio to 4.5 Eimo Series A shares for each
Triple S share;
-- provide that two of Triple S's directors--Daniel B. Canavan and Evan
C. Harter--be appointed to Eimo's board of directors following the
merger;
-- terminate (i.e., not reinstate) the lock-up agreement;
-- terminate (i.e., not reinstate) the post-merger employment
agreements with Daniel B. Canavan and Victor V. Valentine; and
revise the terms of A. Christian Schauer's post-merger employment
agreement; and
-- extend the date by which the merger must be completed from June 30,
2001 to February 28, 2002;
. Eimo would dismiss Eimo's lawsuit against Triple S in exchange for a
payment by Triple S to Eimo of $105,000; and
. Eimo and Triple S would release any and all prior claims that Triple S
or Eimo may have had against one another under the merger agreement
prior to the time of its reinstatement.
In addition, the parties to the conversion agreement, the Triple S
shareholders' agreement and the Eimo shareholders' agreement agreed to
reinstate those agreements at the time of the reinstatement of the merger
agreement. Execution of the liquidity and registration rights agreement by the
parties thereto was again made a condition of closing.
On May 24, 2001, the Triple S board of directors met to discuss reinstating
the merger agreement and to review the terms of the proposed amended and
restated merger agreement. During the meeting, Triple S's outside legal counsel
reviewed the status of the negotiations and the terms and conditions of the
proposed amended and restated merger agreement. Pacific Crest presented an
analysis of the financial terms of the proposed amended and restated merger
agreement. After its presentation, Pacific Crest provided a written opinion to
the effect that, on the date of its opinion and based upon and subject to the
various considerations set forth in its opinion, the new merger exchange ratio
of 4.5 Eimo Series A shares for each Triple S common share was fair from a
financial point of view to Triple S shareholders. Following a thorough
discussion, the Triple S board of directors unanimously determined that
reinstating the merger agreement pursuant to the proposed amended and restated
merger agreement was in the best interests of the shareholders of Triple S and,
subject to approval of Eimo's board of directors, approved the agreement and
authorized Triple S's executive officers to execute the agreement. See "--
Opinion of Triple S's Financial Advisor."
On May 24, 2001, the Eimo board of directors held a meeting to review the
proposed terms of the amended and restated merger agreement and the related
agreements. The key contents of the amended and restated merger agreement were
reviewed. Following discussion, the Eimo board of directors unanimously
approved the amendment to the merger agreement and the other transaction
documents and authorized Elmar Paananen to approve any remaining details and
revisions and to thereafter execute on behalf of Eimo the amended and restated
merger agreement and the other transaction documents.
33
On May 25, 2001, the parties and their respective legal advisors finalized
the language of the amended and restated merger agreement and the related
agreements. On that same day, Eimo and Triple S executed the amended and
restated merger agreement, the parties to the related agreements executed those
agreements, and Eimo and Triple S issued a joint press release announcing the
reinstatement and amendment and restatement of the merger agreement, and the
reinstatement of the related agreements.
Triple S's Reasons for the Merger and Recommendation of the Board of Directors
of Triple S
At its May 24, 2001 meeting, the Triple S board of directors determined that
the amended and restated merger agreement was fair to, and in the best
interests of, Triple S and its shareholders and approved the reinstatement and
amendment and restatement of the merger pursuant to the amended and restated
merger agreement. The Triple S board of directors believes that Triple S's
merger with Eimo will be beneficial to Triple S's shareholders, as well as to
its customers, and will enhance the services provided to existing and
prospective customers. The Triple S board of directors believes that the merger
will benefit Triple S's shareholders by giving them the opportunity to
participate in the future growth and success of a global manufacturing company
better positioned to serve the mobile communications industries and other high
growth industries. Triple S's customers also will have access to more extensive
global service as well as the benefit of the combined expertise and
complementary assets of the combined company. See "Background of the Merger."
In reaching its decision to approve and recommend the reinstatement of the
merger pursuant to the amended and restated merger agreement, the Triple S
board of directors also considered a number of additional factors, including
the following:
. the strategic and financial alternatives, including recapitalizations,
available to Triple S on a stand-alone basis in the competitive arena of
global thermoplastic parts manufacturers;
. historical and forecasted financial information relating to Triple S and
Eimo;
. the desire of Triple S to better meet the needs of existing and new
customers, who increasingly seek to work with fewer suppliers with
greater worldwide capabilities;
. the strong strategic fit between Triple S and Eimo;
. the merger exchange ratio and the historical market prices for Triple S
and Eimo stock;
. the fact that the merger agreement would, subject to certain
limitations, permit Triple S to terminate the merger agreement in order
to allow Triple S to enter into an agreement with a third party if that
third party has made a proposal to acquire Triple S on terms that are
more favorable to Triple S's shareholders than the proposed merger with
Eimo upon payment of a termination fee. See "Summary of the Merger
Agreement--Offers for Alternative Transactions";
. the opinion of Pacific Crest to the Triple S board of directors to the
effect that, on the date of its opinion, and based upon and subject to
the various considerations set forth in its opinion, the merger exchange
ratio was fair from a financial point of view to Triple S shareholders.
See "Opinion of Triple S's Financial Advisor";
. the expectation that the merger would be accomplished on a tax-free
basis for U.S. federal income tax purposes for U.S. taxpayers, except
for taxes payable on cash received by Triple S shareholders in lieu of
fractional shares; and
. the proposed arrangements with members of management of Triple S and
Eimo, including that Daniel B. Canavan and Evan C. Harter would serve as
directors of Eimo after the merger.
The Triple S board of directors also considered certain countervailing
factors in its deliberations concerning the merger, including:
. the potential disruption of Triple S's business that might result from
the announcement of the reinstatement of the merger agreement;
34
. the possible difficulties of integrating the two companies' managements
and corporate cultures;
. the uncertainty regarding shareholders', customers' and employees'
perceptions of the reinstated merger; and
. the possibility that the merger may not be completed.
In the view of the Triple S board of directors, these considerations were
not sufficient, individually or in the aggregate, to outweigh the advantages of
the merger.
The foregoing discussion of the information and factors considered by the
Triple S board of directors includes all material factors considered by the
Triple S board of directors. In light of the wide variety of factors considered
in its evaluation of the merger and the complexity of these matters, the Triple
S board of directors did not find it practicable to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors. The
Triple S board of directors conducted an overall analysis of the factors
described above, including discussions with Triple S's management and legal,
financial and accounting advisors. In considering the factors described above,
individual members of the Triple S board of directors may have given different
weight to different factors. The Triple S board of directors considered all
these factors as a whole and considered the factors overall to be favorable to
and to support its determination.
The Triple S board of directors has determined that the merger is fair to
and in the best interests of Triple S and its shareholders and unanimously
recommends that Triple S shareholders vote FOR the approval of the merger
agreement.
Eimo's Reasons for the Merger
Eimo believes that the combined company will be well positioned to supply
mobile communications device manufacturers with plastic parts and related
services, and that the combined company will be better able to supply the
world's largest mobile communications equipment manufacturers than either Eimo
or Triple S would have been alone. Eimo also believes that the combined company
will have a truly global manufacturing presence, with manufacturing operations
after the merger on four continents. To Eimo's knowledge, none of its
competitors have manufacturing operations in each of Europe, North America,
South America and Asia. Eimo regards the geographical breadth of the combined
company to be a competitive strength because many of its customers have
operations on several continents and can be expected to prefer working with
fewer suppliers globally to save internal resources, such as resources devoted
to project management. In the next several years, most of the combined
company's revenues are likely to be generated from production in the United
States and Europe, although China, Brazil or Mexico may develop into major
markets as well during such time period. Based on industry sources, including
the published financial information of certain of Eimo's competitors, including
Nypro, Inc., Perlos Oyj and Balda AG, and customers, including Nokia, and
estimates of Eimo's management, the combined company is expected to supply 8%
of the total global market for plastic parts for the mobile communications
industry.
Based on industry sources, including the published financial and other
information of certain of Eimo's competitors, including Nypro, Inc., Perlos
Oyj, Nolato AB and Balda AG, and customers, including Nokia, and internal
estimates by Eimo's management, Eimo believes that, in 1999, it had the third
highest, and in 2000 had the fourth highest, sales to the mobile communications
sector in Europe of any European public company engaged in the business of
providing precision injection molded parts to mobile telephone equipment
manufacturers, behind only Perlos Oyj and Nolato AB in 1999 and Perlos, Nolato
and Balda AG in 2000. Eimo is not aware of any private European company having
similar or higher sales than Eimo to the sector in the European market in
either 1999 or 2000.
For 1999 and 2000, Eimo used the following approximation to estimate the
size of its core market, which constituted 91% and 92% of its sales,
respectively. For this purpose, Eimo defined its business and the market as
injection molded plastic parts and services sold in connection with parts for
mobile phones and their
35
accessory products, such as chargers. Eimo estimates the value of its and
similar products and services on an average phone to be approximately (Euro)6
worth of such products and services sold, per mobile phone. Based on industry
estimates, including public estimates by Nokia, the generally accepted
approximate number of mobile phones sold globally in 1999 and 2000 was 280
million and 405 million, respectively, resulting in a market size estimate of
(Euro)1,650 million for 1999 and (Euro)2,460 million for 2000. Using these
estimates, Eimo's market share in 1999, with 91% of its (Euro)78 million of
sales attributable to the mobile communications business, was 4.3% globally
while its market share in 2000, with 92% of its (Euro)105.5 million of sales
attributable to the mobile communications business, was 3.9% globally.
Including Triple S's 1999 and 2000 sales to the mobile communications industry,
the combined company would have almost doubled its market share on a proforma
basis in 1999 and would have doubled its market share on a pro forma basis in
2000. To Eimo's knowledge, no company accounted for 15% or more of the total
market for injection molded plastic parts and services in either 1999 or 2000.
Eimo believes that the geographic market scope of the combined company will
grow since Eimo currently operates primarily in Europe and Triple S operates
primarily in the United States. See also "Information About Eimo--Competition."
Most of the revenues and profits of the combined company are likely to be
derived from sales of goods and services to manufacturers of mobile
communications devices and other mobile terminal devices such as handheld
computers. Nokia Mobile Phones, which is currently Eimo's largest customer,
will continue as the largest customer of the combined company. Based on the pro
forma financial statements contained in this proxy statement/prospectus, Nokia
would have accounted for approximately 64% and 70% of the combined company's
revenue in calendar year 1999 and 2000, respectively on a pro forma basis.
The merger will unite Eimo's expertise in automation technologies, in-mold
decorating and advanced finishing with Triple S's expertise in state-of-the-art
injection molding and manufacturing efficiencies. Both companies have a history
of bringing highly technical capabilities and solutions to their respective
client bases. In addition to serving the telecommunication industry, the
combined company also will seek to provide top-quality plastic products to
other major industries, where there is a premium on the ability to deliver
highly technical solutions and advanced materials.
Among the many expected benefits of the merger are opportunities for the
combined company to offer more extensive global service to existing customers,
to combine respective advanced research and development technologies and skills
and to share resources such as tool and automation manufacturing. Substantial
revenue synergies in the form of additional business from cross-introduction of
production technologies and customers are expected. Due to little overlap in
operations, the combined company expects to achieve only small yearly cost
savings as a result of the merger, estimated at approximately (Euro)1 million
per year beginning in 2002. Such savings are expected to be derived principally
from economies of scale in engineering, research and development and
administration. Due to lack of material overlap in production operations, the
merger is not initially expected to result in any material changes in
personnel.
Considerations of the Eimo Board of Directors
At a meeting held on May 24, 2001, the Eimo board of directors unanimously
approved the merger agreement and the merger. In the course of reaching its
conclusions on the merger, the Eimo board of directors consulted with Eimo's
management as well as its outside advisors and considered a number of factors.
The material factors they considered are summarized below:
. the reasons described above under "--Eimo's Reasons for the Merger;"
. the exchange ratio for the combination;
. the view of Eimo's board of directors that the merger represents an
excellent opportunity to implement Eimo's long-term strategy;
36
. the financial and operating performance and condition and long-term
prospects of Triple S, Eimo and the combined company;
. that Mr. Schauer had agreed to enter into an employment agreement to be
effective upon completion of the merger in connection with the execution
of the merger agreement;
. that Messrs. Canavan and Harter will join the Eimo board of directors
upon completion of the merger;
. that Messrs. Schauer, Canavan, Valentine and Stewart had agreed to the
Triple S shareholders' agreement obligating them to vote in favor of the
merger as specified in such agreement;
. the trading history of the stock of each company, as well as current and
historic exchange ratios;
. that both companies shared a major customer and both believed such
customer would react favorably to the transaction;
. current industry developments, including continuing consolidation, a
slowing rate of growth in the global market for mobile phones in 2001,
excess production capacity in the European market and recent actions by
both major and minor customers; and
. the commitment of each party to complete the merger as reflected in the
merger agreement, including:
-- the conditions to closing;
-- the requirement that the parties afford their respective
shareholders the opportunity to vote on the merger; and
-- the parties' obligations to pay a termination fee if the merger
agreement is terminated under specified circumstances.
The Eimo board of directors also considered the following potentially negative
factors:
. the potential problems inherent in effecting a transnational combination
of two organizations which may divert attention from the ongoing
business of the combined company;
. the risk that key employees of Triple S, who contribute to the financial
success of Triple S, may not remain with the combined company after the
merger;
. the short term effects of the merger, and the probable resulting sales
of shares by some Triple S shareholders, on the market price of Eimo
shares; and
. the reliance by both Eimo and Triple S upon some of the same major
customers.
The foregoing discussion of the factors considered by the Eimo board of
directors is not intended to be exhaustive but includes the material factors
considered by the Eimo board of directors. In view of the wide variety of
factors considered by the Eimo board of directors in connection with its
evaluation of the merger and the complexity of these matters, the Eimo board of
directors did not consider it practical, and did not attempt, to quantify, rank
or otherwise assign relative weights to the specific factors it considered in
reaching its decision. The Eimo board of directors conducted a discussion of
the factors described above, including asking questions of Eimo's management
and Eimo's outside advisors. The Eimo board of directors reached a unanimous
consensus that the merger was in the best interests of Eimo and its
shareholders. In considering the factors described above, individual members of
the Eimo board of directors may have given different weights to different
factors.
Opinion of Triple S's Financial Advisor
Triple S retained Pacific Crest Securities Inc. to act as its financial
advisor in connection with the merger and to evaluate the fairness, from a
financial point of view, of the exchange ratio, as set forth in the merger
37
agreement. On May 24, 2001, Pacific Crest delivered its written opinion to the
Triple S board of directors to the effect that, as of the date of such opinion
and based upon the various qualifications and assumptions set forth therein,
the exchange ratio is fair, from a financial point of view, to the holders of
Triple S common stock.
The full text of Pacific Crest's May 24, 2001 opinion, which sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Pacific Crest is
attached as Annex B to this proxy statement/prospectus. Triple S shareholders
are urged to read this opinion carefully and in its entirety. The following is
a summary of Pacific Crest's opinion.
Pacific Crest's opinion is directed to the Triple S board of directors,
relates only to the fairness, from a financial point of view, of the exchange
ratio in the merger agreement to the holders of Triple S common stock, does not
address any other aspect of the merger or any related transaction, and is not
intended and does not constitute a recommendation to holders of Triple S common
stock as to how they should vote at the special meeting. No limitations were
imposed by Triple S upon Pacific Crest with respect to the investigations made
or procedures followed by it in rendering its opinion. Although Pacific Crest
evaluated the financial terms of the merger and participated in discussions and
negotiations concerning the determination of the merger exchange ratio, Pacific
Crest was not asked to and did not recommend the exchange ratio, which was the
result of arm's length negotiations between Triple S and Eimo.
In connection with rendering its opinion, Pacific Crest, among other things:
. reviewed certain publicly available financial statements and other
information of Triple S and Eimo;
. reviewed a number of internal financial analyses and forecasts for
Triple S and Eimo prepared by their managements;
. discussed the past and current operations and financial condition and
the prospects of Triple S and Eimo with senior executives of Triple S
and Eimo, respectively;
. reviewed certain information relating to, and discussed with senior
executives of Triple S and Eimo, certain of the strategic implications
and operational benefits anticipated from the merger;
. reviewed the reported prices and trading activity for the common stock
of Triple S and the ordinary shares of Eimo;
. compared the financial performance, reported prices and trading activity
of Triple S and Eimo with those of certain other comparable publicly-
traded companies and their securities;
. reviewed the financial terms, to the extent publicly available, of
certain precedent transactions Pacific Crest deemed relevant;
. participated in certain discussions and negotiations among
representatives of Triple S and Eimo and their legal advisors;
. reviewed the merger agreement and certain related documents; and
. performed such other analyses, which Pacific Crest does not believe were
material to its opinion, and considered such other factors as it deemed
appropriate.
Pacific Crest assumed and relied upon, without independent verification, the
accuracy and completeness of all of the financial and other information
publicly available or furnished to or otherwise reviewed by or discussed with
it. In that regard, Pacific Crest assumed, with the consent of the Triple S
board of directors, that the financial forecasts prepared by the managements of
Triple S and Eimo, including the strategic, financial and operational benefits
of the merger, were reasonably prepared on bases reflecting the best currently
available judgments and estimates of Triple S and Eimo. Pacific Crest did not
make and did not assume any responsibility for making any independent
evaluation or appraisal of the assets or liabilities of Triple S or Eimo nor
was Pacific Crest furnished with any evaluation or appraisal of those assets
and liabilities. Pacific Crest
38
assumed that the executed versions of the merger agreement and other related
agreements would not differ in any material respect from the last drafts of
these agreements reviewed by Pacific Crest. Pacific Crest also assumed, with
the consent of the Triple S board of directors, that the merger will be
completed in accordance with the terms provided in the merger agreement
without material modification or waiver and that the merger will be accounted
for using the purchase method of accounting under both Finnish Accounting
Standards and U.S. Generally Accepted Accounting Principles and will be
treated as a tax-free reorganization or exchange under the Internal Revenue
Code.
Pacific Crest did not express any opinion as to what the value of the Eimo
ADSs or the Eimo Series A shares actually will be when issued to shareholders
pursuant to the merger or the price at which the Eimo ADSs or the Eimo Series
A shares will trade subsequent to the merger. Pacific Crest was not asked to
consider, and the opinion does not address, the relative merits of the merger
as compared to any alternative business strategies that might exist for Triple
S or the effect of any other transaction in which Triple S might engage.
The opinion of Pacific Crest is necessarily based on financial, economic,
market and other conditions as in effect on, the information made available to
Pacific Crest as of, and the financial condition of Triple S and Eimo on, May
24, 2001.
The following is a summary of the material financial analyses performed by
Pacific Crest in connection with providing its opinion to the Triple S board
of directors. The preparation of a fairness opinion is a complex process and
involves various judgments and determinations as to the most appropriate and
relevant quantitative and qualitative methods of financial analyses. Judgments
also must be made in the application of those methods to the particular
circumstances involved.
Historical Stock Price Performance. Pacific Crest reviewed the stock price
performance and trading volumes of the common stock of Triple S and the Eimo
Series A shares from May 23, 2000 through May 23, 2001. The table below shows
the twelve-month high and low closing prices during that period, compared with
a closing price on May 23, 2000 of $7.60 per share for the Triple S common
stock and (Euro)2.11 per share for the Eimo Series A shares:
Comparative
Share Information
May 23, 2000
through May 23, 2001
---------------------
High Low
---------- ----------
Triple S............................................... $ 31.90 $ 4.25
Eimo................................................... (Euro)9.10 (Euro)1.28
Pacific Crest also compared the price performance of the common stock of
Triple S and the Eimo Series A shares from May 23, 2000 through May 23, 2001
with that of the Nasdaq Combined Composite Index and a group of selected
plastic parts manufacturing companies.
The group of selected plastic parts manufacturing companies included Balda
AG, Mikron Holdings AG, Nolato AB and Perlos Oyj. Pacific Crest selected these
companies because they are publicly traded companies with operations that, for
purposes of this analysis, are similar to those of Triple S. None of the
companies utilized in this analysis as a comparison is identical to Triple S
or Eimo.
This analysis showed that the closing market prices during the applicable
periods decreased as follows:
Market Price
Decrease
-------------
May 23, 2000
through
May 23 , 2001
-------------
Triple S....................................................... (52.5)%
Eimo........................................................... (71.5)%
Nasdaq Combined Composite Index................................ (29.0)%
Group of selected plastic parts manufacturing companies:
Mean.......................................................... (46.3)%
39
Pacific Crest observed that, within the period from May 23, 2000 through May
23, 2001, Triple S's stock price decreased less than the market price of Eimo
but decreased more than the Nasdaq Combined Composite Index and the group of
selected plastic parts manufacturing companies.
Comparable Transactions Analysis. This analysis provides a valuation range
based on financial information of selected public companies that have been
recently acquired and are in similar industries as that of Triple S. Pacific
Crest compared the proposed Triple S-Eimo merger with 25 selected merger and
acquisition transactions involving companies in the plastic parts manufacturing
industry. The targets and acquirors in the transactions that Pacific Crest
deemed comparable to the proposed merger were:
Target Name Acquiror Name
----------- -------------
Alltrista Corp-Plastic
(Packaging Division) Spartech Corporation
Applied Extrusion Technologies Huntsman Corporation
Asahi-America, Inc. Asahi Organic Chemicals Industry Co., Ltd.
Blessings Corp. Huntsman Corporation
CPFilms Inc. (Azko Nobel NV
Inc.) Solutia Inc.
Dillen Products, Inc. Myers Industries, Inc.
Flying Colors Toys Inc. JAKKS Pacific Inc.
GET Manufacturing Inc. Jabil Circuit, Inc.
High Performance Plastics, Inc.
(Unit of Uniroyal Technology
Corp.) Spartech Corporation
Industrial Molding Corp. NN Ball & Roller, Inc. (NN Inc.)
Iplast ASA Mikron Holding AG
Milacron Inc.'s Austrian-based
plastics extrusion systems Plastics Technology Group
business (SMS Aktiengesellschaft)
Newell Plastics (Division of
Newell Rubbermaid Inc.) Home Products International, Inc.
Optical Security Group, Inc. Applied Holographics PLC
O'Sullivan Corporation The Geon Company
Pioneer Plastics Corporation Panolam Industries International, Inc.
(The Rugby Group, PLC) (Genstar Capital Partners II, LP)
Safety 1st, Inc. Dorel Industries, Inc.
Sealright Company Inc. Huhtamaki OY
Shieldmate Robotics Nolato AB
Spartech Corporation Vita International Ltd (British Vita PLC)
Sun Coast Industries, Inc. Kerr Group Inc.
Ultra Pac Inc. Ivex Packaging Corp.
Uniflex Inc. CMCO Inc.
Uniflex Inc. RFE Investment Partners
Waddington North America Inc. WNA Merger Corp.
None of the transactions utilized in this analysis as a comparison is identical
to the proposed Triple S-Eimo merger.
In examining these transactions, Pacific Crest analyzed, among other things,
for each of Triple S and the comparable acquired companies, the multiples of
enterprise value to:
. revenues,
. net income,
. earnings before interest and taxes, which is also referred to as EBIT,
and
. book value
40
Pacific Crest calculated enterprise value by taking the total value of the
merger or acquisition transaction, including the amount paid for all equity
securities, plus outstanding total debt, less cash and cash equivalents. In
calculating the enterprise value for Triple S, Pacific Crest based the amount
to be paid for all of Triple S's equity securities in the proposed merger with
Eimo on the closing price of Eimo's Series A shares on May 24, 2001. The time
period analyzed for the comparable transactions and the Triple S-Eimo merger
was the most recent year of financial data prior to announcement of the
respective transactions. Estimated financial information for the comparable
transactions was not available, and therefore, was not analyzed. All multiples
for the selected transactions were based on public information available at the
time of public announcement, and Pacific Crest's analysis did not take into
account different market and other conditions during the relevant periods in
which the selected transactions occurred.
The analysis showed the following multiples:
Enterprise Value to:
---------------------------
Net Book
Revenues Income EBIT Value
-------- ------ ---- -----
Triple S....................................... 0.3x 9.8x 5.1x 1.2x
Group of selected plastic parts manufacturing
companies:
Mean.......................................... 1.1x 28.1x 11.6x 3.0x
Median........................................ 1.0x 25.0x 9.5x 2.7x
Pacific Crest observed that the multiples for Triple S were below all of the
mean and median multiples for the group of selected plastic parts manufacturing
companies.
Comparable Public Companies Analysis. This analysis reviews the operating
performance and outlook of Triple S relative to two groups of peer companies to
determine an implied value. Using Pacific Crest estimates for Triple S and
using published estimates for the selected peer companies, Pacific Crest
compared, among other things, the multiples of (1) equity value to revenues and
(2) equity value to earnings before interest and taxes, or EBIT, for calendar
years 2000 and 2001 for Triple S to corresponding multiples for selected
plastic parts manufacturing companies and selected general plastics
manufacturing companies. Pacific Crest selected the plastic parts manufacturing
companies because they are publicly traded companies that manufacture parts for
the telecommunications market and have operations that, for purposes of this
analysis, may be considered similar to those of Triple S. The plastic parts
manufacturing companies that Pacific Crest considered comparable to Triple S
were:
. Balda AG,
. Eimo,
. Nolato AB, and
. Perlos Oyj.
Pacific Crest selected the general plastics manufacturing companies because
they are publicly traded companies with general plastics manufacturing
operations that, for purposes of this analysis, may be considered similar to
those of Triple S. The general plastics manufacturing companies that Pacific
Crest considered comparable to Triple S were:
. AEP Industries, Inc.,
. Atlantis Plastics, Inc.,
. Clarion Technologies, Inc.,
. Deswell Industries, Inc.,
. Gundle/SLT Environmental, Inc.,
. Ivex Packaging Corporation,
. Lamson & Sessions Company,
41
. Myers Industries, Inc.,
. PVC Container Corporation,
. Reunion Industries, Inc.,
. Spartech Corporation, and
. Summa Industries.
None of the companies utilized in this analysis as a comparison is identical to
Triple S.
The analysis showed the following multiples:
Equity Value to Revenues
-----------------------------------
Twelve Months Twelve Months
Ended Ending
December 31, 2000 December 31, 2001
----------------- -----------------
Triple S............................... 0.3x 0.3x
Group of selected plastic parts
manufacturing companies:
Mean.................................. 1.9x 1.4x
Median................................ 1.4x 1.2x
Group of selected general plastics
manufacturing companies:
Mean.................................. 0.4x 0.4x
Median................................ 0.4x 0.4x
Equity Value to EBIT
-----------------------------------
Twelve Months Twelve Months
Ended Ending
December 31, 2000 December 31, 2001
----------------- -----------------
Triple S............................... 3.0x 31.7x
Group of selected plastic parts
manufacturing companies:
Mean.................................. 16.7x 11.3x
Median................................ 12.3x 9.5x
Group of selected general plastics
manufacturing companies:
Mean.................................. 10.3x 4.4x
Median................................ 5.2x 4.7x
Pacific Crest observed that the multiples for Triple S were below all of the
mean and median multiples for the group of selected plastic parts manufacturing
companies and the group of selected general plastics manufacturing companies,
other than Triple S's equity value to EBIT multiple for the twelve months
ending December 31, 2001.
Discounted Cash Flow Analysis. A discounted cash flow analysis derives the
intrinsic value of a business based on the net present value of the future free
cash flows anticipated to be generated by the assets of the business. Pacific
Crest performed a discounted cash flow analysis of Triple S utilizing estimates
prepared by Pacific Crest. Pacific Crest calculated the net present value of
Triple S's free cash flows using discount rates ranging from 15% to 19%.
Pacific Crest arrived at such discount rates based on its analysis of the
expected rates of return from investments with similar risk characteristics.
Based on this analysis, Pacific Crest calculated the equity value of Triple S
to be in a range of approximately $16,500,000 to $26,000,000. Pacific Crest
observed that this range of values was below the approximately $38,500,000
value of the proposed merger based on the exchange ratio.
Relative Contribution Analysis. Pacific Crest performed an exchange ratio
analysis comparing the relative contributions of Triple S and Eimo to the
combined company. The following table displays:
. each company's relative contribution to the combined company's actual
revenues, operating income, net income, assets and shareholders' equity
for the twelve months ended March 31, 2001,
42
. each company's relative contribution to the combined company's estimated
revenues, pre-tax income and shareholders' equity for the twelve months
ended December 31, 2001,
. based on such relative contributions, the number of Eimo Series A shares
that each share of Triple S common stock would be converted into in the
merger, which is referred to in this analysis as an implied exchange
ratio, and
. the assumed percentages of the combined company's shares that the Triple
S shareholders and the Eimo shareholders would own after the merger
based on the exchange ratio.
% Contribution
-----------------
Triple S Eimo
--------- -------
Twelve months ended March 31, 2001:
Revenue....................................................... 61% 39%
Operating income.............................................. 46% 54%
Net income.................................................... 46% 54%
Assets........................................................ 41% 59%
Shareholders' equity.......................................... 45% 55%
Twelve months ending December 31, 2001:
Revenue....................................................... 51% 49%
Operating income.............................................. 12% 88%
Shareholders' equity.......................................... 43% 57%
Assumed post-merger ownership of the combined company.......... 31% 69%
Pacific Crest observed that the Triple S shareholders' post-merger ownership
of the combined company is below the range of Triple S's relative contribution
to the combined company in each category, with the exception of Triple S's
relative contribution to the combined company's operating income for the twelve
months ending December 31, 2001.
Transaction Premium Analysis. Pacific Crest reviewed selected business
combinations structured as mergers or acquisitions occurring in 1996 through
2000 and analyzed the premiums/discounts paid in these transactions over
prevailing market prices before the announcement of these transactions. Pacific
Crest selected these transactions because they were structured as mergers or
acquisitions of companies in industries that for purposes of this analysis may
be considered similar to those of Triple S and Eimo.
The table below shows the transaction premiums for the industry groups
measured by calculating, for each transaction in the industry group, the amount
by which (1) the per share transaction consideration paid at the closing of the
relevant transaction exceeded (2) the per share closing market price for the
relevant target company as of the fifth trading day prior to the announcement
of the relevant transaction. The transaction premium for the Triple S-Eimo
merger would be 62%, when calculated by measuring the amount by which (1) the
per share Eimo stock price at the close of business on May 24, 2001, converted
into U.S. dollars and multiplied by the merger exchange ratio, exceeded (2) the
per share closing market price for the Triple S common stock as of the fifth
trading day prior to May 24, 2001.
Transaction Premium Paid over
Pre-Announcement Stock Price
-----------------------------
1996 1997 1998 1999 2000
----- ----- ----- ----- -----
All industries.................................... 36.6% 35.7% 40.7% 43.3% 49.2%
Manufacturing companies .......................... 40.1% 44.3% 47.7% 43.2% --
Fabricated metal products......................... 70.1% 43.6% 58.5% 54.0% 2.8%
Miscellaneous manufacturing ...................... 34.7% 38.8% -- 30.0% 31.6%
Plastics and rubber............................... 40.8% 24.4% 58.3% 37.6% 37.4%
No company or transaction utilized in the transaction premium analysis is
identical to Triple S or Eimo or the merger.
43
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relative quantitative and qualitative methods of
financial analyses and the application of those methods to the particular
circumstances; therefore, such opinions are not readily susceptible to a
partial analysis or summary description. In arriving at its opinion, Pacific
Crest considered the results of all of its analyses as a whole and did not form
a conclusion as to whether any individual analysis supported or failed to
support its opinion. Pacific Crest's conclusions also involved elements of
judgment and qualitative analyses. In addition, even though the separate
analyses are summarized above, Pacific Crest believes that its analyses must be
considered as a whole. Pacific Crest also believes that selecting portions of
its analyses, without considering all analyses, could create an incomplete view
of the evaluation process underlying its opinion.
In performing its analyses, Pacific Crest made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Triple S or Eimo. Any
estimates contained in Pacific Crest's analyses are not necessarily indicative
of future results or actual values, which may be significantly more or less
favorable than those suggested by these estimates. The analyses performed were
prepared solely as a part of Pacific Crest's opinion of the fairness from a
financial point of view to the holders of common stock of Triple S of the
exchange ratio in the merger agreement and were conducted in connection with
the delivery by Pacific Crest of its opinion dated May 24, 2001 to the Triple S
board of directors.
Pacific Crest, as part of its investment banking business, regularly engages
in:
. the valuation of businesses and their securities in connection with
mergers and acquisitions;
. negotiated underwritings;
. financial advisory, as related to mergers and acquisitions;
. secondary distributions of listed and unlisted securities;
. private placements; and
. valuations for corporate and other purposes.
Triple S selected Pacific Crest to act as its financial advisor based on its
experience and expertise in such valuations and its familiarity with Triple S
and its business. In the ordinary course of its business, Pacific Crest and its
affiliates may actively trade the debt and equity securities of both Eimo and
Triple S for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in these securities.
Pacific Crest currently is providing other investment banking services to
Triple S and may provide investment banking services to Triple S and its
subsidiaries in the future.
Pursuant to a letter agreement dated February 11, 2000, Triple S engaged
Pacific Crest to act as its financial advisor in exploring Triple S's strategic
alternatives. Under the terms of the letter agreement, which was negotiated by
Triple S and Pacific Crest, Triple S has agreed to pay Pacific Crest a
transaction fee, upon consummation of the merger, of $500,000 plus 2.0% of the
amount, if any, by which the aggregate merger consideration exceeds
$90,000,000. Triple S has also agreed to pay Pacific Crest an additional
$100,000 in connection with Pacific Crest's issuance of its fairness opinion
relating to the amended and restated merger agreement, $75,000 of which is
contingent on completion of the merger. In addition, Triple S has also agreed
to reimburse Pacific Crest for its reasonable out-of-pocket expenses and to
indemnify Pacific Crest and its affiliates against certain liabilities,
including certain liabilities under the federal securities laws.
Interests of Certain Persons in the Merger
In considering the recommendations of the Triple S board of directors with
respect to the merger agreement, Triple S shareholders should be aware that
certain directors and members of management of Triple S have interests in the
merger that are different from, or in addition to, the interests of Triple S
shareholders generally. These interests, to the extent material, are described
below. The Triple S board of directors was aware of these interests and
considered them, among other matters, in approving the merger agreement and the
merger.
44
Board Seats
The merger agreement provides that Daniel B. Canavan, Chairman of the Triple
S board of directors, and Evan C. Harter, an outside director of Triple S, will
each be elected to the Eimo board of directors. Once elected, it is anticipated
Messrs. Canavan and Harter will serve as members of the board of directors of
Eimo until the next annual meeting of Eimo shareholders.
Employment Agreement
As a condition and inducement to Eimo entering into the merger agreement, A.
Christian Schauer, the current Chief Executive Officer of Triple S and a
director of Triple S, concurrently with the execution and delivery of the
merger agreement, entered into an employment agreement with Triple S. Pursuant
to such employment agreement, which will become effective at the closing of the
merger and will extend for a term of six months after the closing, Mr. Schauer
will serve as President and Chief Executive Officer of Triple S. The terms of
Mr. Schauer's employment agreement are no more favorable than the terms of his
current employment arrangement with Triple S.
Liquidity and Registration Rights Agreement
At the time of the completion of the merger, Messrs. Schauer, Valentine and
Canavan will enter into a liquidity and registration rights agreement with
Eimo, Jalo Paananen, Chairman of the Eimo board of directors, Elmar Paananen,
Executive Vice Chairman of the Eimo board of directors, Annamari Jukko and Topi
Paananen, members of the Paananen family and shareholders of Eimo. Under the
terms of such agreement, Messrs. Schauer, Valentine and Canavan will be granted
unlimited "piggyback registration rights" in the United States, which means
that if Eimo undertakes to sell its shares in the United States in certain
types of public offering transactions, Messrs. Schauer, Valentine and Canavan
will be entitled to have their shares of Eimo registered for resale by Eimo for
federal securities laws purposes in those transactions. If Eimo undertakes to
publicly sell its shares outside of the United States for its own account for
cash, Messrs. Schauer, Valentine and Canavan will be allowed to participate in
such offering provided that the amount of shares they sell in such offering
does not exceed 30% in the aggregate of the total shares to be sold by Eimo in
such offering. In addition, if, under the agreement and during the four-year
period following the merger, any of the Eimo shareholders listed above sells
any of their shares in a private transaction to a third party, then Messrs.
Schauer, Valentine and Canavan will be entitled to participate in such sale on
similar terms up to their respective pro rata portions of the total number of
Eimo shares to be sold in such transaction. Eimo has also agreed under such
agreement that it will, from time to time, upon the request of any of Messrs.
Schauer, Valentine and Canavan, use its reasonable best efforts to introduce
such persons to underwriters that may have an interest in assisting with the
sale of some or all of the Eimo shares of such persons at the then prevailing
market price for such shares and institutional investors that Eimo believes may
have an interest in acquiring Eimo shares from such persons.
Triple S Shareholders Agreement
Messrs. Schauer, Valentine and Canavan have, together with David L. Stewart,
a member of the Triple S board of directors, entered into a shareholders
agreement with Eimo under which they each have agreed to vote all of the shares
of Triple S owned by them in favor of the merger agreement and against any
proposal that would impede or prevent the completion of the merger, and to
grant Eimo a proxy with respect to the voting of their shares in favor of the
merger agreement upon the terms and subject to the conditions set forth in such
shareholders agreement. The shareholders agreement also provides that each of
Messrs. Schauer, Valentine and Canavan may, prior to the merger, sell up to $1
million worth of Triple S shares and Mr. Stewart may, prior to the merger, sell
up to $4 million worth of Triple S shares, so long as Messrs. Schauer,
Valentine, Canavan and Stewart held in the aggregate at least 50.1% of the
outstanding shares of Triple S common stock on the record date for the Triple S
special meeting. At the close of business on July 6, 2001, these shareholders
beneficially owned and were entitled to vote 2,215,538 shares of Triple S
common stock, which represented approximately
45
55.1% of the shares of Triple S common stock outstanding on that date.
Accordingly, unless earlier terminated in accordance with its terms, the
approval of the merger agreement by Triple S shareholders is, as a practical
matter, assured as a result of the agreement by these shareholders to vote for
the approval of the merger agreement.
Consulting Agreement with Evan C. Harter
Effective April 1, 2000, Evan C. Harter, a director and shareholder of
Triple S, agreed to assist Triple S in pursuing strategic alternatives to
increase shareholder value, which has included assisting Triple S in
negotiating and consummating the merger. In fiscal 2001, Mr. Harter's
compensation for such services was $240,000, and he has been paid a total of
$300,000 through the period ended June 30, 2001, and will continue to receive
$20,000 per month for such services through the month in which the merger is
completed.
Outside Directors Stock Option Plan
On July 13, 2000, Triple S amended the stock option agreements with its
outside directors issued under Triple S's Outside Directors Stock Option Plan
to provide that all unvested stock options subject to these agreements will
become fully vested effective ten days prior to a "change in control" of Triple
S. A change in control will be deemed to have occurred if and when the merger
is completed. Any such stock options that are not exercised prior to the
completion of the merger will be converted into a number of fully exercisable
options to purchase Eimo ADSs and described in "Summary of the Merger
Agreement--Stock Options and Other Employee Benefits" on page 60.
The following table depicts the number of options held by each outside
director of Triple S that are expected to vest prior to the tenth day prior to
the merger, the number of options that are expected to vest as a result of the
merger, and the weighted average strike price for each such category of
options, assuming the merger is completed by August 31, 2001.
Estimated Estimated
Number of Weighted Number of Weighted
Options Vested Average Options Vesting Average
Prior to Ten Days Exercise as a Result of Exercise
Name Before the Merger Price the Merger Price
---- ----------------- -------- --------------- --------
Robert D. Bedilion......... 21,700 $ 7.23 31,700 $ 9.17
Evan C. Harter............. 14,667 $ 7.70 27,000 $ 9.54
James F. Hettinger......... 23,000 $ 6.82 33,000 $ 8.81
A. Christian Schauer(1).... 13,000 $ 5.05 13,000 $ 5.05
David L. Stewart........... 23,000 $ 6.82 33,000 $ 8.81
Donald W. Thomason......... 6,666 $14.07 15,000 $15.25
- --------
(1) Mr. Schauer, a current member of the Triple S board of directors, formerly
was a non-employee director of Triple S and was issued options under Triple
S's Outside Directors Stock Option Plan prior to becoming Chief Executive
Officer of Triple S, and as permitted by the plan, the options issued to
him under the plan are still outstanding.
Indemnification of Directors and Officers and Insurance
Under the merger agreement, Eimo has agreed to provide certain continuing
indemnification and insurance benefits for officers, directors and employees of
Triple S. See "Summary of the Merger Agreement--Indemnification and Insurance"
on page 61.
Accounting Treatment
Eimo will account for the merger as a purchase under Finnish Accounting
Standards in accordance with Interpretation No. 1591/1999 by the Finnish
Accounting Board. Therefore under Finnish Accounting Standards
46
Eimo will not record any goodwill in connection with the merger. Eimo will
account for the merger as a purchase under U.S. Generally Accepted Accounting
Principles in accordance with APB Opinion No. 16, "Business Combinations." See
the "Unaudited Pro Forma Combined Financial Information" beginning on page 73.
In the case of U.S. Generally Accepted Accounting Principles, the excess of
the purchase price over the fair value of the net assets acquired will be
recorded as goodwill and amortized over its estimated economic life. The merger
will result in an estimated total goodwill of approximately (Euro)1.6 million
($1.4 million), and amortization expense of approximately (Euro)0.1 million
($0.1 million) per year under U.S. Generally Accepted Accounting Principles for
20 years after the merger, thereby reducing Eimo's reported consolidated profit
under U.S. Generally Accepted Accounting Principles. The actual goodwill charge
may change from the estimated amount based on the actual average price of Eimo
Series A shares at the time of the merger. This goodwill amortization will be
recognized as an accounting charge against profit upon the completion of the
merger but will not affect Eimo's cash flow. Under Finnish Accounting
Standards, the accounting for the merger will not impact Eimo's distributable
reserves or ability to pay dividends. For more detail about the amount of
goodwill Eimo will have to record for purposes of U.S. Generally Accepted
Accounting Principles and the manner in which such goodwill will be amortized,
and the assumptions employed in estimating such amounts, see Note (a) to the
unaudited pro forma combined financial statements, included in the section of
this proxy statement/prospectus entitled "Unaudited Pro Forma Combined
Financial Information" on page 78.
Resales of ADSs
This proxy statement/prospectus does not cover any resales of Eimo
securities to be received by Triple S shareholders in the merger, and no person
is authorized to make any use of this proxy statement/prospectus in connection
with any such resale.
The Eimo ADSs to be issued to Triple S shareholders in the merger will be
registered under the Securities Act and may be traded freely and without
restriction by those shareholders not deemed affiliates, as that term is
defined under the Securities Act, of Triple S or Eimo. Any transfer of Eimo
ADSs by any person who is an affiliate of Triple S at the time the merger is
submitted for vote of the shareholders of Triple S will, under existing law,
require:
. the further registration under the Securities Act of the Eimo ADSs to be
transferred; or
. compliance with Rule 145 promulgated under the Securities Act, which
permits limited sales under specified circumstances; or
. the availability of another exemption from registration.
Affiliates of Triple S are persons who directly, or indirectly through one
or more intermediaries, control, are controlled by, or are under common control
with, Triple S. The restrictions on affiliates are expected to apply to the
directors and executive officers of Triple S and the holders of 10% or more of
the Triple S shares. The same restrictions apply to spouses, other relatives
and any trusts, estates, corporations or other entities in which affiliates or
their spouses or such relatives have a 10% or greater beneficial or equity
interest. The Eimo ADSs to be received by affiliates of Triple S in the merger
will have a legend describing these restrictions.
Regulatory Approvals Required for the Merger
Other than as described below, we are not aware of any material foreign,
federal or state governmental approvals or actions that may be required for
completion of the merger. Should any other approval or action be required, we
currently contemplate that the approval would be sought or action taken.
47
Antitrust
Based on applicable statutory thresholds, Eimo and Triple S believe that no
pre-merger filings are required under applicable antitrust and anti-monopoly
laws with either U.S., European or other authorities.
Eimo conducts business in two of the member states of the European Union,
namely Finland and the Netherlands. Council Regulation (EEC) 4064/89, as
amended, requires notification to, and approval by, the European Commission of
mergers or acquisitions involving parties with aggregate worldwide sales and
individual European Union sales exceeding specified thresholds. In connection
with the merger, no threshold limits specified in the Council Regulation (EEC)
4064/89 are expected to be exceeded. Consequently, no notification is required
to be submitted to the European Union competition authorities. The Finnish
Competition Act contains regulations with respect to mergers or acquisitions
involving parties with aggregate worldwide sales limits specified in such act.
In connection with the merger, no sales limits specified in the Finnish
Competition Law are expected to be exceeded. Consequently, no notification is
required with respect to the merger to be submitted to the Finnish competition
authorities. There can be no assurance that the merger will not be delayed
because of the application of antitrust or other applicable laws or
regulations. At any time before or after completion of the merger, the U.S.
Federal Trade Commission, the Antitrust Division of the U.S. Justice
Department, a state or non-U.S. governmental authority, such as the Finnish
Competition Authority, or a private person or entity could seek to enjoin the
merger or to cause Eimo to divest, in whole or in part, any of its assets or
businesses, including assets or businesses of Triple S. We cannot guarantee
that a challenge to the merger will not be made or, if a challenge is made,
that we will prevail. Our obligations to complete the merger are dependent on
the condition that there be no order, decree or injunction of any court of
competent jurisdiction that prohibits the merger. See "Summary of the Merger
Agreement--Conditions to Each Party's Obligations to Complete the Merger" on
page 61.
Since September 30, 2000, Eimo has also conducted business in Hungary.
However, based on applicable Hungarian law, no regulatory filings are believed
to be required in Hungary. On August 30, 2000, Triple S announced that it had
established a new business in Brazil. However, based on applicable Brazilian
law, no regulatory filings are believed to be required in Brazil. Eimo has
entered into various business expansion arrangements in the People's Republic
of China. However, Eimo does not believe that any regulatory filings are
required in the People's Republic of China.
In summary, Eimo and Triple S believe that neither the U.S. Federal Trade
Commission, the U.S. Department of Justice, the European Commission nor other
governmental authorities will challenge the merger. However, depending on the
timing of subsequent business developments and the actual closing date of the
transaction, one or more pre-merger filings could ultimately be required and,
in all cases, there can be no assurance that a challenge to the merger on
antitrust grounds will not be made, or, if a challenge is made, what the result
will be.
General
Each party has agreed to use its reasonable best efforts to resolve any
regulatory objections related to the merger. However, Eimo will not be required
to agree to any divestiture or the imposition of any conditions that would be
reasonably likely to have a material adverse effect on Eimo or Triple S or that
would materially and adversely impact the economic, strategic or business
benefits of the merger.
Listing of ADSs/Series A Shares
It is a condition to the merger that the Eimo ADSs issuable in connection
with the merger be listed on the NASDAQ National Market for at least three
months following the merger, and that the Eimo Series A shares to be issued by
Eimo in connection with the merger are admitted to trading on the main market
of the Helsinki Stock Exchange. If the merger is completed, the Eimo ADSs will
be traded on the NASDAQ National Market under the symbol "EIMO," and the Eimo
Series A shares issued in the merger will be admitted to trading on the market
for listed securities of the Helsinki Stock Exchange.
48
Other Effects of the Merger
Effect of the Merger on the Triple S Equity Plans
At the effective time of the merger, all options to acquire shares of
Triple S common stock by their terms will become options to acquire Eimo ADSs.
Pursuant to Triple S's equity-based plans and individual option agreements,
ten days prior to a change in control of Triple S, the unvested stock options
granted to the non-management directors of Triple S under its equity-based
plans will generally vest. The completion of the merger will constitute a
change in control under the equity-based plans and individual option
agreements relating to non-management directors of Triple S. All other Triple
S stock options will, however, upon converting into options to acquire Eimo
ADSs at the time of the merger, remain on the same vesting schedules as were
in place prior to the merger. See "The Merger--Interests of Certain Persons in
the Merger, Outside Directors Stock Option Plan."
Content and Timing of Reports and Notices of the Companies; Definition of
Foreign Private Issuer
The content and timing of reports and notices that Eimo will be required to
file with the SEC differ in several respects from the reports and notices that
Triple S currently files. Eimo is a foreign private issuer for the purposes of
the reporting rules under U.S. federal securities laws.
As a U.S. reporting company, Triple S currently must file with the SEC,
among other reports and notices:
. an annual report on Form 10-K within 90 days after the end of each
fiscal year;
. a quarterly report on Form 10-Q within 45 days after the end of the
first three fiscal quarters; and
. current reports on Form 8-K upon the occurrence of various corporate
events.
As a foreign private issuer, Eimo will be required to:
. file with the SEC an annual report on Form 20-F within six months after
the end of each fiscal year; and
. furnish reports on Form 6-K upon the occurrence of significant corporate
events including publication of its quarterly reports in respect of the
first three quarters and the announcement of its annual results.
As a foreign private issuer, Eimo is not required to file quarterly reports
on Form 10-Q after the end of each financial quarter.
In addition, the content and timing of reports and notices that holders of
Eimo ADSs and Eimo Series A shares will receive will differ from the reports
and notices that are currently received by Triple S shareholders. As a U.S.
reporting company, Triple S must mail to its shareholders in advance of each
annual meeting of shareholders:
. an annual report containing audited financial statements; and
. a proxy statement that complies with the requirements of U.S. federal
securities laws.
As a foreign private issuer, Eimo will be exempt from the rules under the
Securities and Exchange Act prescribing the furnishing and content of annual
reports and proxy statements to its shareholders. However, Eimo expects to
cause holders of Eimo ADSs to be furnished with an annual report which
contains audited financial statements prepared in conformity with Finnish
Accounting Standards, including U.S. Generally Accepted Accounting Principles
reconciliations to the extent required by applicable SEC rules, and a
discussion of Eimo's financial results. In addition, under the rules of the
Helsinki Stock Exchange, Eimo is under an obligation to publish stock exchange
press releases upon the occurrence of any significant corporate events which
it will also furnish to the SEC on Form 6-K. Holders of Eimo ADSs will also be
able to obtain from the depositary bank a copy of Eimo's most recent annual
report on From 20-F beginning with the annual report for
49
the year ended December 31, 2001. The depositary bank has also agreed to make
these documents available for inspection at the depositary bank's office. See
"Description of Eimo American Depositary Shares" for a more detailed discussion
of these procedures. Eimo posts its annual reports and other information on its
internet web site at www.eimo.com. In addition, Eimo's officers, directors and
principal shareholders are exempt from the reporting and "short-swing" profit
recovery provisions contained in Section 16 of the Securities Exchange Act and
related rules that currently apply to officers, directors and significant
shareholders of Triple S. Foreign private issuers also are not subject to the
requirements of Regulation FD.
Eimo expects to retain its status as a foreign private issuer after the
completion of the merger. Under SEC rules, Eimo will retain its status as a
foreign private issuer so long as either:
. 50% or more of Eimo's outstanding voting securities, including Eimo
Series A shares underlying the Eimo ADSs, are beneficially owned by
shareholders who are not residents of the United States; or
. all three of the following conditions continue to be satisfied:
-- at least 50% of Eimo's board of directors and its executive officers
are neither citizens nor residents of the United States;
-- at least 50% of Eimo's assets are located outside the United States;
and
-- Eimo's business is administered principally outside the United
States.
After completion of the merger, U.S. shareholders may, but are not expected
to, hold more than 50% of the Eimo Series A shares. However, Eimo expects that
after the merger at least 50% of the members of its board of directors and
executive officers will be persons who are not U.S. citizens or residents and,
on a consolidated basis, at least 50% of its assets will be located outside of
the United States. Furthermore, Eimo will continue to administer its business
from its current headquarters in Finland. Accordingly, Eimo expects to retain
its status as a foreign private issuer after completion of the merger. If Eimo
at any time loses its status as a foreign private issuer, it will be required
to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K as long as it otherwise is required to be, and, in
fact remains, a reporting company under the Securities Exchange Act. In
addition, Eimo would become subject to the rules under the Securities Exchange
Act regarding the furnishing and content of annual reports and proxy statements
to its shareholders as long as it otherwise is required to be, and in fact
remains, a reporting company under the Securities Exchange Act. Furthermore,
Eimo would become subject to Regulation FD and to Section 16 under the
Securities Exchange Act and the related rules thereunder.
Under the merger agreement, Eimo is obligated to use its best efforts to
keep the Eimo ADSs listed on NASDAQ and use its best efforts to file reports
under the Securities and Exchange Act for at least three months following the
merger. If the Eimo ADSs were delisted from NASDAQ or if Eimo becomes eligible
under applicable rules and regulations of the SEC to choose to cease being a
reporting company, holders of Eimo ADSs would be entitled only to the
information and reports to which they would be entitled to under Finnish law as
beneficial holders of Eimo Series A shares.
Although Eimo, as a foreign private issuer, is exempt from the rules under
the Securities and Exchange Act regarding the furnishing of annual reports,
under the rules of the NASDAQ National Market, Eimo is required to distribute
to the holders of Eimo ADSs an annual report containing audited financial
statements within a reasonable period of time before Eimo's annual general
meeting of shareholders. Eimo currently makes available to holders of Eimo's
Series A shares its annual report which contains audited financial statements
prepared in conformity with Finnish Accounting Standards and a discussion of
Eimo's financial results. Eimo also makes available quarterly interim reports,
which include unaudited interim financial information prepared in conformity
with Finnish Accounting Standards, and notices of meetings of shareholders and
related documents in accordance with the rules of the Helsinki Stock Exchange.
See "Description of Eimo American Depositary Shares."
50
Delisting of Triple S Common Stock
If the merger is completed, the Triple S common stock will be delisted from
the NASDAQ National Market and deregistered under the Securities Exchange Act.
The Market Price for the Eimo ADSs and Eimo Series A Shares
Some U.S. mutual funds and state pension funds are precluded from holding
non-U.S. equities. If any such funds currently hold Triple S common stock, they
will be required to sell their Triple S shares, or the Eimo ADSs or Eimo Series
A shares they receive in exchange, prior to or after completion of the merger.
Furthermore, as of July 6, 2001, the last date prior to the date of this proxy
statement/prospectus for which information was available, Triple S officers and
directors held a total of approximately 2,215,538 shares of Triple S common
stock and Triple S stock options to purchase 427,200 shares. Triple S officers
and directors may sell their Triple S shares or the Eimo ADSs or Eimo Series A
shares they receive in the merger. These sales could adversely affect the
market price for the Eimo ADSs and Eimo Series A shares.
51
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
General
The following is a discussion of the material U.S. federal income tax
consequences of the merger to U.S. Holders, as defined below, of Triple S
shares, and represents the opinion of Schiff Hardin & Waite, counsel to Triple
S. Schiff Hardin & Waite issued its opinion to Triple S on July 13, 2001. This
discussion addresses only U.S. Holders who hold Triple S shares and, after the
merger, Eimo ADSs or Eimo Series A shares, as capital assets and does not
address all aspects of the U.S. federal income tax consequences that may be
relevant to particular U.S. Holders in light of their individual circumstances
or to U.S. Holders who are subject to special rules under U.S. federal income
tax law, including financial institutions, tax-exempt organizations, insurance
companies, dealers or traders in securities or foreign currencies, pass-
through entities, U.S. Holders who hold their shares as a hedge against
currency risk, or as a part of a constructive sale, straddle or conversion
transaction, or U.S. Holders who acquired their shares upon the exercise of
employee stock options or otherwise as compensation. The discussion is based
upon the Internal Revenue Code of 1986, as amended, Treasury Regulations,
administrative rulings and court decisions, all as in effect as of the date of
this document and all of which are subject to change, possibly with
retroactive effect. This discussion addresses only material U.S. federal
income tax consequences and does not address any other federal tax
consequences or any state, local or foreign tax consequences.
For a discussion of the U.S. federal and Finnish tax consequences relating
to the ownership and disposition of Eimo ADSs, see "Taxation on Eimo Series A
Shares and Eimo American Depositary Shares" beginning on page 137.
You are strongly encouraged to consult your own tax advisor as to the
specific tax consequences of the merger in light of your personal tax
situation, including the applicability and effects of federal, state, local
and foreign income and other tax laws.
For purposes of this discussion, the term "U.S. Holder" means a beneficial
owner of Triple S stock that is:
. a citizen or individual resident of the United States;
. a corporation or partnership organized in or under the laws of the
United States or any state thereof, including the District of Columbia;
. an estate of which the income is subject to U.S. federal income taxation
regardless of its source; or
. a trust if, in general, the trust is subject to the supervision of a
court within the United States and the control of one or more U.S.
persons as described in Section 7701(a)(30) of the Internal Revenue
Code.
Schiff Hardin & Waite has opined as of July 13, 2001 that:
. the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue code; and
. a U.S. Holder who exchanges Triple S shares for Eimo ADSs will not
recognize any gain or loss other than in respect of cash received in
lieu of a fractional Eimo ADS, except for any U.S. Holder who will own,
actually or constructively, five percent or more of Eimo, taking into
account both Eimo ADSs and Eimo Series A shares, by vote or value
immediately after the merger, the tax consequences for whom are
described below in "--Five Percent Holders."
The aggregate tax basis in the Eimo ADSs received by U.S. Holders will be
equal to the aggregate adjusted tax basis of Triple S shares exchanged by U.S.
Holders for the Eimo ADSs, except to the extent of basis allocable to a
fractional Eimo ADS. The holding period of the Eimo ADSs will include the
period during which the Triple S shares were held.
The obligations of Eimo and Triple S to complete the merger are
conditioned, among other things, upon the receipt by Triple S of another
opinion of Schiff Hardin & Waite, to be issued as of the effective date of the
52
merger, that the merger will be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code and that each of Eimo and Triple
S will be a party to the reorganization within Section 368(b) of the Internal
Revenue Code. In rendering that opinion, Schiff Hardin & Waite may require and
rely upon customary representations from Eimo and Triple S.
Under the terms of the merger agreement, Triple S may waive the condition
that it receive that tax opinion. However, Triple S does not currently intend
to waive the condition, and, in any event, will not waive the condition without
first:
. revising and recirculating the proxy statement/prospectus to indicate
that it has waived the condition; and
. resoliciting the vote of Triple S's shareholders.
Cash Received in Lieu of a Fractional Eimo ADS
Cash received by a U.S. Holder in lieu of a fractional Eimo ADS will be
treated as though the fractional Eimo ADS had been distributed as a part of the
exchange and then redeemed, and, assuming that the redemption of the fractional
Eimo ADS is characterized as a sale or exchange of the Eimo ADS and not as a
dividend, the U.S. Holder will recognize gain or loss in an amount equal to the
difference between the amount of cash received and the basis of the fractional
Eimo ADS deemed to be surrendered, which gain or loss will generally be a
capital gain or loss.
Five Percent Holders
A U.S. Holder who will own, actually or constructively, five percent or more
of Eimo, taking into account both Eimo ADSs and Eimo Series A shares, by vote
or value immediately after the merger will qualify for non-recognition
treatment as described above only if the holder files a "gain recognition
agreement" with the IRS. A gain recognition agreement would obligate the U.S.
Holder to recognize gain in whole or in part in respect of the merger if,
within the 60 months following the end of Eimo's current taxable year, Eimo
were to dispose of some or all of the stock of Triple S or were to sell
substantially all of the assets acquired from Triple S in the merger, even
though the U.S. Holder has not disposed of its Eimo ADSs. In such event the
U.S. Holder would be obligated to pay the IRS interest from the date the U.S.
Holder filed his or her tax return with respect to the taxable year of the U.S.
Holder in which the merger occurs. Any such holder is urged to consult with a
tax advisor concerning the decision to file a gain recognition agreement and
the procedures to be followed in connection with that filing.
Backup Withholding
U.S. Holders who do not comply with applicable reporting and/or
certification procedures may be subject to withholding tax of 31% with respect
to any cash payments received in the merger. Those procedures do not apply to
"exempt recipients" such as corporations.
The conclusions expressed above, including those expressed in the opinion of
Schiff Hardin & Waite, are based on current law. Future legislative,
administrative or judicial changes or interpretations, which can apply
retroactively, could affect the accuracy of those conclusions. The opinion of
Schiff Hardin & Waite is not binding on the Internal Revenue Service.
The discussion addresses only the material U.S. federal income tax
consequences of the merger to U.S. Holders and does not address other tax
consequences that may be relevant to particular taxpayers in light of their
personal circumstances. Since the tax laws are complex and tax consequences may
be affected by matters not discussed above, each Triple S shareholder is urged
to consult a tax advisor with respect to the specific tax consequences of the
merger taking into account his or her own particular circumstances, including
the applicability and effect of state, local and non-U.S. tax laws, as well as
of the U.S. federal tax laws.
53
Tax Consequences to U.S. Holders of Triple S Employee Stock Options
The exchange pursuant to the merger by a U.S. Holder of an employee stock
option to acquire a share of Triple S common stock for an option to acquire
Eimo ADSs or Eimo Series A shares will not be taxable for U.S. federal income
tax purposes. A U.S. Holder of an option to acquire an Eimo ADS or Eimo Series
A share who received that option in exchange for an option to acquire Triple S
common stock that was received as compensation and who exercises that option,
will generally recognize ordinary income for U.S. federal income tax purposes
in an amount equal to the excess of the fair market value on the exercise date
of the stock received pursuant to that exercise over the price paid for that
stock pursuant to the option and be subject to applicable withholding taxes. A
U.S. Holder's basis in stock received as a result of the exercise of an option
will equal the fair market value of the stock on the exercise date, and a U.S.
Holder's holding period begins on the exercise date. Thereafter, the U.S.
Holder will be subject to the rules discussed elsewhere with respect to U.S.
Holders of Eimo ADSs and Eimo Series A shares. The above discussion does not
address the U.S. federal income tax consequences of the exercise of any option
that is treated as an incentive stock option within the meaning of Section
422(b) of the Internal Revenue Code. Any U.S. Holder of an option that is
treated as an incentive stock option is urged to consult his or her own tax
advisor concerning the consequences to him or her of the merger and exercise of
the option.
54
SUMMARY OF THE MERGER AGREEMENT
The merger agreement is attached to this proxy statement/prospectus as Annex
A. You are urged to read the merger agreement in its entirety because it is the
legal document that governs the merger.
Form of the Merger
If all the conditions to the merger are satisfied or waived in accordance
with the merger agreement, a wholly owned subsidiary of Eimo will merge with
and into Triple S, with Triple S surviving as a wholly owned subsidiary of
Eimo.
Effective Time and Timing of Closing
The merger will become effective and be completed when a certificate of
merger has been filed with both the Department of Consumer and Industry
Services of the Corporation Division of the State of Michigan and with the
Secretary of State of the State of Delaware or at a later time, if so specified
in the certificate of merger. We expect the merger to become effective on the
same day as the closing of the merger, which will take place either as soon as
practicable after the conditions described in the merger agreement have been
satisfied or waived or on another date agreed upon by Eimo and Triple S.
Consideration to be Received in the Merger
At the time the merger becomes effective, each outstanding share of Triple S
common stock will be canceled and converted into the right to receive merger
consideration consisting of 4.5 Eimo Series A shares issued in the form of Eimo
ADSs plus cash in lieu of fractional ADSs. The Eimo Series A shares will be
delivered in the form of Eimo ADSs, each of which will represent ten Eimo
Series A shares.
Eimo will not issue fractional shares in the merger, and the depositary bank
will not issue any fractional ADSs. As a result, each Triple S shareholder that
otherwise would receive a fractional Eimo ADS in the merger will instead
receive a cash payment equal to (1) the fraction of an Eimo ADS that such
shareholder otherwise would have received in the merger, multiplied by (2)
$1.75, multiplied by (3) ten or such other number of Eimo Series A shares
represented at the time of the merger by a single Eimo ADS. No interest will be
paid on the cash paid in the merger in lieu of issuing fractional shares or
fractional ADSs or on any dividends or distributions declared or paid on the
Eimo ADSs issued in the merger.
Also at the time the merger becomes effective:
. Each outstanding Triple S stock option will be exchanged for an option
to purchase Eimo ADSs as described on page 60 under "--Stock Options and
Other Employee Benefits."
. Each outstanding award (including restricted stock, deferred stock and
other stock equivalents) under any Triple S stock plan will be exchanged
for a similar instrument of Eimo as described on page 60 under "--Stock
Options and Other Employee Benefits."
In the event that before the completion of the merger a stock split, stock
dividend, recapitalization or redenomination of share capital, or other similar
transaction, causes a change to the number of outstanding shares of Triple S
common stock or Eimo Series A shares, the number of Eimo ADSs representing the
number of Eimo Series A shares into which a share of Triple S common stock will
be converted in the merger will be appropriately adjusted. In the event that
Triple S issues additional options for Triple S common stock, the
55
number of Eimo ADSs representing the number of Eimo Series A shares into which
a share of Triple S common stock will be converted in the merger will be
appropriately adjusted.
Assuming (1) the conversion of all Eimo Series K shares to Eimo Series A
shares prior to the merger and (2) the exercise of all outstanding Triple S
options prior to the merger, former Triple S shareholders will hold
approximately 30% of the issued and outstanding shares of the combined company
following the merger.
Exchange of Certificates Representing Triple S Common Stock
Eimo will appoint an exchange agent who will exchange certificates
representing shares of Triple S common stock for Eimo ADRs evidencing Eimo
ADSs. Promptly after the merger is completed, Triple S or the exchange agent
will mail to each former registered holder of shares of Triple S common stock a
letter of transmittal which the holder must properly complete and deliver to
the exchange agent with the holder's common stock certificates.
Eimo will issue the Eimo Series A shares that will underlie the Eimo ADSs to
be issued as merger consideration to Citibank, which will serve as the
depositary for the Eimo ADSs. The Eimo ADRs evidencing the Eimo ADSs will be
delivered by the depositary to the exchange agent for the purpose of exchanging
the certificates of shares of Triple S common stock for Eimo ADRs. Citibank is
expected to serve both as depositary and exchange agent.
After a registered holder of shares of Triple S common stock delivers
certificates for those shares and a signed transmittal letter to the exchange
agent, the holder will be entitled to receive in exchange for the holder's
Triple S common stock:
. one or more Eimo ADRs evidencing the number of Eimo ADSs into which the
holder's shares were converted in the merger, excluding fractional Eimo
ADS interests; and
. a check in the amount, after giving effect to any required tax
withholdings, of:
-- cash, in U.S. dollars, in lieu of any fractional interest in an Eimo
ADS, on the terms described above; plus
-- any cash dividends or other distributions that the holder has the
right to receive, including dividends or other distributions payable
with respect to the holder's Eimo ADSs with a record date after the
completion of the merger and a payment date on or before the date
the holder properly delivers Triple S common stock certificates to
the exchange agent.
The certificates representing shares of Triple S common stock that are
surrendered to the exchange agent will be canceled. No interest will be paid or
accrued on any amount payable to holders of Triple S common stock. In addition,
no holder of Triple S common stock will receive any dividends or other
distributions with respect to Eimo ADSs to which the holder is entitled under
the merger agreement until that holder surrenders all of his or her Triple S
common stock certificates to the exchange agent with a properly completed
letter of transmittal.
In order for a person who is not a registered holder of the Triple S common
stock to exchange a certificate, the person must:
. ensure that the certificate surrendered is properly endorsed or
otherwise in proper form for transfer including signature guarantees, if
required;
. provide such proof of identity and genuineness of signatures as the
exchange agent deems appropriate; and
. pay the exchange agent any transfer or other taxes required or establish
to the satisfaction of the exchange agent that such taxes have been paid
or are not payable.
56
If you hold Triple S common stock in "street name" through a bank, broker or
other financial institution, you should receive your Eimo ADSs through that
institution.
Any portion of the merger consideration that remains undistributed on the
first anniversary of the effective date of the merger shall be delivered to
Eimo. Thereafter, any holder of certificates for shares of Triple S common
stock shall look only to Eimo for payment of the merger consideration as a
general creditor.
Representations and Warranties
The merger agreement contains a number of customary representations and
warranties made by Eimo and Triple S regarding, among other things:
. corporate matters, including due organization, good standing and
qualification;
. capital structure and outstanding securities;
. corporate authority to enter into the merger agreement and lack of
conflicts with corporate governance documents, contracts or laws;
. governmental filings;
. reports and other financial statements;
. vote required;
. absence of changes generally since December 31, 2000 with regard to Eimo
and March 31, 2001 with regard to Triple S;
. litigation and liabilities;
. brokers' and finders' fees;
. environmental laws;
. labor and employment matters;
. licenses;
. intellectual property;
. interested party transactions;
. compliance with laws;
. opinions of their respective financial advisors; and
. tax matters.
Triple S has also represented:
. certain matters with respect to its employee benefit plans; and
. that it has taken or will take all actions appropriate and necessary to
ensure that provisions of the Michigan Business Corporation Act limiting
business combinations will not affect the merger or any other
transaction contemplated by the merger agreement.
Eimo has also represented that:
. Spartan Acquisition Corp. has not engaged in prior business activities
or conducted operations other than in connection with the merger.
57
Conduct of Business Pending the Merger; Other Actions
Triple S has agreed that during the period from the signing of the merger
agreement until the completion of the merger, subject to certain permitted
exceptions, it will carry on its business in the ordinary and usual course in
all material respects. Moreover, Triple S is required to use reasonable best
efforts to preserve its business organization intact and maintain its existing
relations and goodwill with licensors, clients, suppliers and others having
significant business relationships with them.
Eimo and Triple S have each also agreed that before the completion of the
merger they will not, among other things, without the consent of the other
party:
. amend their corporate governance documents other than in the case of
Eimo as contemplated in the conversion agreement;
. issue or sell any shares of capital stock other than the issuance of
shares upon the exercise of outstanding options except that Eimo may:
-- issue or sell up to 7,500,000 shares of its capital stock in
connection with one or more acquisitions of uaffiliated third
parties;
-- issue or sell up to 1,500,000 shares of its capital stock under its
warrant plans; and
-- issue Eimo Series A shares as contemplated in the conversion
agreement with respect to the conversion of Eimo Series K shares to
Eimo Series A shares;
. split, combine, subdivide or reclassify their outstanding shares;
. accelerate the vesting of any bonus, stock option or other compensation
or benefits, except as contemplated by the merger agreement;
. adopt a plan of complete or partial liquidation;
. declare or pay dividends or make distributions on their outstanding
shares;
. repurchase any of their outstanding shares;
. knowingly take any action which would cause the merger to fail to
qualify as a tax free reorganization under the U.S. Internal Revenue
Code;
. enter into any merger or share exchange other than pursuant to the
merger agreement and except as described below under "--Offers for
Alternative Transactions";
. dispose of any material amount of assets outside the ordinary course of
business;
. make acquisitions of businesses or assets outside of the ordinary course
of business, except for acquisitions that in total are for no more than
$1 million, subject to certain agreed upon permitted exceptions which
are not subject to a monetary limitation; or
. enter into any agreement materially limiting their respective business
activities.
In addition, Triple S has agreed that it will not take any of the following
actions:
. amend or make any new awards of stock-based compensation or other
benefits under, any compensation or benefit plan, except increases in
salary or non-stock-based compensation in the ordinary course of
business consistent with past practice;
. incur any capital expenditures other than in the ordinary course of
business or which do not exceed $3 million in connection with Triple S'
Brazilian operations or which do not otherwise exceed $3 million in the
aggregate with respect to its other operations;
58
. incur any material indebtedness other than in the ordinary course of
business or other than as previously disclosed to Eimo or indebtedness
which does not exceed $3 million in connection with Triple S' Brazilian
operations as described above; or
. change its tax accounting policies or settle any material audits,
examinations or litigation regarding taxes.
Offers for Alternative Transactions
Eimo and Triple S have each agreed not to, and each is required to, cause
its employees, agents and representatives not to:
. initiate, solicit or encourage any party to engage in a merger,
consolidation or similar transaction with Triple S or Eimo or the
purchase by such party of all or any significant portion of Triple S's
or Eimo's assets or shares; or
. engage in any discussions or negotiations with or provide any
confidential information or data to any person relating to an offer for
such an alternative transaction or engage in any negotiations with any
person concerning any such alternative transaction offer.
However, if Triple S receives an offer to engage in a merger, consolidation
or similar transaction or for the purchase of all or substantially all of its
shares or assets it may engage in discussions or negotiations with, and furnish
confidential information to, the person that made the offer, if:
. the offer did not result from the breach of Triple S's obligations
described above not to solicit or engage in discussions regarding an
alternative transaction offer;
. the Triple S board of directors determines in its good faith judgment,
after receiving the advice of its financial adviser, that the offer is
more favorable to Triple S and its shareholders;
. financing has been committed or is reasonably capable of being obtained
for the offer; and
. the Triple S board of directors determines in its good faith judgment
that such action is required as a result of the board of directors'
fiduciary duties to the Triple S shareholders.
If Eimo receives an offer to engage in a merger, consolidation or similar
transaction or for the purchase of all or substantially all of its shares or
assets it may engage in discussions or negotiations with, and furnish
confidential information to, the person that made the offer, if:
. the offer did not result from the breach of Eimo's obligations described
above not to solicit or engage in discussions regarding an alternative
transaction offer;
. the Eimo board of directors determines in its good faith judgment, after
receiving the advice of its financial adviser, to recommend the offer to
its shareholders; and
. the offer does not require termination of the merger agreement and
expressly permits the consummation of the merger.
Each of Eimo and Triple S also agreed:
. to terminate any discussions or negotiations regarding any potential
merger, consolidation or similar transaction or for the purchase of all
or substantially all of their respective shares or assets that were
being conducted before the merger agreement was signed; and
. to notify the other promptly if any inquiries, proposals or requests for
information regarding an alternative transaction are received or any
discussions or negotiations are sought and identify the person making
the inquiry, proposal or request and the material terms of any offer to
engage in a merger, consolidation or similar transaction or for the
purchase of all or substantially all of its shares or assets that it
receives.
59
Agreement Regarding Recommendations to Shareholders
The Eimo board of directors has agreed, subject to the directors' fiduciary
duties under applicable law, to recommend that the Eimo shareholders vote to
approve the merger agreement, the issuance of Eimo Series A shares pursuant to
the merger and the election of Daniel B. Canavan and Evan C. Harter to the Eimo
board of directors effective upon the merger. The Triple S board of directors
has agreed, subject to the directors' fiduciary duties under applicable law, to
recommend that the Triple S shareholders vote to approve the merger agreement.
See "Special Meeting of Triple S Shareholders" beginning on page 25 and
"Extraordinary General Meeting of Eimo's Shareholders" beginning on page 27.
In the event that either the Triple S board of directors or the Eimo board
of directors decides to withdraw its approval of the merger and recommend an
alternative transaction, the withdrawing board of directors is required to
deliver written notice, at least five business days before that board of
directors modifies its favorable recommendation of the merger, advising the
other company that it intends to do so. In addition, if requested by Eimo,
prior to modifying its recommendation or terminating the agreement, Triple S
must also negotiate with Eimo for a period of five business days to allow Eimo
to adjust the terms of the merger such that Triple S would proceed with the
merger on such adjusted terms.
Each of Triple S and Eimo is required to submit the merger for a vote of its
shareholders even if Triple S's or Eimo's board of directors determines not to
recommend approval of the merger, unless the merger agreement is terminated.
Stock Options and Other Employee Benefits
Stock Options and Awards
In the merger, all Triple S stock options will be exchanged for options to
acquire Eimo ADSs. Eimo will assume the obligations of Triple S under all of
its stock option plans. After the merger, the Triple S stock options will be
exercisable for the number of Eimo ADSs derived by multiplying the number of
shares of Triple S common stock subject to such option before the merger by the
exchange ratio and dividing the result by the number of Eimo Series A shares
represented by a single Eimo ADS. See the "The Merger--Other Effects of the
Merger, Effect of the Merger on the Triple S Equity Plans."
The exercise price per Eimo ADS for each of these options will be the
exercise price for each share of Triple S common stock subject to that option
before completion of the merger multiplied by the number of Eimo Series A
shares represented by a single Eimo ADS then divided by the exchange ratio.
In the merger, all outstanding awards, including restricted stock, deferred
stock and other stock equivalents, under any Triple S stock plan shall be
exchanged for a similar instrument of Eimo. Adjustments will be made as
necessary to preserve the investment value of the awards. Eimo will assume the
obligations of Triple S under the awards.
Except as set forth in certain employment agreements, Eimo has agreed to
file a registration statement on Form S-8 or other available form with the SEC
registering the Eimo Series A shares underlying the Eimo ADSs with respect to
Triple S stock options and other awards.
Other Employee Benefits
Except as set forth in certain employment agreements, Eimo has agreed to
provide to continuing Triple S employees:
. salary which is no less than the salary provided by Triple S for the
twelve-month period ended March 31, 2001 plus any raises instituted
prior to the merger in the ordinary course of business up to 10% of the
employees cash salary for such twelve-month period; and
60
. bonuses for the twelve month fiscal period ending March 31, 2002 equal
to the greater of what the Triple S plans provide for and what any Eimo
alternative plan provides for.
Eimo will also recognize a Triple S employee's prior service with Triple S
for purposes of eligibility and vesting and benefit accruals and determinations
under any employee compensation, incentive or benefit plans that are maintained
for the benefit of Triple S employees after the merger to the same extent as
that service was recognized by Triple S before the merger.
In addition, Eimo has agreed to honor the terms of, or provide comparable
benefits in respect of, all other Triple S employee benefit plans, with the
exception of stock-based plans.
Indemnification and Insurance
After the merger, Eimo will indemnify the individuals who are or were
directors, officers or employees of Triple S or any of its subsidiaries as of
or before the completion of the merger for any losses they incur because they
acted as directors, officers or employees of Triple S or its subsidiaries
before the merger, as follows:
. Eimo will, until the expiration of applicable statutes of limitation,
indemnify and hold harmless those directors, officers and employees
against any costs or expenses, including reasonable attorney's fees,
judgments, fines, losses, claims, damages or liabilities they incur in
connection with any claim arising out of or pertaining to matters
relating to their duties or actions in their capacity as officers,
directors and employees. In this regard, Eimo will advance fees and
expenses, including reasonable attorney's fees, as incurred to the
fullest extent permitted under applicable law if the person to whom
expenses are advanced provides a customary undertaking to repay these
expenses if it is ultimately determined that this person is not entitled
to indemnification; and
. Eimo will, for a period of six years after the merger, provide liability
insurance for directors and officers for acts or omissions occurring
before the merger on terms at least as favorable as those of any policy
presently in effect. To effect such obligations, Eimo will not be
required to pay an annual premium that is more than 150% of the annual
premium currently paid by Triple S for its existing coverage.
The foregoing indemnification and insurance coverage also applies to
individuals serving as fiduciaries under any Triple S employee benefit plans.
Conditions to Each Party's Obligations to Complete the Merger
Eimo's and Triple S's respective obligations to complete the merger are
subject to the satisfaction or waiver of certain conditions, including without
limitation the following:
Shareholder Approvals
. the holders of a majority of the voting power of Triple S common stock
having approved the merger agreement; and
. the requisite holders of the Eimo Series A shares and Eimo Series K
shares, voting as a single class, at the extraordinary general meeting
of the shareholders of Eimo, having approved the resolutions presented
to Eimo's shareholders, details of which we describe above under "The
Eimo Extraordinary Shareholder Meeting."
Regulatory Approvals
. all waiting periods, if any, under applicable U.S. and non-U.S. monopoly
laws having expired or been terminated;
61
. the Form F-4 registration statement of which this proxy
statement/prospectus forms a part and the Form F-6 registration
statement for the Eimo ADSs shall have become effective in accordance
with the Securities Act; and
. all other consents, approvals and declarations and authorizations of
other governmental entities, except as would not have a material adverse
effect, having been obtained.
We describe in detail any regulatory approvals required for the merger and
the actions the merger agreement requires that Eimo and Triple S take in order
to obtain regulatory approvals under "The Merger--Regulatory Approvals Required
for the Merger."
No Laws or Orders
. No law, judgment or order having been enacted or entered, and no
injunction having been issued, by a governmental entity that restrains,
enjoins or otherwise prohibits the completion of the merger.
Stock Exchange Listing
. the Eimo Series A shares to be issued in the merger having been
authorized for listing on the Helsinki Stock Exchange; and
. the Eimo ADSs representing the Eimo Series A shares having been
authorized for listing on the NASDAQ National Market.
Facilitation of Sales in the Event of Termination of Stock Exchange Listing.
. If the Eimo ADSs cease to be listed on the NASDAQ National Market System
or the NASDAQ Small Cap Market during the 12 months following the
merger, Eimo has agreed to use its reasonable best efforts to arrange
for the availability of third party brokerage services to facilitate the
sale of Eimo Series A shares on the Helsinki Stock Exchange for the
remainder of such 12 month period. Eimo's obligation is subject to
compliance with applicable U.S. laws and Eimo's obligation to attempt to
arrange for such brokerage services is limited to the expenditure by it
of $50,000.
Ancillary Agreement
. Eimo and certain shareholders of Triple S and Eimo shall have entered
into the liquidity and registration rights agreement.
Additional Conditions to the Obligations of Eimo
The obligations of Eimo to effect the merger are also subject to the
satisfaction, or waiver by Eimo, of the following conditions:
Representations and Warranties
. Triple S's representations and warranties in the merger agreement having
been true when the merger agreement was entered into and as of the date
the merger is completed, except to the extent that a representation or
warranty expressly speaks as of a specific date, in which case it need
be true only as of that date, and except to the extent that inaccuracies
in the representations and warranties would not individually or in the
aggregate reasonably be expected to have a material adverse effect on
Triple S.
Compliance with Covenants
. Triple S having performed in all material respects all material
obligations required to be performed by it under the merger agreement at
or before the date of the closing of the merger.
No Material Adverse Effect
. No event shall have occurred that is reasonably likely to have a
material adverse effect on Triple S, except that the merger agreement
generally excludes the loss of customers and the loss of sales from such
customers from the definition of material adverse effect.
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Additional Conditions to the Obligations of Triple S
The obligation of Triple S to effect the merger is also subject to the
satisfaction or, except as noted below, waiver by Triple S of the following
conditions:
Representations and Warranties
. Eimo's representations and warranties in the merger agreement having
been true when the merger agreement was entered into and as of the
closing date, except to the extent that a representation or warranty
expressly speaks as of a specific date, in which case it need be true
only as of that date and except to the extent that inaccuracies in the
representations and warranties would not individually or in the
aggregate reasonably be expected to have a material adverse effect on
Eimo.
Compliance with Covenants
. Eimo having performed in all material respects all material obligations
required to be performed by it under the merger agreement at or before
the date of the closing of the merger.
No Material Adverse Effect
. No event shall have occurred that it reasonably likely to have a
material adverse effect on Eimo, except that the merger agreement
generally excludes the loss of customers and the loss of sales from such
customers from the definition of material adverse effect.
Tax Opinion
. Triple S having received another opinion from Schiff Hardin & Waite,
dated as of the closing date, to the effect that, on the basis of the
facts, representations and assumptions set forth in the opinion:
-- the merger will be treated for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the U.S.
Internal Revenue Code; and
-- each of Eimo and Triple S will be a party to the reorganization
within the meaning of Section 368(b) of the U.S. Internal Revenue
Code.
Even though Triple S may waive the condition that it receive Schiff Hardin
& Waite's closing tax opinion, Triple S does not currently intend to waive the
condition, and, in any event, will not waive the condition without first
. revising and recirculating the proxy statement/prospectus to indicate
that it has waived the condition; and
. resoliciting the vote of Triple S's shareholders.
Termination and Effects of Termination
Right to Terminate
The merger agreement may be terminated at any time before the closing in
any of the following ways:
. by mutual written consent
. by Eimo or Triple S, if:
-- the merger is not completed by February 28, 2002, or such later date
as Eimo and Triple S may agree, provided that neither Eimo or Triple
S may terminate the merger agreement if the failure to complete the
merger by that date is caused by the failure of the company seeking
to terminate to fulfill its obligations under the merger agreement;
or
-- a governmental authority issues a final non-appealable order or
injunction that prohibits the completion of the merger, and Eimo and
Triple S shall have used reasonable best efforts to prevent such
order or injunction from being issued.
63
. by Eimo, if:
-- Triple S breaches, in any material respect, any of its
representations, warranties or covenants contained in the merger
agreement, which, unless cured within 30 days following written
notice of breach from Eimo, would result in conditions to the merger
not being satisfied, and which breach has not been waived by Eimo;
or
-- Triple S willfully and materially breaches its obligations described
under "--Offers for Alternative Transactions" beginning on page 59;
or
-- approval by the Triple S shareholders of the merger agreement shall
not have been obtained at the Triple S special meeting of
shareholders; or
-- Eimo receives an offer to engage in a merger, consolidation, or
similar transaction or for the purchase of all or substantially all
of its shares or assets which satisfies the conditions described
under "--Offers for Alternative Transactions" to which Triple S
objects; provided that Eimo pays the fees and expenses described
below under "--Termination Fees Payable to Triple S."
. by Triple S, if:
-- Eimo breaches, in any material respect, any of its representations,
warranties or covenants contained in the merger agreement, which,
unless cured within 30 days following written notice of breach from
Triple S, would result in conditions to the merger not being
satisfied, and which breach has not been waived by Triple S; or
-- Eimo willfully and materially breaches its obligations described
under "--Offers for Alternative Transactions" beginning on page 59;
or
-- approval by the Eimo shareholders of the merger agreement and
related matters shall not have been obtained at the Eimo
extraordinary shareholders meeting; or
-- Triple S receives an offer to engage in a merger, consolidation or
similar transaction or for the purchase of all or substantially all
of its shares or assets which satisfies the conditions described
under "--Offers for Alternative Transactions" and Eimo and Triple S
are unable to negotiate adjusted terms for the merger within five
business days after the receipt of such offer which would enable
Triple S to proceed with the merger; provided that Triple S pays the
fees and expenses described below under "--Termination Payments,
Termination Fees Payable to Eimo."
Termination Payments
Termination Fees Payable to Eimo
Triple S has agreed to pay Eimo a termination fee of $1.4 million and to
reimburse Eimo for up to $1 million of expenses incurred in connection with the
merger, if:
. Eimo terminates the merger agreement pursuant to any of the first three
termination rights of Eimo described above under "--Termination and
Effects of Termination." Notwithstanding the foregoing, in the event of
a non-willful breach by Triple S of its representations, warranties or
covenants giving rise to the first Eimo termination right as described
above, Triple S shall only be required to reimburse Eimo for its
expenses up to $1 million.
. Triple S terminates the merger agreement in connection with a merger,
consolidation or similar transaction involving Triple S or the purchase
or sale of all or substantially all of its shares or assets as described
under "--Offers for Alternative Transactions."
Additionally, if Triple S terminates the merger agreement and consummates a
merger, consolidation or similar transaction involving Triple S or the purchase
or sale of all or substantially all of its shares or assets within one year
following the termination of the merger agreement as described under "Summary
of the Merger Agreement--Offers for Alternative Transactions," Triple S must
pay an additional $0.8 million to Eimo.
64
Termination Fees Payable to Triple S
Eimo has agreed to pay Triple S a termination fee of $1.4 million and to
reimburse Triple S for up to $1 million of expenses incurred in connection with
the merger, if:
. Triple S terminates the merger agreement pursuant to any of the first
three termination rights of Triple S described above under "--
Termination and Effects of Termination." Notwithstanding the foregoing,
in the event a non-willful breach by Eimo of its representations,
warranties or covenants giving rise to the first Triple S termination
right as described above, Eimo shall only be required to reimburse
Triple S for its expenses up to $1 million.
. Eimo terminates the merger agreement in connection with a merger,
consolidation or similar transaction involving Eimo or the purchase or
sale of all or substantially all of Eimo's shares or assets as described
above under "--Offers for Alternative Transactions."
Additionally, if Eimo terminates the merger agreement and consummates a
merger, consolidation or similar transaction involving Eimo or the purchase or
sale of all or substantially all of Eimo's shares or assets within one year
following termination of the merger agreement as described under "--Offers for
Alternative Transactions," Eimo must pay an additional $0.8 million to Triple
S.
Timing
Payment of the termination fee and/or reimbursement of expenses generally is
required to be made within one business day after termination of the merger
agreement. However, in the event of termination by Eimo or Triple S in
connection with any potential merger, consolidation or similar transaction or
for the purchase of all or substantially all of their respective shares or
assets as described above under "--Termination and Effects of Termination,
Right to Terminate," $1.4 million of the termination fee will be paid within
one business day after termination of the merger agreement and the remaining
$0.8 million will be paid upon consummation of such alternative transaction.
Expenses
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger, the merger agreement and the transactions
contemplated by the merger agreement will be paid by the party incurring the
expense, except that
-- Eimo and Triple S will share equally the costs and expenses of
filing, printing and distributing the Form F-4 registration
statement, this proxy statement/prospectus, and any amendments or
supplements thereto.
-- Triple S will pay Eimo $100,000 per month beginning in June 2001 up
to an aggregate of $400,000 for application by Eimo to its legal
fees and accounting fees, its share of printing expenses incurred
after May 25, 2001 and any filing fees with respect to any U.S.
antitrust filing. These expenses are in addition to any other
expenses, up to $1,000,000, which Eimo would be entitled to in the
event of a termination of the merger agreement as described above.
Amendment; Waiver
Eimo and Triple S may amend the merger agreement by written agreement prior
to completion of the merger, but, after Triple S's shareholders or Eimo's
shareholders have approved the merger agreement, no amendment may be made which
by law requires further shareholder approval without the shareholder approval
being obtained.
Any provision of the merger agreement may be waived before the merger is
completed, but only if the waiver is in writing and signed by the party against
whom the waiver is to be effective.
65
SUMMARY OF THE OTHER MERGER-RELATED AGREEMENTS
Concurrently with the execution of the amended and restated merger
agreement, the following merger related agreements which had been previously
entered into in connection with the execution of the original merger agreement
were reinstated:
. the Triple S shareholders' agreement by and among Eimo, Spartan
Acquisition Corp. and A. Christian Schauer, Daniel B. Canavan, Victor V.
Valentine, Jr. and David L. Stewart, all of whom are Triple S
shareholders;
. the Eimo shareholders' agreement by and among Triple S and Jalo
Paananen, Elmar Paananen, Annamari Jukko and Topi Paananen, all of whom
are Eimo shareholders;
. a conversion agreement by and among Eimo, Triple S, and Jalo Paananen,
Elmar Paananen, Annamari Jukko, and Topi Paananen; and
. an employment agreement between Triple S and Mr. Schauer to be effective
upon consummation of the merger, which superceded the employment
agreement entered into between Triple S and Mr. Schauer at the time of
the original merger agreement.
Concurrently with the execution of the amended and restated merger
agreement, Eimo and Triple S again agreed on the terms of a liquidity and
registration rights agreement by and among Eimo, Messrs. Schauer, Canavan,
Valentine, J. Paananen, E. Paananen and T. Paananen and Ms. Annamari Jukko to
be entered into at the time of the merger.
The Triple S Shareholders' Agreement and the Eimo Shareholders' Agreement
In connection with the execution of the merger agreement, Eimo entered into
a shareholders' agreement with Messrs. Schauer, Valentine, Canavan and Stewart,
principal shareholders of Triple S. Concurrently, Triple S also entered into a
shareholders' agreement with Jalo Paananen, Elmar Paananen, Annamari Jukko and
Topi Paananen, principal shareholders of Eimo.
Voting Agreement; Grant of Proxy
Pursuant to the shareholder agreements, each of such shareholders of Triple
S and Eimo agreed to vote their respective shares in favor of the merger and
against any alternative transaction unless such agreements are terminated in
accordance with their terms. Such agreements terminate upon the earlier of the
consummation of the merger or the termination of the merger agreement. Each of
the Triple S shareholders granted to Eimo and Jalo Paananen and Elmar Paananen
irrevocable proxies to vote their shares in accordance with the Triple S
shareholders' agreement. Similarly, each of the Eimo shareholders granted to
Triple S and A. Christian Schauer and Daniel B. Canavan irrevocable proxies to
vote their shares in accordance with the Eimo shareholders' agreement.
No Transfer
Except as provided below, each of the above shareholders of Triple S and
Eimo agreed not to transfer any of their respective shares or any interest
therein, grant any proxy with respect to their shares, enter into a voting
agreement or take any other action that would interfere with their performance
of the merger agreement or the shareholder agreement. Each of Messrs. Schauer,
Valentine and Canavan may, prior to the merger, sell up to $1 million worth of
Triple S shares and Mr. Stewart may, prior to the merger, sell up to $4 million
worth of Triple S shares, so long as Messrs. Schauer, Valentine, Canavan and
Stewart held in the aggregate at least 50.1% of the Triple S common stock on
the record date for the Triple S shareholder meeting. The Eimo shareholders
identified above as a party to the Eimo shareholders agreement may sell up to
$4 million worth of Eimo shares in the aggregate prior to the merger.
66
No Solicitation
Each of the shareholders of Triple S and Eimo identified above as a party to
the respective shareholders' agreements agreed not to solicit, participate in
discussions with or provide any information to any person or entity concerning
a merger, consolidation or similar transaction involving Triple S or Eimo or
involving the sale of all or substantially all of the shares or assets of
Triple S or Eimo. Further, each shareholder agreed to immediately cease any
existing activities related to a merger, consolidation or similar transaction
involving Triple S or Eimo or involving the sale of all or substantially all of
the shares or assets of Triple S or Eimo and to immediately notify either Eimo
or Triple S, as applicable, of the terms of any proposal for any such
alternative transaction.
Termination
The arrangements contained in the shareholder agreements will terminate upon
the earlier of the closing of the merger or the termination of the merger
agreement.
The Conversion Agreement
Pursuant to the conversion agreement, each of the Eimo shareholders
identified above as a party to the conversion agreement agreed to convert the
Eimo Series K shares that they own into Eimo Series A shares on a one-for-one
basis, effective upon, or as soon as practicable after, the closing of the
merger. The conversion agreement will terminate automatically upon termination
of the merger agreement. Eimo has also agreed in the merger agreement not to
issue any additional Series K shares subsequent to the closing of the merger.
The Employment Agreement
Pursuant to the merger agreement, Mr. Schauer entered into an employment
agreement with Triple S which will become effective upon the merger. See "The
Merger--Interests of Certain Persons in the Merger" beginning on page 44.
The Liquidity and Registration Rights Agreement
Pursuant to the merger agreement, at the closing, Eimo, Triple S and Messrs.
Schauer, Canavan, Valentine, Jalo Paananen, Elmar Paananen, Topi Paananen and
Ms. Annamari Jukko must execute a liquidity and registration rights agreement.
See "The Merger--Interests of Certain Persons in the Merger" beginning on page
44.
License Agreement
Subsequent to the execution of the amended and restated merger agreement,
Eimo and Triple S entered into a mutual master licensing agreement regarding
possible licensing on a non-exclusive basis of technology of one party to the
other. The master agreement establishes the framework for any license that may
be granted by either party. As of the date hereof, no technology has been
licensed thereunder. The master agreement provides that if and when specific
technology is to be licensed, a license can be granted by the execution of an
addendum to the master agreement incorporating its terms. Such addendum will
also set forth the specific terms of the license agreed upon including any
royalty payment, a description of the technology to be licensed and related
issues. The initial term of the master agreement is two years and will be
automatically renewed annually thereafter unless either party elects not to
continue the arrangement.
67
MARKET PRICE AND DIVIDEND INFORMATION
Eimo Market Prices and Dividend Information
Eimo's Series A shares are registered for trading on the Helsinki Stock
Exchange under the symbol "EIMAV." After the merger, Eimo ADSs, each
representing an interest in ten Eimo Series A shares or such lesser number as
Eimo may elect, will be issued by the depositary bank and listed on the NASDAQ
National Market under the symbol "EIMO."
The table below shows, for the periods indicated, the high and low sales
prices of the Eimo Series A shares on the Helsinki Stock Exchange, as reported
in euros by the Helsinki Stock Exchange. Eimo's Series A shares commenced
trading on the Helsinki Stock Exchange on March 23, 1999.
Price per Eimo Series A Share on the Helsinki Stock Exchange
Calendar Period High Low
--------------- ----- ----
(EUR)
1999
First Quarter (beginning March 23, 1999).......................... 3.45 3.28
Second Quarter.................................................... 5.25 3.21
Third Quarter..................................................... 5.05 4.00
Fourth Quarter.................................................... 7.50 4.00
2000
First Quarter..................................................... 13.75 6.75
Second Quarter.................................................... 10.24 5.79
Third Quarter..................................................... 9.10 5.50
Fourth Quarter.................................................... 7.49 4.80
2001
First Quarter..................................................... 5.50 1.33
Second Quarter.................................................... 2.56 1.28
January 2001 through July 11, 2001
January 2001...................................................... 5.50 3.76
February 2001..................................................... 3.58 2.32
March 2001........................................................ 2.11 1.33
April 2001........................................................ 1.82 1.28
May 2001.......................................................... 2.56 1.78
June 2001......................................................... 2.28 1.65
July 2001 (through July 11, 2001)................................. 1.70 1.38
All per share prices have been adjusted for a four-for-one stock split
effected on April 12, 2000. The closing sale price of an Eimo Series A share on
the Helsinki Stock Exchange on May 23, 2001, the last trading day in Helsinki
prior to any public announcement of the signing of the merger agreement, was
(Euro)2.11 per share. On July 11, 2001, the last trading day for which
information was available prior to the date of this document, the last closing
price of an Eimo Series A share on the Helsinki Stock Exchange was (Euro)1.39
per share.
We urge you to obtain current market quotations for the Eimo Series A shares
before making a decision with respect to the merger.
The average daily trading volume of Eimo's Series A shares during the year
ended December 31, 2000 was 254,110 shares per day, and during the three month
period ended March 31, 2001, it was 300,949 shares per day.
68
The following table sets forth dividends declared and paid in respect of
Eimo's Series A shares for the periods indicated.
Dividends on Eimo
Year Ended Series A Shares
---------- ------------------
(Euro) $
December 31, 1995...................................... 0.00 0.00
December 31, 1996...................................... 0.00 0.00
December 31, 1997...................................... 0.00 0.00
December 31, 1998...................................... 0.00 0.00
December 31, 1999...................................... 0.03 0.03(a)
December 31, 2000...................................... 0.25 0.25
- --------
(a) A dividend of (Euro)0.17 per share was declared on shares issued prior to
January 1, 1998 and a dividend of (Euro)0.08 for shares issued in 1998
before adjustment for a 4 for 1 stock split effected on April 12, 2000.
Eimo's annual dividend is paid each year in respect of the prior year
shortly after its annual shareholders meeting, which generally is held in March
or April. Dividends for shares of Eimo with respect to the fiscal year ended
December 31, 2000 were paid on May 28, 2001 to holders of record as of May 18,
2001.
For companies domiciled in Finland and incorporated under Finnish law,
dividends on shares are generally paid annually only after shareholder approval
of both the company's results and the amount of the dividend proposed by the
board of directors. Under Finnish law, the amount of any dividend is limited to
the amount of profits and distributable equity available at the end of the
preceding fiscal year for the parent company or for the consolidated group,
whichever is lower, and may be subject to further limitations.
After the merger, Eimo expects to declare and pay dividends annually,
although we cannot assure you as to Eimo's ability to pay, or the particular
amounts that would be paid, from year to year. The determination to pay
dividends, the amount of the dividends and the time of payment, will depend
upon, among other things, Eimo's earnings, financial condition and capital
requirements, as well as applicable restrictions on the payment of dividends
under Finnish law and other factors as the Eimo board of directors may deem
relevant. Eimo's dividend policy will also take into account the equity ratio
goal of 45% to 60% which has been set by the Eimo board of directors.
69
Triple S Market Prices and Dividend Information
Triple S shares are traded on the NASDAQ National Market under the symbol
"TSSS." The table below shows the high and low sale prices of a Triple S share
on the NASDAQ National Market for the periods presented.
Price per Triple S Share on the NASDAQ National Market
Period High Low
------ ----- -----
(USD)
Fiscal 2000
First Fiscal Quarter Ended June 30, 1999...................... 5.94 2.63
Second Fiscal Quarter Ended September 30, 1999................ 9.00 4.25
Third Fiscal Quarter Ended December 31, 1999.................. 13.88 8.72
Fourth Fiscal Quarter Ended March 31, 2000.................... 18.00 13.25
Fiscal 2001
First Fiscal Quarter Ended June 30, 2000...................... 24.25 15.13
Second Fiscal Quarter Ended September 30, 2000................ 33.88 20.94
Third Fiscal Quarter Ended December 31, 2000.................. 31.50 22.13
Fourth Fiscal Quarter Ended March 31, 2001.................... 26.00 4.13
Fiscal 2002
First Fiscal Quarter Ended June 30, 2001...................... 8.02 4.25
Second Fiscal Quarter Ending September 30, 2001 (through July
11, 2001).................................................... 6.10 5.45
The last closing price of a Triple S share on the NASDAQ on May 24, 2001,
the last trading day for the Triple S common stock prior to any public
announcement of the signing of the amended and restated merger agreement, was
$7.20 per share. On July 11, 2001, the last trading day for which information
was available prior to the date of this document, the last closing price of a
Triple S share on the NASDAQ was $5.49 per share.
Triple S has not declared or paid any cash dividends in the last two fiscal
years and does not anticipate paying any cash dividends to its shareholders
prior to the merger.
We urge you to obtain current market quotations for the Triple S shares
before making a decision with respect to the merger.
70
CURRENCY AND EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on European Union negotiated at
Maastricht in 1991 and signed by the then 12 member states of the European
Union, known as the EU, in early 1992, a European Economic and Monetary Union,
known as EMU, was implemented on January 1, 1999, and a single European
currency, known as the euro, was introduced. The following 11 member states
participate in the European Monetary Union and have adopted the euro as their
official national currency: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The
irrevocable conversion rate between the Finnish markka and the euro was fixed
on January 1, 1999 at (Euro)1.00=FIM 5.94573.
Since January 1, 1999, the euro has been the lawful currency of the 11
European Monetary Union states, although euro banknotes and coins are not
expected to enter circulation until January 1, 2002. Outstanding obligations
denominated in national currencies will be converted at the legal rates
established on January 1, 1999, unless specific contracts provide for an
alternative conversion rate. During a transitional phase, which is planned to
begin on January 1, 2002 and end by July 1, 2002, national currencies,
including banknotes and coins, will subsist as non-decimal denominations of the
euro. We cannot assure you that these events will take place on time or
otherwise as currently expected.
Eimo ADSs will trade in U.S. dollars. As the principal trading market for
the Eimo Series A shares underlying the Eimo ADSs is the Helsinki Stock
Exchange, where the Eimo Series A shares trade in euros, the value of the Eimo
ADSs in dollars will fluctuate as the dollar/euro exchange rate fluctuates.
Additionally, since any dividends Eimo may declare are expected to be
denominated in euros, exchange rate fluctuations will affect the dollar value
of dividends received by holders of Eimo ADSs.
The first table below sets forth, for the periods and dates indicated, the
average, high, low and period-end noon buying rates for the euro expressed in
euros per U.S. dollar. The second table below sets forth, for the periods and
dates indicated, the average, high, low and period-end noon buying rates for
the U.S. dollar expressed in U.S. dollars per euro. For any time or period
before January 1, 1999, the noon buying rates for euros have been derived from
the noon buying rates for the Finnish markka converted into euros at the
irrevocable conversion rate between the Finnish markka and the euro. The
average noon buying rates have been calculated based on the noon buying rate
for the last business day of each month or portion of a month during the
relevant period. These rates are provided solely for the convenience of the
reader and are not necessarily the rates Eimo used in the preparation of its
financial statements. Eimo makes no representation that Finnish markka or euros
could have been converted into dollars at the rates shown or at any other rate
for such periods or at such dates.
Euros per U.S. Dollar
Calendar Period Average High Low Period End
--------------- ------- ------ ------ ----------
1997........................................ 0.8774 0.9419 0.7759 0.9171
1998........................................ 0.8989 0.9466 0.8240 0.8518
1999........................................ 0.9455 0.9984 0.8466 0.9930
2000........................................ 0.9228 1.0388 0.8252 0.9412
Three Months Ended March 31, 2001........... 0.9232 0.9545 0.8832 0.8832
Six Months Ended June 30, 2001.............. 0.8982 0.9545 0.8465 0.8480
January 2001 through July 11, 2001
January 2001................................ 0.9383 0.9545 0.9146 0.9293
February 2001............................... 0.9217 0.9425 0.9056 0.9248
March 2001.................................. 0.9095 0.9363 0.8832 0.8832
April 2001.................................. 0.8920 0.9032 0.8772 0.8876
May 2001.................................... 0.8742 0.8939 0.8480 0.8480
June 2001................................... 0.8532 0.8662 0.8465 0.8480
July 2001 (through July 11, 2001)........... 0.8442 0.8497 0.8384 0.8611
71
U.S. Dollars per Euro
Calendar Period Average High Low Period End
--------------- ------- ------ ------ ----------
1997........................................ 1.1397 1.2888 1.0617 1.0904
1998........................................ 1.1125 1.2136 1.0564 1.1740
1999........................................ 1.0576 1.1812 1.0016 1.0070
2000........................................ 1.0861 1.2118 0.9626 1.0747
Three Months Ended March 31, 2001........... 1.0832 1.1322 1.0477 1.1322
Six Months Ended June 30, 2001.............. 1.1416 1.1813 1.0477 1.1792
January 2001 through July 11, 2001
January 2001................................ 1.0658 1.0934 1.0477 1.0761
February 2001............................... 1.0850 1.1042 1.0610 1.0813
March 2001.................................. 1.0995 1.1322 1.0680 1.1322
April 2001.................................. 1.1211 1.1400 1.1072 1.1266
May 2001.................................... 1.1439 1.1792 1.1187 1.1792
June 2001................................... 1.1721 1.1813 1.1545 1.1792
July 2001 (through July 11, 2001)........... 1.1795 1.1927 1.1613 1.1613
72
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives pro
forma effect to the merger, after giving effect to the pro forma adjustments
described in the accompanying notes. For accounting purposes, Eimo will account
for the merger as a purchase under both Finnish Accounting Standards and U.S.
Generally Accepted Accounting Principles. The unaudited pro forma combined
financial information is presented herein in accordance with U.S. Generally
Accepted Accounting Principles. As of the date of this document Eimo had not
obtained an appraisal. For the purpose of the U.S. Generally Accepted
Accounting Principles pro forma combined financial information, an assumption
has been made that the carrying value of the net assets of Triple S approximate
their fair market value and have not been adjusted. The unaudited pro forma
combined balance sheet at March 31, 2001 gives effect to the merger as if the
transaction had occurred on March 31, 2001. The unaudited pro forma combined
income statement for the year ended December 31, 2000 and for the period ended
March 31, 2001 gives effect to the merger as if the transaction had occurred on
January 1, 2000. This information also does not indicate what Eimo's future
operating results or combined financial position will be.
The unaudited pro forma combined financial information are not necessarily
indicative of the actual results of operations or financial position that would
have occurred had the merger of Eimo and Triple S occurred on the dates
indicated nor are they necessarily indicative of future operating results or
financial position. No account has been taken within the unaudited pro forma
combined financial information of any synergy or any severance and
restructuring costs which may, or are expected to, occur following the merger.
The unaudited pro forma combined financial information is based on the
audited and unaudited historical consolidated financial statements of Eimo and
Triple S, respectively, which are prepared in accordance with Finnish
Accounting Standards and U.S. Generally Accepted Accounting Principles,
respectively. The consolidated historical income statement information of Eimo
for the year ended December 31, 2000 was derived from the audited financial
statements of Eimo, which are included in this document. The consolidated
historical income statement information of Triple S for the twelve months ended
December 31, 2000 was derived by adding the unaudited income statement
information of Triple S for the nine months ended December 31, 2000 to the
unaudited income statement information of Triple S for the three months ended
March 31, 2000. The unaudited income statement information of Triple S for the
three months ended March 31, 2001 was derived by subtracting the unaudited
income statement information of Triple S for the nine months ended December 31,
2000 from the audited income statement information of Triple S for the fiscal
year ended March 31, 2001. The unaudited pro forma combined financial
information is based on the audited and unaudited historical consolidated
financial statements of Eimo and Triple S, which are prepared in accordance
with Finnish Accounting Standards and U.S. Generally Accepted Accounting
Principles, respectively. The consolidated historical financial statement data
of Eimo as of and for the three month period ended March 31, 2001 is derived
from the unaudited financial statements of Eimo which are included in this
document. The consolidated historical balance sheet information of Triple S was
derived from the audited financial statements of Triple S as of March 31, 2001.
The consolidated historical income statement information of Triple S for the
three month calendar period ended March 31, 2001 was derived by subtracting the
unaudited income statement information of Triple S for the nine calendar months
ended December 31, 2000 from the audited income statement information of Triple
S for the year ended March 31, 2001. See also "Where You Can Find More
Information" on page 180.
We have prepared the unaudited pro forma combined financial information in
accordance with U.S. Generally Accepted Accounting Principles to fulfill
regulatory requirements under the securities laws of the United States. This
presentation, however, should not be taken to mean that Eimo's primary basis of
accounting in future periods will be U.S. Generally Accepted Accounting
Principles.
The unaudited pro forma combined financial information should be read in
conjunction with the historical financial statements of Eimo and Triple S as
well as "Eimo Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Triple S Management's Discussion and Analysis of
Financial Condition and Results of Operations" that are included elsewhere in
this document.
73
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
For the Year Ended December 31, 2000
Eimo Triple S Pro Forma
---------------------------- -------- --------------------------------
U.S. GAAP U.S. U.S. Pro Forma Combined Combined
FAS Adjustments GAAP GAAP Adjustments U.S. GAAP U.S. GAAP
------- ----------- ------- -------- ----------- --------- ---------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) $
(in thousands except per share amounts)
Net sales............... 105,530 0 105,530 154,447 259,977 229,611
Cost of sales........... 86,595 362 86,957 124,943 211,900 187,150
------- ------ ------- ------- --- ------- -------
Gross profit........... 18,935 (362) 18,573 29,504 48,077 42,461
Selling and marketing
expenses............... (1,685) (18) (1,703) (3,139) (4,842) (4,276)
General and administra-
tive expenses.......... (3,881) (30) (3,911) (12,413) (82) (a) (16,406) (14,490)
Direct costs of planned
acquisition of Triple
S...................... -- (857) (857) -- (857) (757)
Loss from affiliated
companies.............. -- (27) (27) -- (27) (24)
Other operating income.. 300 221 521 -- 521 460
------- ------ ------- ------- --- ------- -------
Operating income....... 13,669 (1,073) 12,596 13,952 (82) 26,466 23,374
Other income and
(expense)
Other financial
income................
Interest income........ 171 -- 171 80 251 221
Interest expense....... (413) -- (413) (645) (1,058) (934)
Extraordinary items..... (857) 857 -- -- -- --
------- ------ ------- ------- ------- -------
Income before income
tax expense........... 12,570 (216) 12,354 13,387 (82) 25,659 22,661
Income tax expense...... (3,784) (37) (3,821) (5,455) (9,276) (8,192)
Minority Interest....... (7) -- (7) -- (7) (6)
------- ------ ------- ------- --- ------- -------
Net income............. 8,779 (253) 8,526 7,932 (82) 16,376 14,463
======= ====== ======= ======= === ======= =======
Earnings per share
Basic.................. 0.19 0.18 2.10 (b) 0.26 0.23
Diluted................ 0.19 0.18 1.74 0.24 0.21
Weighted average shares
outstanding
Basic.................. 46,400 46,400 3,783 61,964 61,964
Diluted................ 46,745 46,745 4,562 67,522 67,522
The accompanying notes are an integral part of the unaudited pro forma combined financial
information.
74
UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
For the Three Month Period Ended
March 31, 2001
Eimo Triple S Pro Forma
-------------------------- -------- --------------------------------
U.S. GAAP U.S. U.S. Pro Forma Combined Combined
FAS Adjustments GAAP GAAP Adjustments U.S. GAAP U.S. GAAP
------ ----------- ------ -------- ----------- --------- ---------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) $
(in thousands except per share amounts)
Net sales............... 26,954 -- 26,954 40,226 67,180 59,334
Cost of sales........... 24,127 (1,775) 22,352 35,574 57,926 51,160
------ ------ ------ ------ ------ ------
Gross profit........... 2,827 1,775 4,602 4,652 9,254 8,174
Selling and marketing
expenses............... (526) 5 (521) (904) (1,425) (1,259)
General and
administrative
expenses............... (1,240) 7 (1,233) (5,491) (20) (a) (6,744) (5,956)
Direct costs of planned
acquisition of Triple
S...................... -- (1,361) (1,361) -- (1,361) (1,202)
Other operating income.. 216 51 267 -- 267 236
------ ------ ------ ------ --- ------ ------
Operating income....... 1,277 477 1,754 (1,743) (20) (9) (7)
Other income and
(expense)
Interest income........ 42 -- 42 -- -- 42 37
Interest expense....... (369) -- (369) (142) -- (511) (452)
Other income
(expense)............. 41 75 116 (380) (264) (234)
Extraordinary items..... (1,361) 1,361 -- -- -- -- --
------ ------ ------ ------ --- ------ ------
Income before income
tax expense........... (370) 1,913 1,543 (2,265) (20) (742) (656)
Income tax expense...... (42) (505) (547) 626 -- 79 70
Minority interest....... 60 -- 60 175 235 208
------ ------ ------ ------ --- ------ ------
Net income (loss)...... (352) 1,408 1,056 (1,464) (20) (428) (378)
====== ====== ====== ====== === ====== ======
Earnings per share
Basic.................. (0.01) 0.02 (0.36) (0.01) (0.01)
Diluted................ (0.01) 0.02 (0.36) (0.01) (0.01)
Weighted average shares
outstanding
Basic.................. 46,400 46,400 3,779 63,564 63,564
Diluted................ 46,400 46,400 3,779 63,564 63,564
The accompanying notes are an integral part of the unaudited pro forma combined financial
information.
75
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET
As of March 31, 2001
Eimo Triple S Pro Forma
--------------------------- -------- -------------------------------
U.S. Pro Combined Combined
GAAP U.S. U.S. Forma U.S. U.S.
FAS Adjustments GAAP GAAP Adjustments GAAP GAAP
------- ----------- ------- -------- ----------- -------- --------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro) $
(in thousands)
ASSETS
Current assets
Cash and cash equivalents... 4,437 -- 4,437 1,130 5,567 4,917
Financial instruments....... -- 274 274 -- 274 242
Accounts receivable......... 25,066 -- 25,066 22,257 47,323 41,796
Refundable income taxes..... -- -- -- 753 753 665
Inventories................. 15,212 3,846 19,058 8,984 28,042 24,767
Deferred income taxes
(income tax asset)......... 931 430 1,361 763 2,124 1,876
Other current assets........ 1,753 -- 1,753 1,670 3,423 3,023
------- ------- ------- ------ ------- ------- -------
TOTAL CURRENT ASSETS........ 47,399 4,550 51,949 35,557 87,506 77,286
Property, plant and
equipment--net.............. 56,880 1,826 58,706 35,438 94,144 83,148
Other assets
Goodwill--net............... 2,828 -- 2,828 4,231 1,637 (c) 8,696 7,680
Other assets................ 2,957 -- 2,957 923 -- 3,880 3,427
------- ------- ------- ------ ------- ------- -------
TOTAL OTHER ASSETS.......... 5,785 -- 5,785 5,154 1,637 12,576 11,107
------- ------- ------- ------ ------- ------- -------
Total Assets................ 110,064 6,376 116,440 76,149 1,637 194,226 171,541
======= ======= ======= ====== ======= ======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Notes payable .............. -- -- -- 659 659 582
Accounts payable............ 9,538 -- 9,538 10,982 20,520 18,123
Accruals.................... 5,126 2,553 7,679 6,624 2,500 (d) 16,803 14,840
Deferred revenue............ 3,761 -- 3,761 -- 3,761 3,322
Deferred taxes.............. -- 31 31 -- 31 27
Current maturities of long-
term debt.................. 7,164 10,202 17,366 2,255 19,621 16,699
------- ------- ------- ------ ------- ------- -------
TOTAL CURRENT LIABILITIES... 25,589 12,786 38,375 20,520 2,500 61,395 53,593
Long Term Debt .............. 26,654 (10,003) 16,651 9,169 25,820 23,437
Deferred Income Taxes........ 3,129 1,299 4,428 2,127 6,555 5,789
------- ------- ------- ------ ------- ------- -------
TOTAL LIABILITIES............ 55,372 4,082 59,454 31,816 2,500 93,770 82,819
Minority interests........... 1,693 -- 1,693 -- 1,693 1,495
Shareholders' equity
Common shares............... 11,600 -- 11,600 17,146 (17,146)(c) 16,122 14,239
4,522 (e)
Additional paid in capital.. 18,124 (1,037) 17,087 -- 40,648 (e) 57,735 50,991
Retained earnings........... 23,275 3,422 26,697 27,305 (27,305)(c) 24,997 22,077
(1,700)(d)
Accumulated other
comprehensive income....... -- (91) (91) (118) 118 (c) (91) (80)
------- ------- ------- ------ ------- ------- -------
TOTAL SHAREHOLDERS' EQUITY.. 52,999 2,294 55,293 44,333 (863) 98,763 87,227
------- ------- ------- ------ ------- ------- -------
Total shareholders' equity
and liabilities............ 110,064 6,376 116,440 76,149 1,637 194,226 171,541
======= ======= ======= ====== ======= ======= =======
The accompanying notes are an integral part of the unaudited pro forma combined financial
information.
76
Notes to the Unaudited Pro Forma Combined Financial Information
(1) Eimo U.S. Generally Accepted Accounting Principles Adjustments
Eimo prepares its consolidated financial statements in accordance with
Finnish Accounting Standards, which differs in several material respects from
U.S. Generally Accepted Accounting Principles. For the purposes of preparing
the unaudited pro forma combined financial information, Eimo's financial
information has been restated to conform with U.S. Generally Accepted
Accounting Principles by giving effect to the adjustments described in Note 17
to the Eimo consolidated financial statements included in this document.
(2) Reclassification of the Eimo Financial Information
Amounts in the Eimo financial information have been reclassified from
financial statements prepared in accordance with Finnish Accounting Standards
to conform with U.S. Generally Accepted Accounting Principles. Certain amounts
included in the Triple S financial statements have been reclassified to conform
to the format used in the pro forma combined financial information.
(3) Triple S Foreign Currency Translation
The historical financial statements of Triple S are presented in U.S.
dollars. The historical unaudited financial statements of Triple S at December
31, 2000 included in the pro forma combined financial statements are presented
in euros. The historical balance sheet has been translated, for the purpose of
preparing the pro forma financial information, into euros at the March 31, 2001
closing exchange rate of 0.8832 U.S. dollars to one euro. The historical Triple
S income statement for the year ended December 31, 2000 has been translated,
for the purpose of preparing pro forma financial information, into euros at the
average exchange rate for the year of 0.9236 U.S. dollars to one euro and the
historical income statement for the period ended March 31, 2001 has been
translated into euros at the average exchange rate for the period of 0.9124
U.S. dollars to one euro.
(4) Pro Forma Adjustments
Under U.S. Generally Accepted Accounting Principles, Eimo will account for
the merger with Triple S using the purchase method of accounting. As of the
date of this document, Eimo had not obtained an appraisal. Once an appraisal is
obtained, certain assets and liabilities of Triple S may require adjustments to
reflect their fair market value in the pro forma combined financial information
as of December 31, 2000 and as of March 31, 2001. The allocation of the
estimated purchase price and the estimated transaction fees and expenses
included in the pro forma combined financial information are preliminary; final
amounts may differ from those set forth herein and such differences may be
material.
The acquisition has been structured to qualify as a Section 368(a)
restructuring under the U.S. Internal Revenue Code whereby neither Eimo nor
Triple S will incur a U.S. tax liability on the exchange of shares to
consummate the transaction. As such, no adjustment has been reflected for U.S.
taxation on the transaction.
Acquisition Financing
Each issued and outstanding share of Triple S will be converted into 4.5
Eimo Series A shares in the form of Eimo ADSs representing an interest in the
underlying Eimo Series A shares.
After the exchange of shares, the holders of the shares and options of
Triple S are expected to own approximately 30% of the total shares of Eimo on a
fully diluted basis.
For the purpose of the pro forma combined financial information, to
determine the estimated purchase price for Triple S, a price of (Euro)2.32 per
Eimo Series A share was used, which was the average of the closing prices of
the Eimo Series A shares as of the trading days between May 22, 2001 and May
29, 2001.
77
Notes to the Unaudited Pro Forma Combined Financial Information (continued)
All Triple S stock options which are not exercised prior to closing of the
merger will be converted into options to purchase Eimo ADSs and assumed by Eimo
substantially in accordance with existing plan provisions. For the purpose of
the pro forma combined financial information, each option for one share of
Triple S common stock would be convertible into an option to acquire 4.5 Eimo
Series A shares issued in the form of ADSs. For the purpose of the pro forma
combined financial information and in order to determine the purchase
consideration, the fair value of Triple S's options was estimated on the date
of the merger agreement using the Black-Scholes option pricing model with the
following weighted average assumptions:
. risk-free interest rate of 4.5%;
. expected dividend yield of 0%;
. expected lives of two and three years; and
. expected volatility of 100%.
Purchase Consideration
(Euro) $
---------------
(in thousands)
Conversion of Triple S shares, based on 4,019,352 shares
outstanding at July 6, 2001............................... 41,962 37,061
Conversion of Triple S stock options, based on 473,200
options outstanding at July 6, 2001....................... 3,208 2,833
Acquisition related expenses............................... 800 707
------- -------
Total purchase price....................................... 45,970 40,601
Less:
Fair value of the net assets acquired(1).................. 44,333 39,155
------- -------
Goodwill................................................... 1,637 1,446
======= =======
- --------
(1) Based on the net book value of Triple S as of March 31, 2001, Eimo is not
aware of any identifiable assets or liabilities that are likely to be
recorded that have not been factored into goodwill. As of the date of this
document, Eimo had not obtained any appraisal and was unable to allocate
the purchase price to Triple S assets and liabilities based on their
respective fair market values. Therefore, for purposes of this pro forma
calculation, it has been assumed that the carrying value of Triple S assets
and liabilities approximate their fair market values. The carrying value of
certain long-term assets and liabilities of Triple S may be materially
different from the fair market values once an appraisal is obtained.
Income Statement Adjustments
(a) To reflect amortization of the additional goodwill related to the merger as
follows:
Three Month
Year Ended Period Ended
December 31, March 31,
2000 2001
------------ ------------
(in thousands, except
number of years)
(Euro) $ (Euro) $
Goodwill resulting from the merger............... 1,637 1,446 1,637 1,446
Divided by: amortization period (20 years using
straight-line method)........................... 20 20 * *
----- ----- ----- -----
Goodwill amortization per period................. 82 73 20 18
Less: historical amortization.................... -- -- -- --
----- ----- ----- -----
Incremental amortization......................... 82 73 20 18
===== ===== ===== =====
78
Notes to the Unaudited Pro Forma Combined Financial Information (continued)
- --------
* For the three month period ended March 31, 2001, goodwill must be divided by
20 to arrive at the annual goodwill amortization and then multiplied by 25%
to arrive at goodwill amortization for the three month period.
(b) Pro Forma Combined Earnings Per Share
Pro forma combined basic earnings per share has been calculated by dividing
pro forma combined net profit for the period by the number of shares
outstanding, at the end of each respective period, after giving effect to the
merger. There are 18,087,084 Eimo Series A shares assumed to be issued in the
merger based upon the exchange ratio of 4.5 Eimo Series A shares per Triple S
share.
Pro forma combined diluted earnings per share includes the conversion of
473,200 Triple S stock options outstanding at July 6, 2001 into 2,129,400 Eimo
stock options. Each Triple S stock option was assumed to be converted into 4.5
stock options to acquire Eimo Series A shares pursuant to the merger agreement.
For purposes of calculating diluted earnings per share there were approximately
986,359 and 738,850 common stock equivalents at March 31, 2001 and December 31,
2000, respectively.
Pro forma combined basic and diluted earnings per share include 46,400,000
shares of Eimo Series A and Series K weighted average shares outstanding and
46,400,000 Eimo Series A and Series K weighted average shares outstanding, in
each case, for the three months ended March 31, 2001. Pro forma combined basic
and diluted earnings per share include 46,400,000 shares and 46,745,000 shares,
respectively, of Eimo Series A and K weighted average shares outstanding for
the year ended December 31, 2000.
Balance Sheet Adjustments
(c) To record acquisition cost over the fair value of net assets acquired as
goodwill and eliminate Triple S equity balance.
(d) To record the transaction fees and expenses of approximately (Euro)1.7
million and (Euro)0.8 million for Triple S and Eimo, respectively, as a
liability and deduct the fees related to Triple S from equity.
(e) To record shares to be issued by Eimo to shareholders of Triple S to
convert 4,019,352 Triple S shares into Eimo Series A shares and record the
fair value of options to be issued to holders of Triple S stock options in
accordance with the merger agreement.
Convenience Translation
The unaudited pro forma combined euro amounts have been converted into U.S.
dollars solely for the convenience of reader at the March 31, 2001 closing
exchange rate of 0.8832 U.S. dollars to one euro.
79
INFORMATION ABOUT TRIPLE S
Background
Triple S was organized as a Michigan corporation in 1969, when injection
molding operations began in a leased facility in Kalamazoo, Michigan. The
building that currently houses Triple S's manufacturing operations in
Vicksburg, Michigan, was constructed in 1974. In 1978, Triple S constructed a
second injection molding facility, originally known as Victor Plastics, and
also constructed its Satellite Mold facility, now named the Tooling and
Technology Centre, which is dedicated to mold production, both in Vicksburg. In
1983, Triple S built an injection molding plant in Tucson, Arizona.
Triple S completed an initial public offering of its common stock in March
of 1994. Triple S used the proceeds of that offering to finance building
expansions, purchase new equipment for its facilities, retire existing debt and
fund working capital needs.
In fiscal 1995, for the purpose of expanding its injection molding capacity,
Triple S constructed a 64,000 square foot facility in a modern industrial park
in Battle Creek, Michigan. In October 1995, Triple S began operations in a
64,000 square foot leased injection molding facility in Georgetown, Texas. See
"--Properties."
In fiscal 1998, Triple S consolidated the operations of its Victor Plastics
plant into its Vicksburg facility and its Battle Creek facility. The Victor
Plastics facility is currently being used for post-molding operations and
warehousing. In fiscal 1998, Triple S also consolidated its mold-making
facilities in Vicksburg, Michigan, and renamed the operation the Triple S
Plastics, Inc. Tooling and Technology Centre.
In fiscal 1999, Triple S purchased the assets of Dynacept Company, Inc.
Dynacept is a rapid prototyping and model making organization that produces
models of potential products, models that demonstrate the finished appearance
of products, engineering prototypes and pre-production samples using a wide
range of techniques. The 30,000 square foot facility is located in Putnam
County, New York. In fiscal 2000, Triple S began operations in a 60,000 square
foot leased injection molding facility in Fort Worth, Texas. In 2000, Triple S
closed and sold its Tucson, Arizona facility and it transferred the machinery
and equipment to its new facility in Fort Worth, Texas and other locations in
Michigan.
In fiscal 2001, Triple S established a new business in Manaus, Brazil to
serve the needs of its customers in the rapidly growing wireless
telecommunications industry and other high-growth datacom industries in Brazil
and various countries in South America. The business is conducted through
Triple S Cosmoplast de Amazonia, Ltda., which is jointly owned by Triple S and
Cosomoplast Industria Comercio de Plasticos Ltda, a Brazilian plastics company
serving the electronics and other select consumer goods industries. Triple S
Cosmoplast operations are conducted in a 23,000 square foot facility located in
the Manaus Free Trade Zone in Brazil, joining other internationally known
companies such as Nokia, Phillips, Samsung, Siemens and Visteon. Triple S owns
70% of Triple S Cosmoplast, with the remaining 30% owned by Cosmoplast
Industria. In fiscal 2001, Triple S also acquired Burco Precision Products,
Inc., a mold manufacturing business, located in Denton, Texas to support the
tooling needs of the customers of its subsidiary, Triple S Technologies, which
primarily serves mobile communications customers.
Triple S has one primary operating segment--the design and manufacture of
highly engineered thermoplastic components, principally for the
telecommunications, automotive, consumer products and medical markets. Other
operations including mold making and rapid prototyping. Triple S has no
significant export sales.
Triple S's principal corporate offices are located at 7950 Moorsbridge Road,
Suite 200, Portage, Michigan 49024, and its telephone number at those offices
is 616-327-3417. Triple S's fiscal year ends on March 31, and references in
this document to fiscal 2002, fiscal 2001, fiscal 2000 and fiscal 1999 refer to
Triple S's fiscal years ending March 31, 2002 and fiscal ended March 31, 2001,
March 31, 2000 and March 31, 1999, respectively.
80
Business
Triple S manufactures complex, highly engineered thermoplastic parts, and
the molds to produce those parts. Thermoplastic parts are manufactured out of
plastic resins which are capable of softening or fusing when heated and
hardening again when cooled. Triple S manufactures parts and molds primarily
for the following markets:
. telecommunications,
. consumer products,
. automotive,
. medical/pharmaceutical, and
. information technology
During fiscal 2001, Triple S manufactured over 2,000 different parts for more
than 250 customers in these markets. Triple S considers rapid prototyping,
model making, mold and molded parts manufacturing and assembly to be integral
parts of its business. Triple S manufactures only custom parts based on
customer specifications and, therefore, is generally the exclusive source of
supply for the parts being sold to the customer, although customers generally
use more than one molder for other parts.
Triple S's product development and production operations include rapid
prototyping, model making, design assistance, component engineering, mold
design, prototype and production mold construction, process engineering and
high quality part production. In addition, Triple S provides value added post-
molding assembly and finishing operations, including:
. ultrasonic welding, which uses an ultra high-frequency vibration to join
plastic parts,
. solvent bonding, which uses glue or chemical solvents to join plastic
parts together,
. heat staking, which is a process in which non-plastic parts can be
joined to plastic parts,
. decorative services,
. machining, and
. retail packaging
Mold delivery lead-time and part quality are generally key factors in the
award of contracts for complex plastic parts. Triple S has made significant
investments in state-of-the-art design and machining equipment to accelerate
its mold design and construction process. Each injection-molding machine is
equipped with a computerized process controller to continuously monitor part
quality and consistency. Triple S believes that its integrated operations,
ability for short lead-time mold delivery and product quality provide
competitive advantages in the markets in which it operates.
Certain developments in markets served by Triple S have created growth
opportunities for suppliers of plastic parts. Efforts to reduce weight, enhance
design flexibility and reduce costs have resulted in the substitution of
plastic for wood, glass, paper, metal and other materials in numerous
applications. In addition, original equipment manufacturers are continuing to
outsource not only the manufacture but also the design, engineering and
assembly of plastic parts to qualified suppliers. Original equipment
manufacturers are consolidating their purchases with larger, integrated
component suppliers that possess full-service capabilities for all functions
from mold design through post-molding assembly and finishing operations. Triple
S believes that its technical expertise with respect to plastic resins and
injection molding technology, and its capacity for full service, high-quality
response to the needs of customers will enable Triple S to grow as a result of
these market dynamics.
81
In March 2001, Triple S announced that, based on information it had received
from its principal customer, Triple S expected significantly weaker sales to
its principal customer than it had anticipated for fiscal 2002 and 2003, and
that the overall effect of these weaker sales would (1) significantly adversely
affect the anticipated growth of Triple S's revenues in fiscal 2002, (2) result
in a significant reduction of the profits anticipated by Triple S in fiscal
2002 and (3) result in a significant reduction of Triple S's anticipated
revenues and profits in fiscal 2003. At the end of April 2001, Triple S also
announced that, as a result of the loss of these sales and following a review
of production capacity needs at its two Texas molding facilities, it would be
transferring most of the production at its Ft. Worth, Texas plant to its
Georgetown, Texas plant.
Following the reinstatement of the merger agreement in May 2001, Eimo
requested that Triple S maintain production capacity at Triple S's Ft. Worth
plant at its current level, and that Triple S not transfer any significant
production from the Ft. Worth plant to the Georgetown plant. Triple S has
agreed to maintain production capacity at the Ft. Worth plant at its current
level in anticipation of increased business from its principal customer and new
business from prospective customers following the completion of the merger.
Triple S now believes, however, that it will realize a significant decrease
in both sales and profits for fiscal 2002 as compared to its sales and profits
for fiscal 2001, resulting primarily from:
. continued weaker sales to its principal customer;
. a longer than anticipated delay in the release of new product programs
from other customers;
. a significant decrease in expected new business from new customers; and
. losses anticipated from Triple S's maintaining both the Ft. Worth
facility and the Georgetown facility at full production capacity in
anticipation of increased and new business.
Triple S is unable to determine at this time the effect that these factors may
have on its results of operations (including its sales and profits) in fiscal
2003.
Markets and Products
Triple S produces plastic parts for customers that operate principally in
five markets: telecommunications, consumer products, automotive,
medical/pharmaceutical and information technologies. See "Triple S Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
The following table summarizes each of the markets of Triple S as a
percentage of total sales for its fiscal years ended March 31:
% of Sales
----------------
Market 1999 2000 2001
------ ---- ---- ----
Telecommunications......................................... 37% 62% 77%
Automotive................................................. 11% 10% 6%
Consumer Products.......................................... 25% 12% 5%
Medical/Pharmaceutical..................................... 13% 8% 3%
Information Technologies................................... 11% 5% 2%
Other...................................................... 3% 3% 7%
Telecommunications Market
Customers in this market manufacture products such as cellular phones,
pagers and related accessories, and require high levels of computer assisted
design engineering, molding of plastic parts less than .040 inch in thickness,
in-mold component decorating and assembly. Because of Triple S's expertise in
these areas and the strong growth demonstrated by original equipment
manufacturers in this market, telecommunications is a target market for growth
for Triple S. Triple S's sales to one customer in this market, Nokia Mobile
Phones, accounted for 72%, 59% and 34% of total sales for fiscal 2001, 2000,
and 1999, respectively.
82
The loss of Nokia, which is the largest customer of Triple S, would have a
significant near-term negative effect on Triple S's operating performance as a
whole and would necessitate significant operational adjustments and re-
deployment of assets. The likelihood of the occurrence of this risk will be
increased if Triple S is unable to satisfy the global supply needs of this
customer in the relative near term.
Automotive Market
Sales in the automotive market are made mostly to first-tier suppliers to
automobile manufacturers. These suppliers are major assembly manufacturers that
provide products directly to automotive companies. Triple S sells these
suppliers products such as outside mirror shells, interior mechanical and
seating components, headlight adjustment brackets, fluid reservoir tanks, and
components for electrical and audio systems. Automotive original equipment
manufacturers and first-tier suppliers are relying on fewer vendors possessing
broader capabilities. First-tier suppliers have been increasing the outsourcing
of the design and manufacture of plastic components and are purchasing more
complex subassemblies from a shrinking base of suppliers. While this market
becomes increasingly competitive, Triple S believes it has the capabilities to
serve many customers in this market. Triple S's Battle Creek, Michigan facility
was constructed to more effectively serve Triple S's automotive customers.
Consumer Products Market
Customers in the consumer products market manufacture products such as home
entertainment devices, office equipment, and other end user products. Triple S
sells products such as CD speaker housings and covers, paper binding equipment,
and various other housings and covers to customers in this market. Triple S
expects the use of plastics in this broad market to continue to grow as new
thermoplastic resins evolve, with higher strengths, better impact and heat
resistance and other physical properties that will increase the substitution of
plastics for other materials.
Medical/Pharmaceutical Market
Customers in the medical/pharmaceutical market are comprised primarily of
manufacturers of durable medical equipment for use in non-sterile, non-invasive
applications. Triple S sells products such as components for hospital
stretchers and beds, disposable wound irrigation instruments, tissue
stabilizers, colostomy units, and glucose test kits to customers in this
market. Triple S has targeted this market for expansion because customers tend
to require product engineering services for high volume components with close
tolerances and post-molding assembly and finishing services.
Information Technologies Market
Customers in the information technologies market are primarily manufacturers
of computers, printers, copy machines and printer cartridges. Triple S sells
components for personal computers and peripheral equipment, printers, and laser
and bar code scanners to customers in this market.
Sales and Marketing
Triple S currently markets its services on a national basis through its
direct sales force of seven people and four independent manufacturers'
representative organizations.
Operations
Triple S is a plastics engineering services company that seeks to provide
its customers with rapid prototyping and design models, mold design and
engineering services, mold manufacturing, plastic injection molding, and post-
molding assembly and finishing operations.
Through its subsidiary, Dynacept Corporation, in Putnam County, New York,
Triple S produces models, engineering prototypes and pre-production samples
using a wide range of techniques including:
. stereolithography, which is a process of laser curing liquid plastic to
create a model part,
83
. heat staking, which is a process in which non-plastic parts can be
joined to plastic parts,
. conventional hand-shaping modeling techniques,
. specialized rubber molding,
. advanced painting processes, and
. advanced decorating processes
Triple S designs, engineers and constructs molds used to produce
thermoplastic components at its Tooling and Technology Centre in Vicksburg,
Michigan. This facility is equipped with modern design and machining equipment,
including:
. computer assisted design and computer assisted machinery systems,
. electrical discharge machining equipment, which is equipment that
removes metal from molds using an electric charge,
. specialized milling equipment, which is equipment that uses a rotary-
tool steel cutter for shaping and dressing metal surfaces, and
. miscellaneous support equipment
Triple S's mold production capacity is generally devoted to the production
of molds to be used by Triple S for the production of injection molded
components for its customers. In substantially all cases, the customer owns the
mold, but Triple S retains possession for production. The Tooling and
Technology Centre also conducts prototype and development projects, frequently
in conjunction with resin suppliers and customers' engineers. Through the many
projects undertaken at its Tooling and Technology Centre, Triple S has gained
experience with nearly all resins currently in use for injection molding. This
expertise combined with Triple S's injection molding production experience
enables Triple S to provide innovative solutions for its customers.
Triple S has five facilities that are full service custom injection molding
plants with post-molding secondary operations. These facilities collectively
house 95 horizontal injection molding machines with capacities ranging from 55
tons to 720 tons and one vertical machine with a capacity of 40 tons. Each
machine utilizes a computerized process controller that continuously monitors
key process parameters on a real time basis and signals the operator if any
parameter falls outside predetermined statistical limits. The injection molding
process is supported by automated systems for raw material drying, conveying
and regrinding. All of Triple S's plants have received ISO 9002 certification,
an international quality standard. Triple S has received QS9000 certification,
another quality standard, for its facilities in Vicksburg, Michigan and Battle
Creek, Michigan.
Triple S offers its customers value added post-molding secondary services,
including ultrasonic inserting and welding, heat staking, solvent bonding,
finishing, machining, assembly and on-line packaging. These important services
support the customers' requirements for subassembled components, which provide
cost savings and manufacturing efficiencies.
Raw Materials
The principal raw materials used by Triple S are thermoplastic resins.
Thermoplastic resins soften when heated and harden again when cooled. Triple S
uses over 400 different resins, nearly all of which are classified as
engineering grade resins, as compared to lower priced commodity grade resins.
Resins are generally purchased for the production of existing orders. Triple S
purchases its raw materials from several different sources, and these materials
are available from several suppliers.
84
Patents and Trademarks
Triple S does not own any patents, registered trademarks or licenses,
although Triple S claims certain common law trademark rights. In general,
Triple S relies on its technological capabilities, manufacturing quality
control and know-how, rather than patents, in the conduct of its business.
Backlog
Triple S has understandings with several of its major customers whereby the
customers discuss long-range quantities and sales expectations for periods up
to 12 months. Quantity expectations are given to Triple S and once a part is
approved for production, Triple S begins production and generally expects that
it will continue such production for the life of the product. The customer will
typically provide volume indications for the next three months with a purchase
order, or a call-off request, for quantities for the next 30 days. While Triple
S fully expects that its customers intend to have it provide production for the
products for which it has production indications, the customers rarely give
irrevocable commitments. Accordingly, due to the close cooperation and
collaboration with its customers, Triple S believes that there will be
continuing involvement in the production of its customers' products. It does
not, however, consider its open orders at any time to be indicative of future
business activity.
Competition
The injection molding business in the markets in which Triple S's competes
is highly competitive. Triple S focuses on complex components with close
tolerances where it competes principally on the basis of technical expertise,
customer service, product quality and rapid mold production, although price is
also an important competitive factor. There are many suppliers of plastic
injection molded components, including many that are larger than Triple S with
greater financial resources.
Employees
At March 31, 2001, Triple S employed 755 full time employees, five part time
employees and 101 temporary employees. Triple S has no employees who are
represented by a labor union, and considers its relations with its employees to
be good.
Financial Information About Segments
Triple S's primary operations are in one segment--the design and manufacture
of highly engineered thermoplastic components. Triple S's other operations
include mold making and rapid prototyping.
Financial Information About Geographic Areas
Triple S has no significant export sales. However, Triple S has established
a new business in Manaus, Brazil. See "Business."
Properties
The following table sets forth information regarding Triple S's rapid
prototyping, model making, mold manufacturing and plastic injection molded
component production facilities:
Location Size Function
-------- ---- --------
Georgetown, Texas.. 64,000 sq. ft. Injection molding, post-molding operations
and office
Georgetown, Texas.. 20,000 sq. ft. Warehouse
Denton, Texas...... 7,500 sq. ft. Mold manufacturing
Fort Worth, Texas.. 60,000 sq. ft. Injection molding, post-molding operations
and office
85
Location Size Function
-------- ---- --------
Manaus, Brazil........... 23,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Battle Creek, Michigan... 64,000 sq. ft. Injection molding, post-molding
operations and office
Vicksburg, Michigan...... 59,000 sq. ft. Injection molding, post-molding
operations, warehouse and office
Vicksburg, Michigan...... 40,000 sq. ft. Post-molding operations and warehouse
Vicksburg, Michigan...... 32,000 sq. ft. Mold manufacturing, office and
Tooling and Technology Centre
Putnam County, New York.. 30,000 sq. ft. Rapid prototyping, model making and
office
Portage, Michigan........ 8,900 sq. ft. Office
Production is rationalized by site, with production for mobile
communications customers conducted primarily at Triple S's Texas and Brazillian
facilities and production for other customers conducted primarily at its
Michigan and New York facilities. Triple S owns its facilities except for the
Texas and Portage, Michigan facilities, which are leased. Triple S's current
facilities are considered suitable and adequate for current and near-term
production needs.
Directors of Triple S
Service as a
Names, Ages, Positions and Backgrounds of Directors Director
- --------------------------------------------------- ------------
Robert D. Bedilion, age 63, retired December 31, 1996, from his Director since 1997
position as President of Polymerland Incorporated, a subsidiary of Member of Audit and
General Electric Company, which he held since 1989. Compensation
Committees
Daniel B. Canavan, age 47, is the Chairman of the Board, and he has Director since 1982
held that position for more than five years. Prior to May 25, 1999,
he also served as Triple S's Chief Executive Officer.
Evan C. Harter, age 58, is the Chairman of AppsMall.com, an Director since 1998
internet start-up company. In addition, he is the Chairman of Member of
International Marketing Strategies, Inc., an organization that Compensation
assists businesses to grow from strong regional manufacturers into Committee
internationally competitive enterprises, which position he has held
for more than five years.
James F. Hettinger, age 52, is the President and Chief Executive Director since 1992
Officer of Battle Creek Unlimited, Inc., an industrial park Member of
development corporation, and he has held that position for more Compensation
than five years. Committee
A. Christian Schauer, age 58 is the Chief Executive Officer of Director since 1990
Triple S, and was appointed to that position on May 25, 1999. Prior
to becoming Triple S's Chief Executive Officer, he was the Chairman
and Chief Executive Officer of Clausing Industrial, Inc., a machine
tool distribution company in Kalamazoo, Michigan, a position that
he held for more than five years. In addition, Mr. Schauer is a
director of Griffith Laboratories International, Inc., a food
ingredient and flavor system manufacturer company in Alsip,
Illinois, and The Windquest Companies, Inc., a manufacturer of
storage systems in Grand Rapids, Michigan.
86
Service as a
Names, Ages, Positions and Backgrounds of Directors Director
- --------------------------------------------------- ------------
David L. Stewart, age 62 has been retired for more than five years. Director since 1969
Prior to his retirement, Mr. Stewart served as Triple S's Chairman Member of Audit
and Chief Executive Officer. Committee
Donald W. Thomason, age 56 retired in 1999 from his position as Director since 1999
Executive Vice President, Corporate Services and Technology of the Member of Audit
Kellogg Company, a worldwide consumer goods food company, which he Committee
had held since 1990. Mr. Thomason also serves as Lead Director on
the Board of Southeast Michigan Gas Company, a gas distribution and
engineering company. He has served on this board since 1995,
holding the Lead Director position since 1998.
Victor V. Valentine, Jr., age 55 has been Triple S's President Director since 1983
since 1990.
Directors' Fees
Triple S pays its directors who are not employees of Triple S an annual
retainer of $2,000 and fees of $1,000 per board meeting attended and $500 per
committee meeting attended. Triple S reimburses directors for their out-of-
pocket expenses related to attending meetings.
Meetings and Committees of the Triple S Board of Directors
The board of directors of Triple S met nine times during fiscal 2001. The
board of directors has the following two standing committees:
. the Compensation Committee and
. the Audit Committee
During fiscal 2001, each director attended at least 75% of the combined
total number of Triple S's board meetings and the meeting of the committees on
which he was a member.
The Audit Committee met two times in fiscal 2001. The Audit Committee
reviews and makes recommendations to the board of directors with respect to the
engagement of the independent public accountants and the fees relating to audit
services and other services performed by them. The Audit Committee meets with
the independent public accountants and officers responsible for Triple S's
financial matters. The Audit Committee is comprised of Messrs. Bedilion,
Stewart and Thomason.
The Compensation Committee met one time in fiscal 2001. This committee
advises the Triple S board of directors with respect to the salary,
compensation and benefits of directors and officers of Triple S. The
Compensation Committee is comprised of Messrs. Bedilion, Harter and Hettinger.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Triple S board of directors is currently
comprised of Messrs. Bedilion, Harter and Hettinger.
No interlocking relationships or inside participation exist between Triple
S's board of directors or Compensation Committee and the board of directors or
compensation committee of any other company.
Triple S Executive Compensation
The following table contains information regarding compensation with respect
to the three preceding fiscal years of Triple S's chief executive officer and
each of the four other most highly compensated executive
87
officers whose salary and bonus exceeded $100,000, all of whom are referred to
in this document as Triple S's named executive officers. This information is
reflected on an accrual basis for each fiscal year so that bonuses relate to
the year of performance, even though paid in the ensuing fiscal year.
Long-Term
Annual Compensation Compensation
-------------------- ---------------------
Fiscal Securities Underlying All Other
Executive Year Salary ($) Bonus ($) Options (#) Compensation ($)(1)
- --------- ------ ---------- --------- --------------------- -------------------
A. Christian
Schauer(2)............. 2001 249,620 490,396 -0- 27,019
Chief Executive Officer 2000 210,577 116,620 490,000 16,053
Daniel B. Canavan....... 2001 192,642 107,312 -0- 22,295
Chairman of the Board 2000 196,300 76,080 20,000 16,149
1999 175,719 108 -0- 15,363
Victor V. Valentine,
Jr. ................... 2001 178,280 107,312 -0- 31,449
President 2000 175,754 113,780 20,000 21,976
1999 141,750 108 -0- 11,024
Walter J. Barkalow(3)... 2001 122,840 65,536 -0- 12,209
Vice President 2000 119,869 28,175 15,000 7,873
Michael E. Zaagman ..... 2001 121,835 67,612 -0- 12,018
Vice President 2000 120,185 30,518 15,000 9,160
1999 104,246 108 -0- 9,082
- --------
(1) Represents Triple S's contributions, including matching of voluntary
contributions by such person under its 401(k) plan.
(2) Mr. Schauer joined Triple S as Chief Executive Officer on May 25, 1999. Mr.
Schauer entered into a five-year employment agreement with Triple S
effective May 11, 1999. The agreement provides for an annual base salary of
$250,000, subject to increase by the Board, and other standard executive
benefits. The agreement includes a two-year non-compete and non-
solicitation covenant, as well as a severance obligation of not more than
one year if his employment is terminated without cause.
(3) Although Mr. Barkalow has been employed with Triple S since 1995, he did
not become an officer of Triple S until fiscal 2000.
Option Grants in Fiscal 2001
No options were granted to the named executive officers in fiscal 2001.
Aggregated Option Exercises in Fiscal 2001 and Year-End Option Values
The following table contains information regarding the exercise of options
during fiscal 2001 by Triple S's named executive officers listed below, as well
as unexercised options held by them at the end of fiscal 2001:
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year In-the-Money Options at
Shares End(#) Fiscal Year End ($)(2)
Acquired Value ------------------------- -------------------------
on Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
-------------- -------------- ----------- ------------- ----------- -------------
A. Christian Schauer.... 7,586 160,000 489,667 13,333 617,110 -0-
Daniel B. Canavan....... -0- -0- 43,000 20,000 -0- -0-
Victor V. Valentine,
Jr..................... -0- -0- 43,000 20,000 -0- -0-
Walter J. Barkalow...... -0- -0- 18,500 8,000 -0- -0-
Michael E. Zaagman...... -0- -0- 33,000 15,000 -0- -0-
- --------
(1) The value realized upon the exercise of options is equal to the difference
between the market value of the shares of Triple S common stock acquired at
the time of exercise and the aggregate exercise price paid by the named
executive officer to Triple S.
(2) The value of unexercised options is based on the difference between the
closing price of Triple S common stock on March 31, 2001 ($4.563) and the
exercise price of the options.
88
Certain Relationships and Related Transactions
William J. Stewart, a Vice President of Triple S, and David L. Stewart are
brothers. There are no other family relationships between or among the
directors and executive officers of Triple S.
On May 11, 1999, Messrs. Valentine, Canavan and Schauer entered into an
irrevocable proxy and purchase right agreement. Under that agreement, Messrs.
Valentine and Canavan agreed that they would vote their shares to elect Mr.
Schauer to the board of directors of Triple S for so long as Mr. Schauer
remains Chief Executive Officer of Triple S.
See also "The Merger--Interests of Certain Persons in the Merger."
Legal Proceedings
Triple S is not a party to any material legal proceedings. However, Triple S
may from time to time become a party to various legal proceedings arising in
the ordinary course of its business.
89
TRIPLE S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information in this section concerning Triple S's financial condition
and results of operations refers to Triple S's consolidated financial
statements included in this document. Triple S's consolidated financial
statements were prepared in accordance with United States Generally Accepted
Accounting Principles. Triple S's fiscal year ends March 31 and, unless
otherwise noted, references to fiscal 2001, 2000, and 1999 relate to the fiscal
years ended March 31, 2001, 2000, and 1999.
Results of Operations
In March 2001, Triple S announced that, based on information it had received
from its principal customer, Triple S expected significantly weaker sales to
its principal customer than it had anticipated for fiscal 2002 and 2003, and
that the overall effect of these weaker sales would (1) significantly adversely
affect the anticipated growth of Triple S's revenues in fiscal 2002, (2) result
in a significant reduction of the profits anticipated by Triple S in fiscal
2002 and (3) result in a significant reduction of Triple S's anticipated
revenues and profits in fiscal 2003. At the end of April 2001, Triple S also
announced that, as a result of the loss of these sales and following a review
of production capacity needs at its two Texas molding facilities, it would be
transferring most of the production at its Ft. Worth, Texas plant to its
Georgetown, Texas plant.
Following the reinstatement of the merger agreement in May 2001, Eimo
requested that Triple S maintain production capacity at Triple S's Ft. Worth
plant at its current level, and that Triple S not transfer any significant
production from the Ft. Worth plant to the Georgetown plant. Triple S has
agreed to maintain production capacity at the Ft. Worth plant at its current
level in anticipation of increased business from its principal customer and new
business from prospective customers following the completion of the merger.
Triple S now believes, however, that it will realize a significant decrease
in both sales and profits for fiscal 2002 as compared to its sales and profits
for fiscal 2001, resulting primarily from:
. continued weaker sales to its principal customer;
. a longer than anticipated delay in the release of new product programs
from other customers;
. a significant decrease in expected new business from new customers; and
. losses anticipated from Triple S's maintaining both the Ft. Worth
facility and the Georgetown facility at full production capacity in
anticipation of increased and new business.
Triple S is unable to determine at this time the effect that these factors may
have on its results of operations (including its sales and profits) in fiscal
2003.
On June 18, 1999, Triple S announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility to its
new facility in Fort Worth, Texas and other locations in Michigan. At the same
time, Triple S also announced that it planned to dispose of its Victor Plastics
facility. The charge recorded in the first quarter ended June 30, 1999,
reflects the cost of closing the Tucson facility and impairment charges related
to the planned disposition of the Victor Plastics facility. The loss on closing
and impairment charge included the writedown of property, plant and equipment
to market value of $1,151,000 and closedown expenses of $161,000. The writedown
to market value consisted of the Tucson facility of $675,000, Tucson machinery
and equipment of $326,000, and the Victor Plastics facility of $150,000.
Closedown expenses consisted of inventory write off of $84,000 and severance
payments of $77,000 related to the termination of all 100 employees at the
Tucson facility. The market value of the property, plant and equipment was the
amount at which the assets could be sold in a current transaction between
willing parties, other than in a forced or liquidation sale. The pre-tax effect
of this charge is classified in general and administrative expenses in Triple
S's consolidated statements of income. The sale of the Tucson facility was
final and all other costs were incurred as of December 1999 and no additional
provision for closing costs was necessary.
Near the end of the third quarter of fiscal 1999, two of Triple S's
customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code and
a third customer indicated that it was having extreme financial
90
difficulty obtaining needed additional financing to pay amounts owed to Triple
S. Accordingly, in the third quarter of fiscal 1999, Triple S recorded a pre-
tax charge of $1,441,000 relating to a provision for losses on accounts
receivable of $1,221,000 and inventories on hand for these customers of
$200,000 and legal costs of $20,000. This pre-tax charge is classified in
general and administrative expenses in Triple S's consolidated statements of
income.
The table below outlines the components of Triple S's consolidated
statements of income as a percentage of net sales for the periods indicated
below:
Fiscal year ended
March 31,
--------------------
1999 2000 2001
----- ----- -----
Net sales................................................. 100.0 % 100.0% 100.0%
Cost of sales............................................. 83.6 81.1 82.6
Gross profit.............................................. 16.4 18.9 17.4
Selling & marketing expenses.............................. 5.2 4.5 1.8
General & administrative expenses......................... 12.9 9.4 9.6
Operating income (loss)................................... (1.7) 5.0 6.0
Interest expense, net..................................... 0.5 0.3 0.4
Other expense............................................. 0.2 -- --
Income (loss) before income tax expense (benefit)......... (2.2) 4.7 5.4
Income tax expense (benefit).............................. (.6) 1.8 2.4
Net income (loss) before minority interest................ (1.6) 2.9 3.0
Minority interest in net loss of subsidiary............... -- -- 0.1
Net income (loss)......................................... (1.6)% 2.9% 3.1%
The following table summarizes each of Triple S's markets as a percentage of
total sales for the periods indicated below:
Percentage
of Sales
---------------------
Fiscal year ended
March 31,
---------------------
Market 1999 2000 2001
- ------ ----- ----- -----
Telecommunications...................................... 37% 62% 77%
Automotive.............................................. 11 10 6
Consumer Products....................................... 25 12 5
Medical/Pharmaceutical.................................. 13 8 3
Information Technologies................................ 11 5 2
Other................................................... 3 3 7
Fiscal year ended March 31, 2001 compared to fiscal year ended March 31, 2000
Net sales
Triple S's net sales for fiscal 2001 were $155.2 million, an increase of
$60.1 million or 63.2% over net sales of $95.1 million for fiscal 2000. As in
the prior year, Triple S's sales to all markets, except telecommunications,
showed percentage decreases. Such decreases were the result of exceptionally
strong growth in the telecommunications market, which comprised 77% of total
net sales as compared to 62% in the previous fiscal year. Price increases
during the year were moderate and customers continued to exhibit strong
resistance in accepting price increases. Triple S is continuing to accelerate
its efforts at growing business with customers outside the telecommunications
market.
Cost of sales
Triple S's cost of sales represented 82.6% of net sales in fiscal 2001,
compared to 81.1% in fiscal 2000. This slightly higher cost of sales percentage
in fiscal 2001 was primarily attributable to material cost increases, which
were not carried through to selling price increases, and start-up expenses in
Brazil. Triple S continues its efforts to maximize factory utilization and
better balance its overhead structure.
91
Selling and marketing expenses
Triple S's selling and marketing expenses decreased as a percentage of net
sales to 1.8% in fiscal 2001 compared with 4.5% in fiscal 2000. The decrease
was primarily attributable to a change in distribution arrangements in the
telecommunications market from outside representative organizations to direct
sales representation.
General and administrative expenses
Triple S's general and administrative expenses represented 9.6% of net sales
in fiscal 2001 compared to 9.4% in fiscal 2000. Note 14 to the Triple S
consolidated financial statements explains the detail of several exceptional or
unusual, one-time charges classified in general and administrative expenses in
fiscal 2001 and 2000. Such amounts need to be considered when looking at normal
recurring general and administrative expenses. Excluding one-time charges,
general and administrative expenses in fiscal 2001 were 7.0% as compared to
8.0% in fiscal 2000. The decrease in general and administrative expenses as a
percentage of sales after the exclusion of one-time charges was primarily due
to overall control of expenses and the fact that several general and
administrative expenses are fixed and do not vary with increasing sales
activity.
Income tax expense
Triple S's effective tax rate for fiscal 2001 was 44.1% (including state and
local income taxes of 1.3%) compared to a rate of 37.9% in fiscal 2000. The
effective income tax rate for fiscal 2001 was adversely impacted by foreign
subsidiary losses for which no income tax benefit was received and other non-
deductible expenses for income tax purposes.
Fiscal year ended March 31, 2000 compared to fiscal year ended March 31, 1999
Net sales
Triple S's net sales for fiscal 2000 were $95.1 million, an increase of
$27.3 million, or 40.3%, over net sales of $67.8 million for fiscal 1999. As a
percentage of total sales, Triple S's sales decreased to all the markets Triple
S serves except telecommunications, which showed strong growth, increasing to
62.0% in fiscal 2000. These decreases represented the completion of several
customer projects during fiscal 1999 that were not replaced with new projects.
The overall increase in sales was primarily related to volume as no significant
price increases occurred during fiscal 2000. Triple S is working to increase
its sales to a wider base of customers in the telecommunications market, as
well as the automotive market, but Triple S can give no assurance that its
efforts will be successful.
Cost of sales
Triple S's cost of sales represented 81.1% of net sales in fiscal 2000
compared to 83.6% in fiscal 1999. The lower cost of sales percentage in fiscal
2000 was primarily attributable to molded part manufacturing cost reductions,
mainly in material and labor cost, and as a result of manufacturing efficiency
improvement initiatives at Triple S. The lower cost of sales percentage was
also attributable to higher overhead absorption as a result of increased sales.
Selling and marketing expenses
Triple S's selling and marketing expenses decreased as a percentage of net
sales to 4.5% in fiscal 2000 compared to 5.2% in fiscal 1999. The decrease
principally related to decreased compensation as a percentage of net sales in
fiscal 2000.
General and administrative expenses
Triple S's general and administrative expenses represented 9.4% of net sales
in fiscal 2000 compared to 12.9% in the prior fiscal year. The decrease was
primarily due to decreased compensation and legal fees as a percentage of net
sales in fiscal 2000.
92
Income tax expense
Triple S's effective tax rate for fiscal 2000 was 37.9%, including state and
local income taxes of 4.7%, compared to the prior fiscal year rate of (30.1)%.
Liquidity and Capital Resources
Triple S's primary cash requirements are for operating expenses and capital
expenditures. Historically, Triple S's primary sources of cash have been from
operations, bank borrowings and industrial revenue bonds. Triple S has adequate
liquidity and expects this to continue into the foreseeable future.
Net cash provided by operating activities was $7.0 million for fiscal 2001.
Working capital increased by approximately $1.3 million in the year to $13.3
million, primarily resulting from the increase in accounts receivable and
inventories. As a result of, and consistent with the higher sales level,
accounts receivable increased by $5.7 million compared with the prior fiscal
year-end, and represented 52 days sales outstanding, which was seven days
higher than the end of the prior fiscal year. The increase in days sales
outstanding was due to the increased sales level in the last month of the
fiscal year and the timing of collections of current accounts receivable
balances from a major customer. Inventories increased $1.6 million compared to
the prior fiscal year but represented 25 days in inventory compared with 34
days at the prior fiscal year-end. Inventories continue under good control and
adequate provision has been made for all known obsolete and non-saleable items.
Purchases of property, plant and equipment totaled $11.1 million for fiscal
2001 and consisted of equipment purchases at various locations to provide
increased production capacity to support sales growth and the purchase of land
and buildings in New York and Brazil.
Triple S had $1 million in cash and cash equivalents at March 31, 2001.
Triple S also had outstanding borrowings totaling $10.3 million at that date.
Current maturities of long-term debt are $2 million at March 31, 2001 with
repayment due the following four fiscal years as follows: 2003--$3.2 million;
2004--$0.3 million; 2005--$0.3 million; and 2006--$0.4 million. Triple S has
$9.4 million available under an unsecured line of credit with a bank, net of
current borrowings under the agreement of $0.6 million. Triple S anticipates
investing, over the next two to three years, $3 million in capital expenditures
for its Brazil operation. Triple S believes that its available sources of cash,
its cash and cash equivalents on hand, as well as anticipated cash flows from
operations, will be sufficient to fund future operating and capital
requirements and required debt repayments.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. This
statement as amended by Statement of Financial Accounting Standards No. 137 is
effective for all fiscal quarters of fiscal years after June 15, 2000. Triple S
uses derivative financial instruments to manage the economic impact of
fluctuations in interest rates. Triple S enters into interest rate swaps to
manage these economic risks. Statement of Financial Accounting Standards No.
133 did not have a significant effect on the consolidated financial statements
of Triple S.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. This
bulletin, as amended, summarizes and clarifies certain existing accounting
principles for the recognition and classification of revenues in the financial
statements. Staff Accounting Bulletin No. 101 did not have a significant effect
on the consolidated financial statements of Triple S.
93
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of Accounting Principles Board (APB) Opinion
No. 25. This interpretation clarifies the following:
. the definition of an employee for purposes of applying APB Opinion No.
25;
. the criteria for determining whether a plan qualifies as a
noncompensatory plan;
. the accounting consequence of various modifications to the terms of the
previously fixed stock options or awards; and
. the accounting for an exchange of stock compensation awards in a
business combination.
This interpretation became effective July 1, 2000, but certain conclusions in
this interpretation cover specific events that occurred after either December
15, 1998 or January 12, 2000. The application of this interpretation did not
have a material impact on Triple S's consolidated financial statements.
Quantitative and Qualitative Disclosures About Market Risk
As a result of its variable rate line of credit, Triple S is exposed to the
risk of rising interest rates. The $10.0 million line of credit had an interest
rate ranging from 7.5% to 9.0% for the year ended March 31, 2001.
For periods subsequent to September 30, 2000, Triple S's Georgetown
Industrial Development Corporation Revenue Bonds provide for interest at a
variable rate of 77% of the issuing bank's prime rate. The bonds had an
interest rate ranging from 6.2% to 6.9% for the year ended March 31, 2001.
In addition, Triple S's Putnam County Industrial Revenue Bonds provide for
interest at a rate equal to the issuing bank's tax-exempt note rate. The bonds
had an interest rate ranging from 3.75% to 5.1% for the year ended March 31,
2001. With respect to these bonds, Triple S has entered into an interest rate
swap agreement essentially to fix the interest rate. The notional amount of the
swap agreement amounted to $4.5 million. Triple S does not use derivative
financial instruments for trading purposes.
94
OWNERSHIP OF TRIPLE S SECURITIES BY MANAGEMENT AND SIGNIFICANT SHAREHOLDERS
The following table contains information about the beneficial ownership of
Triple S's common stock as of July 6, 2001 of:
. each director of Triple S;
. the Chief Executive Officer and the other named executive officers of
Triple S; and
. all directors and executive officers of Triple S as a group.
Triple S does not know of any other person who beneficially owns more than
5% of its outstanding common stock.
Amount and Nature of
Beneficial Ownership(1)
----------------------------------
Shares subject
Shares Beneficially to Exercisable
Name of Beneficial Owner Owned Options(2) Percent of Class
- ------------------------ ------------------- -------------- ----------------
Walter J. Barkalow........ 316 18,000 *
Robert D. Bedilion........ 7,586 21,700 *
Daniel B. Canavan(3)...... 2,176,826 162,000 53.6
Evan C. Harter............ -0- 14,667 *
James F. Hettinger........ 7,586 23,000 *
A. Christian Schauer(4)... 2,157,034 162,000 53.3
David L. Stewart(5)....... 2,185,446 162,000 53.8
Donald W. Thomason........ -0- 4,999 *
Victor V. Valentine,
Jr.(6)................... 2,158,534 162,000 53.2
Michael E. Zaagman........ 957 40,500 *
All executive officers and
directors as a group
(15 persons)(7).......... 2,303,291 337,866 60.67
- --------
* Less than one percent
(1) Unless otherwise noted, the persons named in the table have sole voting and
sole investment power or share voting and investment power with their
respective spouses.
(2) This column reflects shares of Triple S common stock subject to options
exercisable within 60 days.
(3) Includes:
. 840,134 Triple S shares owned directly by Mr. Canavan;
. 16,802 Triple S shares held in an irrevocable trust for his dependent
children, of which his wife is trustee;
. 37,844 Triple S shares jointly owned by Mr. Canavan and his wife;
. 5,890 Triple S shares owned by his dependent children; and
. 1,276,156 Triple S shares owned by Messrs. Schauer, Stewart and
Valentine. Mr. Canavan may be deemed to have beneficial ownership of
such shares pursuant to a shareholders agreement entered into by Mr.
Canavan with Eimo and such persons in connection with the merger under
which Messrs. Canavan, Schauer, Stewart and Valentine each agreed to
vote all of the Triple S shares owned by them in favor of the merger and
against any proposal that would impede or prevent the completion of the
merger. Mr. Canavan disclaims beneficial ownership of the Triple S
shares owned by Messrs. Schauer, Stewart and Valentine.
(4) Includes:
. 244,269 Triple S shares owned directly by Mr. Schauer;
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. 3,000 Triple S shares held in trust for grandchildren, of which he is
trustee; and
. 1,909,765 Triple S shares owned by Messrs. Canavan, Stewart and
Valentine. Mr. Schauer may be deemed to have beneficial ownership of
such shares pursuant to a shareholders agreement entered into by Mr.
Schauer with Eimo and such persons in connection with the merger under
which Messrs. Canavan, Schauer, Stewart and Valentine each agreed to
vote all of the Triple S shares owned by them in favor of the merger and
against any proposal that would impede or prevent the completion of the
merger. Mr. Schauer disclaims beneficial ownership of the Triple S
shares owned by Messrs. Canavan, Stewart and Valentine.
(5) Includes:
. 127,221 Triple S shares owned directly by Mr. Stewart;
. 15,312 Triple S shares owned jointly by Mr. Stewart and his wife;
. 16,000 Triple S shares owned by Mr. Stewart's wife; and
. 2,026,910 Triple S shares owned by Messrs. Schauer, Canavan and
Valentine. Mr. Stewart may be deemed to have beneficial ownership of
such shares pursuant to a shareholders agreement entered into by Mr.
Stewart with Eimo and such persons in connection with the merger under
which Messrs. Canavan, Schauer, Stewart and Valentine each agreed to
vote all of the Triple S shares owned by them in favor of the merger and
against any proposal that would impede or prevent the completion of the
merger. Mr. Stewart disclaims beneficial ownership of the Triple S
shares owned by Messrs. Canavan, Schauer and Valentine.
(6) Includes:
. 904,666 Triple S shares owned directly by Mr. Valentine;
. 3,000 shares owned jointly by Mr. Valentine and his wife;
. 1,400 shares owned by Mr. Valentine's wife; and
. 1,249,468 Triple S shares owned by Messrs. Schauer, Stewart and Canavan.
Mr. Valentine may be deemed to have beneficial ownership of such shares
pursuant to a shareholders agreement entered into by Mr. Valentine with
Eimo and such persons in connection with the merger under which Messrs.
Canavan, Schauer, Stewart and Valentine each agreed to vote all of the
Triple S shares owned by them in favor of the merger and against any
proposal that would impede or prevent the completion of the merger. Mr.
Valentine disclaims beneficial ownership of the Triple S shares owned by
Messrs. Canavan, Schauer and Stewart.
(7) Includes 50 shares held by an officer as custodian for his grandchild; the
officer disclaims beneficial ownership of these shares.
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DESCRIPTION OF TRIPLE S CAPITAL STOCK
The following is a summary of the material terms of the capital stock of
Triple S under its articles of incorporation and bylaws. The following also
summarizes relevant provisions of the Michigan Business Corporation Act. The
terms of the Triple S articles of incorporation and bylaws as well as the terms
of the Michigan Business Corporation Act are more detailed than the general
information provided below. Therefore, you should carefully consider the actual
provisions of those documents. See "Where You Can Find More Information."
General
Triple S's authorized capital stock consists of 10,200,000 shares of common
stock, no par value, and 1,000,000 shares of preferred stock, no par value. As
of July 6, 2001, Triple S had outstanding approximately 4,019,352 shares of
common stock held by approximately 200 holders of record, and no outstanding
shares of preferred stock.
Common Stock
Subject to the rights of the holders of Triple S's preferred stock then
outstanding, if any, all voting rights are vested in the holders of shares of
Triple S's common stock, with each share entitling the holder to one vote.
Triple S's shares of common stock do not have cumulative voting rights, and
holders have no preemptive right to subscribe for additional securities
issuable by Triple S.
In the event of the liquidation of Triple S, the holders of common stock are
entitled to receive, pro rata, any assets distributable to shareholders in
respect of shares held by them after satisfaction of the liquidation
preferences of any outstanding preferred stock. Subject to any prior rights of
the holders of preferred stock then outstanding, holders of Triple S's common
stock are entitled to receive such dividends as are declared by Triple S's
board of directors out of funds legally available for that purpose. Triple S's
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
The board of directors of Triple S is authorized to issue preferred stock in
one or more series, from time to time, and to fix the particular designations
and terms thereof, including voting rights, dividend rates, redemption rights,
liquidation value, conversion rights and other matters, without further
approval of Triple S's shareholders. Triple S has not authorized and is not
presently contemplating authorizing any series of preferred stock.
The issuance by Triple S of preferred stock, while providing desired
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of rendering more difficult or discouraging an
attempt to obtain control of Triple S by means of a tender offer, proxy
contest, merger or otherwise, thereby protecting the continuity of Triple S's
management. The issuance of shares of the preferred stock by Triple S pursuant
to the board of directors' authority described above could adversely affect the
rights of the holders of Triple S's common stock. For example, preferred stock
issued by Triple S may rank prior to the common stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of common stock. Accordingly, the issuance of shares
of Triple S's preferred stock may discourage bids for common stock or may
otherwise adversely affect the market price of the common stock.
General
Triple S's articles of incorporation and the Michigan Business Corporation
Act contain provisions which could be utilized by Triple S to impede certain
efforts to acquire control of Triple S. Those provisions include the following:
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Board of directors
Triple S's articles of incorporation provide that Triple S's board of
directors be divided into three classes, as nearly equal in number as possible,
with the directors in each class to hold office for staggered terms of three
years each. The articles state that any vacancy in, or newly created
directorships may be filled by the affirmative vote of a majority of the Triple
S directors then in office. The articles also contain procedural requirements
that must be followed by Triple S shareholders who wish to nominate persons to
serve as directors of Triple S. Notice of any nomination must be given at least
30 days in advance of Triple S's annual meeting at which directors are elected,
or within seven days after the date of mailing of the notice if such notice is
given less than 40 days prior to the meeting date. These provisions may
restrict the ability of a shareholder to conduct a proxy contest against
management of Triple S.
Evaluations by board of directors regarding recommendations to shareholders
Triple S's articles of incorporation prohibit Triple S's board of directors
from approving, adopting or recommending any offer to make a tender or exchange
offer for the outstanding shares of Triple S's common stock, except those
proposed by the board, to merge or consolidate Triple S or to purchase all or
substantially all of its assets or business, unless Triple S's board of
directors has evaluated the offer and determined that the offer would be in
compliance with all applicable laws and in the best interests of Triple S and
its shareholders. With respect to its evaluation as to the best interests of
Triple S and its shareholders, the board of directors is permitted to consider
all factors which it deems relevant, including, but not limited to such factors
as the adequacy of the consideration proposed and the potential social and
economic impact on Triple S, its employees, vendors and the communities in
which Triple S operates.
Special shareholder voting requirements
Triple S's articles of incorporation specify that certain mergers,
consolidations, sales of assets and other transactions with an "interested
party" require a minimum affirmative vote of that percentage of Triple S's
outstanding stock determined by dividing the sum of the outstanding shares held
by all interested parties and two-thirds of the remaining number of outstanding
shares by the total number of outstanding shares entitled to vote, provided
that the minimum vote may not be less than two-thirds of the outstanding voting
stock of Triple S. An interested party includes any holder of 5% or more of the
voting power of Triple S's outstanding capital stock and any "affiliate" or
"associate", as defined in Triple S's articles of incorporation, of such person
and any person or entity acting in concert with that person but excludes anyone
who was a beneficial owner of 5% or more such voting power at the time the
articles became effective.
The special two-thirds voting requirement does not apply and a majority vote
will suffice where the transaction in question has been approved by two-thirds
of the "continuing directors" of Triple S, the transaction involves an entity
more than 50% owned by Triple S, or all of the following conditions are met:
. Triple S shareholders affected by the transaction receive per share
value at least equal to the highest value paid by the interested party
in acquiring the Triple S shares previously; and
. the interested party refrains from exercising certain kinds of
influences over the Triple S board of directors in obtaining certain
kinds of economic benefits from Triple S; and
. Triple S shareholders are supplied with a proxy statement containing
such recommendations as the continuing directors deem advisable.
A continuing director is defined in Triple S's articles of incorporation as
any director elected by Triple S shareholders prior to the time an acquiror of
Triple S's common stock attained the status as an "interested party", and any
successor in office approved by the affirmative vote of the continuing
directors.
These provisions are not applicable to the proposed merger with Eimo.
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Michigan fair price provisions
Chapter 7A of the Michigan Business Corporation Act provides that, except in
cases in which certain minimum price, form of consideration and procedure
requirements are satisfied, or for certain transactions that may be approved in
advance by the board of directors, higher than normal voting requirements are
imposed for approval of various transactions involving persons who own 10% or
more of Triple S's voting stock, who are referred to in this document as
interested Triple S shareholders. Transactions to which the higher voting
requirements apply require an advisory statement from the board of directors
and must be approved by not less than 90% of the votes of each class of stock
entitled to vote, and by not less than two-thirds of such votes, excluding the
votes of interested Triple S shareholders who are, or whose affiliates are, a
party to the proposed transaction or an affiliate of the interested Triple S
shareholder.
The super majority voting requirements do not apply to the merger with Eimo.
Shareholder equity provisions
Chapter 7B of the Michigan Business Corporation Act conditions the
acquisition of voting control of Triple S on the approval by the majority of
the preexisting disinterested shareholders. Specifically, this chapter of the
Michigan Business Corporation Act affects the voting rights of persons who
acquire more than 20%, 33 1/3%, or 50% of Triple S's voting stock, which share
amounts are referred to in this document as control shares. The Michigan
Business Corporation Act denies voting rights to those shareholders who make
purchase offers or increase their holdings above any of the control share
levels unless they are granted voting rights by a majority vote of all
disinterested shareholders, which are all shareholders other than the bidders
or owners of control shares and the corporation's management. If the
shareholders do not elect to grant voting rights to control shares under
certain circumstances, the control shares may be subject to redemption by
Triple S.
Because the proposed merger with Eimo was approved by a majority of
disinterested directors, the provisions do not apply to the merger with Eimo.
Limitation of Liability
Triple S's articles of incorporation and by-laws include provisions which
eliminate the personal liability of Triple S's directors and officers for
monetary damages resulting from breaches of their fiduciary duty of care. These
provisions, however, do not limit the liability of any director who breached
his duty of loyalty to Triple S or its shareholders, failed to act in good
faith, obtained an improper personal benefit, or paid a dividend or approved a
stock repurchase or redemption that was prohibited under Michigan law. These
provisions do not limit or eliminate the right of Triple S or any shareholder
to seek non-monetary relief such as an injunction or recission in the event of
a breach of director's duty of care. Triple S's articles of incorporation also
provides that Triple S shall indemnify its directors and officers to the
fullest extent permitted by the Michigan Business Corporation Act, including
circumstances in which indemnification is otherwise discretionary. Triple S
believes that these provisions are necessary to attract and retain qualified
directors and officers. It is the position of the Securities and Exchange
Commission that indemnification for liabilities under the Securities Act is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Transfer Agent
American Stock Transfer & Trust Company, New York, New York, is the transfer
agent and registrar for Triple S's common stock.
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INFORMATION ABOUT EIMO
General
Eimo is a European manufacturer of custom injection molded precision plastic
parts for the mobile telecommunications industry and other customers.
Headquartered in Lahti, Finland and organized under the laws of Finland, Eimo
has six production facilities, including three in Finland, one in the
Netherlands, one in Hungary and one in the People's Republic of China. Products
manufactured by Eimo are characterized by demanding design and production
requirements, involving complex geometric designs and the need for a quality
finished appearance. Utilizing its expertise in plastics technology, Eimo works
in close cooperation with its customers to meet their needs. Eimo's customers
typically outsource mold design and manufacture as well as plastics production.
Eimo offers customers integrated mold design and prototype development and
manufacturing, advanced plastic injection molding capabilities, and value-added
finishing services, assembly and complete product testing, all of which enable
Eimo to provide "one-stop" shopping to customers seeking a wide range of
services. See "--Production" on page 106. Eimo's technologically advanced
production facilities and equipment enable the company to provide customized
solutions to highly demanding customer specifications. Eimo believes that few
competitors offer the scale, expertise, reputation and range of services that
Eimo is able to provide. At December 31, 2000, Eimo had total assets of
(Euro)102 million and 831 employees. In 2000, Eimo had sales of (Euro)105
million ($93 million), approximately 58% of which were for delivery to European
customers outside of Finland and approximately 3% of which were for delivery to
international customers outside of Europe. Eimo's Series A shares are traded on
the Helsinki Stock Exchange. As of July 11, 2001, Eimo's total equity market
capitalization, based on the closing trading price of the Series A shares on
the Helsinki Stock Exchange and assuming the conversion of Series K shares to
Series A shares, would have been approximately (Euro)64 million ($56 million).
Spartan Acquisition Corp.
Spartan Acquisition Corp. is a recently formed Delaware corporation and
wholly owned subsidiary of Eimo that conducted no business prior to entering
into the merger agreement.
Competitive Strengths
Eimo believes it has achieved its current position because of the following
competitive strengths:
Broad Geographic Presence
Eimo has multiple plant locations throughout Europe and in China. As a
result of the merger, Eimo will also have multiple plant locations in the
United States and a facility in Brazil. A broad geographic presence enables
Eimo and will even better enable the combined company, to:
. compete effectively for contracts that require large volume runs and
multiple distribution points;
. offer customers multiple production locations; and
. allocate production to the facility best suited for a job, in view of
Eimo's facilities' relative capabilities and proximity to the customer.
As a result, Eimo is able to provide customers with a broad range of
manufacturing capabilities, improved responsiveness, timely delivery and
reduced freight costs. In addition, by operating geographically diverse plants,
Eimo can mitigate customer sourcing risks associated with single facility
production.
Full Service Capabilities
Eimo provides customers with comprehensive services including assistance in
product development, prototyping, mold design and mold making, molding,
painting and other value-added services. As a result, Eimo believes that it is
one of a limited number of full service plastic injection molders in Europe
and, after the
100
merger, the United States, that is well positioned to benefit from the trend of
customers outsourcing total project management to full service multiple plant
suppliers.
Manufacturing and Finishing Capabilities
Eimo utilizes a wide range of advanced manufacturing and finishing
processes. Its production processes employ automated assembly and testing.
Eimo's manufacturing capabilities enable it to provide innovative solutions and
supply components in an integrated process. Eimo's advanced manufacturing and
finishing processes include:
. Co-injection molding in which two separate raw materials are utilized at
the same time to produce different finished plastics in the same part.
. Two shot molding where two materials are injected separately in
different cavities of one tool.
. Insert molding where plastic parts are injection molded using pre-formed
decorated films.
. Thin wall molding, a technically demanding injection molding method,
used to produce extremely thin parts whose thickness may be less than
half a millimeter.
. Ultrasonic welding in which two or more pieces of plastic can be joined
together using high frequency ultrasonic sound waves to join the parts;
for example, to join mobile phone covers and the display windows.
. Solvent bonding, which utilizes glue or chemical solvents to join
plastic parts together.
. Laser marking where laser beams are used to mark or etch a part with a
name, symbol or numbers.
. In-mold decorating in which a printed design is conveyed into a product
mold with a transfer film to attach printed designs to the surface of
plastic components.
. Hot stamping in which a figure or design embedded in film is heated to
release it and transfer it to the part.
. Silk screening, in which images are reproduced using a series of
differently sized and partitioned screens, usually to produce a multi-
colored or complex design image.
. Heat staking, a process in which non-plastic parts can be joined to
plastic parts, most commonly used in joining metallic parts, such as
metal springs, to plastic.
Superior Product Quality
Eimo uses quality-control systems and operations management techniques to
meet the highest standards and to reduce costs. Eimo continually invests in
technology and training to monitor and improve quality. Included among such
investments are:
. effective management systems to ensure real-time information;
. statistical process control systems, a quality control process where
production operations are controlled and verified through sampling and
measurement at intervals based on mathematical predictions or
statistics;
. failure mode and effects analysis systems, where, in anticipation of
potential problems, such problems are evaluated and corrective operating
processes are analyzed and developed;
. microprocessor-controlled molding machines; and
. automated assembly equipment.
101
In addition, Eimo utilizes material and product testing equipment that
monitors product reliability to meet exacting quality standards. All of Eimo's
production facilities are operated in accordance with ISO 9002 and QS 9000
quality standards. As of December 21, 2000, Eimo was granted a QS 9000
certificate by Lloyd's Register Quality Assurance for Eimo's operations in
Finland while certification under IS0 9002 and QS 9000 standards have been
applied for Eimo's operations in Helmond, the Netherlands and Pecs, Hungary to
be audited during 2001 by Lloyd's Register Quality Assurance. As of April 3,
2001, Eimo's operations in Shenzhen, People's Republic of China was granted an
ISO 9002 certificate by Det Norske Veritas.
Business Strategy
Eimo's goal is to become a world-wide manufacturer of precision plastic
components for the mobile communications industry. Eimo's objective will
benefit customers by allowing them to outsource their plastics production to
Eimo and to concentrate on their own core competencies. In order to achieve
this objective and maximize financial performance, Eimo plans to implement the
following operating and marketing strategies:
Focus on Core Product Areas
Eimo will continue to focus its resources and investments on its core
product area: plastic components for the mobile communications industry. Eimo
designs molds and manufactures plastic components for telecommunications
equipment in Europe, including complete multi-component assemblies for cellular
telephones and other mobile communications handsets.
Eimo believes that this end market offers attractive growth opportunities
due to growth currently being experienced in the telecommunications market,
particularly with respect to cellular telephones and other mobile and personal
communications devices. Many multi-national mobile communications manufacturers
have enjoyed strong and steady market growth through international expansion as
international sales continue to strengthen profits.
Expand Globally
As principally a European precision plastic injection molder, one of Eimo's
goals is to expand globally. The merger with Triple S is an important step in
Eimo's plans. Eimo also seeks to grow through acquisitions, establishing new
production units of its own or by expanding existing production units. Total
sales growth will be supported by growth in the relative proportion of value
added processing Eimo performs.
Eimo will have a significant American presence following its merger with
Triple S. Eimo's existing capabilities, enhanced by its merger with Triple S
will allow Eimo to:
. penetrate new geographic regions with its existing multi-national
customers; and
. acquire complementary manufacturing facilities in strategic locations.
Eimo believes continuing to pursue this strategy, either through selected
acquisitions or the establishment of its own additional new production
facilities outside of Europe and the United States will enable Eimo to
effectively provide a complete and integrated range of mold design,
manufacturing and value-added services on a global basis.
Growth in Core Product Areas on a Global Scale
Eimo's goal is to grow its business worldwide. Strategic acquisitions have
been, and management believes will continue to be, an important element in
Eimo's growth strategy and its efforts to capitalize on favorable industry
trends. Eimo will consider future acquisition opportunities that are
attractively priced and which it believes will strengthen the company's
customer base, broaden its geographic presence, enhance production capabilities
and provide significant operating synergies. While Eimo routinely enters into
discussions with
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potential acquisition candidates, no material discussions regarding future
acquisitions that would be material to the combined company have progressed
beyond the preliminary stages other than the pending merger with Triple S.
Application of Advanced Technology
Eimo believes it has substantial experience and expertise in applying
advanced technologies to meet its customers' needs. Eimo employs state-of-the-
art molding technology at many of its facilities, operating in accordance with
ISO 9002 and QS 9000 quality standards utilizing a variety of automated
production tools, including robotic manufacturing equipment. Eimo is committed
to swift application of new production and value-added processing technologies.
Eimo believes its demonstrable commitment to rapid identification of customers'
needs and quick reaction to their new production and value-added processing
needs in injection molded precision plastics in the best possible manner is a
key competitive advantage for Eimo.
Work in Close Collaboration with Customers
Eimo believes another reason that it is able to attract and retain customers
is its partnership philosophy. Working in partnership with its customers is one
of Eimo's core operating principles. Eimo implements this principle by entering
into close collaboration with its customers. Eimo works with its customers at
the product design stage utilizing the company's expertise in plastics
technology, mold manufacturing and injection molding. Eimo works closely with
its customers to ensure, among other things, that the products planned by its
customers can be produced using injection molding, that customers will receive
a sufficient number of necessary molds and that Eimo can offer its customers
the necessary technology, process and ability along with value-added
processing. After completion and testing of prototypes, Eimo rigorously tests
the component and the manufacturing processes to be used in mass production in
order to maintain strict quality control of the mass production process.
Products are mass produced through injection molding, utilizing three-
dimensional mold designs and finishes followed by value-added processing of the
finished plastic component. Eimo's objective is to enhance customer loyalty and
retention by allowing the customer to outsource its plastics production to Eimo
and concentrate on the customer's own core competencies.
Reduce Costs and Improve Production Efficiencies
Eimo continually aims to improve its cost effectiveness by increasing
productivity and utilization of its production facilities and by implementing
operational improvements.
Eimo believes that it will continue to create opportunities to reduce costs
by:
. reducing overhead expenses through optimization of labor and equipment
resources at each of its facilities;
. divesting or discontinuing less profitable business lines;
. eliminating redundant administrative operations and related personnel,
although Eimo's merger with Triple S is not expected to result in any
material changes in personnel for such operations; and
. where appropriate, moving key management personnel on-site to the
company's manufacturing plants in order to oversee expansion and/or
execution of cost control measures.
Eimo's Products
Eimo supplies its customers with injection molded precision plastic
components. Production of such components requires mold making and manufacture
of components with complex geometric properties, which also require a high
degree of finished appearance. A typical plastic part weighs between 0.5 and
250 grams. In 2000, Eimo produced over two thousand different products, using
over 1,500 molds.
103
As a percentage of sales, mobile phone covers, including exchangeable
covers, and windows were Eimo's most important products in 2000 and in the
first three months of 2001.
Bought-In Components
Beginning in 2000, an increasing proportion of Eimo's consolidated sales
have been derived from plastic products to which relatively expensive bought-in
components have been added during automated assembly at Eimo. An expensive
component, such as a vibrator motor used to make a mobile phone vibrate when
ringing, can have a unit purchase cost in excess of one euro or one dollar.
Traditional bought-in components such as inserts for screws or dust protective
gaskets have unit purchase costs typically less--often much less--than 10 euro
cents or 10 dollar cents. The average margin earned on automated assembly of
components is significantly lower than in the rest of Eimo's business,
reflecting the relatively small added value to Eimo's customers of Eimo
acquiring the component, using an automated assembly line, often owned by the
customer, to attach the component to a plastic part, and shipping the part--
with the component--to the customer. This trend has begun to have, and can be
expected to have, the following effects on Eimo's results of financial
operations: (1) consolidated sales, whether measured in euros or dollars, can
be expected to grow faster than unit sales of goods manufactured and (2) due to
the lower margin derived from sales of high value bought-in components,
consolidated sales can be expected to grow faster than operating profit or
other profit figures, resulting in lower overall margins as a percent of sales.
Because the provision of bought-in components is generally profitable, although
less so than Eimo's other activities, such sales are believed to increase
overall profitability due to the lower marginal production costs associated
with such sales, even though it has an adverse effect on profits expressed as a
percent of sales.
Eimo's Markets
End Markets
The following table sets forth the percentages of Eimo's total net sales,
for the periods presented, derived from sales to its different end markets.
Except for the telecommunications industry, no other industry accounted, on an
individual basis, for more than 10% of Eimo's total sales.
December 31, March 31,
---------------- ----------
1998 1999 2000 2000 2001
---- ---- ---- ---- ----
Telecommunications.................................... 85% 91% 92% 91% 92%
Other Industries...................................... 15% 9% 8% 9% 8%
--- --- --- --- ---
Total................................................ 100% 100% 100% 100% 100%
=== === === === ===
Eimo has targeted the mobile and personal communications industries for
further growth and, accordingly, the concentration of sales to this portion of
the telecommunications market is expected to continue to be significant.
For its latest fiscal year ended March 31, 2001, Triple S derived 77% of its
net sales from telecommunications customers.
For a discussion of recent developments in the mobile communications
industry, see "Information About Eimo--Industry Trends and Business Prospects"
on page 116.
Geographic Markets
Currently, Eimo serves a broad variety of customers and geographic end
markets, located primarily throughout Europe. Eimo has six production
facilities, including three facilities in Finland, one facility in the
Netherlands, one facility in Hungary and one facility in the People's Republic
of China.
104
Based on the countries of domicile of Eimo's customers:
. In 2000 Eimo derived approximately 39% of its fiscal net sales from
customers located in Finland, 58% from sales to customers located in
other European countries, and 3% from sales to customers located outside
of Europe.
. In 1999, Eimo derived approximately 82% of its net sales from customers
located in Finland, 14% from customers located in other European
countries and 4% from sales to customers located outside of Europe.
. In 1998, Eimo derived approximately 82% of its net sales from customers
located in Finland, 14% from sales to customers located in other
European countries, and 4% from sales to customers located outside of
Europe.
Through its merger with Triple S, Eimo will further strategically expand its
geographic presence into new regional, national and international markets,
beginning with the United States and Brazil. Eimo believes that an expanded
global presence will allow it to continue to improve its international market
penetration while facilitating more customized and rapid service at the local
and regional market level through proximity to Eimo's customers and their own
production facilities.
Customers
Eimo seeks to establish customer relations with companies that value
extensive collaboration and require technically demanding plastic parts with
finished appearance requirements. These customers often value swift overall
service from mold expertise to the downstream processing of injection molded
plastic parts. During 2000, Eimo supplied over sixty customers. Sales to the
mobile communications industry accounted for 92% of Eimo's total sales. Sales
to fewer than ten customers, all of whom are in the mobile communications
industry, accounted for over 91% of Eimo's total sales in 2000. Eimo expects
that its sales will continue to be concentrated among a small number of global
mobile telecommunications customers and that the percentage of the combined
company's sales to the mobile communications industry also will increase and
that the mobile communications industry will continue to be Eimo's most
important customer sector in upcoming years. Accordingly, Eimo's success will
depend largely on how such customers succeed in developing and marketing their
products.
Nokia Mobile Phones was Eimo's only customer representing 10% or more of
Eimo's total sales in 2000. Sales to Nokia accounted for 59%, 73% and 68% of
sales in 1998, 1999 and 2000, respectively. Sales to Nokia accounted for 65% of
Eimo's sales for the three months ended March 31, 2000 versus 67% of Eimo's
sales for the three months ended March 31, 2001. The decrease in customer
concentration from the year ended December 31, 1999 to the year ended December
31, 2000 was due to increased sales to other customers, which increase was
partially offset by increased unit sales to Nokia during the comparable period.
Based on the pro forma financial statements contained in this proxy
statement/prospectus, the largest customer of the combined company, Nokia,
would have accounted for approximately 70% of the combined company's revenues
in calendar 2000 on a pro forma basis. Sales to certain mobile communications
customers, other than sales to four original equipment manufacturers, Nokia,
Ericsson LM Telephone Co., Philips Consumer Communications L.P. and Alcatel,
may include parts that are ultimately sold to or through these named customers.
Eimo estimates that such sales accounted for approximately 15% of its sales
both in the year ended December 31, 2000 and in the three months ended March
31, 2001. Although Eimo cannot quantify the amounts resold by certain of its
customers who also are direct customers of Eimo, Eimo does not believe that
inclusion of such indirect sales would result in any existing customer
representing 10% or more of Eimo's sales in the applicable period which has not
already been identified as such a customer. Sales to mobile telecommunications
customers also are expected to increase for the year ending December 31, 2001
and, while no assurances can be given, sales to mobile communications customers
are expected to account for more than 90% of Eimo's total sales for 2001.
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Eimo's non-mobile communications industry customers operate principally in
other electronics, electric, building products, appliances and environmental
industries, with no single other industry accounting for more than 4% of total
sales in 1999 or 3% of total sales in 2000.
Competition
The markets in which Eimo operates are highly competitive. While there are
thousands of manufacturers of injection molded plastic components throughout
the world, the number of competitors in the production of plastic components
for the telecommunications industry is much smaller. Nevertheless, Eimo
competes with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies and the in-house departments of
potential customers, on the basis of price, service, quality and ability to
supply products to customers in a timely manner. Some of these competitors
have, and new competitors may have, greater financial and other resources than
Eimo.
Eimo's competitors in the production of plastic components for the
telecommunications industry and their country of organization include:
Competitor Country
. Balda AG Germany
. InteSys Technologies, Inc., a subsidiary of Textron, Inc. USA
. Mikron Holding AG Switzerland
. Nypro Inc. USA
. Nolato AB Sweden
. Perlos Oyj Finland
. Rosti A/S Denmark
. Wilden GmbH Germany
Eimo's key customers, including Nokia, traditionally cooperate with more
than one strategic supplier. However, many of them increasingly are electing to
focus on fewer strategic suppliers. A strategic supplier typically must have
high production capability, exacting quality control and advanced production
skills. Suppliers must be able to implement the mass production of new products
prior to or concurrent with the launch of the product by the customer. The
development of this level of skills and expertise requires a great deal of work
and practice by a company. While the basic machinery for production of
injection molded plastics is readily available and although there are several
suppliers of production automation equipment, the ability to master the tooling
and manufacturing skills necessary to mass produce precision plastic components
of demanding geometric properties and finished appearance, typically requires
several years of operating and production experience. Furthermore, global
telecommunications customers expect strategic suppliers to be able to adapt to
considerable demands for growth, to have a sound balance sheet and the ability
to react rapidly to new production technologies. In addition to the demanding
requirements of such customers for demonstrable experience, other barriers to
entry include:
. shorter product cycles,
. increased product variations,
. requirements for faster launching of mass production, and
. requirements for new production technologies, especially by the mobile
communications industry.
Accordingly, Eimo believes there is a relatively high barrier to entry into
its core product market.
Despite the relatively high barrier to entry into its core product market,
competitive pressures or other factors, including the vertical integration by
certain of Eimo's major customers of manufacturing processes traditionally
outsourced to the company, could cause Eimo to lose market share or result in a
significant price erosion with respect to Eimo's products, either of which
could have a material adverse effect on Eimo's results
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of operations. Furthermore, Eimo's customers operate in highly competitive
markets. To the extent Eimo's major customers lose market share in their
respective markets, Eimo's results of operations and financial condition could
be materially and adversely affected.
Customer Relationships
Eimo's operations with several of its major customers are conducted under
"partnership principles" pursuant to which Eimo and the customer discuss long
range volume plans, up to three years before actual production is required.
Eimo and its customer may enter into "frame" or "outline" contracts describing
the proposed relationship, but such contracts typically do not contain any
minimum purchase obligations. Eimo's customers order molds and job-specific
assembly line equipment pursuant to legally binding purchase orders. While not
a binding obligation to purchase a particular amount of product, the execution
of a purchase order is, in effect, a type of guarantee of continuing
cooperation, since customers actually fund mold production and certain assembly
line costs, which can total hundreds of thousands of euros, pursuant to the
purchase order. Thereafter, there is not always a formal ordering and order
confirmation process for product purchase. Certain products are produced and
invoiced in accordance with monthly or weekly volume plans. For customer
transactions which do not utilize a formal ordering and confirmation process,
Eimo's production volumes are based on that customer's volume plans. Due to the
cooperative nature of its customer relationships and the relatively short lapse
of time between placement of orders for products and shipments, Eimo does not
consider its open orders to be significant to its business.
Production
Eimo utilizes a broad range of manufacturing processes and tool making
capabilities to service the needs of its diverse customer base. Using such
processes and capabilities, Eimo can manufacture products ranging from simple
plastic parts to highly complex multi-component assemblies. Eimo's automated,
high volume assembly and on-site testing capabilities further broaden its
manufacturing capabilities and provide Eimo with a competitive edge in
obtaining and maintaining preferred supplier status with customers.
The process for producing a plastic part can be divided into three
functions:
. design and tooling;
. molding; and
. assembly and other value-added services.
These different functions often are not performed by one supplier. Many
customers have "in-house" design departments for their plastic parts. To
manufacture the molds to design specifications, such departments frequently use
tooling companies that are specialists in mold manufacturing but are not
manufacturers of plastic parts. Such molds are owned by the customer who
provides them to the suppliers for the purpose of manufacturing plastic parts
from such molds. Unlike numerous plastic part manufacturers, Eimo has the
capability to design and produce plastic parts, as well as the molds used to
manufacture such plastic parts.
Mold Design and Tooling
Eimo currently has two tooling facilities, one of which is located in
Hollola and one of which is located in Lahti, Finland. Eimo has mold service
facilities in each of its injection molding production facilities. Eimo's
present mold manufacturing operations offer a full range of services, including
conceptual part and tool design, mold building and testing. The facility in
Lahti concentrates on highly automated production of serial molds utilizing
state of the art technology. Eimo's own mold manufacturing operations account
for approximately half the total needed for the company to supply its
customers, with the rest purchased by Eimo from specialized mold manufacturers
all over the world.
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Eimo produces prototypes and molds to make plastic components for customers
without in-house tooling capabilities. Eimo currently performs the injection
molding for all of the products for which it makes molds and expects to
continue to perform all or substantially all of the injection molding for
products for which the company will make molds in the future.
Eimo produces a broad range of injection mold prototypes and molds of
geometrically demanding shapes. Such shapes often include double convex
surfaces with curves not corresponding to any simple mathematical equations.
Injection molds are used for the mass production of plastic parts in amounts
that can vary considerably depending on the application, but which can exceed
one million parts over the life of the mold. Eimo's mold facilities offer a
full range of services, including conceptual part and tool design, building and
testing, and are staffed with engineers skilled in mold design and manufacture.
The primary areas of focus include product design, process improvement,
enhancement of product performance and maximization of aesthetics. The design
process draws upon the expertise of engineers which is derived from Eimo's
capabilities to design, build and manufacture interchangeable molds for the
mass production of precision parts. The shape of the product and the necessary
production tolerances directly influence the cost of the mold and its
suitability for mass production. Ideally, the mold is designed in parallel with
the customer's product design process in order to minimize "time to market" for
the product. For products with large production runs, Eimo's engineers employ
special skills and expertise which are needed to design, manufacture and
maintain numerous functionally identical molds. Sales attributable to mold
design and manufacturing account for less than 10% of Eimo's total sales but
are still considered to be an integral part of the company's overall business.
Mold invoicing is carried out in lots, resulting in monthly fluctuations in
accrual or invoicing. Eimo separately contracts with its customers for mold
development and product manufacturing. According to market practice, the
customer both pays for and owns the mold. Eimo views its mold design and
tooling operations primarily as supportive of its manufacturing business, and
not as an independent profit center.
Product Molding/Manufacturing
Eimo mass produces identical injection molded plastic components utilizing
either a single mold or several functionally identical molds. Eimo has six
plants for manufacturing plastic components: three located in Finland, one
located in the Netherlands, one located in Hungary and one located in China.
New machinery and equipment has been installed in many facilities with the goal
of improving the repeat operating precision required for series production as
well as increasing manufacturing automation. Eimo believes its current
production facilities, along with its expansion options, are sufficient to
allow the company to respond rapidly to the growing volume needs of its
customers.
Eimo manufactures the majority of its plastic components utilizing the
injection molding process for thermoplastic materials. Thermoplastic materials
are plastic materials which are capable of softening or fusing when heated and
of hardening again when cooled. This process requires sophisticated injection
molding machines and ancillary equipment and produces a high quality engineered
product at a relatively high speed. In this process, thermoplastic materials
created from plastic resins and other raw materials are:
. specially prepared and treated;
. conveyed to a feeder device;
. melted to a defined temperature;
. injected into a mold under high pressure at a relatively high speed;
. cooled by channels conveying water throughout the mold; and
. transformed into a plastic part that is automatically removed when the
mold opens.
Eimo also has the capability for multi-component molding. For multi-
component molding, Eimo currently utilizes two-component (also known as "two-
shot") injection molding machines which were acquired at the
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end of 1998. Each machine has a clamping force of 110 tons and the sizes of the
injection molding units were chosen to enable the production of a wide range
and size of plastic parts.
Each two-component machine has two injection units with separate controls,
so that products can be made consisting of two materials. The availability of
this technology has resulted in several opportunities for designing new types
of products. Using multi-component molding, it is possible to combine desirable
properties of different materials and at the same time remove the need for
joint fasteners. Two-component molding gives a very secure joint and a very
clean boundary between the materials.
Typical applications for Eimo's multi-component molding capability are for
linking two materials together, either one beside the other or one on top of
the other, or for injecting one material inside another. In certain
applications the process significantly improves the properties and appearance
of a product. Since mold costs are higher, the process is not normally suitable
for small volume production. For larger volume production, in addition to the
benefits mentioned above, the process can provide additional cost savings by
eliminating certain production stages and components.
In some cases, additional finishing operations are performed on the plastic
part, either after its removal from the mold or as part of the molding process
itself.
For example, with the aid of film technologies, the surface of a part can be
decorated during the injection molding process. Eimo uses both in-mold
decoration and in-mold labeling. In-mold decoration is a production process
whereby a printed design is conveyed into the mold with a transfer film. The
film is fed into the mold from a special device on top of the injection molding
machine. The used film is taken up on a spool beneath the machine. Automation
is used to place the film in its precise location in the mold, the mold closes
and the injection molding begins. The molten plastic removes the printed design
from the film and attaches it to the surface of the plastic component. In in-
mold labeling, the surface patterned plastic is shaped to conform to the shape
of the component surface and a robot places the part into the mold.
Production Capacity
Injection molding machines are the key machinery utilized in Eimo's
production process. Eimo's facilities were equipped with an aggregate of
approximately 220 such machines as of March 31, 2001. In acquiring injection
molding machinery, Eimo looks for accurate and powerful electrical machines
with high yield and dimensional accuracy. Dimensional accuracy of the products,
as well as the yield, are major factors affecting cost efficiency. Energy
efficiency also is a factor in the selection of Eimo's injection molding
machinery, both as a production factor and to support Eimo's environmental
goals.
A large number of Eimo's injection molding machines are equipped with
programmable, multi-function robots. Over fifty percent of Eimo's machines
operate in five shifts averaging 168 hours per week of production time with a
large percentage of the remaining machines operated in three shifts averaging
120 hours per week of production time. Most of the injection molding machines
have a clamping force in the range of 35 to 150 tons. The majority of Eimo's
injection molding machines were purchased new between 1997 and 2001. Typical
production cells include an injection molding machine, a part handling robot
and automated palletizing equipment. In addition to injection molding
machinery, Eimo's production operations utilize mold production machines, as
well as factory systems for raw material handling, cooling and air-
conditioning, as well as various types of computer equipment. Eimo also
utilizes certain automated product-specific assembly machinery in its
operations, a large amount of which machinery is owned by its customers.
Necessary normal repair and maintenance of the molds is carried out at each
injection molding factory.
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Quality Control Procedures
Eimo's quality strategy ensures and continually improves the quality of its
products, operations and customer service. In particular, control of the high-
volume production process and related automation are critical to the efficiency
of mass production. Samples are taken to determine that the products meet
customers' specifications for critical measurements and other properties. Aids
in process control and monitoring include various quality techniques such as
the quality board technique and statistical process control. Statistical
process control is a quality control process where production operations are
controlled and verified through sampling and measurement at intervals based on
mathematical predictions or statistics. It is applied to control the production
process and to minimize factors negatively affecting quality production. Eimo's
objective is to continually improve in all stages of product design and
production, including the mass production process.
Part of Eimo's production takes place in so-called clean-room facilities.
The purpose of such a space is to provide the optimum conditions for protecting
the product from ambient impurities. Impurities may come from the air,
materials, personnel, equipment and/or the production process itself.
Value-Added Processing
The assembly of plastic components with other forms of value added
processing have become important technologies because of the increased desire
of customers for more complete part assemblies, as well as for a variety of
product colors and decoration offered to end users. In 1999 and 2000, Eimo
reinforced its automation expertise, doubled the capacity of its paint shops,
and continued to develop multi-component injection molding and foil decoration
technologies with their applications.
Eimo offers a broad range of value-added services, including finishing and
automated assembly services. These services include:
. hot stamping;
. painting;
. pad printing;
. silk screening;
. ultrasonic welding;
. heat staking;
. solvent bonding;
. heat transfer labeling; and
. laser marking.
At a customer's request, Eimo also can outsource additional value-added
services such as electromagnetic and radio frequency interference shielding.
Eimo also provides a wide range of inventory management services and logistical
support to its customers. Moving beyond just-in-time delivery, Eimo assists its
customers with:
. planning and managing production requirements;
. routing inventory to in-process, intermediate and final distribution
points; and
. adjusting its delivery schedules to its customers' inventory
requirements on a real time basis by coordinating alignment of its
production activities with the customer's production requirements.
Eimo's communication with its major customers is facilitated through
electronic data interchange.
Eimo's value added processing of plastic components may involve painting,
printing, marking, assembling or packaging of the components. These operations
are often semi-automatic or completely automatic.
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Utilizing the heat transfer film labeling process, Eimo can print on
virtually all plastic parts in up to eight colors with a one-pass application.
The process also makes it possible to print on a product that will be suitable
immediately for the next production step or immediate use.
In heat transfer labeling, a single- or multi-colored picture or design is
pre-printed on a carrier film. This film is then placed where the image is
required on the product, and then the heat from a heated metal or silicon tool
transfers the image permanently on to the plastic product. A transfer can be
printed on almost any plastic material, even on painted or rubber-coated items.
The image can be glossy or matte on the carrier film, and it is possible to
print even holograms and other security markings. The image can incorporate
various special features, such as serial numbers and colors that change with
the temperature. Since the complete image is printed in one pass, print quality
is extremely good and even small details can be achieved easily and quickly.
Heat transfer labeling typically is utilized only on large volume production
series because a carrier film generally has to be made for each separate image
or logo to be printed on the product. However, using the latest methods it is
now possible to produce multiple image film by scanning or drawing individual
pictures on a computer and then transferring the images to the carrier film.
Alongside the heat transfer film techniques, painting is an important
surface-finish technique for plastic components. Techniques for dying and
coloring of plastics are still developing. Nevertheless, existing painting
technology can be used to produce products which are more attractive to the
ultimate consumer.
Still another of Eimo's finishing techniques involves the use of laser-
marking technology utilizing a laser beam. A laser-marked section is visible on
the surface of any object as a groove or discoloration. Laser marking enables
the marking of large series of products, for example with consecutive numbers.
Laser-marking of products can save post production time by eliminating the need
for other marking techniques and enhance recycling, as the product does not
have any extra stickers, or other material, limiting the recycling of plastic.
The process can be used to produce multi-colored parts by burning away a
surface layer to reveal a second color underneath the outside layer.
In addition to relatively common and established technology for injection
molding, Eimo utilizes other technologies that employ advanced manufacturing
processes such as co-injection, two-shot molding, insert molding and in-mold
decorating.
Intellectual Property
While Eimo has developed proprietary techniques and manufacturing expertise
for the manufacture of injection molded plastic components, Eimo does not have
patents for its proprietary techniques, instead relying on trade secret
protection. Although Eimo's proprietary techniques and expertise are subject to
misappropriation or obsolescence, the company expects to continue to develop
improved methods and processes and new techniques on an ongoing basis as
dictated by the needs of its business.
Raw Materials
Eimo's primary raw materials are various plastic resins and packaging
materials, which Eimo obtains from several manufacturers on the basis of the
company's own or its customers' purchase agreements. Raw material prices are
subject to cyclical price fluctuations, including those arising from supply
shortages and as a result of changes in the prices of natural gas, crude oil
and other petrochemical intermediates from which resin is derived. A
significant portion of the price risks associated with Eimo's purchases of raw
materials have been eliminated through customer agreements and price alteration
clauses pertaining to raw materials.
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Eimo's largest customers often have worldwide purchase agreements with
suppliers of raw materials. These agreements cover the purchase of raw
materials by all the customer's other suppliers. For some production series,
Eimo purchases raw materials directly from its own suppliers. Accordingly,
Eimo's financial performance still may be affected by its ability to pass along
increased raw material costs to its customers. Eimo also uses a large number of
purchased components for which it believes it does not have any significant
price risks. Such purchased components include films, inserted components and
liners. Although Eimo has historically passed on increased costs to its
customers, Eimo might not be able to do so in the future. Furthermore, a
significant price increase in raw materials could have a material adverse
effect on Eimo's financial condition or results of operations. Similarly, it is
possible that Eimo's customers who source their own raw materials for use in
Eimo's production of their products could seek to shift some or all of the
pricing risk associated with the procurement of such materials to Eimo which
could expose Eimo to greater risks associated with changes in the costs of raw
materials.
Although most of the raw materials Eimo uses are available from several
suppliers, many raw materials are currently obtained from single or a limited
number of sources. Eimo has no reason to believe that there will not be an
ample supply of raw materials available at commercially acceptable prices for
the reasonably foreseeable future, but cannot make any prediction as to the
future price of such raw materials.
Marketing and Sales
Eimo's sales and marketing activities are divided into maintaining relations
with existing customers and obtaining new customers.
Eimo seeks to increase sales to its existing customer base and attract new
customers. Eimo's primary marketing strategy is to develop and maintain close
working relationships with its customers' engineering, procurement and quality
departments. Direct relationships with customers facilitates close cooperation
in product design, and Eimo believes this helps it in gaining repeat and new
business from existing customers. Eimo believes its mold design, engineering
and tooling expertise, together with the growing ability to service and sell to
customers from multiple international locations, has enabled the company to,
and will continue to enable it to, broaden product lines, further penetrate its
existing customer base and attract new customers.
Eimo's customer relationships focus not only on cooperation on a daily
basis, but also include periodic revisions to customer agreements as well as
mutual training. Customer agreements may include agreements covering one or
more of the following topics:
. production requirements;
. quality control requirements and/or procedures;
. confidentiality; and
. data communications.
Eimo believes it has been successful in acquiring new customers as a result
of its operating concept. Acquiring new customers begins with the presentation
of Eimo's operating concept. After gaining approval from a potential customer,
the relationship typically will begin with trial deliveries where Eimo is a
second supplier. Limited deliveries frequently are followed by full scale
cooperation with Eimo generally becoming one of a limited number of preferred
providers.
Eimo's Environmental Policy and Environmental Matters
Sensitivity to, and proper management of, environmental issues is an
integral part of Eimo's business philosophy, and its goal is to continually
improve all aspects of operations with respect to environmental matters.
Working together with its customers and suppliers, Eimo aims to minimize the
environmental impact of its operations. Eimo's personnel play a key role in
conducting operations in an environmentally responsible
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manner. Eimo's environmental policies are designed to encourage every Eimo
employee to act in an environmentally responsible manner and to employ high
environmental standards in their work. Eimo strives to develop and conduct
operations in a manner which meets both the demanding environmental
expectations of the company's customers and society at large. Eimo's philosophy
also encourages open communications, both internally and externally, regarding
the impact of operations on environmental matters and other related matters of
environmental concern.
Federal, provincial, state and local governments in each country where Eimo
has production facilities could enact laws or regulations concerning
environmental matters that could increase the cost of producing, or otherwise
adversely affect the demand for, plastic products. Eimo is aware that certain
local governments in the United States have adopted ordinances prohibiting or
restricting the use or disposal of certain plastic products that are among the
types of products the company produces. If such prohibitions or restrictions
were widely adopted, such regulatory and environmental measures or a decline in
consumer preference for plastic products due to environmental considerations
could have a material adverse effect upon Eimo. In addition, certain of Eimo's
operations are subject to various environmental laws and regulations that
impose limitations on the discharge of pollutants into the air and water and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. While Eimo has not been required historically, and does not
currently expect, to make significant capital expenditures in order to comply
with applicable environmental laws and regulations, Eimo cannot predict with
any certainty its future capital expenditure requirements because of
continually changing compliance standards and environmental technology. Eimo
does not have insurance coverage for environmental liabilities and does not
anticipate obtaining such coverage in the future.
Employees
As of the date of this proxy statement/prospectus, Eimo had approximately
900 employees. As the following table illustrates, the number of personnel
employed by Eimo has grown rapidly along with the growth in Eimo's business.
Average Number of Personnel
-------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
211 253 262 457 681 768
Eimo's operating model requires new employees to be hired through a training
program. Most training is organized and/or paid for by Eimo. Training is
planned and implemented by Eimo on either a job duty or facility basis.
Representative training programs include:
. management training;
. new product process training, including marketing and project
management;
. mold facility training, including sales cycle training from mold
purchasing to order invoicing;
. production plant training;
. purchasing training; and
. support processes training, including development team and company-wide
policy and procedures training.
At the factory level, the job foreman is responsible for training new
workers.
For salaried staff, the training level and need for training is evaluated
regularly through a training evaluation questionnaire. Plant managers evaluate
the training level and need for training for hourly employees when preparing
their training plans. Management defines the guidelines for training, focus
areas and the training budget, which is determined annually. Marketing and
project management personnel plan and supervise the implementation of the
training of personnel for new product production. Production plant
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personnel plan and supervise the implementation of training for the workers in
product invoicing and other sales cycle areas and supervise its implementation.
A management representative prepares the company-wide quality training plan and
supervises its implementation.
Although it is relatively difficult to find trained personnel who are
experienced in the mass production of, and mold making for, injection molded
precision plastic components, Eimo has not had any material difficulties in
recruiting employees. Eimo believes its corporate image, methods of operation
and reputation have helped the company to recruit competent, skilled employees.
Most employees in Finland and in the Netherlands are covered by collective
bargaining agreements. Eimo's employees in Finland are covered by national and
regional collective bargaining agreements for the plastics industry. Such
collective bargaining agreements were not negotiated between Eimo and its
employees, but rather were developed by representatives of all employers and
employees in such industries. Eimo has historically enjoyed good relations with
its employees.
History of Eimo
Eimo commenced its business operations in 1957 when Mr. Unto Eilamo began to
make buttons under the business name of Eimo-Muovi Ky, a private company
organized that same year in the City of Lahti, Finland, under the laws of
Finland. The current legal entity, Eimo Oyj was organized on March 12, 1965 in
Lahti, Finland, under the name Insinooritoimisto Teraspeikko, Norvasto ja
Paananen. It changed its name to Makron Oy in 1978 in order to conduct business
operations unrelated to Eimo's current operations. By 1985, Makron Oy was
engaged in the engineering/machine manufacturing business and it was controlled
by the Paananen family. In 1985, Makron Oy acquired a controlling interest in
Eimo-Muovi Ky, which changed its name to Eimo-Muovi Oy to denote its limited
liability status and later changed its name to Eimo Oy in 1997.
Plastics operations rapidly expanded into supplying the furniture and metal
industries, and production facilities were moved to Salpakangas in Hollola,
Finland. IBM became a customer of Eimo in 1979, followed by Nokia in 1985.
Along with these customers came an increasing focus on exports, systematic
quality development, expertise in raw materials, and processing and control
methods. Eimo received a certificate of quality from IBM in 1987 and from
General Motors in 1992. IBM and General Motors are not among Eimo's current
customers.
The first stage of Eimo's Hollola plant was constructed in 1963. Eimo's
Lahti factory was built in 1995. The Laitila factory was obtained through an
acquisition in 1989 of a related entity, Tasoplast Oy. Eimo's injection mold
manufacturing and purchase operations functioned as a separate company between
1991 and 1998 under another related entity, Eimo-Tekniikka Oy.
The engineering works operations of the Makron group and all non-plastics
related subsidiaries were sold on January 2, 1998 but remained under the
control of the Paananen family. As a result of such divestitures, Makron Oy
became a holding company for Eimo Oy and two other wholly owned subsidiaries
also engaged in the plastics business, Eimo-Tekniikka Oy and Tasoplast Oy.
Makron Oy then changed its name to Eimo-Yhtiot Oy and had Eimo Oy, Eimo-
Tekniikka Oy and Tasoplast Oy as its operating subsidiaries.
During 1998, three private equity funds, Sitra Technology Ky, Profita Fund I
Ky and Merita Capital Oy, as well as some of Eimo's key personnel, became
shareholders of Eimo-Yhtiot Oy, collectively acquiring a total of 10.75% of
Eimo's share capital.
On December 31, 1998, Eimo Oy, Eimo-Teknikka Oy and Tasoplast Oy merged into
Eimo-Yhtiot Oy to form the current company, which changed its name to Eimo Oy.
In February 1999, the name of Eimo Oy was changed to Eimo Oyj in contemplation
of the listing of the company on the Helsinki Stock Exchange in connection with
its initial public offering. Oyj is the abbreviation for public limited
companies in Finland.
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Eimo Oyj was listed on the Helsinki Stock Exchange on March 23, 1999, when
Eimo's Series A shares were accepted for trading on the main list. The listing
was carried out in connection with a combined offering where 5,700,000 Series A
shares of Eimo Oyj were offered for sale or to subscription by Finnish and
international institutional investors, the public in Finland and employees of
the company. Prior to its initial public offering, 10% of the company was owned
by three equity funds and substantially all of the remaining capital stock of
Eimo was owned by the Paananen family. In connection with Eimo's public
offering, existing shareholders sold 4,100,000 shares and Eimo issued 1,600,000
shares. As a result, new non-family shareholders acquired approximately 49.1%
of the total shares of Eimo and 12.4% of the total voting power.
As of the date of this proxy statement/prospectus, Eimo believes less than
1% of its shareholders reside in the United States, and that such shareholders
hold less than 5% of the outstanding Eimo Series A shares.
In February 1999, Eimo decided to establish an injection molding plant in
Helmond, the Netherlands. Such facility commenced operations in early 2000.
During 1999, the premises and the capacity of Eimo's mold factory in Hollola
doubled in size. A new mold factory was constructed in Lahti and became
operational in 2000.
In March 2000, Eimo's headquarters moved from the facility in Hollola to
Lahti, Finland.
In September 2000, Eimo acquired from Ensto Saloplast Oy the total share
capital Ensto Plastic Kft, whose operations are located in Pecs, Hungary. The
Pecs facility recently started producing precision plastic parts for the mobile
telecommunications industry. The total cost of acquiring the Pecs facility,
modifying it to meet Eimo's production needs and equipping it with new
production equipment is estimated to be approximately (Euro)7 million, of which
(Euro)1 million is expected to be expended in 2001.
In 2000, Eimo also took a series of actions to expand into the Chinese and
other Asian markets.
First, in November 2000, Eimo acquired a 35% ownership interest in CIM
Technology Ltd., a British Virgin Islands company doing business in the
People's Republic of China. In connection with such acquisition, Eimo agreed to
make a HKD 15 million ((Euro)2.3 million) cash investment in CIM Technology
Ltd. CIM Technology Ltd. is a joint venture by Eimo with the former majority
shareholders of CIM Precision Molds (HK) Limited, a premier mold manufacturer
whose operations are located in Hong Kong. CIM Technology Ltd. will establish a
mold manufacturing subsidiary in Guangdong Province, People's Republic of
China. In exchange for their collective ownership interest of 65% in CIM
Technology, Ltd., Mr. Lai and Mr. Woo contributed to CIM Technology, Ltd. all
of the capital stock of CIM Precision Molds (HK) Ltd. owned by them which
represented 56.9% of the issued and outstanding capital stock of such company.
Second, in November 2000, Eimo announced the further expansion of its
operations in the People's Republic of China through Eimo (HK) Ltd., a
controlled and 70% owned joint venture company organized to acquire Century
Step Company, Ltd. and its wholly owned manufacturing subsidiary, Century Step
Plastic (Shenzhen) Company, Ltd. Such acquisition was completed January 1,
2001. Eimo (HK) Ltd. is 70% directly owned by Eimo and Eimo has an additional
10.5% indirect interest in Eimo (HK) Ltd. by virtue of the ownership interests
of its minority partner, CIM Technology, Ltd., in Eimo (HK) Ltd.
The acquisition of Century Step provided Eimo with immediate entry into the
Chinese and Asian markets. Century Step had consolidated sales of approximately
HKD 19 million ((Euro)2.7 million) in 2000. Century Step employs 180 people, of
which 170 are located in the People's Republic of China. Century Step conducts
its manufacturing operations in a 4,000 square meter leased facility located in
Shenzhen, Guangdong Province, People's Republic of China. Although Century Step
has traditionally served the consumer goods sector, it has recently been
developing more advanced manufacturing capabilities in order to begin
manufacturing precision engineered plastic parts. Of the total purchase price
of HKD 18.5 million ((Euro)2.6 million), an amount equal to HKD 8.5 million
((Euro)1.2 million) was paid in cash to the sellers, while the HKD 10 million
((Euro)1.4 million) balance is being utilized to fund a five year loan to Eimo
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(HK) Ltd. In addition to the loan proceeds, Century Step is expected to require
approximately (Euro)3 million of additional capital investment during 2001 to
upgrade and expand its manufacturing capabilities.
As noted above, Eimo's minority partner in Eimo (HK) Ltd. is CIM Technology
Ltd. Thirty-five percent of CIM Technology Ltd. is owned by Hong Kong
businessman Mr. Y.S. Lai, who also was the owner of Century Step, while thirty
percent is owned by the family of Hong Kong businessman Mr. K.H. Woo. The
remaining thirty-five percent of CIM Technology Ltd. is owned by Eimo Oyj. CIM
Technology Ltd. controls CIM Precision Molds (HK) Ltd. through its 56.9%
ownership interest therein. It also will own 100% of CIM Precision Molds
(Dongguan), a new molding company being established in the People's Republic of
China.
A portion of Eimo's cash investment in CIM Technology, Ltd. will be invested
by CIM Technology Ltd. in two other Asian projects, which are described below.
The majority of such funds will be invested by CIM Technology Ltd. in Eimo
(HK), Ltd., while the remaining funds will be invested in CIM Precision Molds
(Dongguan). Mr. Lai also has signed personal service contracts with both Eimo
(HK), Ltd. and CIM Technology Ltd.
CIM Precision Molds (Dongguan) is currently being organized with steps under
way for it to obtain operating permits and train personnel. Expansion in mold
manufacturing operations is expected once all permits have been obtained--
initially in rented premises, with a later move to a purpose-built facility in
Dongguan being planned.
Eimo and CIM Precision Molds (HK), Ltd. have cooperated on a number of
projects. The companies intend to continue and expand their cooperative
relationship by sharing technologies and development work and through joint
capacity planning. The existing customers of CIM Precision Molds (HK), Ltd.
include very large global companies, such as Nokia.
In February 2001, production operations in Eimo's European facilities were
reorganized to locate all non-mobile communications production to Eimo's
Laitila, Finland facility and its Kuortti, Finland facility was sold to the
facility's operational management. The operations sold had annual sales of
about (Euro)1.5 million. The real property of the Kuortti factory was not part
of the transaction but was later sold to a real estate limited company of which
the local municipality has a 60% holding and Eimo and the management buyout
group each have a 20% holding.
Industry Trends and Business Prospects
Growth in the mobile communications market has substantially slowed from
growth rates achieved in recent years. Several of Eimo's customers, including
its principal customer, have increased their market share in recent years and
its principal customer appears to be able to continue to increase its market
share despite slowing market growth. Eimo is unable to predict whether the
demand for mobile communications devices will continue to experience positive
sales growth in 2001 and continued weakness in the market could result in
negative sales growth in 2001. Factors adversely affecting the business of
Eimo's principal customers and, as a result, the business of Eimo, include:
. slowing growth in the world economy
. increased inventories of unsold mobile phones
. declining subsidization by telecommunication service providers of the
cost of mobile phones to end users
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. less than anticipated market demand for, and mixed consumer reaction to,
available data and internet capable mobile phones
. delays in the implementation of general packet radio service phones,
representing an intermediate step beyond existing second generation
phones
. delays in the selection among competing network systems technologies to
service third generation mobile phones
. delays in the implementation of third generation mobile phone
technologies
Recent published releases by various telecommunications equipment companies,
including Nokia, Motorola, Ericsson and Siemens, as well as by industry
analysts, estimate the global market for mobile phones in 2001 will be
significantly less than had been previously estimated, even in recent months.
Estimates for the global market for 2001 by various telecommunications
companies and analysts have decreased from high estimates for 2001 of 650
million phones to new low estimates of 380 million phones. Even recent
estimates of the global market for mobile phones in recent months have declined
rapidly, in some cases by 100 million phones, from estimates made as recently
as in late spring of this year. Currently, Nokia, Eimo's principal customer,
estimates the global market for mobile phones in 2001 will reflect very modest
growth when compared to 2000, for which Nokia estimates the global market for
mobile phones was 405 million.
In estimates released early this spring and prior to Nokia's announcement,
Motorola estimated the global market for mobile phones in 2001 will be 425 to
475 million phones. Ericsson estimated the global market for mobile phones in
2001 will be between 430 to 480 million phones. Siemens estimated the global
market for mobile phones in 2001 will be between 400 to 450 million phones,
with the level expected by it to be nearer the lower end of the range.
Following the announcement of the current Nokia estimate, analysts at
Merrill Lynch and Morgan Stanley Dean Witter now estimate the 2001 global
market will be 390 million phones and 380 million phones, respectively. In
light of the substantial volatility and uncertainty attending the mobile
communications market, Eimo is unable to predict what the global market for
mobile phones will be for the balance of 2001 or later years.
In recent years, the global market for mobile phones was marked by rapid
growth rates. For example, Nokia estimates the global market for mobile phones
was 405 million phones in 2000 versus 280 million phones in 1999, a 45% growth
rate. Gartner Dataquest, an industry analyst, estimates the global market for
mobile phones in 2000 was 412 million phones versus 283.6 million phones in
1999, a 45.5% growth rate. Still another analyst, The Strategis Group, has
estimated that total global sales of mobile phones grew at a 38% rate in 2000.
While total global phone sales are expected to increase slightly in 2001
compared to 2000, percentage sales growth is expected to decline substantially
in 2001 when compared to previous years.
Estimates of global sales of mobile telephones in the first quarter of 2001
vary. Nokia estimates 94 million total phones were sold in the first quarter. A
slightly later industry analysis estimates 101 million total phones were sold
in the first quarter of 2001. The same analyst estimates total global sales
were 90 million phones in the first quarter of 2000. One industry analyst
estimates that total annual global sales growth in mobile phones, on a
percentage basis, decreased to a 12% growth rate in the first quarter of 2001
down from a 59% growth rate in the first quarter of 2000.
The mix of mobile phones acquired by new subscribers versus replacement
phones purchased by existing subscribers also continues to change. Nokia has
estimated that replacement sales accounted for 40% of total global volume in
2000 with such percentage expected to rise to 50% in 2001. In comparison,
Strategis estimated that net additional subscribers represented 38% of total
global sales of mobile phones in the first quarter of 2001, compared to 55% of
total global sales of mobile phones in 2000. Thus, by Strategis' estimate,
replacement sales rose to 62% of total global sales in the first quarter of
2001 versus 45% in the year 2000.
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Historically, telecommunications service providers subsidized the price of
mobile phones both to new customers and to existing customers as an inducement
to retain those customers. Siemens has reported a substantial decline in
subsidies. This decline is expected to adversely affect both the rate of net
additional subscribers as well as the rate of sales of replacement phones.
Published reports also suggest the relative market shares of sales held by
various major telecommunications equipment companies are continuing to change.
According to various industry estimates, the global market share of Nokia, the
single largest customer of both Eimo and Triple S, grew to 35.3% in the first
quarter of 2001, versus 33.9% in the fourth quarter of 2000 and 27.9% in the
first quarter of 2000.
Eimo's sales could be adversely affected by one or more of the following
scenarios resulting from the slow down in global demand, all of which could
lead to lower sales and reduced profits for Eimo.
. First, global sales of mobile phones could be less than expected and the
sales impact could affect Eimo's customers and their purchase orders to
Eimo proportionately.
. Second, Eimo's customers in the mobile communications industry might not
gain market share or, even if they gain market share, such customers
might order plastic parts from suppliers other than Eimo.
. Third, Eimo's customers could outsource existing or new phone production
to third party manufacturers who, in turn, either do not outsource the
production of plastic parts or who might outsource such production to
someone other than Eimo.
. Fourth, one or more of the combined company's smaller mobile
communications customers could choose to exit the mobile phone market
entirely, resulting in a loss of sales.
. Fifth, Eimo could be subject to continued pricing pressure from its
customers for one or more reasons, including customer attempts to lower
costs or excess industry inventory or continued excess production
capacity, especially in Europe. Such factors could adversely affect
Eimo's sales through lost contracts or result in lower margins or lower
profits per production unit.
. Sixth, lower sales could adversely affect production efficiencies
leading to increased unit product costs due to the absence of economics
of scale and the spreading of fixed costs over a lower total base of
sales, resulting in lower margins and profits.
The profitability of Eimo's operations is significantly sensitive to changes
in production volumes. Eimo's existing operations are expected to remain
somewhat profitable in 2001, although the changing composition of Eimo's total
sales to include more relatively expensive bought-in components, combined with
the start-up costs at foreign production sites likely will continue to have an
adverse effect on margins. Based on current estimates by its customers, Eimo
anticipates that new product launches scheduled for the second half of 2001 and
anticipated increased demand in the second half of the year will result in
increased Eimo sales in the third and fourth quarters of 2001 compared to the
first quarter and anticipated second quarter results of Eimo in 2001.
Profitability for the year for Eimo's existing operations is expected to be
very strongly influenced by production volumes and results of operations in the
second half of the year.
The estimated net effect of the slow down in global demand, plus the net
effect of changes by the combined company's largest customer on existing and
anticipated production programs of Triple S, is that Triple S's sales and
profits are expected to significantly decline in 2001.
Due to the factors described above, as well as the substantial decrease in
projected sales by Triple S for 2001, Eimo is unable to predict, on a pro forma
basis, what the sales of the combined company in 2001 will be in comparison to
the pro forma results of the combined company for 2000. Similarly, Eimo is
unable to predict whether the operations of the combined company will be
profitable in 2001 on a pro forma basis.
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In March 2001 the slow down in global demand led Eimo to implement a
temporary production slow-down. Eimo announced temporary lay-offs at
facilitates in Lahti and Hollola, Finland. The lay-offs affected approximately
120 persons. The first lay-offs began in mid April, 2001, and are expected to
be over in August/September 2001, when production is expected to return to
normal levels. Production at Eimo's facilities in Pecs, Hungary, in Helmond,
the Netherlands, in Shenzhen, China, in Laitila, Finland and at tooling
factories in Lahti and Hollola, Finland have not suffered similar slowdowns.
Overall, Eimo expects that the combined company's business in 2001 will be
characterized by investments in its capabilities and the integration and
further development of global operations to implement Eimo's goals of enhancing
its market position and its service capabilities. To respond to changes in the
mobile communications market and the plans of its customers, Eimo expects the
combined company will transfer production resources from low growth to higher
growth production locations. While production at the combined company's
facilities in Brazil and China are expected to grow as a result of the shift in
production by the combined company's customers away from the United States,
production at such non-U.S. facilities is expected to only partially offset the
expected reduction in U.S. sales in 2001. Changes in production resources also
may result in the closure of one or more production facilities, additional
temporary or permanent reductions in personnel in both the United States and
Europe, and the implementation of other cost saving measures, depending on the
timing and magnitude of orders from existing or new customers.
Other changes in the business of the combined company could include the
divestiture or other disposition of non-strategic assets as Eimo expects the
combined company will continue to focus on serving the mobile communications
industry and similar industries which require precision molding and which
provide opportunities for attractive rates of growth.
Properties
Eimo's injection molding factories specialize in serving mobile
communications customers, except for the Laitila, Finland factory, which has
recently concentrated on non-mobile communications customers. Molds have been
produced at separate mold manufacturing facilities located adjacent to the
Hollola and Lahti factories. Eimo's facilities, except for the Shenzhen, China
location, are owned and occupied by its operations, except for approximately
500 square meters of primarily office space at the Lahti facility which are
leased at market rates to companies unrelated to Eimo's business but under
common control, through majority ownership, of the Paananen family. The
Shenzhen facilities are leased under operating leases. Eimo's principal
properties are as follows:
Area in Square
Location Main Function Meters
--------- ---------------------------- --------------
Lahti Factory site 33,578
Finland Production facility 11,852
Office and staff facilities 3,973
Hollola Factory site, 10,470
Finland 1 Production 5,124
Office and staff facilities 1,010
Hollola Factory site 23,145
Finland 2 Production, office and staff
facilities 10,303
Laitila Factory site 90,480
Finland Production facility 4,626
Office and staff facilities 882
Vaaksy Leisure area 29,550
Finland Cottages and club building 320
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Area in Square
Location Main Function Meters
---------------- --------------------- --------------
Helmond Factory site 10,000
Netherlands Production, office
and staff facilities 2,750
Pecs Factory site 21,600
Hungary Production facility 4,900
Office and staff
facilities and other 713
Shenzhen Production and office 4,000
Peoples Republic Dormitories 1,500
of China
Legal Proceedings
From time to time, Eimo is involved in various routine legal proceedings
incidental to the conduct of its business. There are no pending legal
proceedings to which Eimo is a party or to which the property of Eimo is
subject, the outcome of which is expected to have a material adverse effect on
the financial condition or results of operations of Eimo.
Management and Board of Directors of Eimo
Pursuant to the provisions of the Finnish Companies Act and Eimo's articles
of association, the control and management of Eimo is divided between the
shareholders, through actions taken at general meetings of shareholders, the
board of directors and the president. In addition, Eimo's executive management
group assists the president in day-to-day management of Eimo.
The Eimo board of directors is responsible for the management of Eimo and
for the proper organization of Eimo's activities. The Eimo board of directors
establishes Eimo's strategy and organization, along with the company's
accounting and financial policies. The board also appoints the vice chairman of
the Eimo board of directors and the president and chief executive officer. The
president, assisted by the executive management group, is responsible for the
day-to-day management of Eimo's affairs in accordance with instructions and
directives given by the Eimo board of directors. Measures which are not within
the ordinary course of Eimo's business may be taken by the president only if
approved by the Eimo board of directors, unless the delay required to obtain
board approval would result in a substantial disadvantage. In the latter case,
the Eimo board of directors must be informed as soon as practicable of the
measures which have been taken.
The Eimo board of directors consists of at least four and no more than eight
members. Currently there are six members of the board of directors, each of
whom was elected by the 2001 annual general meeting of shareholders for a one
year period ending with the following annual general meeting of shareholders.
Members of the board of directors may be appointed, or removed, only by a
resolution of the general meeting of shareholders. In connection with the
merger, Eimo's shareholders will be asked to approve a resolution to elect
Daniel B. Canavan and Evan C. Harter to the Eimo board of directors effective
upon the merger. In connection with their election and the merger, it is
anticipated that Mr. Markku Sulonen will resign from the Eimo board of
directors in order that the total number of directors will be fixed at seven
with a majority of the board after the merger consisting of non-employee
directors.
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Management and Board of Directors Biographies
Board of Directors
Jalo Paananen, born 1939. A business college graduate, Chairman Jalo
Paananen became an entrepreneur in 1965 and is active as chairman of the boards
of directors of companies owned by him. He is also a member of the board of
directors of the Federation of Finnish Industry and Employers and a member of
the Federation's select committee on small and medium-sized industry. He has
been Chairman of the Eimo board of directors since 1985. Jalo Paananen is also
a member of the board of directors of the Central Association of the Metal
Industry, the Enterprise Fennia Mutual Insurance Company, the Pension Fennia
Mutual Insurance Company, Aliko Automation Oy, Taloudellinen Tiedotustoimisto
Oy, Makron Oy, Makron Engineering Oy, Teraspeikko Oy, Trafotek Oy and Teknoware
Oy.
Elmar Paananen, born 1965. Mr. Paananen has been Vice Chairman of Eimo since
1998. Mr. Paananen is responsible for Eimo's investor relations and several
internationalization projects. Elmar Paananen has participated in the Eimo
board of directors since 1995 and has been a member of the board of directors
since 1997 Mr. Paananen is a member of the financing committee for small and
middle-range industry of the Federation of Finnish Industry and Employers. Mr.
Paananen holds a Master of Science degree in Economics and an Associate in Laws
degree. Elmar Paanannen is the son of Jalo Paananen.
Arto Kajanto, born 1943. Arto Kajanto is managing director of Hameen Sanomat
Oy. Arto Kajanto has been on the Eimo board of directors since 1992. He is also
a member of the boards of directors of Hameen Puhelin Oy, Kiilto Oy and Stala
Oy. Mr. Kajanto holds a Bachelors of Science degree in Economics. His business
address is Hameen Sanomat Oy, Vanajantie 7, Hameenlinna, Finland.
Markku Puskala, born 1948. Markku Puskala is director of Eqvitec Partners
Oy. As a representative of a private equity fund, Markku Puskala has served on
the boards of directors of some fifteen Finnish small and medium-sized
companies and he is chairman of the board of Teletekno Oy. He has been on the
Eimo board of directors since 1998 and is also a member of the boards of
directors of Normania Holdings Oy (Normet) and Telatek Oy. Mr. Puskala holds a
Master of Science degree in Engineering and a Bachelors of Science degree in
Economics. His business address is Eqvitec Partners Oy, Mannerheimintie 8,
Helsinki, Finland.
Anssi Soila, born 1949. Anssi Soila has held various positions in Kone Oyj
for 25 years in Finland, Sweden, Norway, Mexico, the United States and Belgium,
lastly serving as its managing director. He has been on the Eimo board of
directors since 2000. He is a chairman of the boards of directors of Sponda Oy,
AR Carton Oy and Normet Oy and member of the boards of directors of Leonia
Pankki Oyj, Kemira Oyj, Lindstrom Oy and Sulzer Pumps Finland Oy. Mr. Soila
holds a Master of Science degree in Engineering, as well as a Master of Science
degree in Economics.
Markku Sulonen, born 1949. Markku Sulonen is quality manager of VTI Hamlin
Oy. He has been on the Eimo board of directors since 1998. His business address
is VTI Hamlin Oy, Martinkylantie 17 A, Vantaa, Finland. Mr. Sulonen holds a
Master of Science degree in Engineering and a degree in Marketing.
Executive Management Group
Heikki Marttinen, born 1947. The Eimo board of directors appointed Heikki
Marttinen to be the President and Chief Executive Officer of the company as of
October 1, 2000. Heikki Marttinen has previously held positions as Finance
Director of Raute Oy, Executive member of the board of directors of Helsingin
Osakepankki, Executive Vice President of Myllykoski Oy, Chairman and CEO of
Imatran Voima Oy as well as President and CEO of Fortum Oyj. He holds a Master
in Science degree in Economics.
Seppo Jaakkola, born 1948. Seppo Jaakkola is an engineer and has been Eimo's
Vice President since 1997. He has previously been President of Eimo Oy,
Managing Director of Makron Oy and factory manager of
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Teraspeikko Oy. He is also a member of the board of directors of MJV-Sahko Oy,
Lahden Seudun Yrityskeskus, the Finnish Plastics Industries Federation, and
Muovialan Kehittamiskeskus Oy.
Timo Seppa, born 1960. Timo Seppa will be primarily responsible for
technology transfers to take place after completion of the merger. Mr. Seppa
holds a Master of Science degree in Engineering. He has previously been
Technical Director (since 1992), Managing Director of Makron Oy and Factory
Manager of Eimo Oy.
Petri Virtanen, born 1971. Petri Virtanen is an engineer and has been a
Technical Director since 2000. He has previously been Quality Engineer, Project
Manager, and Plant Manager at Eimo.
Pekka Vahtila, born 1957. Pekka Vahtila is an engineer and has been
Marketing Manager since 1991. He has previously been Unit and Sales Manager at
Lupoplast Oy and Products Manager of Falcon Chemicals Oy.
Aarre Savolainen, born 1951. Aarre Savolainen has been Finance Director
since 1985 and is a public accountant. He holds a Bachelors in Science in
Economics.
Niilo Oksa, born 1948. Director of Human Resources and Administration since
2001. Niilo Oksa has extensive experience in both domestic and foreign
personnel administration. He has been responsible for personnel administration
in, for example, several acquisitions and mergers for other companies. He holds
various positions in a number of employer and training organizations. Most
recently, Mr. Oksa was employed by Fortum Oyj.
Jouko Hakala, born 1951. Jouko Hakala is an engineer and has been Senior
Sales Manager since 2001. He has previously been Account Sales Manager and
Marketing Manager at Eimo, Project Manager at Talmu Oy and tools designer at
Laukamo-Yhtiot.
Vesapekka Karhi, born 1963. Vesapekka Karhi has been Head of Tools Unit
since 1994. He has previously been CAD/CAM System Manager, Project Manager and
Product Quality Manager at Eimo. He holds a Master of Science degree in
Engineering.
Erkki Nummelin, born 1947. A business college graduate, Erkki Nummelin has
been Group Controller since 1998. He has previously been Administrative Manager
at Hartwall Oyj and Controller at Mallasjuoma and Amri.
Compensation of the Board of Directors and Executive Management Group of Eimo
For the year ended December 31, 2000, the aggregate remuneration, including
benefits in kind, paid to the members of the board of directors and executive
management group of Eimo, as a group (10 persons), was approximately
(Euro)540,000 ($476,000) including bonuses based on Eimo's performance. In the
case of executive officers, this compensation was primarily in the form of
salaries. In the case of non-executive directors, this compensation was paid in
the form of board of directors' fees.
Interest of Management in Transactions with Eimo
There have been no material transactions during the last three years to
which any member of the board of directors or executive officer of Eimo or any
ten percent shareholder of Eimo, or any relative or spouse of any of these
persons, was a party, except as follows:
. On January 2, 1998, a major restructuring of the company took place as
explained in "--History and Restructuring" and the notes to the
consolidated financial statements on page F-7.
. Prior to January 2, 1998, Eimo was a part of a group of companies owned
by the Paananen family. Financing for all of the companies was conducted
at the group level. After the operational restructuring on January 2,
1998, which created the current Eimo, certain financial transactions
were
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still conducted at a group level. A number of such financial
transactions occurred between Eimo and other companies held by the
Paananen family. Both the amount of loans and receivables varied between
Eimo and the other companies during the first half of 1998.
Additionally, Eimo had a loan of approximately (Euro)168,000 from the
Paananen family with interest at 5%, which was fully paid in February
1998. All such inter-affiliate financing transactions ended as of June
30, 1998. Since such date there have been no loan and/or receivable
transactions between Eimo and the Paananen family.
. On December 22, 1998, Teraspeikko Oy, a company 100% held by the
Paananen family, bought a 6,219 square meter parcel of land from Eimo
for approximately (Euro)16,800, which Eimo believes to have been the
approximate fair market value of such land. Teraspeikko Oy is in the
business of manufacturing concrete fastening parts.
. On December 22, 1998, Eimo sold a 3.3468 hectares parcel of land to Jalo
Paananen. The purchase price was approximately (Euro)13,600, which Eimo
believes to have been the approximate fair market value of the property
based on an independent third party appraisal.
. On January 29, 1998, Eimo sold a piece of land and a building to
Deltatek Oy, a company controlled by the Paananen family. The building
was approximately 2,000 square meters and the piece of land 23,089
square meters. The combined purchase price for the building and the land
was approximately (Euro)858,000, which Eimo believes to have been the
approximate fair market value of the property based on an independent
third party appraisal.
. During the spring of 2000, Nostera Oy, a company controlled by the
Paananen family, sold and transferred certain telephone connections to
Eimo in connection with its rapid expansion and the relocation of its
corporate headquarters to Lahti, Finland. The purchase price was
approximately (Euro)9,000, which Eimo believes to have been no greater
than the purchase price Eimo would have paid in an independent arms-
length transaction.
. Eimo outsources its accounting function to a company that is 90% owned
by the Paananen family. Accounting fees were approximately
(Euro)115,000, (Euro)161,000 and (Euro)165,000 for the years ended
December 31, 1998, 1999 and 2000, respectively.
. Similarly, another company that is substantially owned by the Paananen
family charged Eimo approximately (Euro)48,000 and (Euro)75,000 for the
years ended December 31, 1998 and 1999, respectively, for management
fees and other administrative costs related to management services
provided (two senior officers and a secretary). No charges were made in
the year ended December 31, 2000.
. Eimo previously leased approximately 1,000 square meters, and currently
leases 500 square meters, of primarily office space at its Lahti
facility at market rates to various companies under the control of the
Paananen family.
There is no significant outstanding indebtedness owed to Eimo by any director
or executive officer or ten percent shareholder of Eimo. Eimo has no
formalized policy prohibiting related party transactions. All related party
transactions generally are reviewed by Eimo's board of directors and, as a
matter of custom for Finnish public companies, related party transactions are
strongly discouraged unless on the same terms as could be obtained in an
independent arms length transaction.
Eimo's Equity Based Compensation Plans
Eimo 1999 Group Warrant Program
On November 17, 1999, the shareholders of Eimo authorized the issuance by
Eimo of warrants to persons belonging to Eimo's group management, members of
the Eimo board of directors and other key personnel, and waived the
subscription rights of existing shareholders in connection with the shares
issuable pursuant to such warrants. Warrants under the program are issuable to
management and other key personnel of Eimo at the discretion of its board of
directors. Under the 1999 Group Warrant Program, Eimo can issue up to
1,200,000 warrants. Each warrant entitles the holder to subscribe for one Eimo
Series A share.
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The warrants will be exercisable in three tranches. Each member of the Eimo
board of directors elected at Eimo's annual general meeting for terms starting
in 2000 or 2001 will receive up to 8,000 warrants per term for serving as a
member of the board of directors. Each member of the board of directors
automatically will receive 4,000 warrants per term, unless the shareholders of
Eimo decide otherwise at the annual general meeting when deciding on
compensation for the members of the Eimo board of directors. The subscription
period for 360,000 of the warrants will start on June 1, 2002, the subscription
period for another 360,000 warrants will start on June 1, 2003, and the
subscription period for the remaining 480,000 warrants will start on June 1,
2004. The subscription exercise period for all the warrants issuable under the
program will end on May 31, 2006. The subscription price for the shares will be
(Euro)5.00 per share, less the split adjusted amount of the dividends per share
paid before the start of the subscription period, subject to adjustment by a
factor that is based on the performance of Eimo's Series A shares and of the
shares of two other companies operating in the same industry.
As of March 31, 2001, a total of 986,000 warrants have been granted, of
which 104,000 were granted in 2001. Of the total warrants granted, 76,000 have
been granted to members of the Eimo board of directors. None of the warrants
are exercisable before June 2002.
As of March 31, 2001, the Eimo 1999 Group Warrant Program has not been
changed since its adoption except for adjustments made to reflect a four-to-one
stock split, including a reduction in the accounting counter value of the Eimo
Series A shares issuable under the program, which was altered so that the share
capital of the aggregate shares issuable under the program remained unchanged,
the number of shares was increased and the subscription price was decreased.
Warrants vest and become freely transferable when the subscription period
for the relevant warrants has commenced. The Eimo board of directors can, if it
wishes to do so, authorize the transfer of the warrants before the subscription
period has commenced.
If a warrant holder ceases to be employed by Eimo or one of its subsidiaries
before June 1, 2004, for any other reason than retirement or death, such person
must promptly offer Eimo the right to reacquire, free of charge, those warrants
for which the share subscription period has not yet commenced on the last day
of such person's employment.
If a warrant holder ceases to be employed by Eimo or one or more of its
subsidiaries because of retirement or death, warrants that would vest and
become freely transferable more than two years after the date of such warrant
holder's retirement or death, must be offered back to Eimo for free and without
delay.
The obligation to offer Eimo the right to reacquire the warrants under
certain circumstances does not apply to the warrants issued to persons in their
capacity as a member of the Eimo board of directors. In certain circumstances
deemed exceptional by the Eimo board of directors, it also can grant warrants
without such company reacquistion right to persons who are not members of the
Eimo board of directors.
The share subscription price will be a sum equal to (Euro)5.00 minus a
number equal to the split adjusted per share dividends paid out by Eimo after
the grant of the warrant, but before the commencement of the subscription
period calculated on each dividend payment clearance date, plus or minus an
amount based on the changes in the share price of Eimo's Series A shares. Such
amount to be added or subtracted is determined by multiplying the difference
between the percentage change in the share price of Eimo's Series A shares and
the percentage change in the comparison index by 1.25. The comparison index is
calculated by weighting changes in the weighted share price on the Helsinki
Stock Exchange of Perlos Oyj and the share price on the Stockholm Stock
Exchange of Nolato AB. For purposes of calculating the ratio, two-thirds of the
weighted average is based on the changes in the share price of Perlos Oyj and
one third is based on changes in the share price of Nolato AB. When calculating
the initial values, (Euro)4.63 is used for an Eimo share, (Euro)15.50 is used
for a Perlos
124
share, and 120 Swedish kronor is used for a Nolato share. The price development
of the shares is calculated by comparing the initial prices with average daily
closing prices during a specific period for each group of warrants. The
specific periods are as follows:
For the first group of warrants
the period is April 29--May 3, 2002
For the second group of warrants
the period is April 28--May 2, 2003
For the third group of warrants
the period is April 26--April 30, 2004
If the share price of Eimo Series A shares is less than that of the
comparison index, the subscription price rises. The subscription price is
always minimum (Euro)3.50 a share minus the split adjusted dividends paid out
before the commencement of the subscription period, but not less than
(Euro)1.25.
The Eimo board of directors can decide that the subscription price of the
shares will not be adjusted by the relative share price development if it
concludes that the comparability of the index or its constituent companies has
been adversely affected due to market turbulence or corporate developments
affecting one or more of the companies used for calculation of the comparison
figure.
Shares subscribed for and fully paid will be registered in the subscriber's
book-entry account. Shares will be eligible for dividends with respect to the
fiscal year in which the share subscription takes place assuming that the share
capital increase is registered before the clearance date of the dividend
payments. Other shareholder rights commence on the date on which the share
subscription is entered in the Trade Register.
If Eimo, before the commencement of the share subscription period, increases
its share capital through the issue of new shares, or issues new convertible
debt or issues warrants, other than warrants issuable under Eimo 2001 Group
Warrant Program or the Eimo 1999 Group Warrant Program, holders of warrants
issued under the program will have the right to participate in such share
capital increase on the same or substantially the same basis as Eimo
shareholders, to amend the number of shares issuable under the warrant, the
share subscription prices, or both.
If Eimo, before the commencement of the share subscription period, increases
the share capital through a bonus issue, that is, a stock dividend to all the
Eimo shareholders, the share subscription ratio will be amended so that the
ratio to the share capital of shares to be subscribed for by virtue of the
warrants remains unchanged. If the new number of shares to be subscribed for
upon the exercise of a warrant would result in a fraction of a share, the
fraction will be taken into account by lowering the share subscription price.
If Eimo, before the commencement of the share subscription period, reduces
its share capital, the right to the share subscription of the holders of the
warrants will be correspondingly amended in the manner specified in the
resolution to reduce the share capital. Should Eimo, before the commencement of
the share subscription period, be placed into liquidation, the holders of the
warrants will be given the right to subscribe for shares during a period prior
to the commencement of the liquidation prescribed by the Eimo board of
directors. If Eimo resolves to merge with another company or with a company to
be formed, or should Eimo resolve to spin off a portion of its business or
distribute its assets, the holders of the warrants will be given the right to
subscribe for shares during a period prior to the merger, spin-off or
distribution prescribed by the Eimo board of directors. After that period, no
rights to subscribe shares will remain.
The warrants are not subject to any adjustment as a result of any
reacquisition by Eimo of its own shares. In the event an Eimo shareholder has a
right or an obligation to redeem shares of other shareholders in accordance
with Finnish law as a result of the size of its shareholding, warrant holders
will have the equal right to sell their warrants to the shareholder who has the
right or obligation to redeem the shares. If the accounting counter value of
the share is changed so that the share capital remains unchanged, the terms and
conditions of the warrants concerning the share subscription will be amended so
that the aggregate counter value of shares to be subscribed for and the
aggregate share subscription price remain unchanged. Should Eimo's shareholders
decide to convert Eimo from a public limited company into a private limited
company, the terms and conditions of the warrants will not be affected.
125
Eimo 2001 Group Warrant Program
On May 15, 2001, the shareholders of Eimo authorized the Board of Directors
to decide upon the issuance by Eimo of warrants to persons belonging to Eimo's
group management, members of the Eimo board of directors and other key
personnel, and waived the subscription rights of existing shareholders in
connection with the shares issuable pursuant to such warrants. Warrants under
the program are issuable to management and other key personnel of Eimo at the
discretion of its board of directors. Under the 2001 Group Warrant Program,
Eimo can issue up to 1,000,000 warrants. Each warrant will entitle the holder
to subscribe for one Eimo Series A share.
The warrants will be exercisable in three tranches. The subscription period
for 300,000 of the warrants will start on June 1, 2002, the subscription period
for another 300,000 warrants will start on June 1, 2003, and the subscription
period for the remaining 400,000 warrants will start on June 1, 2004. The
subscription exercise period for all warrants issuable under the program will
end on May 31, 2006. The subscription price for the shares will be (Euro)2.70.
As of the date of this proxy statement/prospectus, no warrants have been
granted under the 2001 Group Warrant Program. Under the terms of the program,
no warrants will be exercisable before June 2002.
All other terms and conditions of the 2001 Group Warrant Program are
identical with the 1999 Group Warrant Program.
The maximum number of warrants that collectively can be issued under both
the 1999 Group Warrant Program and the 2001 Group Warrant Program has been
limited to 1,500,000.
126
EIMO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The information in this section concerning Eimo's financial condition and
results of operations refers to Eimo's consolidated financial statements
included in this document. Eimo's consolidated financial statements were
prepared in accordance with Finnish Accounting Standards. Finnish Accounting
Standards differ in some respects from U.S. Generally Accepted Accounting
Principles. A reconciliation of amounts reported under Finnish Accounting
Standards to the amounts determined under U.S. Generally Accepted Accounting
Principles and a discussion of the principal differences between Finnish
Accounting Standards and U.S. Generally Accepted Accounting Principles is set
out in Note 17 to the Eimo consolidated financial statements beginning on page
F-18 of this document. The Eimo historical consolidated financial statements
were also prepared based solely on the basis of Eimo's current continuing
operations and do not include results of operations or other financial
information with respect to various business lines and operations disposed of
in the past five years. The last of such unrelated, discontinued operations was
disposed of on January 2, 1998.
The table below outlines the components of the Eimo's consolidated income
statements as a percentage of sales.
Three
months
Year ended ended
December 31, March 31,
--------------------- -------------
1998 1999 2000 2000 2001
----- ----- ----- ----- -----
Sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Goods and services..................... 38.6% 38.2% 50.4% 41.2% 52.6%
Personnel expenses..................... 21.5% 22.3% 20.6% 24.7% 22.4%
Depreciation and amortization.......... 6.5% 5.9% 6.0% 6.8% 7.5%
Other operating expenses............... 8.4% 9.9% 10.3% 13.5% 13.6%
Operating profit....................... 25.4% 24.6% 13.0% 14.2% 4.7%
Financial expenses..................... (1.0%) (1.3%) 0.2% (0.6%) 1.1%
Extraordinary income (expense)......... 0.0% 0.7% (0.8%) 0.0% (5.0%)
Profit before income taxes............. 24.4% 24.0% 11.9% 14.8% (1.4%)
The three month period ended March 31, 2001 compared to the three month period
ended March 31, 2000
Sales
Eimo's sales were (Euro)27.0 million for the three month period ended March
31, 2001, an increase of 42.2% compared to sales of (Euro)19.0 million for the
three month period ended March 31, 2000. The increase in sales was primarily
related to increased volume, as no significant price increases occurred between
the periods, and competitive pressures on pricing became more pronounced. The
increase in sales was attributable to sales to existing customers and, to a
lesser degree, new customers, primarily in the telecommunications industry. As
a percentage of sales, sales to this industry represented 91% of sales for the
three months ended March 31, 2000, and 92% of sales for the three months ended
March 31, 2001.
Operating profit
Eimo's operating profit was (Euro)1.3 million for the three month period
ended on March 31, 2001, a decrease of 52.7% over operating profit of (Euro)2.7
million for the three month period ended on March 31, 2000. Operating profit as
a percentage of sales decreased from 14.2 % in the three month period ended on
March 31, 2000 to 4.7% for the three month period ended March 31, 2001. This
decrease was attributable to an increase in cost of materials and other
operating expenses and the negative impact of competitive pricing in the
European market. In the immediate future, this trend is not expected to
continue as several competitors have closed their facilities in countries such
as Finland, Sweden and Norway.
127
Goods and services
Cost of goods and services increased as a percentage of sales from 41.2% of
sales for the three month period ended March 31, 2000 to 52.6% of sales for the
three month period ended March 31, 2001. This increase in goods and services
and its negative impact on operating margin was primarily attributable to the
increase in sales of plastic parts that include more expensive bought-in parts.
For example, after the first quarter of 2000, Eimo began assembling a new
product that included a vibrating motor, a more expensive bought-in part, which
negatively impacted the average margin. This product program did not exist
during the three months ended March 31, 2000. Eimo expects to continue to
provide these services to its customers in the future.
Personnel expenses
Personnel costs increased to (Euro)6.0 million or 22.4% of sales for the
three month period ended on March 31, 2001 from (Euro)4.7 million or 24.7% of
sales for the three month period ended on March 31, 2000. The increase in
personnel costs was due to a significant increase in the average number of
employees over the past three years. The decrease in personnel costs as a
percentage of sales related to economies of scale resulting from an increase in
sales during the period.
Depreciation and amortization
Depreciation rose from 6.8% of sales in the three months ended March 31,
2000 to 7.5% of sales in the three months ended March 31, 2001. This increase
was due to high additional investment in new facilities in Hungary and China,
the purchase of new equipment for these facilities, as well as for Eimo's
Finnish facilities, and the fact that facilities were underutilized during the
period.
Other operating expenses
Other operating expenses increased as a percentage of sales from 13.5% of
sales for the three month period ended March 31, 2000 to 13.6% of sales for the
three month period ended March 31, 2001. This increase was primarily
attributable to costs incurred by Eimo in connection with starting up
production at its new facilities in Hungary and China, an overall increase in
general operating expenses reflecting the build-up of a headquarters able to
support a company with operations in a number of countries internationally, and
increased training, travel and development costs. During the three month period
ended March 31, 2000, Eimo had significant start-up costs in the Netherlands,
and moved its headquarters charging the moving costs to operations.
Financial items
Net financial expense was (Euro)0.3 million for the three month period ended
on March 31, 2001 versus net financial income of (Euro)0.1 million for the
three month period ended on March 31, 2000. The change was primarily
attributable to borrowing costs incurred in connection with new borrowings
during 2000 and 2001. In early 2000, Eimo did not have significant interest
bearing debt, as funds earned from the initial public offering in 1999 had been
used to repay loans.
Extraordinary expenses
Certain legal, accounting, investment banking and travel fees and costs
directly related to the planned merger with Triple S, amounting to (Euro)1.4
million, were recognized by Eimo as extraordinary expenses during the three
months ended March 31, 2001, in accordance with FAS. For purposes of U.S.
Generally Accepted Accounting Principles, all direct costs of a purchase
business combination that has been postponed do not qualify to be classified as
extraordinary and should be reported as a component of operating income.
Income tax expense
Eimo's effective tax rate for the three months ended March 31, 2001 was 11%
as compared to 29% for the three months ended March 31, 2000. The statutory
income tax rate in Finland was 29% in both 2000 and
128
2001. During the three months ended March 31, 2001, income tax expense resulted
primarily from foreign taxable earnings in certain foreign jurisdictions. This
income tax expense was partially offset by a deferred tax benefit recognized by
Eimo during the period.
The year ended December 31, 2000 compared to the year ended December 31, 1999
Sales
Eimo's sales were (Euro)105.5 million for the year ended December 31, 2000,
an increase of 35.3% compared to sales of (Euro)78.0 million for the year ended
December 31, 1999. The increase in sales was related to volume, as no
significant price increases occurred during the year. In fact, sales during the
latter part of the year were negatively impacted by competitive pressure on
pricing as a result of excess capacity in the European market. The increase in
sales was attributable to sales to existing customers and, to a lesser extent,
new customers, in each case, primarily in the telecommunications industry. Eimo
continues to target the telecommunications industry. As a percentage of sales,
sales to this industry represented 92% of sales for the year ended December 31,
2000 as compared to 91% for the year ended December 31, 1999.
Operating Profit
Eimo's operating profit was (Euro)13.7 million for the year ended on
December 31, 2000, a decrease of 28.9% from operating profit of (Euro)19.2
million for the year ended on December 31, 1999. Operating profit as a
percentage of sales decreased from 24.6% in the year ended on December 31, 1999
to 13.0% in the year ended December 31, 2000. This decrease was primarily
attributable to an increase in cost of materials and other operating expenses.
Goods and services
Costs of goods and external services increased as a percentage of sales from
38.2% of sales for the year ended December 31, 1999 to 50.4% of sales for the
year ended December 31, 2000. This increase in goods and services and its
negative impact on operating margin was primarily attributable to the
following:
. During the year, Eimo began assembling a new product that included a
vibrating motor, a more expensive bought-in part, which negatively
impacted the average margin. Eimo expects to continue to provide these
services to its customers in the future.
. Customer induced, excessive costs in connection with two unsuccessful
product programs for which Eimo was not reimbursed. In the first
program, higher production costs resulted from an excessive amount of
wastage due to early implementation of full production, of which
approximately (Euro)1 million were not recoverable from the customer. In
the second program, Eimo incurred start-up costs of approximately
(Euro)1 million which were not recoverable due to the early termination
of the program by the customer.
Personnel expenses
Personnel expenses increased to (Euro)21.8 million or 20.6% of sales for the
year ended December 31, 2000 from (Euro)17.4 million or 22.3% of sales for the
year ended December 31, 1999. The increase in personnel costs was due to a
significant increase in the average number of employees during the past three
years, from 457 in 1998 to 681 in 1999 to 768 employees in 2000.
The decrease in personnel costs as a percentage of sales related to
economies of scale resulting from an increase in sales during the year.
129
Depreciation and amortization
Depreciation and amortization increased 36.5%, from (Euro)4.6 million or
5.9% of sales for the year ended December 31, 1999 to (Euro)6.3 million or 6.0%
of sales for the year ended December 31, 2000. This increase was attributable
to (Euro)15.3 million of investments made during the year ending December 31,
1999, and (Euro)28.8 million of investments made during the year ending
December 31, 2000, primarily into facilities and equipment in the Netherlands,
Hungary, and Finland.
Other operating expenses
Other operating expenses increased from (Euro)7.7 million or 9.9% of sales
for the year ended December 31, 1999 to (Euro)10.8 million or 10.3% of sales
for the year ended December 31, 2000. This increase was primarily attributable
to the following:
. During the year general operating expenses increased by approximately
(Euro)0.9 million relating to increased training, travel and development
costs associated with becoming more international.
. During the year ended December 31, 2000, Eimo incurred approximately
(Euro)0.6 million of legal and other non-recurring costs relating to the
expansion of its operations to certain additional international markets,
including China and Hungary, Eimo estimates that additional costs
relating to these acquisitions will approximate (Euro)0.2 million.
Similar costs may be incurred in the future in connection with expansion
into other markets.
. Eimo incurred costs approximately (Euro)1.0 million relating to the
start up of operations in the Netherlands during the year ended December
31, 2000.
. Eimo moved into its new headquarters in Lahti, Finland in March 2000 and
incurred exceptional repairs and maintenance costs of approximately
(Euro)280,000, which are not expected to be recurring.
Financial items
Net financial expense was (Euro)0.2 million for the year ended December 31,
2000, a decrease of 76% over net financial expense of (Euro)1.0 million for the
year ended on December 31, 1999. The decrease was solely attributable to the
costs of approximately (Euro)1.2 million incurred and charged to operations in
connection with Eimo's initial public offering in March 1999. Actual gross
interest costs increased from (Euro)0.1 million for the year ended December 31,
1999 to (Euro)0.4 million for the year ended December 31, 2000, reflecting an
increased level of borrowing to finance dividends, investments and working
capital during 1999 and 2000.
For purposes of U.S. Generally Accepted Accounting Principles, expenses
relating to Eimo's public offering would not have been included in results of
operations, but rather, would be offset against the proceeds from the offering.
As a result, Eimo would have had net financial income of (Euro)0.2 million for
the year ended December 31, 1999 as compared to net financial expenses of
(Euro)0.2 million for the year ended December 31, 2000.
Extraordinary expenses
Certain legal, accounting, investment banking and travel fees and costs
directly related to the planned merger with Triple S Plastics, Inc., amounting
to (Euro)0.9 million, were recognized by Eimo as extraordinary expenses during
the year ended December 31, 2000, in accordance with FAS. For the year ended
December 31, 1999, no extraordinary expense was recorded.
Under U.S. Generally Accepted Accounting Principles, this excess would not
have been recognized as extraordinary income; but rather, would have reduced
the carrying value of the non-current assets acquired. As a result,
extraordinary items would not have changed significantly.
Income tax expense
Eimo's effective tax rate for the year ended December 31, 2000 was 30.1% as
compared to 27.4% for the year ended December 31, 1999. The statutory income
tax rate in Finland was 28% in 1999 and 29% in 2000. The increase in the
effective tax rate is attributable to some tax-free extraordinary income in
1999, the increase
130
in the Finnish statutory rate from 1999 to 2000, and a higher effective tax for
the company's profit-making operation in the Netherlands.
The year ended December 31, 1999 compared to the year ended December 31, 1998
Sales
Eimo's sales were (Euro)78.0 million for the year ended December 31, 1999,
an increase of 30.8% compared to sales of (Euro)59.6 million for the year ended
December 31, 1998. The increase in sales was primarily related to volume, as no
significant price increases occurred during the year. The increase was
attributable to increased sales to new and existing customers, primarily in the
telecommunications industry. Eimo continues to target the telecommunications
industry. As a percentage of sales, sales to this industry represented 91.0% of
total sales for the year ended December 31, 1999 as compared to 85.0% for the
year ended December 31, 1998.
Operating profit
Eimo's operating profit was (Euro)19.2 million for the year ended December
31, 1999, an increase of 27.2% over operating profit of (Euro)15.1 million for
the year ended December 31, 1998. The increase was primarily attributable to
the increase in sales. Operating profit as a percentage of sales decreased from
25.4% in 1998 to 24.6% in 1999. This decrease was attributable to an increase
in personnel costs which was partially offset by a decrease in the cost of raw
materials and external services, in each case, as a percentage of sales.
Goods and services
Costs of goods and external services decreased as a percentage of sales from
38.6% of sales for the year ended December 31, 1998 to 38.2% of sales for the
year ended December 31, 1999. This decrease resulted from economies of scale
due to the increase in sales volume achieved during the year ended December 31,
1999.
Personnel expenses
Personnel expenses increased to (Euro)17.4 million or 22.3% of sales for the
year ended December 31, 1999 from (Euro)12.8 million or 21.5% of sales for the
year ended December 31, 1998. This increase was due to the significant increase
in employees from 457 in 1998 to 681 in 1999.
Depreciation and amortization
Depreciation and amortization increased 17.9%, from (Euro)3.9 million for
the year ended December 31, 1998 to (Euro)4.6 million for the year ended
December 31, 1999. This increase was attributable to the (Euro)15.3 million of
capital expenditures made during the year ended December 31, 1999, primarily
relating to investments in the Hollola factory, new production machinery and
facilities in the Lahti factory and the acquisition of the Helmond factory in
the Netherlands.
Other operating expenses
Other operating expenses increased from (Euro)5.0 million, or 8.4% of sales,
for the year ended December 31, 1998 to (Euro)7.7 million, or 9.9% of sales,
for the year ended December 31, 1999. This increase in operating expenses of
(Euro)2.7 million was primarily attributable to the following:
. Non-personnel production overhead costs, which include all maintenance
costs of equipment and facilities, increased by (Euro)990,000 due to
costs associated with increased utilization and expansion of Eimo's
production facilities, including increased electricity usage;
. Travel costs increased by approximately (Euro)500,000 during the year
ended December 31, 1999, as Eimo entered into more international sales
contracts, began to perform international investor relations work, began
operations in the Netherlands and began to study business opportunities
elsewhere in the world;
131
. In 1999, Eimo upgraded its network to provide internet access to more of
its employees and implemented a new management reporting plan system,
which resulted in an increase in information technology costs of
approximately (Euro)300,000;
. Miscellaneous office and employee related costs also increased by
approximately (Euro)485,000 during the year, primarily due to an
increase in the number of employees; and
. Research and development costs as well as miscellaneous management
consulting fees increased by approximately (Euro)500,000.
Financial items
Net financial expenses were (Euro)1.0 million for the year ended December
31, 1999, an increase of 67% over net financial expenses of (Euro)0.6 million
for the year ended December 31, 1998. This increase was attributable to costs
of approximately (Euro)1.2 million incurred and charged to operations in
connection with Eimo's initial public offering in March 1999. Such costs were
partially offset by earnings on cash investment of the proceeds of such
offering prior to the expenditure of such proceeds.
For purposes of U.S. Generally Accepted Accounting Principles, expenses
relating to Eimo's public offering would not have been included in results of
operations; but rather, would be offset against the proceeds from the offering.
As a result, Eimo would have had net financial income of (Euro)0.2 million for
the year ended December 31, 1999 as compared to net financial expenses of
(Euro)0.6 million for the year ended December 31, 1998. The interest income was
primarily attributable to the increase in cash and cash equivalents from the
proceeds of the public offering.
Extraordinary income
In 1998, Eimo acquired shares in a real estate company, Kiinteisto Oy
Hollolanpuhti, which was later merged with Eimo in 1999. The fair market value
of the assets exceeded the purchase price by approximately (Euro)0.5 million,
which Eimo recognized as extraordinary income during the year ended December
31, 1999, in accordance with Finnish Accounting Standards.
Under U.S. Generally Accepted Accounting Principles, this excess would not
have been recognized as extraordinary income; but rather, would have reduced
the carrying value of the non-current assets acquired. As a result,
extraordinary items would not have changed significantly.
Income tax expense
Eimo's effective tax rate for 1999 was 27.5% as compared to 28.5% for 1998.
The statutory income tax rate was 28% in 1999 and 1998.
Liquidity and Capital Resources
Historically, Eimo's primary sources of funds have been from operations,
long-term debt, borrowing under its credit facilities and from the issuance of
equity. Eimo's primary uses of cash are for operating expenditures, capital
expenditures and general corporate purposes, which may include acquisitions and
strategic investments in joint ventures or other businesses.
Eimo's cash and cash equivalents increased by approximately (Euro)2.8
million during the three months ended March 31, 2001, from (Euro)1.7 million to
(Euro)4.4 million. Net cash consumed by operating activities amounted to
(Euro)4.1 million during the three months ended March 31, 2001 resulting from
an increase in working capital of (Euro)4.8 million partially offset by the
operating profit after merger costs. Capital expenditures during the three
months ended March 31, 2001 amounted to (Euro)4.0 million, resulting from the
acquisition of production machinery in
132
Finland and Hungary, and the acquisition of Century Step Company Limited in
Hong Kong, with operations in China. Eimo also generated net cash from
financing activities of (Euro)10.8 million, through borrowing from its various
facilities at banks.
Eimo's cash and cash equivalents decreased by approximately (Euro)15.1
million during the year ended December 31, 2000, from (Euro)16.7 million to
(Euro)1.7 million. Net cash provided by operating activities amounted to
(Euro)6.5 million during the year ended December 31, 2000 resulting from
operating profit of (Euro)13.7 million partially offset by changes in working
capital. Capital expenditures during the year ended December 31, 2000 amounted
to (Euro)28.8 million, primarily resulting from the purchase of the production
facilities in Hungary, production equipment and machinery for all facilities,
and equity investments in Hong Kong. Eimo generated net cash from financing
activities of (Euro)7.2 million. Eimo also paid dividends of (Euro)11.6 million
during the year ended December 31, 2000.
At March 31, 2001, Eimo had working capital of approximately (Euro)23.6
million and long-term debt of approximately (Euro)26.7 million. Eimo typically
uses banks and other financial institutions for secured borrowings when needed
or borrows under its credit and overdraft facilities.
As of March 31, 2001, Eimo had borrowings of approximately (Euro)33.8
million pursuant to secured loan arrangements. The debt provides for interest
at a variable rate with an average maturity of 2.7 years. Approximately
(Euro)7.2 million of this debt is repayable within one year from March 31,
2001. The assets of Eimo are pledged as security for these loans. In the period
from April to June 2001, Eimo borrowed an additional (Euro)0.6 million secured
with equipment to finance new equipment for the Lahti facility.
Eimo currently has a line of credit and overdraft facility with four banks
aggregating (Euro)27 million, with interest on the unpaid principle balance at
a variable rate, typically the one month Euribor rate, which rate was 4.698% on
March 30, 2001, the last business day of the quarter. The approximate average
margin on used facilities is 0.45% over the Euribor and the creditors
commission on unused facilities is 0.15%. As of June 11, 2001, Eimo had
borrowed under facilities repayable on short notice a total of 10.9 million and
had unused borrowing capacity of (Euro)16.1 million.
Eimo estimates it will spend approximately (Euro)10-15 million in capital
expenditures in 2001, primarily to upgrade its production capabilities in China
and Finland. Eimo's capital expenditure budget for 2001 does not include any
capital expenditure costs which might be incurred as a result of additional
acquisitions. In May 2001, Eimo paid dividends to shareholders aggregating
(Euro)3.2 million.
Eimo believes that the availability of funds under its credit facilities,
cash flows from operations and its ability to obtain alternative sources of
financing will permit Eimo to fund operations, working capital requirements and
other obligations, as well as other potential investments or business
opportunities for the forseeable future. In the event Eimo has additional
capital requirements for new business opportunities, Eimo believes it has the
ability to obtain additional capital from the capital markets.
Inflation
Inflation in Finland as measured by change in the consumer price index
during 2000, 1999, and 1998 was 3.4%, 1.2% and 1.4% respectively. Eimo believes
that inflation has not had an abnormal or unanticipated effect on its
operations. Inflationary pressures would be significant to Eimo's business if
raw materials used for production are significantly affected. Eimo is unable to
forecast the prices or supply of other raw materials but currently does not
anticipate any substantial changes that will materially affect its operating
results. In many cases, Eimo's customers have supply contracts which cover the
supply of raw materials to Eimo for use in producing such customer's products.
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Financial Risks
Currency Risks
Eimo's principal production locations invoice mainly in their local
currencies, except the Pecs, Hungary facility, which invoices primarily in
euros and the Shenzhen, China facility whose ultimate invoicing currency often
is the U.S. dollar. Even for those locations which mainly invoice in their
local currency, some sales take place in other currencies. Also, certain
important components and other purchases are sourced in currencies other than
the sales currency, including many equipment purchases which are purchased
pursuant to contracts denominated in Japanese yen. Apart from the Netherlands,
all other non-Finnish production locations are outside the euro area, exposing
Eimo to potential balance sheet currency translation risks. Historically Eimo
has not experienced any material financial risk from currency translations.
As its currency risk grows, Eimo may seek to manage its international
currency exchange risks on a global basis by one or more of the following:
. securing payment from customers in euros, when possible;
. utilizing borrowings denominated in the local currency; and
. entering into foreign currency exchange contracts.
In addition, a significant portion of the cost attributable to operations
outside of the European Monetary Union is incurred in the local currencies.
After the merger, except for changes in the U.S. dollar to euro exchange rate,
Eimo believes that a 10% adverse change in currency exchange rates would not
have a significant adverse effect on the net earnings or cash flows of the
combined company.
Eimo may, from time to time, enter into foreign currency exchange or other
contracts to hedge the risk associated with certain firm sales commitments,
anticipated revenue streams and certain assets and liabilities denominated in
other than euros. Eimo does not engage in currency speculation. Assets and
liabilities of operations outside of the European Monetary Union are translated
from the local currency into euros and will be translated at the approximate
rate of currency exchange at the end of the fiscal period. Translation gains
and losses of operations outside of the European Union that use local
currencies as the functional currency will be accumulated and reported as a
separate component of shareholders' equity. Revenues and expenses will be
translated as of the date of outgoing and incoming payment of invoices.
Transaction gains and losses arising from exchange rate fluctuations on
transactions denominated in a currency other than the local functional currency
will be included in Eimo's results of operations.
To the extent Eimo does not hedge its international currency exchange risk,
such transactions may have the effect of reducing or increasing the amount of
revenue recorded in euros or which is actually repatriated to Finland.
Conversely, by entering into hedging contracts, Eimo may, in exchange for
minimizing the risk of potential losses associated with international currency
transactions, also thereby necessarily minimizing the potential for additional
gain associated with currency translation. While Eimo has always been able to
enter into foreign currency exchange hedging transactions when seeking such
arrangements, Eimo cannot predict whether its ability to enter into such
transactions will be adversely affected in the future by one or more of the
following:
. doing business in a country with limitations on the expatriation of
earnings or other governmental regulations;
. doing business in a country for which there is only limited
international interest in the provision of hedging arrangements by
financial institutions; and
. the inability to procure hedging agreements as the result of some
financial crisis associated with that country or which has otherwise
affected the interest of financial institutions in entering into hedging
transactions in general.
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Interest Rate Risk
As Eimo's borrowings are at variable rates, Eimo is subject to interest rate
risk. The potential decrease in pre-tax profits from a hypothetical 100 basis
point increase in interest rates (or a multiple of 100 basis points where 100
basis points is less than 10% of the applicable interest rate) would be
approximately (Euro)0.34 million per year.
Introduction of the Euro
In May 1998, Finland was approved as one of the first 11 European Union
member states to join Stage Three of the European Monetary Union from its
commencement date following approval of Finland's participation in Stage Three
by the Finnish Parliament. Stage Three involves the replacement of
participating countries' national currencies with a new common currency, the
euro, during a transitional period which began January 1, 1999 and which is
scheduled to end December 31, 2001. Beginning on January 1, 2002, euro notes
and coins will be introduced and notes and coins of the old national currencies
will gradually be withdrawn from circulation. Starting on July 1, 2002, the
euro will be the only legal tender in countries participating in the European
Monetary Union.
The introduction of the euro has required changes in Eimo's information
technology and other systems to accommodate the use of the euro in corporate
transactions and in financial reporting. Eimo implemented the necessary changes
to information technology and other systems required to convert to a euro
operating environment in 1999. The introduction of the euro has not generated
and is not expected to generate significant costs for Eimo.
Eimo began reporting in euros for financial accounting purposes effective
January 1, 1999. Accordingly, the consolidated financial statements of Eimo
have been restated into euros. Eimo's restated euro financial statements depict
the same trends as would have been presented if it had continued to present its
consolidated financial statements in Finnish markka. Eimo's consolidated
financial statements will, however, not be comparable to the euro financial
statements of other companies that previously reported their financial
information in a currency other than Finnish markka. See Note 1 to the Eimo
consolidated financial statements.
Eimo has not experienced, nor does management expect, any material adverse
impact on Eimo's competitive position resulting from the introduction of the
euro. The introduction of the euro, and the consequent elimination of the
currency exchange rate risk between the national currencies of the
participating member states and the Finnish markka, has eliminated the need for
currency exchange transactions and hedging transactions with respect to these
currencies, resulting in transaction cost savings to Eimo. For additional
discussions regarding the impact of the euro on exchange rate and currency risk
exposure of Eimo, see "--Financial Risk."
Recent Accounting Pronouncements
SFAS 133 "Accounting for Derivative Instruments and Hedging Activities," as
amended by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of SFAS 133" established accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments imbedded
in other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. This statement also specifies new methods
of accounting for hedging transactions, prescribes the items and transactions
that may be hedged, and specified detailed criteria to be met to qualify for
hedge accounting. Eimo uses derivative financial instruments to hedge the risk
associated with certain firm sales commitments, anticipated revenue streams and
certain assets and liabilities denominated in currencies other than the euro.
The adoption of SFAS 133 did not have a material impact on Eimo's financial
position or results of operations. At March 31, 2001, Eimo had derivative
instruments outstanding to hedge a loan denominated in US dollars of
$6,000,000. The derivative instruments have been accounted for as fair value
hedges, whereby any gain on the forward exchange contract is recognized
135
and included in foreign currency transaction gains and losses for the three
months ended March 31, 2001 and offset against any loss on the fair market
value of the outstanding loan. The adoption of the statement resulted in
recording a derivative financial instrument asset of (Euro)274,000 at March 31,
2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".
This bulletin, as amended, summarizes and clarifies certain existing accounting
principles for the recognition and classification of revenues in the financial
statements. This bulletin did not have a significant effect on Eimo's
consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of Accounting Principles Board Opinion No. 25."
FASB Interpretation No. 44 clarifies the following: the definition of an
employee for purposes of applying Opinion No. 25 of the Accounting Principles
Board; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to
the terms of the previously fixed stock options or awards; and the accounting
for an exchange of stock compensation awards in a business combination. FASB
Interpretation No. 44 became effective July 1, 2000, but certain conclusions in
FASB Interpretation No. 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The application of FASB Interpretation
No. 44 did not have a material impact on Eimo's financial position or results
of operations.
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TAXATION ON EIMO SERIES A SHARES AND EIMO AMERICAN DEPOSITARY SHARES
The following description is based on tax laws of Finland and the United
States as in effect on the date of this document, and is subject to changes in
Finnish and U.S. law, possibly with retroactive effect. This discussion is
predicated on Eimo's belief that it is not a "passive foreign investment
company" within the meaning of Section 1297(a) of the Internal Revenue Code, or
a "foreign personal holding company" within the meaning of Section 552(a) of
the Internal Revenue Code. You should consult a professional advisor as to the
tax consequences of the ownership, purchase and disposition of Eimo Series A
shares or Eimo ADSs, including, in particular, the effect of tax laws of any
other jurisdiction.
Finnish Taxation
The following is a description of the principal Finnish income tax
consequences of the purchase, ownership and disposition of Eimo Series A shares
or Eimo ADSs by a holder who is not a resident of Finland. It does not address
all potential Finnish tax consequences that may be applicable to holders of the
Eimo Series A shares or Eimo ADSs in light of their individual circumstances.
We urge you to consult your own tax advisor as to the consequences of the
purchase, ownership and disposition of Eimo Series A shares or Eimo ADSs in
light of your particular circumstances, including the effect of any non-Finnish
tax laws. Statements regarding Finnish tax laws set forth below are based on
the laws in force and as interpreted by the relevant taxation authorities as of
the date of this document and are subject to changes in law or interpretation,
possibly with retroactive effect.
A beneficial owner of an Eimo ADS will be treated as the owner of the
underlying Eimo Series A shares for purposes of the current Convention between
the Government of the United States of America and the Government of the
Republic of Finland for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income and on Capital and for Finnish
tax purposes. Accordingly, the Finnish tax consequences to owners of Eimo
Series A shares discussed below will also apply to beneficial owners of Eimo
ADSs.
Finnish Companies
Finnish companies are subject to national corporate income tax on their
worldwide income at the rate of 29%.
Finland applies an imputation or avoir fiscal system for profits distributed
as dividends in order to eliminate double taxation of companies and their
shareholders. Under the avoir fiscal system, there is a minimum tax payable to
the Finnish tax authorities by a Finnish company depending on the amount of
profit distributed as dividends. For the tax year 2001, the applicable minimum
tax is 29/71 of the dividends distributed to the shareholders. To the extent
that this minimum tax exceeds or is less than the corporate income tax payable
by the Finnish company, a tax surplus will be established or a supplementary
tax liability will be imposed on the company as appropriate. Any tax surplus
generated may be used, for a period of ten years, to offset any supplementary
corporate income tax which may become payable in subsequent years.
Finnish Taxation of Holders of Eimo Series A Shares and Eimo ADSs
Withholding Tax on Dividends. Non-residents of Finland are subject to
Finnish income tax on dividends paid by a Finnish company. In the absence of
any applicable treaty, this tax is imposed through withholding tax at a rate of
29%. Finland has entered into double taxation treaties with many countries
providing that the withholding tax is reduced on dividends paid to persons
entitled to the benefits under these treaties. Unless such dividends are
effectively connected with a permanent establishment or a fixed base in
Finland, in which case Finnish income taxes on a net income tax basis are
levied on the dividends derived from those shares, under the treaty between
Finland and the United States, the withholding tax rate for United States
citizens or residents is reduced to 15% or, in the case of a corporate
shareholder who has at least 10% of the voting stock of the Finnish
corporation, 5%. The Finnish company paying the dividend is responsible for
deducting any applicable Finnish withholding tax.
137
A treaty-based reduction of the withholding tax rate can be obtained upon
the submission of a Source Tax Card or the required information, that is, name,
date of birth and address, to the payor prior to the payment of dividends. If a
Source Tax Card or the required information is not submitted in a timely
manner, a refund of tax withheld in excess of the applicable treaty rate can be
obtained upon application to the local tax authority. Citibank, N.A., as
depositary bank for the Eimo ADSs has agreed to use commercially reasonable
efforts to make and maintain arrangements enabling holders of Eimo ADSs to
receive tax credits, reduction in Finnish withholding tax or other benefits,
under treaty or otherwise, relating to dividend payments on the Eimo ADSs at
the time dividends are paid.
No withholding tax is levied under Finnish law on dividends paid to
corporate entities that reside in the EU and directly hold at least 25% of the
capital of the distributing Finnish company, provided that these entities are
not entitled to the tax credit under the Finnish avoir fiscal system and are
subject to a general corporate income tax in their respective countries of
residency.
Tax Credit on Dividends. The Finnish avoir fiscal system is applied in its
entirety only to shareholders who are residents of Finland. Under the avoir
fiscal system, a tax credit is available to resident shareholders on the
payment of dividends by a Finnish company equal to the lesser of their
allocable share of the tax paid by such company for its income and 29/71 of the
dividend paid, as described above. Because the corporate income tax rate and
the tax credit are currently of the same size, no taxes are generally payable
by Finnish resident shareholders in respect of dividend income received from a
Finnish company. The Finnish tax credit is not generally available to non-
residents. Accordingly, shareholders who are non-residents of Finland are
entitled to the Finnish tax credit in whole or in part only where there is a
double taxation treaty with Finland that contains the appropriate provisions.
Currently, the only tax treaty with these provisions in force is with Ireland,
entitling some shareholders resident in Ireland to a Finnish tax credit equal
to one-half of the credit available to residents of Finland.
Finnish Transfer Tax. There is no transfer tax payable in Finland:
. in respect of sales of Eimo Series A shares or Eimo ADSs where neither
the buyer nor the seller of the shares is a resident of Finland or a
Finnish branch of a foreign credit institution or foreign brokerage
firm; or
. in respect of share transfers made on the Helsinki Stock Exchange. In
the case of other share transfers, a transfer tax at the rate of 1.6% of
the sales price is payable by the buyer.
However, if the buyer is not a resident of Finland, a Finnish branch of a
foreign credit institution or a Finnish branch of a foreign brokerage firm, the
seller must collect the tax from the buyer.
Finnish Capital Gains and Other Taxes. A shareholder who is not a resident
of Finland, and who does not engage in a trade or business through a permanent
establishment or fixed base in Finland that could be regarded as the holder of
the relevant Eimo Series A shares or Eimo ADSs, will normally not be subject to
Finnish taxes on capital gains realized on the transfer of Eimo shares or Eimo
ADSs. Transfers of Eimo Series A shares or Eimo ADSs by a non-resident of
Finland by way of gift or by reason of the death of the owner are subject to
Finnish gift or inheritance tax, respectively, if either the transferor or the
transferee is a resident of Finland, unless Finland has waived its rights to
impose tax in a tax treaty.
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U.S. Federal Income Taxation
General
The following is a description of the material U.S. federal income tax
consequences of the purchase, ownership and disposition of Eimo Series A shares
or Eimo ADSs by a "U.S. Eimo Holder." As used in this document, the term "U.S.
Eimo Holder" is a beneficial owner of Eimo Series A shares or Eimo ADSs that is
for U.S. federal income tax purposes:
. a citizen or resident of the United States;
. a partnership or corporation created or organized in or under the laws
of the United States, any state or the District of Columbia;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust that validly elects to be treated as a U.S. person for U.S.
federal income tax purposes or if (1) a court within the United States
is able to exercise primary supervision over its administration and (2)
one or more U.S. persons have the authority to control all of the
substantial decisions of such trust.
A "Non-U.S. Eimo Holder" is a beneficial owner of Eimo Series A shares or
Eimo ADSs who is not a U.S. Eimo Holder. A partnership is not generally subject
to U.S. federal income tax, but rather the partners take their distributive
shares of the partnership's income or loss into account for U.S. federal income
tax purposes.
This description is not a comprehensive description of all of the tax
considerations that may be relevant to a holder of Eimo Series A shares or Eimo
ADSs. In particular, this description applies only to U.S. Eimo Holders who
hold Eimo Series A shares or Eimo ADSs as capital assets, and does not address
aspects of U.S. federal income tax that may be applicable to U.S. Eimo Holders
who are subject to special tax rules, including, without limitation:
. financial institutions;
. real estate investment trusts;
. regulated investment companies;
. dealers or traders in securities or currencies;
. banks;
. insurance companies;
. tax-exempt entities;
. persons who acquired Eimo Series A shares or Eimo ADSs pursuant to an
exercise of employee stock option or rights or otherwise as
compensation;
. persons who hold Eimo Series A shares or Eimo ADSs as a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for
U.S. federal income tax purposes;
. persons who own, or are deemed to own for U.S. federal income tax
purposes, ten percent or more, by voting power or value, of the Eimo
Series A shares or Eimo ADSs; and
. persons whose "functional currency" is not the U.S. dollar.
Moreover, this description does not address the U.S. federal estate and gift
tax or alternative minimum tax consequences of the purchase, ownership or
disposition of Eimo Series A shares or Eimo ADSs.
This description is based on the tax laws of the United States as in effect
and available on the date of this document, including the Internal Revenue
Code, related Treasury Regulations, judicial decisions and administrative
pronouncements, all of which are subject to change, possibly with retroactive
effect, and could
139
affect the tax consequences described in this document. It is also based on the
representations of the depositary bank and assumes that each obligation in the
deposit agreement and any related agreements is performed in accordance with
its terms.
U.S. Eimo Holders are urged to consult their own tax advisors with respect
to the U.S. federal, state, local and foreign tax consequences of acquiring,
owning or disposing of Eimo ADSs in their particular circumstances.
Ownership of Eimo ADSs in General
For U.S. federal income tax purposes, holders of Eimo ADSs generally will be
treated as the owners of the Eimo Series A shares represented by such Eimo
ADSs. The U.S. Treasury Department, however, has expressed concern that parties
to whom ADSs are "pre-released" may in some circumstances be taking actions
that are inconsistent with the claiming of U.S. foreign tax credits by U.S.
Holders of ADSs. See "Description of Eimo American Depositary Shares--Pre-
Release Transactions." Accordingly, the analysis regarding the availability of
a U.S. foreign tax credit for Finnish taxes and sourcing rules described below
could be affected by future actions that may be taken by the U.S. Treasury
Department.
Distributions
The gross amount of cash or property distributed by Eimo with respect to
Eimo Series A shares or Eimo ADSs other than some pro rata distributions, if
any, of Eimo shares to all shareholders of Eimo, including holders of Eimo
ADSs, including the amount of any withholding tax imposed on the distribution,
will be includible in income by a U.S. Eimo Holder as dividend income to the
extent such distributions are paid out of Eimo's current or accumulated
earnings and profits, as determined under U.S. federal income tax principles.
These dividends will not be eligible for the dividends received deduction
generally allowed to corporate U.S. persons. To the extent, if any, that the
amount of any distribution exceeds Eimo's current and accumulated earnings and
profits, as determined under U.S. federal income tax principles, it will be
treated first as a tax-free return of capital to the U.S. Eimo Holder to the
extent of the holder's adjusted tax basis and will be applied against and
reduce that adjusted tax basis. To the extent that a distribution exceeds the
U.S. Eimo Holder's adjusted tax basis in the Eimo Series A shares or Eimo ADSs,
the distribution will be taxed as gain recognized on the sale or exchange of a
capital asset. Eimo does not maintain calculations of its earnings and profits
under U.S. federal income tax principles.
The amount of the dividend includable in the income of a U.S. Eimo Holder
will be the U.S. dollar value of the dividend, provided that certain tax
elections are made, determined at the spot rate on the date that dividend is
includable in the income of the U.S. Eimo Holder, regardless of whether the
payment is, in fact, converted into U.S. dollars. A U.S. Eimo Holder will have
a basis in any Finnish markka or euros distributed by Eimo equal to the U.S.
dollar value of the Finnish markka or euros on the date it is actually or
constructively received by the U.S. Holder, in the case of Eimo Series A
shares, or by Citibank, N.A., in the case of Eimo ADSs. Generally, any gain or
loss resulting from currency exchange fluctuations during the period from the
date the dividend payment is includable in income to the date that payment is
converted into U.S. dollars will be treated as ordinary income or loss. This
gain or loss will generally be income from sources within the United States for
foreign tax credit limitation purposes. Dividends received by a U.S. Eimo
Holder with respect to Eimo Series A shares or Eimo ADSs will be treated as
foreign source income, which may be relevant in calculating the holder's
foreign tax credit limitation. Subject to specified conditions and limitations,
Finnish tax withheld on dividends may be deducted from taxable income or
credited against a U.S. Eimo Holder's U.S. federal income tax liability. The
limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For purposes of calculating the U.S.
foreign tax credit, dividends paid by Eimo generally will constitute "passive
income," or in the case of some U.S. Eimo Holders, "financial services income."
In addition, foreign tax credits will not be allowed for withholding taxes
imposed in respect of some short-term or hedged positions in securities or in
respect of arrangements in which a U.S.
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Eimo Holder's expected economic profit, after non-U.S. taxes, is insubstantial.
We urge you to consult your own tax advisor regarding the availability of, and
limitations on, any foreign tax credit.
As discussed above under "--Finnish Taxation," Finland applies an imputation
or avoir fiscal system that provides tax credit benefits to some shareholders
resident in Finland and Ireland. The benefits of that system are not available
to U.S. Eimo Holders and the minimum tax payable by Eimo in respect of dividend
distributions consequently will not be included in the U.S. taxable income of
U.S. Eimo Holders; nor will U.S. Eimo Holders be entitled to any foreign tax
credit against its U.S. tax liability with respect to any such minimum tax
payable by Eimo.
Subject to the discussion below under "--Information Reporting and Backup
Withholding," a Non-U.S. Eimo Holder of Eimo Series A shares or Eimo ADSs
generally will not be subject to U.S. federal income or withholding tax on
dividends received on the Eimo Series A shares or Eimo ADSs, unless such income
is effectively connected with the conduct by such Non-U.S. Eimo Holder of a
trade or business in the United States.
Sale or Exchange
Gain or loss realized by a U.S. Eimo Holder on the sale or exchange of Eimo
Series A shares or Eimo ADSs will be recognized for U.S. federal income tax
purposes as capital gain or loss in an amount equal to the difference between
the U.S. Eimo Holder's adjusted tax basis in the Eimo Series A shares or Eimo
ADSs, as the case may be, and the amount realized on such sale or exchange. In
the case of a non-corporate U.S. Eimo Holder whose holding period for the Eimo
Series A shares or Eimo ADSs is more than one year, the capital gain on the
sale or exchange of the Eimo Series A shares or Eimo ADSs will generally be
taxed at a rate of 20%. Gain or loss, as the case may be, recognized by a U.S.
Eimo Holder generally will be treated as U.S. source income for U.S. foreign
tax credit purposes. The deductibility of capital losses is subject to
limitations.
Subject to the discussion below under "--Information Reporting and Backup
Withholding," a Non-U.S. Eimo Holder generally will not be subject to U.S.
federal income or withholding tax on any gain realized on the sale or exchange
of Eimo Series A shares or Eimo ADSs unless the gain is effectively connected
with the conduct by such Non-U.S. Eimo Holder of a trade or business in the
United States or, in the case of any gain realized by an individual Non-U.S.
Eimo Holder, the holder is present in the United States for 183 days or more in
the taxable year of the sale or exchange and other conditions are met.
Information Reporting and Backup Withholding
U.S. information reporting requirements and backup withholding tax generally
will apply to payments to some non-corporate holders of Eimo Series A shares or
Eimo ADSs. Information reporting generally will apply to payments of dividends
on, and to proceeds from the sale or redemption of, Eimo Series A shares or
Eimo ADSs by a payor within the United States to a holder of Eimo Series A
shares or Eimo ADSs, other than an "exempt recipient," including a corporation
and any payee that is a Non-U.S. Eimo Holder that provides an appropriate
certification. A payor within the United States will be required to withhold
31% of any payment of proceeds from the sale or redemption of Eimo Series A
shares or Eimo ADSs within the United States to a holder, other than an "exempt
recipient", if the holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with the backup withholding requirements.
A payor within the United States will be required to withhold 31% of any
payments of dividends on, or proceeds from the sale of, Eimo Series A shares or
Eimo ADSs within the United States to a holder, other than an "exempt
recipient," if the holder fails to furnish its correct taxpayer identification
number or otherwise fails to comply with, or establish an exemption from,
backup withholding tax requirements. In the case of payments by a payor or
middleman within the United States to a foreign simple trust, a foreign grantor
trust or a foreign
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partnership, other than payments to a foreign simple trust, a foreign grantor
trust or a foreign partnership that has entered into an agreement with the
Internal Revenue Service to qualify as a "withholding foreign trust" or a
"withholding foreign partnership" within the meaning of the U.S. Treasury
Regulations and payments to a foreign simple trust, a foreign grantor trust or
a foreign partnership that are effectively connected with the conduct of a
trade or business in the United States, the beneficiaries of the foreign simple
trust, the persons treated as the owners of the foreign grantor trust or the
partners of the foreign partnership, as the case may be, will be required to
provide the certification discussed above in order to establish an exemption
from backup withholding tax and information reporting requirements. Moreover, a
payor or middleman may rely on a certificate provided by a payee that is not a
U.S. person only if the payor or middleman does not have actual knowledge or a
reason to know that any information or certification stated in the certificate
is incorrect.
The above discussion is a summary of the principal U.S. tax consequences
relating to the acquisition, ownership and disposition of Eimo Series A shares
or Eimo ADSs. Triple S shareholders are urged to consult their own tax advisors
concerning the tax consequences of their particular situations before making
any decision on how to vote with respect to the merger or any election to
receive Eimo ADSs in the merger.
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OWNERSHIP OF EIMO SECURITIES BY MANAGEMENT AND
SIGNIFICANT SHAREHOLDERS
The following table sets forth information concerning the beneficial
ownership of Eimo Series A shares and Series K shares as of July 9, 2001 for
the following:
. each person or entity who is known by Eimo to own beneficially more than
5% of its outstanding share capital or voting power;
. each of Eimo's directors and members of Eimo's executive management
group; and
. all directors and members of the executive management group of Eimo, as
a group.
The calculation of percentages in the "Percentage of Votes" and "Percentage
of Outstanding Shares" columns in the table below is based upon the number of
Eimo shares issued and outstanding as of the date of this document, plus shares
of Eimo subject to warrants held by the respective persons as of July 9, 2001
and exercisable within sixty days.
Series A Percentage
Shares of
Series A Series K Percentage of Underlying Outstanding
Name shares shares(1) Votes Warrants Shares
---- --------- --------- ------------- ---------- -----------
Jalo Paananen........... -- 4,500,000 49.1% 8,000 9.7%
Elmar Paananen(2)....... 2,583,748 900,000 11.2% 36,000 7.5%
Topi Paananen(2)........ 2,583,748 900,000 11.2% 4,000 7.5%
Annamari Jukko(2)....... 2,583,748 900,000 11.2% -- 7.5%
Arto Kajanto............ -- -- -- 8,000 *
Markku Puskala.......... 400 -- * 8,000 *
Anssi Soila............. -- -- * 8,000 *
Markku Sulonen.......... -- -- -- 8,000 *
Heikki Marttinen........ -- -- -- 200,000 --
Seppo Jaakkola.......... 2,000 -- * 40,000 *
Aarre Savolainen........ -- -- * 20,000 *
Timo Seppa.............. 2,500 -- * 50,000 *
Pekka Vahtila........... 4,400 -- * 28,000 *
Petri Virtanen.......... -- -- * 30,000 *
Niilo Oksa.............. 2,900 -- * 70,000 *
Jouko Hakala............ 2,000 -- * 40,000 *
Vesapekka Karhi......... -- -- -- 20,000 *
Erkki Nummelin.......... -- -- -- 12,000 *
Elakevakuutusyhtio
Ilmarinen.............. 2,419,400 -- 1.3% -- 5.2%
Directors and members of executive management group as a group (16 persons)
collectively hold 17.2% of outstanding shares and 60.4% of voting power.
- --------
* less than 1 percent
(1) Each Eimo Series K share has twenty votes per share.
(2) Excludes 570,200 Series A shares held by E.A.T-Invest Oy with respect to
which the named individual may be deemed to have beneficial ownership by
virtue of joint ownership interest in E.A.T-Invest Oy. E.A.T-Invest Oy is
owned by Elmar Paananen, Topi Paananen and Annamari Jukko. Mr. Elmar
Paananen is the managing director of E.A.T-Invest Oy. The business address
of E.A.T-Invest Oy is Yliskylankaari 9A 00840 Helsinki, Finland.
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DESCRIPTION OF EIMO SERIES A SHARES
The following is a summary description of the material provisions of Eimo
Series A shares based on the provisions of Eimo's articles of association and
applicable provisions of Finnish law. However, because Eimo's articles of
association is the principal legal document governing the terms of the Eimo
Series A shares, we recommend that you read it for the precise legal terms and
other information that may be important to you. An English translation of
Eimo's articles of association is included as Annex C to this document. Many of
the rights and restrictions affecting Eimo Series A shares are discussed in the
"Comparison of Rights of Eimo Shareholders and Triple S Shareholders" section
of this document, which we urge you to review for additional information
regarding these rights and restrictions. If you would like more information
about the rights of holders of Eimo ADSs, you should review the "Description of
Eimo American Depositary Shares" section of this document.
General
Under Eimo's articles of association, Eimo's authorized share capital may
not be less than (Euro)10 million nor more than (Euro)40 million. Under Finnish
law, share capital of a limited liability company is divided into shares. Each
share can have a nominal value similar to par value under corporate law in the
United States. The nominal value multiplied by the number of shares is the
share capital of the company. However, the articles of association of a limited
liability company can provide for no nominal value at all, as Eimo has chosen
to do. In such event, the shares have a counter value solely for accounting
purposes. Accounting counter value of a share is determined by taking the
company's stated total share capital, divided by the number of authorized
shares. In practice, the distinction between a nominal value and an accounting
counter value is insignificant, although amending the accounting counter value
of a company's shares would not necessarily require amending its articles of
association, whereas amending the nominal value of a company's shares would
require such an amendment.
On July 6, 2001, the issued share capital of Eimo was (Euro)11,600,000 based
on 46,400,000 fully-paid shares, of which 39,200,000 were Eimo Series A shares
and 7,200,000 were Eimo Series K shares. Each Eimo Series A share entitles the
holder to one vote. Each Eimo Series K share entitles the holder to twenty
votes. Other than the difference in voting rights, the Eimo Series A shares and
the Eimo Series K shares have identical rights. The shares are in book-entry
format and have a counter value for accounting purposes of (Euro)0.25 per
share.
The Eimo Series A shares were listed on the Helsinki Stock Exchange on March
23, 1999. The Eimo Series K shares are not listed.
For the three most recent years, the number of issued and outstanding Eimo
shares has changed as indicated in the following table.
Series A Series K Total
------------------ -------------------- ----------
(1 vote per share) (20 votes per share)
At December 31, 1997........ 28,800,000 7,200,000 36,000,000
Share issue (at (Euro)1.47
per share)................. 4,000,000 -- 4,000,000
---------- --------- ----------
At December 31, 1998........ 32,800,000 7,200,000 40,000,000
Share Issue (public
offering) (at (Euro)3.50
per share)................. 6,400,000 -- 6,400,000
---------- --------- ----------
At December 31, 1999 and at
December 31, 2000.......... 39,200,000 7,200,000 46,400,000
========== ========= ==========
Dividends and Other Distributions
The payment of dividends must be authorized by the shareholders at a general
meeting.
Under Finnish law, shareholders' equity is divided into restricted and
unrestricted equity. Other shareholders' funds are included in unrestricted
equity. The amount of any dividend is limited to the amount of
144
distributable funds based upon the financial statements approved by the most
recent annual general meeting of shareholders. Eimo's distributable funds
include:
. the profit from the preceding fiscal year,
. retained earnings from previous years and other unrestricted equity less
reported losses,
. capitalized incorporation costs,
. research and special development costs,
. the acquisition cost of Eimo's own or any parent company's shares, and
. amounts that are to be reserved or otherwise left undistributed.
Eimo may not distribute more than the amount of distributable equity shown
on its financial statements or its consolidated financial statements, whichever
is lower. When calculating the distributable equity for dividend purposes, the
distributable funds shown on the consolidated financial statements are also
reduced by the amount of any untaxed reserves included in retained earnings.
The dividend may not exceed the amount proposed by the board of directors
unless a higher dividend is requested at the annual general meeting by the
holders of at least ten percent of all shares. In such latter case, the
dividend cannot exceed the lower of:
. one-half of the profit for the last preceding fiscal period less
-- any amount required to be transferred to a reserve fund or otherwise
left undisturbed; and
-- the amount, if any, by which Eimo's capitalized incorporation costs,
research and special development costs and the acquisition costs of
Eimo's own or any parent company's shares exceed the total of
reserves which are unrestricted as to use plus other reserves whose
use may be restricted by law or Eimo's articles of association; or
. the amount of distributable funds as defined above.
However, in no case may the dividend exceed eight percent of Eimo's total
shareholders' equity unless also recommended by Eimo's board of directors.
Under Finnish law, a company may not pay interim dividends based on the current
fiscal year's earnings. Eimo's articles of association do not require any
amount to be transferred to a reserve fund or otherwise be left undisturbed.
Dividends and other distributions are paid to shareholders or their nominees
entered in the register of shareholders on the relevant record date. The
register is maintained by the Finnish Central Securities Depository through a
book-entry registrar. All of the Eimo Series A and Series K shares carry equal
rights to dividends and other distributions, including distributions of assets
in the event of the liquidation of Eimo. Under the Finnish Book-Entry
Securities System, dividends are paid by account transfers to the accounts of
the shareholders appearing in the registry.
Under the Finnish Companies Act, a company may acquire, redeem and dispose
of its own shares under circumstances specified in such Act. However, a Finnish
company may only acquire its own shares using distributable funds. Decisions on
the acquisition of a company's own shares must be taken by a general meeting of
shareholders, unless the general meeting of shareholders has authorized the
board of directors to decide upon stock repurchases, which authorization may
remain in effect for up to one year. A public limited company, such as Eimo,
may neither directly nor through a subsidiary hold more than five percent of
its own share capital or voting rights.
Voting Rights
A shareholder may attend and vote at a general meeting in person or through
an authorized representative. Each Eimo Series A share is entitled to one vote
and each Eimo Series K share is entitled to twenty votes. At a general meeting,
resolutions generally require the approval of a majority of the votes cast.
However, some resolutions, such as a resolution to amend the articles of
association, a resolution to issue shares in contravention of shareholders'
preferential subscription rights and a resolution regarding a possible merger
or
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liquidation of Eimo, require approval by both two-thirds of the votes cast and
two-thirds of the shares represented at the general meeting. In addition, if a
resolution results in a limitation of the rights pertaining to a particular
class of shares, the resolution must be approved by a majority of the holders
of the affected shares and two-thirds of the affected shares represented at the
general meeting.
Under Finnish law, shareholders exercise their power to decide on corporate
matters at general meetings of shareholders. Eimo's articles of association
require that an annual general meeting of shareholders be held each year before
the end of June to consider, among other things:
. approval of the income statement and balance sheet and consolidated
income statements and consolidated balance sheets;
. measures warranted by Eimo's profit or loss, including any possible
dividend;
. discharge of the board of directors and chief executive officer from
liability;
. compensation for the board of directors and auditors; and
. election and number of members and chairman of the board of directors
and auditors; and other matters brought up in the notice of the general
meeting or matters raised by individual shareholders.
Under the Finnish Companies Act, extraordinary general meetings in respect
of specific matters are held when considered necessary by the board of
directors, or when requested in writing by an auditor or by shareholders
representing at least ten percent of all the issued shares.
Under Eimo's articles of association, notice of the general meeting is given
to shareholders by publishing an announcement of the meeting in at least one
national newspaper decided by the Eimo board of directors and in at least one
newspaper appearing in the Lahti region or in other demonstrable form no
earlier than six weeks and no later than seventeen days before the meeting. In
order to participate in the general meeting, a shareholder must give notice to
Eimo no later than the date given in the notice, which may not be earlier than
ten days before the meeting.
Because the ordinary shares are held in the Finnish Book-Entry Securities
System, in order to have the right to attend and vote at a general meeting, a
shareholder must generally be registered not later than ten days prior to the
relevant general meeting in the register of shareholders kept by the Finnish
Central Securities Depository in accordance with the Finnish law. Voting rights
may not be exercised by a shareholder if such shareholder's shares are
registered in the name of a nominee. A beneficial owner wishing to exercise
voting rights must cancel the nominee arrangement and seek individual
registration not later than five days prior to the relevant general meeting.
There are no quorum requirements for general meetings.
Except as discussed elsewhere in this proxy statement/prospectus with
respect to limitations that may, as a practical matter, arise due to holding
Eimo Series A shares in the form of ADSs, there are no material limitations
imposed by Eimo's articles of association or Finnish law on an Eimo
shareholder's rights to hold or vote Series A shares.
Issuance of New Shares and Preemptive Rights
Eimo's share capital may be increased within the authorized share capital
set forth in Eimo's articles of association by a resolution passed by a
majority of all votes cast at a general meeting. If the authorized share
capital set forth in the articles of association would be exceeded, increasing
of the share capital requires amending Eimo's articles of association by the
vote of two-thirds of all votes cast and all shares represented at a general
meeting of shareholders. A general meeting of shareholders may also authorize
the Eimo board of directors to increase share capital.
Under Finnish law, Eimo's existing shareholders have preferential rights to
subscribe, in proportion to their shareholdings, for new shares as well as for
issues of subscription warrants or debt instruments convertible into shares or
carrying warrants to subscribe for shares, unless the corporate resolution
approving the issuance provides otherwise. Under Finnish law, a resolution
waiving preemptive rights must be approved by at least two-thirds of all votes
cast and two-thirds of all shares represented at the general meeting of
shareholders. U.S.
146
Holders of the Eimo Series A shares and Eimo ADSs may not be able to exercise
any preemptive or preferential rights in respect of their shares unless a
registration statement under the Securities Act is effective with respect to
such rights or an exemption from the registration requirements under the
Securities Act is available.
Authority to Increase Share Capital; Share Issuance Authority, and Share
Repurchase Authority
At the May 15, 2001, annual general shareholder's meeting, Eimo's
shareholders authorized Eimo's board of directors to decide upon increases in
Eimo's share capital in connection with the authorization of the Eimo board of
directors to issue new Series A shares, option rights, convertible loans or any
combination thereof.
Based on the authority granted to it at the May 15, 2001 annual general
meeting, the board of directors may increase the share capital of Eimo up to a
maximum of (Euro)1,875,000 by way of offering for subscription shares, option
rights, convertible loan(s) or any combination thereof, pursuant to which a
maximum of 7,500,000 new Eimo Series A shares may be issued, each with an
accounting counter value of (Euro)0.25.
Further, the board was authorized to waive the pre-emptive subscription
rights of Eimo's shareholders in connection with the issuance of such shares,
option rights or convertible loans, if the waiver is justified because of a
weighty financial reason, such as financing of an acquisition or other
transactions, providing additional financial alternatives or other arrangements
affecting the development of Eimo's capital servicing, or in connection with
Eimo's warrant programs.
At the May 15, 2001 annual general meeting, Eimo's board of directors also
was authorized to issue up to 1,000,000 option rights that entitle the holders
to subscribe for 1,000,000 Eimo Series A shares with an accounting counter
value of (Euro)0.25 each pursuant to the 2001 Group Warrant Program. See Eimo's
Equity Based Compensation Plans, beginning on page 123.
At the 2001 annual general meeting of Eimo's shareholders, Eimo's
shareholders granted Eimo's board of directors the authority to cause Eimo to
repurchase a maximum of 2,000,000 Eimo Series A shares in open market purchases
using funds otherwise available for the distribution of profits. Shares need
not be repurchased in proportion to the ownership interests of Eimo's
shareholders. Under Finnish law, Eimo may not directly or indirectly through
its subsidiaries hold more than five percent of its issued capital stock nor
may it hold capital stock representing more than five percent of the voting
rights attributable to its capital stock. Any repurchased shares may be
utilized, in whole or in part, to further develop Eimo's capital structure, to
finance business acquisitions, or as consideration for other arrangements. Such
repurchased shares likewise could be cancelled following repurchase, all as to
be determined by Eimo's board of directors. Further, the Eimo board of
directors was authorized to transfer repurchased Eimo Series A shares, up to a
maximum of 2,000,000 shares, as consideration in connection with potential
future business acquisitions or other arrangements or for incentive purposes to
key personnel. Any repurchased shares may be transferred in derogation of the
pre-emptive rights of Eimo shareholders if such transfer is deemed in the best
interest of Eimo. The terms and pricing on any reissuance or other transfer of
repurchased shares will be at the discretion of Eimo's board of directors.
As of the date of this proxy statement/prospectus, the Eimo board has not
executed any of the authorizations.
The foregoing authorized actions may be taken by the board of directors at
any time on or prior to the earlier of the 2002 annual general meeting of
Eimo's shareholders or May 15, 2002.
Transfers
Upon a sale of ordinary shares through the Finnish Book-Entry Securities
System, the relevant shares are transferred from the seller's book-entry
account to the buyer's book-entry account as an account transfer. The sale is
registered as an advance transaction until settlement and payment for the
shares, after which the buyer
147
will automatically be registered in the register of shareholders of Eimo. In
the case of registration in the name of a nominee, a sale of shares does not
require any entries into the Finnish Book-Entry Securities System unless the
nominee is changed as a result of the sale.
Liquidation Rights
All Eimo shares are entitled to share equally in any assets available for
distribution to shareholders upon a liquidation.
History of Share Capital
As of January 1, 1997, Eimo had 90,000 fully paid shares outstanding of
which 72,000 were Series A shares and 18,000 were Series K shares. The issued
share capital was 9,000,000 Finnish Markka ("FIM") and the shares had a nominal
value of FIM 100. Under Eimo's articles of association, authorized share
capital was variable; but could not be less than FIM 8,000,000 nor more than
FIM 32,000,000.
As of August 14, 1998, Eimo's share capital was increased as a result of the
issuance of new shares by Eimo. Eimo had 100,000 fully paid shares outstanding
of which 82,000 were Series A shares and 18,000 were Series K shares. The
issued share capital was 10,000,000, and the shares had a nominal value of FIM
100. This transaction was approved at Eimo's general meeting of shareholders on
June 26, 1998. Pursuant to a waiver of the pre-emptive rights of Eimo's
shareholders, 10,000 new Eimo Series A shares were issued as follows: 5,715
shares to Sitra Technology Ky, 2,370 shares to Profita Fund I Ky and 1,915
shares to Merita Capital Oy. The price for the newly issued shares was FIM
3,500 per share; share premium was to be entered in the books in a separate
share premium account and the newly issued shares were entitled to 50% of
dividend in 1998.
As of February 22, 1999, Eimo's shares were split 100-for-1 resulting in
10,000,000 outstanding shares and the nominal value of Eimo's shares was
amended from FIM 100 to FIM 1. This transaction was approved at the general
meeting of Eimo's shareholders on February 2, 1999.
As of March 23, 1999, Eimo's share capital was increased as a result of Eimo
issuing 1,600,000 new shares at a price of (Euro)14 per share. As a result,
Eimo had 11,600,000 fully paid shares outstanding, of which 9,800,000 were
Series A shares and 1,800,000 were Series K shares. The issued share capital
was FIM 11,600,000. This transaction was approved at the general meeting of
Eimo's shareholders on February 2, 1999 as to the terms of issuance of the new
shares, with the board of directors authorized to set the final issue price.
As of November 25, 1999, Eimo's share capital was amended to be calculated
in euros instead of FIMs and Eimo started using accounting counter value of
(Euro)1 per share instead of a nominal value. Simultaneously, the share capital
was increased by transferring funds from Eimo's share premium account. Eimo's
issued share capital was (Euro)11,600,000, with an accounting counter value of
(Euro)1 per share. Under Eimo's articles of association, authorized share
capital was variable; not less than (Euro)10,000,000 nor more than
(Euro)40,000,000. This transaction was approved at Eimo's general meeting of
shareholders on November 17, 1999.
On April 12, 2000, Eimo's shares were split 4-for-1 to result in the number
of shares outstanding of 46,400,000 fully paid shares of which 39,200,000 were
Series A shares and 7,200,000 were Series K shares. The issued share capital
remained at (Euro)11,600,000, and the accounting counter value became
(Euro)0.25 per share. This transaction was approved at Eimo's general meeting
of shareholders on April 4, 2000. As of June 15, 2001, the number of Eimo's
shares outstanding and issued share capital remains unchanged.
Business Purpose
In Article 2 of Eimo's articles of association, Eimo's business purpose is
stated as follows:
"The company manufactures, processes and trades in plastic and metal
products and their means of production. As a parent company, the company is
also entitled to manage the organization, financing, purchases
148
and corresponding joint operations of its group, to own real estate, shares and
securities, to trade in securities and to engage in other financial investment
activities."
Redemption Obligations
There are no obligations imposed on Eimo by either its articles of
association or Finnish law for Eimo to redeem or repurchase its shares.
However, Article 12 of Eimo's articles of association seeks to provide minority
shareholders with the possible ability to sell their shares at a reasonable
price in case of a third party becoming a large shareholder. Under Article 12,
a shareholder whose share ownership, or whose votes represented by its shares,
either alone or jointly with other shareholders, reaches or exceeds one-third
or one-half, of the total outstanding shares or total voting rights represented
thereby, is obligated, except where shares are acquired by inheritance, bequest
or by direct descendants of the shareholder, to purchase, upon the demand of
the other shareholders, the shares held by such demanding shareholders as of
the time that their redemption right arose. The redemption price is set by the
articles of association at the higher of the weighted average price over either
the ten days or twelve months preceding the trigger of the redemption right.
The redemption right will terminate if the shareholder entitled to the
redemption fails to make a demand for the redemption or fails to furnish the
required information within the time specified in Eimo's articles of
association. Under the articles of association, interest will accrue on the
redemption price from the date on which payment should have been made or if the
shareholder obligated to redeem shares has failed to give the required notice,
then interest will accrue from the date such notice was last due.
Article 12 of Eimo's articles of association complies with the Finnish
Companies Act but to Eimo's knowledge, such redemption obligation--while
generally honored and not unique in Finland--has not been interpreted by or
contested in Finnish courts. Accordingly, Eimo makes no representation as to
the exact legal effect or force, if any, of this item in its articles of
association, upon a party not complying with the redemption obligation.
149
DESCRIPTION OF EIMO AMERICAN DEPOSITARY SHARES
General
This section describes the Eimo American Depositary Shares, or Eimo ADSs,
that Triple S shareholders will receive in the merger. The certificates that
evidence ADSs are referred to as American Depositary Receipts, or ADRs.
Citibank, N.A. has agreed to act as the depositary bank for the Eimo ADSs.
Citibank's depositary offices are located at 111 Wall Street, New York, New
York 10005. American Depositary Shares are referred to as "ADSs" and represent
ownership interests in securities that are on deposit with the depositary bank.
ADSs are normally represented by certificates that are commonly known as
"American Depositary Receipts" or "ADRs." The depositary bank has appointed a
custodian to safekeep the securities on deposit. In this case, the custodian is
Merita Bank PLC, 2598 Custody Services, Aleksis KivenKatu 3-5, Helsinki, FIN-
000020, Merita, Finland.
Eimo has appointed Citibank as depositary bank pursuant to a deposit
agreement. A copy of the deposit agreement is on file with the SEC under cover
of a Registration Statement on Form F-6. You may obtain a copy of the deposit
agreement from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please refer to Registration Number 333-13158 when
retrieving such copy.
The following is a summary description of the Eimo ADSs and your rights as
an owner of Eimo ADSs. We urge you to review the deposit agreement in its
entirety as well as the form of Eimo ADR attached to the deposit agreement.
At the time of the merger, each Eimo ADS will represent ten Eimo Series A
shares or such lesser number of Eimo Series A shares as Eimo may elect. The
Eimo Series A shares will be on deposit with the custodian bank. An Eimo ADS
will also represent any other property received by the depositary bank or the
custodian on behalf of the owners of the Eimo ADSs but that has not been
distributed to the owners of Eimo ADSs because of legal restrictions or
practical considerations as described below.
If you become an owner of Eimo ADSs, you will become a party to the deposit
agreement and, therefore, will be bound by its terms and to the terms of the
Eimo ADR that evidences your Eimo ADSs. The deposit agreement and the Eimo ADR
specify Eimo's rights and obligations, as well as your rights and obligations
as an owner of Eimo ADSs and those of the depositary bank. As an Eimo ADS
holder you appoint the depositary bank to act on your behalf in specified
circumstances. The deposit agreement is governed by New York law. However,
Eimo's obligations to the holders of Eimo Series A shares will continue to be
governed by the laws of Finland, which may be different from the laws in the
United States.
As an owner of Eimo ADSs, you may hold your Eimo ADSs either by means of an
Eimo ADR registered in your name or through a brokerage or safekeeping account.
If you decide to hold your Eimo ADSs through your brokerage or safekeeping
account, you must rely on the procedures of your broker or bank to assert your
rights as an Eimo ADS owner. Please consult with your broker or bank to
determine what those procedures are. This summary description assumes you have
opted to own the Eimo ADSs directly by means of an Eimo ADR registered in your
name and, as such, Eimo will refer to you as the "holder." When we refer to
"you", we assume the reader owns ADSs and will own ADSs at the relevant time.
Dividends and Other Distributions
Eimo ADR holders generally have the right to receive the distributions made
on the Eimo Series A shares deposited with the custodian bank. Your receipt of
these distributions may be limited, however, by practical considerations and
legal limitations as described below. Eimo ADS holders will receive such
distributions under the terms of the deposit agreement in proportion to the
number of Eimo ADSs held as of a specified record date.
Distributions of Cash
Eimo will notify the depositary bank whenever it makes a cash distribution
for the Eimo Series A shares on deposit with the custodian. Upon receipt of
such notice and confirmation of the deposit of the applicable
150
funds, the depositary bank will, arrange for the funds to be converted into
U.S. dollars and for the distribution of the U.S. dollars to the Eimo ADR
holders under the terms of the deposit agreement in proportion to the number of
Eimo ADSs held on the specified record date. An Eimo ADR holder will receive
distributions in proportion to the number of Eimo Series A shares represented
by such holder's Eimo ADSs.
The conversion into U.S. dollars will take place only if practicable and if
the U.S. dollars are transferable to the United States. Amounts distributed to
holders will be net of the fees, expenses, taxes and governmental charges
payable by Eimo ADR holders under the terms of the deposit agreement. The
depositary bank will apply the same method for distributing the proceeds of the
sale of any property, such as undistributed rights, held by the custodian in
respect of securities on deposit.
Distributions of Shares
Eimo will notify the depositary bank whenever it makes a free distribution
of Eimo Series A shares for the Eimo Series A shares on deposit with the
custodian. Upon receipt of this notice and the applicable Eimo Series A shares,
the depositary bank will either distribute to holders new Eimo ADSs
representing the Eimo Series A shares deposited and issue them new Eimo ADRs
evidencing such new Eimo ADSs or modify the Eimo ADS-to-Eimo Series A share
ratio, in which case each Eimo ADS you hold will represent rights and interests
in the additional Eimo Series A shares so deposited. Only whole new Eimo ADSs
will be distributed. Fractional entitlements will be sold and the proceeds
distributed as in the case of a cash distribution.
The distribution of new Eimo ADSs or the modification of the Eimo ADS to
Eimo Series A share ratio upon a distribution of Eimo Series A shares will be
made net of the fees, expenses, taxes and governmental charges payable by
holders under the terms of the deposit agreement. In order to pay such taxes or
governmental charges, the depositary bank may sell all or a portion of the new
Eimo Series A shares so distributed.
No distribution of new Eimo ADSs will be made if it would violate a law
(i.e., the U.S. securities law). If the depositary bank does not distribute new
Eimo ADSs as described above, it will use its reasonable efforts to sell the
Eimo Series A shares received and distribute the proceeds as in the case of a
distribution of cash.
Distributions of Rights
Whenever Eimo intends to distribute to holders of Eimo Series A shares
rights to purchase additional Eimo Series A shares, it will give prior notice
to the depositary bank and will use its reasonable efforts to assist the
depositary bank in determining whether it is lawful and reasonably practicable
to distribute rights to purchase additional Eimo ADSs to holders of Eimo ADSs.
The depositary bank will establish procedures to distribute rights to
purchase additional Eimo ADSs to holders and to enable Eimo ADS holders to
exercise their purchase rights if it is lawful and reasonably practicable to
make the rights available and if Eimo provides all of the documentation
contemplated in the deposit agreement, such as opinions relating to the
lawfulness of the transaction. You may have to pay fees, expenses, taxes and
other governmental charges to subscribe for new Eimo ADSs upon the exercise of
your rights. The depositary bank is not obligated to establish procedures to
facilitate the distribution and exercise by holders of Eimo ADSs of rights to
purchase new Eimo Series A shares directly rather than in the form of new Eimo
ADSs.
The depositary bank will not distribute the rights to you if:
. Eimo does not request that the rights be distributed to you or asks that
the rights not be distributed to you; or
. Eimo fails to deliver satisfactory documents to the depositary bank; or
. it is not lawful or reasonably practicable to distribute the rights.
151
Although not required by the terms of the deposit agreement, management of
Eimo currently expects that it will request the depositary bank to distribute
to the holders of Eimo ADSs any rights that are distributed to the holders of
Eimo's Series A shares and that Eimo would file a registration statement under
the Securities Act in order to facilitate the participation of Eimo ADS holders
in any such rights distribution if the filing of a registration statement is
required to be made before these rights may be distributed to holders of Eimo
ADSs. However, Eimo is under no legal obligation to take these actions.
In the event that rights are not exercised or distributed, the depositary
bank will sell the rights that are not exercised or not distributed if doing so
is lawful and reasonably practicable. The proceeds of a sale will be
distributed to holders as in the case of a cash distribution. If the depositary
bank is unable to sell the rights, it will allow the rights to lapse.
Elective Distributions
Whenever Eimo intends to distribute a dividend payable at the election of
shareholders either in cash or in additional Eimo Series A shares, Eimo will
give prior notice to the depositary bank and will indicate whether Eimo wishes
the elective distribution to be made available to you. In such case, Eimo will
use its reasonable efforts to assist the depositary bank in determining whether
the distribution is lawful and reasonably practicable. Although not required by
the terms of the deposit agreement, management of Eimo currently expects to
make available to the holders of Eimo ADSs the elections that are available to
the holders of Eimo Series A shares.
The depositary bank will make the election available to holders of Eimo ADSs
only if it is lawful and reasonably practicable and if Eimo has provided all of
the documentation contemplated in the deposit agreement. In such case, the
depositary bank will establish procedures to enable you to elect to receive
either cash or additional Eimo ADSs, in each case as described in the deposit
agreement.
If the election is not made available to you, you will receive either cash
or additional Eimo ADSs, depending on what a shareholder in Finland would
receive in the event the shareholder fails to make an election, as more fully
described in the deposit agreement.
Other Distributions
Whenever Eimo intends to distribute property other than cash, Eimo Series A
shares or rights to purchase additional Eimo Series A shares, Eimo will notify
the depositary bank in advance and will indicate whether the distribution
should be made to holders of Eimo ADSs. If so, Eimo will use its reasonable
efforts to assist the depositary bank in determining whether distribution to
Eimo ADS holders is lawful and reasonably practicable. Although not required by
the terms of the deposit agreement, management of Eimo currently expects that
it will request the depositary bank to distribute to the holders of Eimo ADSs
any property that is distributed to the holders of Eimo Series A shares.
If it is lawful and reasonably practicable to distribute this property to
you and if Eimo provides all of the documentation contemplated in the deposit
agreement, the depositary bank will distribute the property to the holders in a
manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental
charges payable by Eimo ADS holders under the terms of the deposit agreement.
In order to pay these taxes and governmental charges, the depositary bank may
sell all or a portion of the property received.
The depositary bank will not distribute the property to you and will sell
the property if:
. Eimo does not request that the property be distributed to you or if Eimo
asks that the property not be distributed to you; or
. Eimo does not deliver satisfactory documents to the depositary bank; or
. the depositary bank determines that all or a portion of the distribution
to you is not lawful or not reasonably practicable.
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The proceeds of a sale will be distributed to holders as in the case of a cash
distribution.
Eimo has no obligation to register under the Securities Act, the Eimo ADSs,
shares, rights or other securities that may be distributed to holders of Eimo
Series A shares and Eimo ADSs. Eimo also has no obligation to take any other
action to permit the distribution of Eimo ADRs, shares, rights or anything else
to Eimo ADR holders. This means that you may not receive distributions that
Eimo makes on its Series A shares or any value for them if it is illegal or
impractical for Eimo to make them available to you.
Redemption
Whenever Eimo decides to redeem any of the securities on deposit with the
custodian, it will notify the depositary bank. If it is practicable and if Eimo
provides all of the documentation contemplated in the deposit agreement, the
depositary bank will mail a notice of the redemption to the Eimo ADS holders.
The custodian will be instructed to surrender the securities being redeemed
against payment of the applicable redemption price. The depositary bank will
convert the redemption funds received into U.S. dollars under the terms of the
deposit agreement and will establish procedures to enable Eimo ADS holders to
receive the net proceeds from the redemption upon surrender of their Eimo ADSs
and corresponding Eimo ADRs to the depositary bank. Amounts distributed to Eimo
ADS holders will be net of the fees, expenses, taxes and other governmental
charges payable by Eimo ADR holders upon the redemption of their Eimo ADSs
under the terms of the deposit agreement. If fewer than all Eimo ADSs are being
redeemed, the Eimo ADSs to be retired will be selected by lot or on a pro rata
basis, as the depositary bank may determine. In such cases, you may be required
to surrender your Eimo ADRs in exchange for new Eimo ADRs evidencing the
corrected number of Eimo ADSs you hold.
Changes Affecting Eimo Series A Shares
The Eimo Series A shares held on deposit for your Eimo ADSs may change from
time to time. For example, there may be:
. a change in nominal or accounting counter value;
. a split-up;
. a cancellation;
. a consolidation or classification of such Eimo Series A shares; or
. a recapitalization, reorganization, merger, consolidation or sale of
assets.
If a change were to occur, your Eimo ADSs would, to the extent permitted by
law, represent the right to receive the property received or exchanged in
respect of the Eimo Series A shares held on deposit. The depositary bank may in
such circumstances deliver new Eimo ADRs to you or call for the exchange of
your existing Eimo ADRs for new Eimo ADRs. If the depositary bank may not
lawfully distribute the property to you, it may sell the property and
distribute the net proceeds to you as in the case of a cash distribution.
Issuance of Eimo ADSs upon Deposit of Eimo Series A Shares
The depositary bank may create Eimo ADSs on your behalf if you or your
broker deposit Eimo Series A shares with the custodian. The depositary bank
will deliver these Eimo ADSs to the person you indicate only after you pay to
the custodian any applicable issuance fees, charges and taxes payable for the
transfer of the Eimo Series A shares. Your ability to deposit Eimo Series A
shares and receive ADSs may be limited by U.S. and Finland legal considerations
applicable at the time of deposit.
The issuance of Eimo ADSs may be delayed until the depositary bank or the
custodian receives confirmation that all required approvals have been given and
that the Eimo Series A shares have been duly transferred to the custodian. The
depositary bank will only issue Eimo ADSs in whole numbers.
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When you make a deposit of Eimo Series A shares, you will be responsible for
transferring good and valid title to the depositary bank. You will be deemed to
represent and warrant that:
. the Eimo Series A shares are duly authorized, validly issued, fully
paid, non-assessable and legally obtained;
. all preemptive and similar rights, if any, with respect to the Eimo
Series A shares have been validly waived or exercised;
. you are duly authorized to deposit the Eimo Series A shares;
. the Eimo Series A shares presented for deposit are free and clear of any
lien, encumbrance, security interest, charge, mortgage or adverse claim,
and are not, nor will the Eimo ADSs issuable upon deposit be,
"restricted securities," as defined in the deposit agreement, with
permitted exceptions; and
. the Eimo Series A shares presented for deposit have not been stripped of
any rights or entitlements.
If any of the representations or warranties are incorrect in any way, Eimo
and the depositary bank may, at your cost and expense, take any and all actions
necessary to correct the consequences of the misrepresentations.
Transfer, Combination and Split Up of Eimo ADRs
As an Eimo ADR holder, you will be entitled to transfer, combine or split up
your Eimo ADRs and the Eimo ADSs evidenced thereby. For transfers of Eimo ADRs,
you will have to surrender the Eimo ADRs to be transferred to the depositary
bank and also must:
. ensure that the surrendered Eimo ADR certificate is properly endorsed or
otherwise in proper form for transfer;
. provide such proof of identity and genuineness of signatures as the
depositary bank deems appropriate;
. provide any transfer stamps required by the State of New York or the
United States; and
. pay all applicable fees, charges, expenses, taxes and other government
charges payable by Eimo ADR holders pursuant to the terms of the deposit
agreement, upon the transfer of Eimo ADRs.
To have your Eimo ADRs either combined or split up, you must surrender
the Eimo ADRs in question to the depositary bank with your request to have
them combined or split up, and you must pay all applicable fees, charges
and expenses payable by Eimo ADR holders, pursuant to the terms of the
deposit agreement, upon a combination or split up of Eimo ADRs.
Withdrawal of Eimo Series A Shares upon Cancellation of Eimo ADSs
As an Eimo ADR holder, you will be entitled to present your Eimo ADSs to the
depositary bank for cancellation and then have the underlying Eimo Series A
shares transferred to you by book-entry transfer in compliance with the deposit
agreement, Eimo's Articles of Association and applicable rules of the Finnish
Central Securities Depository, Ltd. See "The Finnish Securities Market." In
order to withdraw the Eimo Series A shares represented by your Eimo ADSs, you
will be required to pay to the depositary bank the fees for cancellation of
Eimo ADSs and any charges and taxes payable upon the transfer of the Eimo
Series A shares being withdrawn. You assume the risk for delivery of all funds
and deposited property upon withdrawal. Once canceled, the Eimo ADSs will not
have any rights under the deposit agreement.
If you hold Eimo ADSs registered in your name, the depositary bank may ask
you to provide proof of identity and genuineness of any signature and other
documents as the depositary bank may deem appropriate before it will cancel
your Eimo ADSs. The withdrawal and book-entry transfer of the Eimo Series A
shares represented by your Eimo ADSs may be delayed until the depositary bank
receives satisfactory evidence of
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compliance with all applicable laws and regulations, including the applicable
rules of the Finnish Central Securities Depository Ltd. Please keep in mind
that the depositary bank will only accept Eimo ADSs for cancellation that
represent a whole number of securities on deposit.
You will have the right to withdraw the Eimo Series A shares represented by
your Eimo ADSs and have them transferred to you by book-entry transfer at any
time except for:
. temporary delays that may arise because (i) the transfer books for the
Eimo Series A shares or Eimo ADSs are closed, or (ii) Eimo Series A
shares are immobilized on account of a shareholders' meeting or a
payment of dividends;
. obligations to pay fees, taxes and similar charges; and
. restrictions imposed because of laws or regulations applicable to Eimo
ADSs or the withdrawal or transfer of securities on deposit.
The deposit agreement may not be modified to impair your right to withdraw the
Eimo Series A shares represented by your Eimo ADSs except to comply with
mandatory provisions of law.
Voting Rights
Under Finnish law and Eimo's articles of association, it is a precondition
for exercising your voting rights that you:
. be registered in Eimo's register of shareholders as a shareholder at
least five days prior to the applicable shareholders' meeting; and
. give notice of your intention to attend the meeting, in person or by
power of attorney, not later than a date specified in the notice
convening the meeting.
In order to accommodate these requirements, the depositary bank has agreed
to establish procedures that enable an Eimo ADS holder who provides valid
voting instructions to instruct the depositary bank to request the custodian to
cause the Eimo Series A shares represented by the holder's Eimo ADSs to be
registered in the register of shareholders in the name of the holder and give
notice to Eimo of the holder's intention to attend the meeting and to vote the
shares at the meeting in person or by proxy. These procedures may require you
to immobilize your Eimo ADSs in a manner satisfactory to the depositary bank
prior to registration of the Eimo Series A shares represented by such holder's
Eimo ADSs. The depositary bank shall (i) instruct the custodian to register the
Series A shares represented by holders of Eimo ADSs in the name of such holder
in order to enable the holder to vote the Series A shares, (ii) provide notice
to Eimo of the holder's intent to attend the meeting, (iii) vote, or cause the
custodian to vote in accordance with instructions timely received, (iv)
instruct the custodian to re-register the Series A shares in the name of the
custodian or respective nominees at the conclusion of the meeting, and (v) to
the extent the Eimo ADSs were immobilized, return the Eimo ADSs to the holders
upon receipt of notice of registration from custodian. The voting rights of
holders of Eimo Series A shares are described in "Description of Eimo Series A
Shares--Voting Rights."
At Eimo's request, the depositary bank will distribute to you any notice of
a shareholders' meeting received from Eimo together with information explaining
how to instruct the depositary bank to exercise the voting rights of the
securities represented by Eimo ADSs.
If the depositary bank timely receives voting instructions from a holder of
Eimo ADSs, it will endeavor insofar as practicable and permitted under
applicable law to vote the securities (in person or by proxy) represented by
the holder's Eimo ADSs in accordance with the instructions.
Please note that the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. Eimo cannot assure you that you will receive voting
materials in time to enable you to return voting instructions to the depositary
bank in a timely manner. This means that you may not be able to exercise your
right to vote, and there may be nothing you can do if your shares are not voted
as you requested. Securities for which no timely voting instructions have been
received will not be voted.
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Fees and Charges
As an Eimo ADS holder, you will be required to pay the following service
fees to the depositary bank:
Service Fees
------- ----
Issuance of ADSs Up to $5.00 per 100 Eimo ADSs issued
Cancellation of ADSs Up to $5.00 per 100 Eimo ADSs surrendered
Distribution of cash
dividends or other cash
distributions upon sale
of rights and other
entitlements Up to $2.00 per 100 Eimo ADSs held
Distribution of Eimo
ADSs for stock
dividends, other free
stock distributions, or
exercise of rights Up to $5.00 per 100 Eimo ADSs issued
Transfers of Eimo ADRs Up to $1.50 per certificate presented for transfer
You will not be required to make any payment in connection with the
issuance of Eimo ADSs to you upon the surrender of your Triple S shares
following the merger.
As an Eimo ADS holder you will also be responsible to pay specified fees
and expenses incurred by the depositary bank as well as taxes and governmental
charges such as:
. fees for the transfer and registration of Eimo Series A shares, such as
upon deposit and withdrawal of Eimo Series A shares;
. expenses incurred for converting foreign currency into U.S. dollars;
. expenses for cable, telex and fax transmissions and for delivery of
securities; and
. taxes and duties upon the transfer of securities, such as when Eimo
Series A shares are deposited or withdrawn from deposit.
Eimo has agreed to pay other agreed charges and expenses of the depositary
bank. Note that the fees and charges you may be required to pay may vary over
time and may be changed by agreement between Eimo and the depositary bank. You
will receive prior notice of any changes.
Amendments and Termination
Eimo may agree with the depositary bank to modify the deposit agreement at
any time without your consent. Eimo undertakes to give Eimo ADS holders 30
days' prior notice of any modifications that would materially prejudice any of
their substantial rights under the deposit agreement, except in very limited
circumstances enumerated in the deposit agreement.
We will not consider to be materially prejudicial to your substantive
rights any modifications or supplements that are reasonably necessary for the
ADSs to be registered under the Securities Act or to be eligible for book-
entry settlement, in each case without imposing or increasing the fees and
charges you are required to pay. In addition, we may not be able to provide
you with prior notice of any modifications or supplements that are required to
accommodate compliance with applicable provisions of law.
You will be bound by the modifications to the deposit agreement if you
continue to hold your Eimo ADSs after the modifications to the deposit
agreement become effective. The deposit agreement cannot be amended to prevent
you from withdrawing the Series A shares represented by your Eimo ADSs, except
as permitted by law.
Eimo has the right to direct the depositary bank to terminate the deposit
agreement. Similarly, the depositary bank may in some circumstances on its own
initiative terminate the deposit agreement. In either case, the depositary
bank must give notice to the Eimo ADS holders at least 30 days before
termination.
Upon termination, the following will occur under the deposit agreement:
. For a period of six months after termination, you will be able to
request the cancellation of your Eimo ADSs and the withdrawal of the
Eimo Series A shares represented by your Eimo ADSs and the
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delivery of all other property held by the depositary bank in respect of
those Eimo Series A shares on the same terms as prior to the
termination. During this six month period the depositary bank will
continue to collect all distributions, such as dividends, received on
the Eimo Series A shares on deposit but will not distribute any property
to you until you request the cancellation of your Eimo ADSs.
. After the expiration of this six month period, the depositary bank may
sell the securities held on deposit. The depositary bank will hold the
proceeds from the sale and any other funds then held for the holders of
Eimo ADSs in an unsegregated and non-interest-bearing account. At that
point, the depositary bank will have no further obligations to Eimo ADS
holders other than to account for the funds then held for the holders of
Eimo ADSs still outstanding.
Books of Depositary
The depositary bank will maintain Eimo ADR holder records at its depositary
office. You may inspect these records at the depositary bank's office during
regular business hours but solely for the purpose of communicating with other
Eimo ADR holders in the interest of business matters relating to the Eimo ADRs
and the deposit agreement.
The depositary bank will maintain facilities in New York to record and
process the issuance, cancellation, combination, split-up and transfer of Eimo
ADRs. These facilities may be closed from time to time, to the extent not
prohibited by law.
Limitations on Obligations and Liabilities
The deposit agreement limits both Eimo's obligations and the depositary
bank's obligations to you. Please note the following:
. Eimo and the depositary bank are obligated only to take the actions
specifically stated in the deposit agreement without negligence or bad
faith;
. the depositary bank disclaims any liability for any failure to carry out
voting instructions, for any manner in which a vote is cast or for the
effect of any vote, provided it acts in good faith and in accordance
with the terms of the deposit agreement;
. the depositary bank disclaims any liability for any failure to determine
that any distribution or action may be lawful or reasonably practicable,
for the content of any document forwarded to you on Eimo's behalf or for
the accuracy of any translation of these documents, for the investment
risks associated with investing in Eimo Series A shares, for the
validity or worth of the Eimo Series A shares, for any tax consequences
that result from the ownership of Eimo ADSs, for the credit-worthiness
of any third party, for allowing any rights to lapse under the terms of
the deposit agreement, for the timeliness of any of Eimo's notices or
for Eimo's failure to give notice;
. Eimo and the depositary bank will not be obligated to perform any act
that is inconsistent with the terms of the deposit agreement;
. Eimo and the depositary bank disclaim any liability if Eimo and the
depositary bank are prevented or forbidden from acting on account of any
law or regulation, any provision of Eimo's articles of association, any
provision of any securities on deposit or by reason of any act of God or
war or other circumstances beyond their control;
. Eimo and the depositary bank disclaim any liability by reason of any
exercise of, or failure to exercise, any discretion provided for in the
deposit agreement or in Eimo's articles of association or in any
provisions of securities on deposit;
. Eimo and the depositary bank further disclaim any liability for any
action or inaction in reliance on the advice or information received
from legal counsel, accountants, any person presenting Series A shares
for deposit, any holder of Eimo ADSs or a holder's authorized
representative, or any other person believed by either the depositary
bank or Eimo in good faith to be competent to give such advice or
information;
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. Eimo and the depositary bank also disclaim liability for the inability
by an Eimo ADS holder to benefit from any distribution, offering, right
or other benefit which is made available to holders of Eimo Series A
shares but is not, under the terms of the deposit agreement, made
available to you;
. Eimo and the depositary bank also disclaim liability for any
consequential or punitive damages for any breach of the deposit
agreement; and
. Eimo and the depositary bank may rely without any liability upon any
written notice, request or other document believed to be genuine and to
have been signed or presented by the proper parties.
Pre-Release Transactions
The depositary bank may, in specified circumstances, issue Eimo ADSs before
receiving a deposit of Eimo Series A shares or release Eimo Series A shares
before receiving Eimo ADSs for cancellation. These transactions are commonly
referred to as "pre-release transactions." The deposit agreement limits the
aggregate size of pre-release transactions and imposes a number of conditions
on these transactions, for example, the need to receive collateral, the type of
collateral required and the representations required from brokers. The
depositary bank may retain the compensation received from the pre-release
transactions.
Taxes
You will be responsible for the taxes and other governmental charges payable
on the Eimo ADSs and the securities represented by the Eimo ADSs. Eimo, the
depositary bank and the custodian may deduct from any distribution the taxes
and governmental charges payable by Eimo ADS holders and may sell any and all
property on deposit to pay the taxes and governmental charges payable by
holders. You will be liable for any deficiency if the sale proceeds do not
cover the taxes that are due.
The depositary bank may refuse to issue Eimo ADSs, to deliver, transfer,
split and combine Eimo ADRs or to release securities on deposit until all taxes
and charges are paid by the applicable holder. The depositary bank has agreed
to use commercially reasonable efforts to obtain tax refunds and reduced tax
withholding for any distributions on your behalf in accordance with U.S. and
Finnish law and the U.S.-Finland tax treaty. However, you may be required to
provide to the depositary bank and to the custodian proof of taxpayer status
and residence and other information as the depositary bank and the custodian
may require to fulfill legal obligations. You are required to indemnify Eimo,
the depositary bank and the custodian for any claims with respect to taxes
based on any tax benefit obtained for you.
Foreign Currency Conversion
The depositary bank will arrange for the prompt conversion of all foreign
currency received into U.S. dollars transferable to the United States if such
conversion is practicable and lawful, and it will promptly distribute the U.S.
dollars in accordance with the terms of the deposit agreement. Such
distribution will be net of any applicable fees and expenses incurred in
converting foreign currency, such as fees and expenses incurred in complying
with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practicable or lawful for all
holders, or if any required approvals are denied or not obtainable at a
reasonable cost or within a reasonable period, the depositary bank may take the
following actions in its discretion:
. convert the foreign currency to the extent practicable and lawful and
distribute the U.S. dollars to the holders for whom the conversion and
distribution is lawful and practicable;
. distribute the foreign currency to holders for whom the distribution is
lawful and practicable; and
. hold the foreign currency, without liability for interest, for the
applicable holders.
Reimbursement of Costs
In a separate agreement, the depositary bank has agreed to reimburse Eimo
for some of Eimo's expenses in connection with the establishment and
maintenance of the Eimo ADR program.
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THE FINNISH SECURITIES MARKET
General
The securities market in Finland is supervised by the Finnish Financial
Supervision Authority. The principal statute governing the securities market is
the Finnish Securities Market Act of 1989, as amended. The Securities Market
Act contains regulations with respect to company and shareholder disclosure
obligations, admission to listing and trading of listed securities and public
takeovers, among other things. The role of the Finnish Financial Supervision
Authority is to monitor compliance with these regulations.
The Securities Market Act specifies minimum disclosure requirements for
Finnish companies applying for listing on the Helsinki Securities and
Derivatives Exchange, Clearing House Ltd., commonly referred to as the Helsinki
Stock Exchange, or making a public offering of securities in Finland. The
information provided must be sufficient to enable investors to make a sound
evaluation of the security being offered and the issuing company. Finnish
listed companies have a continuing obligation to publish regular financial
information and to inform the market of any matters likely to have a material
impact on the value of their securities.
A shareholder, including a holder of Eimo ADSs, is required to notify a
Finnish listed company and the Finnish Financial Supervision Authority when its
voting participation in, or its percentage ownership of, issued share capital
of the company reaches, exceeds or falls below 5%, 10%, 15%, 20%, 25%, 33 1/3%,
50% or 66 2/3%, calculated in accordance with the Securities Market Act, or
when the shareholder enters into an agreement or other arrangement having such
effect. If a Finnish listed company receives information indicating that a
voting interest or ownership interest has reached, exceeded or fallen below
these thresholds, it must make disclosure to the public and to the Helsinki
Stock Exchange.
The Securities Market Act requires that a shareholder whose holding in a
listed company exceeds two-thirds of the total voting rights attached to the
shares of the company after the commencement of a public quotation of such
shares must offer to purchase the remaining shares and securities entitling the
holder of the securities to receive shares of the company. Under the Finnish
Companies Act, a shareholder holding more than 90% of the shares and the votes
attached to the shares in a company has the right to purchase the remaining
shares for fair market value. In addition, any shareholder that possesses
shares that may be so purchased by a majority shareholder is entitled to
require the majority shareholder to purchase its shares. Detailed rules apply
for the calculation of the above proportions of shares and votes.
The Finnish Criminal Code contains provisions relating to the misuse of
privileged or inside information and market manipulation. Breach of these
provisions constitutes a criminal offense.
The Helsinki Stock Exchange operates as a securities exchange, an organizer
of other public trades in securities and as an options exchange. The Helsinki
Stock Exchange carries on exchange and related operations while the Finnish
Central Securities Depository, which maintains the commercial book-entry
register for Eimo, acts as the national securities depositary offering clearing
and registry services and performs issuer services functions.
The Finnish Book-Entry Securities System
General
Finland has made a gradual changeover from a certificated securities system
to a book-entry securities system since August 1, 1991, when the relevant
legislation came into effect. Use of the book-entry securities system is
mandatory for shares listed on the Helsinki Stock Exchange. The Eimo Series A
shares were entered into the book-entry system on February 8, 2000.
Most activities relating to the book-entry securities system are centralized
at the Finnish Central Securities Depository, which provides national clearing
and registration services for securities. The Finnish Central Securities
Depository maintains a central book-entry securities system for both equity and
debt securities.
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The Finnish Central Securities Depository maintains a register of the
shareholders of listed companies and accounts for shareholders that do not wish
to utilize the services of a commercial book-entry registrar. The expenses
incurred by the Finnish Central Securities Depository in connection with
maintaining such accounts are borne by the issuers participating in the book-
entry securities system.
Registration
In order to effect entries in the book-entry securities system, a security
holder or such holder's nominee must establish a book-entry account with the
Finnish Central Securities Depository or register its securities through
nominee registration. All transactions in securities registered with the book-
entry securities system are executed as computerized book-entry transfers. The
Finnish Central Securities Depository confirms book-entry transfers by sending
notifications of transactions to the investor holding the respective book-entry
account. Investors also receive an annual statement of their holdings as of the
end of each calendar year.
Each book-entry account is required to contain specified information with
respect to the account holder or the custodian administering the assets of a
custodial nominee account. This information includes the type and number of
book-entry securities registered and the rights and restrictions pertaining to
the account and to the book-entry securities registered in the account. A
custodial nominee account is identified as such on the entry. The Finnish
Central Securities Depository is required to observe strict confidentiality,
although some information contained in the registers, such as the name,
nationality and address of each account holder, must be made available to the
public.
The Finnish Central Securities Depository is strictly liable for, among
other things, errors and omissions on the registers maintained by it and for
any unauthorized disclosure of information. To cover this contingency, the
Finnish Central Securities Depository maintains a statutory guarantee fund,
which is required to reach a level of not less than FIM 110 million ((Euro)18.5
million) by December 31, 2011 in respect of book-entry and settlement
operations. The balance of the statutory guarantee fund currently stands at FIM
20.5 million ((Euro)3.5 million).
Trading and Settlement
Trading in, and clearing of, securities on the Helsinki Stock Exchange is in
euros, with the minimum increase or decrease for trading quotations being one
euro cent. All price information is produced and published only in euros. The
trading system of the Helsinki Stock Exchange, the Helsinki Exchanges Automated
Trading and Information System, is a decentralized and fully automated order-
driven system. Trading is conducted on the basis of trading lots, which are
fixed separately for each share series.
Regular, also known as continuous, share trading takes place from 10:00 a.m.
to 6:00 p.m. Helsinki time on each trading day. Offers may be placed in the
system beginning at 9:00 a.m. during a pretrading period. Offers are matched
from 9:40 to 10:00 a.m. to determine the opening quotations of the day. At the
end of the continuous trading at 6:00 p.m. official closing prices are
confirmed for each series of shares as well as the closing HEX indices. After
market trading (evening-trading) takes place from 6:03 p.m. to 9:00 p.m. during
which orders are either matched into trades automatically or recorded as
negotiated deals. After market trading, stage II, takes place on the following
trading day from 8:30 a.m. to 9:00 a.m. during which only negotiated deals are
possible. Contract transactions may continue to be registered during
aftermarket trading from 6:00 to 6:15 p.m. and from 8:30 to 9:00 a.m. the
following morning within the price limits arrived at during the official share
trading.
The transactions are normally cleared in the Finnish Central Securities
Depository's automated clearing and settlement system on the third banking day
after the trade date unless otherwise agreed by the parties.
Custody of the Shares and Nominees
Shares are held in the book-entry register of the Finnish Central Securities
Depository. A non-Finnish shareholder may appoint a custodian, or some non-
Finnish organizations approved by the Finnish Central
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Securities Depository, to act as a nominee shareholder on its behalf. A nominee
shareholder is entitled to receive dividends and to exercise all share
subscription rights and other financial rights attaching to the shares held in
its name. It may not, however, exercise any administrative rights attaching to
such shares, such as the right to attend and vote at general meetings of the
company. A beneficial owner wishing to exercise these rights must terminate the
nominee arrangement and obtain registration of the shares in the owner's own
name not later than five days prior to the relevant general meeting. A nominee
is required to disclose to the Finnish Financial Supervision Authority and the
relevant company on request the name of the beneficial owner of any shares
registered in the name of the nominee, where the beneficial owner is known, as
well as the number of shares owned by the beneficial owner.
Finnish depositories for both Clearstream, formerly Cedelbank, and Euroclear
have nominee accounts within the book-entry securities system and, accordingly,
non-Finnish shareholders may hold their shares through their accounts with
Clearstream or Euroclear.
Shareholders wishing to hold their shares in the book-entry securities
system in their name and who do not maintain a custody account in Finland are
required to open a custody account at a credit institution, investment services
company or other institution authorized to act as a book-entry registrar by the
Finnish Council of State and a convertible Finnish markka or euro account.
COMPARISON OF RIGHTS OF TRIPLE S SHAREHOLDERS AND EIMO SHAREHOLDERS
As a result of the merger, holders of Triple S common stock will receive
Eimo ADSs, each representing, at the time of the merger, ten Eimo Series A
shares or such lesser number as Eimo may elect. Eimo is a corporation
incorporated under the laws of Finland. The following is a summary comparison
of material differences between the rights of a Triple S shareholder and an
Eimo shareholder arising from the differences between the corporate laws of
Michigan and those of Finland, the governing instruments of the two
corporations, and the securities laws and regulations governing the two
corporations. The terms of the Michigan Business Corporation Act, the Triple S
articles of incorporation and bylaws as well as the terms of Eimo's articles of
association and the corporate and securities laws of Finland are more detailed
than the general information provided below. Therefore, you should carefully
consider the actual provisions of these laws, regulations and documents. For
information on how to obtain the governing instruments of Triple S and Eimo,
see "Where You Can Find More Information." You are encouraged to obtain and
read these documents.
You should refer to "Description of Eimo American Depositary Shares" for a
description of the Eimo ADSs and a discussion of the ways in which the rights
of holders of Eimo ADSs may differ from those of holders of Eimo Series A
shares.
Unless the context otherwise requires, references to "shareholder" or
"shareholders" means the person(s) whose name(s) appear on a corporation's
register of members and who are the legal owners of the shares concerned.
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Provisions Applicable to Eimo Shareholders
Voting Rights
The Triple S articles of incorporation provide that the authorized shares of
common stock of the corporation are all of one class with equal voting power,
and each such share shall be equal to every other such share.
The Triple S bylaws provide that each shareholder entitled to vote at a
meeting of shareholders, or to express consent or dissent without a meeting,
shall be entitled to one vote, in person or by proxy, for each share of stock
entitled to vote held by such shareholder, except as may otherwise be provided
in the articles of incorporation.
The Triple S bylaws provide that the presence, in person or by proxy, of the
holders of a majority of the outstanding voting power entitled to vote
constitutes a quorum for the transaction of business at a shareholders'
meeting, unless a greater plurality is required by express requirement of the
Michigan Business Corporation Act or of the articles of incorporation, in which
case such express provision shall govern and control the decision of such
question.
Under Finnish corporate law, each shareholder is entitled to one vote for
each share of capital stock held by the shareholder unless the corporation's
articles of association provide otherwise. According to Eimo's articles of
association, each of the Eimo Series K shares entitles its holder to cast
twenty votes at general meetings of shareholders and each of the Eimo Series A
shares entitles its holder to one vote.
Action by Written Consent
Under Michigan law, the articles of incorporation may provide that
shareholders may take any action required or permitted to be taken at a
shareholders meeting without a meeting, if the action is consented to in
writing by shareholders holding outstanding shares representing not less than
the minimum number of votes that would be required to take that action at a
meeting at which shareholders were present and voting in person. Any action
required or permitted to be taken by Michigan law at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice,
and without a vote, if before or after the action all the shareholders entitled
to vote consent in writing. Under Michigan law, unless affirmatively prohibited
by the articles of incorporation, shareholders may take action by written
consent. The Triple S articles of incorporation do not prohibit taking
shareholder action by written consent. Shareholder action by written consent in
lieu of a shareholder meeting is not provided for under Finnish corporate law
or Eimo's articles of association.
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Shareholder Proposals and Shareholder Nominations of the Board of Directors
Under the Triple S articles of incorporation, any shareholder may nominate
candidates for election to the board of directors or bring other business
before an annual or special meeting if the shareholder has given timely notice,
in writing, of the proposals or nominations to be brought before the annual or
special meeting. To be timely, with respect to an election of directors to be
held at an annual meeting of shareholders, such notice should be received by
the corporation not later than 30 days in advance of such meeting, or within
seven days after the date the corporation mails, or otherwise gives notice of
such meeting, if such notice is given less than 40 days prior to the meeting
date. With respect to the election of directors at a special meeting called for
that purpose, the notice of proposal must be received by the corporation not
later than the tenth day following the date on which the notice of the
scheduled meeting was first mailed to the shareholders. In addition, SEC rules
allow precatory resolutions to be included in a corporation's proxy statement
for annual meetings of shareholders if, among other conditions required to be
met, advance notice is given to the corporation.
Under Finnish corporate law, a shareholder may nominate a person for
election and bring proposals relating to a corporation's business before a
general meeting of shareholders. The shareholders have to give written notice
of a proposal to the corporation's board of directors within a sufficient
period of time prior to the publication of the notice of the general meeting.
Eimo's articles of association are silent on the submission of shareholder
proposals.
Sources and Payment of Dividends
Under Michigan law, subject to any restriction by the Triple S articles of
incorporation, the board of directors may declare and pay dividends to its
shareholders except that a distribution shall not be made if, after giving it
effect, Triple S would not be able to pay its debts as the debts become due in
the usual course of business, or Triple S's total assets would be less than the
sum of its total liabilities plus the amount that would be needed, if Triple S
were to be dissolved at the time of the dividend, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the dividend.
Triple S's articles of incorporation contain no provisions restricting
payment of dividends on Triple S common stock.
Under Finnish corporate law and general market practice, dividends on the
shares of a Finnish corporation are paid annually after the shareholders
approve the corporation's results for that year. Therefore, the payment of each
annual dividend requires approval of the holders of a majority of the votes
represented at an annual general meeting of shareholders. The amount of the
dividend may not exceed the amount recommended by the board of directors,
except, to a limited extent, in the event of a demand by holders of at least
ten percent of the total number of outstanding shares.
Under Finnish corporate law, the amount of any dividend is limited to the
amount of distributable funds based upon the financial statements approved by
the shareholders at the most recent annual general meeting. Distributable funds
include: the profit for the preceding financial year; retained earnings from
previous years; and other unrestricted
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Provisions Applicable to Eimo Shareholders
equity less the reported losses, capitalized incorporation, research and
specified development costs, acquisition cost of the corporation's own or
parent corporation's shares, and the amount that the articles of association
require to be transferred to the reserve fund or is otherwise to be left
undistributed. Eimo's articles of association do not require any amount to be
transferred to a reserve fund or otherwise left undisturbed.
Rights of Purchase and Redemption
Under Michigan law a corporation's articles of incorporation may provide for
one or more classes or series of shares which are redeemable, in whole or in
part at the option of the shareholder, the corporation, or upon the happening
of a specified event. Michigan law prohibits corporations from acquiring its
own shares by purchase, redemption or otherwise unless after the acquisition
there remain outstanding shares possessing, collectively, voting rights and
unlimited right to receive assets in dissolution.
Triple S's articles of incorporation are silent concerning the rights of the
corporation to purchase and/or redeem its common stock.
Under Finnish corporate law, any corporation may acquire, redeem and dispose
of its own shares in circumstances specified by the Finnish Companies Act.
However, a Finnish corporation may only acquire its own shares using
distributable funds. A general meeting of shareholders is necessary to decide
on the acquisition by a corporation of its stock, unless the shareholders at a
general meeting authorize the corporation's board of directors to decide upon
stock repurchases. Any such authorization at the general meeting of
shareholders may remain in effect for a period not to exceed one year. A
publicly listed corporation, such as Eimo, may neither directly nor through a
subsidiary hold more than 5% of the corporation's share capital or voting
rights.
Issuance of New Shares
Under Michigan corporate law, a corporation may, by action of its board of
directors, issue up to a number of shares of a class or series authorized in
the corporation's articles of incorporation. If the corporation wishes to
increase the number of shares of a class or series authorized in its articles
of incorporation, it must amend its articles of incorporation in the manner
described below.
Under Michigan law, holders of shares of a class or series are entitled to
vote as a class upon a proposed amendment to the articles of incorporation if
the amendment will:
. increase or decrease the aggregate number of authorized shares of the class
or series;
. or alter or change the power, preferences or special rights of the shares of
the class or series so as to affect them adversely.
Under Finnish corporate law, a corporation's share capital may be increased,
so long as the corporation's total share capital after the issuance does not
exceed the authorized share capital set forth in the corporation's articles of
association, through a resolution passed at a general meeting of shareholders
by a majority of all votes cast. A corporation must amend its articles of
association by a vote of two-thirds of all votes cast and shares represented at
a general meeting of shareholders to increase its share capital in excess of
its currently authorized share capital.
In general, under Finnish corporate law, shareholder approval is required
before a corporation may issue new shares. However, shareholders may authorize
the board of directors to approve a new issuance of shares in the future
without obtaining
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Provisions Applicable to Eimo Shareholders
further shareholder authorization, provided that this authorization may not be
used by the board of directors to approve a share issuance in excess of 20% of
the corporation's outstanding share capital at the time the shareholders
granted such authority to the board of directors.
Assessability
In general, shareholders of a Michigan corporation are not personally liable
for the acts or debts of the corporation.
In general, shareholders of a Finnish corporation are not personally liable
for the acts or debts of the corporation.
Meetings of Shareholders
Triple S's bylaws provide that all meetings of shareholders are to be held
at the registered office of the corporation or at such other place, within or
outside the State of Michigan as may be determined from time to time by the
board of directors.
Michigan law provides that special meetings of shareholders may be called by
the board of directors; or any person or persons authorized by the
corporation's articles of incorporation or bylaws.
Upon application of the holders of not less than 10% of all the shares
entitled to vote at a meeting, the circuit court of the county in which the
principal place of business or registered office is located, for good cause
shown, may order a special meeting of shareholders to be called and held at
such time and place, upon such notice and for the transaction of such business
as may be designed in the order.
Triple S's bylaws provide that special meetings of shareholders may be
called on the order of the Chairman of the board of directors, the President or
the Secretary or any of them pursuant to resolution by the board of directors.
Triple S's bylaws provide that shareholders entitled to receive notice of a
special meeting must receive notice of the time, place and purpose of the
meeting at least 10 days and not more that 60 days prior to the meeting.
Under Finnish corporate law, corporations may hold two types of meetings,
annual and special, sometimes referred to as extraordinary. Under Eimo's
articles of association, the annual general meeting must be held annually by
the end of June.
Under Finnish corporate law, a general meeting of shareholders of a
corporation incorporated in Finland must be held at the corporation's domicile,
unless the articles of association provide otherwise. Eimo's articles of
association do not contain any such provision. Therefore, Eimo's general
meetings must be held in Lahti, Finland. If there is an exceptional reason, a
general meeting of shareholders may be held at some other location.
Under Finnish corporate law, a special meeting of shareholders may be called
by the board of directors. Furthermore, the board of directors has an
obligation to call a special meeting of the shareholders within 14 days upon
the written request of the auditors of the corporation or a group of
shareholders representing at least 10%
of the outstanding shares of the corporation.
Under Finnish corporate law, notices of general meetings must state the
matters that will be addressed at the meeting. If the purpose of the meeting
includes a proposed amendment to the corporation's articles of association, the
principal contents of the amendment must be described in the notice.
Eimo's articles of association provide that notice for convening a general
meeting of shareholders shall be given to the shareholders by
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Provisions Applicable to Eimo Shareholders
publishing the said notice in at least one national newspaper designated by the
board of directors and in at least one newspaper published in the Lahti region
designated by the board of directors, or in other demonstrable form no earlier
than six weeks and no later than seventeen days before the date of the meeting.
Under Eimo's articles of association, a shareholder must give notice to the
corporation of his or her intention to attend the general meeting no later than
the date given in the notice of the meeting, which shall not be earlier than
ten days before the meeting. Shareholders entitled to attend and vote at a
general meeting must be registered in the register of shareholders, which is
kept by the Finnish Central Securities Depository in accordance with Finnish
law, no later than ten days prior to the general meeting of shareholders. A
shareholder may attend and vote at a general meeting in person or through an
authorized representative, but only shareholders in attendance, or so
represented, may vote. A shareholder, including any holder of an Eimo ADS,
whose shareholding is registered in nominee or "street name" may not attend and
vote at a general meeting of shareholders or authorize a representative to do
so on his or her behalf. A beneficial owner wishing to exercise these rights
must cancel the nominee arrangement and arrange for his or her shares to be
registered in his or her name in the shareholder register of the Finnish
Central Securities Depository not later than five days before the general
meeting of shareholders.
For a description of how Eimo ADS holders may exercise voting rights, see
"Description of Eimo American Depositary Shares--Voting Rights."
There are no quorum requirements for shareholders' meetings under Finnish
corporate law or Eimo's articles of association nor are there any provisions
for special meetings of shareholders.
Appraisal Rights
Under Michigan law, shareholders of a corporation involved in a merger have
the right to demand and receive payment of the fair value of their stock in
lieu of receiving the merger
Under Finnish corporate law, when a person, alone or together with one or
more of its affiliates, owns both more than nine-tenths of all the share
capital in a corporation and shares representing more than 90 percent of the
shares and the votes entitled
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Provisions Applicable to Eimo Shareholders
consideration. However, appraisal rights are not available to holders of
shares:
. listed on a national securities exchange; or
. designated as a national market system security on an interdealer quotation
system operated by the National Association of Securities Dealers, Inc.
Additionally, shareholders may not dissent from the consummation of a plan
of merger or plan of share exchange in which shareholders receive cash or
shares that, on the effective date of the merger or share exchange are:
. listed on a national securities exchange; or
. designated as a national market system security on an interdealer quotation
system operated by the National Association of Securities Dealers, Inc.
In addition, appraisal rights are not available to the holders of shares of
the surviving corporation in the merger, if the merger does not require the
approval of the shareholders of that corporation.
to be cast at a meeting of shareholders, that person may require the minority
shareholders to sell their shares to such person in a so-called compulsory
acquisition. On the other hand, any minority shareholder who is a shareholder
in a corporation that has a majority shareholder with sufficient share capital
and voting rights to effect compulsory acquisition, may demand that the
majority shareholder purchase his or her shares. Absent an agreement on the
purchase price, an arbitration tribunal will determine a reasonable price,
which, in the case of a compulsory acquisition following an offer to a
substantial number of persons, in which more than the majority of the
outstanding shares were acquired by such majority owner, or its affiliate,
will, normally, be the same as the price paid in such offer. Also, under
Finnish corporate law, a shareholder after voting against a decision at a
general meeting taken by a corporation merging with another corporation, may,
upon written request, require the corporation to redeem his or her shares at
fair market value. Absent an agreement of the term of redemption in connection
with the merger, an arbitration tribunal will determine a reasonable price for
the shares. Finnish corporate law does not provide for any other kind of
appraisal rights. However, Eimo's articles of association may provide minority
shareholders with some protection. A shareholder, whose proportion of Eimo
shares, or votes entitled by said shares, either alone or jointly with other
shareholders, reaches or exceeds one-third or one-half, is obligated, under
certain conditions and subject to the rules specified in Eimo's articles of
association, to purchase, upon the demand of the other shareholders their
shares and securities entitling the bearer thereto as specified in the Finnish
Companies Act. However, Eimo makes no representation as to the exact legal
effect or force, if any, of this item in its articles of association.
Preemptive Rights
Under Michigan law, a shareholder is not entitled to preemptive rights to
subscribe for additional issuances of stock or any security convertible into
stock unless they are specifically granted in the articles of incorporation or
provided by agreement between the corporation and one or more shareholders.
Triple S's articles of incorporation do not provide for preemptive rights.
Under Finnish corporate law, shareholders of Finnish corporations have
preferential rights to subscribe, on a pro rata basis, for new shares as well
as for new issuances of warrants or debt instruments convertible into shares or
carrying warrants to subscribe for shares, unless the corporate resolution
approving the issuance provides otherwise. Shareholders may waive their
preferential
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Provisions Applicable to Eimo Shareholders
subscription rights in respect of any particular offering, either individually
or collectively, at a general meeting of shareholders. In the case of a
collective waiver of preferential subscription rights, the waiver must be
approved by at least two-thirds of all votes cast and all shares represented at
a general meeting of shareholders.
Amendment of Governing Instruments
Under Michigan law, unless the articles of incorporation require a greater
vote, an amendment to the articles of incorporation requires the affirmative
vote of a majority of the outstanding stock entitled to vote and if any class
or series of share is entitled to vote on the proposed amendment as a class,
the affirmative vote of a majority of the outstanding shares of each such class
or series.
Under Michigan law, shareholders or the board have the power to adopt, amend
or repeal bylaws unless the articles of incorporation or the bylaws provide
that the power to adopt new bylaws is reserved to the shareholders or that the
bylaws or any particular bylaws should not be altered or repealed by the board
of directors.
Triple S's bylaws provide that the bylaws may be amended, repealed or new
bylaws adopted either by a majority vote of the board of directors at a regular
or special meeting of the board of directors, or by vote of the holders of a
majority of Triple S stock voting at an annual or special meeting, so long as
notice of the proposed amendment, repeal or adoption be contained in notice of
such meeting.
Under Triple S's articles of incorporation, approval of the holders of
shares representing at least two-thirds of the voting power of the capital
stock of Triple S entitled to vote is required to amend or repeal any of the
articles of the Triple S articles of incorporation relating to:
. the authority of the Triple S board of directors;
. the number of directors;
. the classification of the Triple S board of directors;
. filling vacancies on the board of directors;
. the removal of members of the board of directors;
. the amendment of Triple S's articles of incorporation itself;
Under Finnish corporate law, approval by two-thirds of votes cast as well as
two-thirds of all shares represented at a general meeting is required to amend
the provisions of a corporation's articles of association.
In addition, according to Eimo's articles of association, at least three-
quarters of votes cast and shares represented at a general meeting of
shareholders is required to amend or remove any provisions of Article 12 of
Eimo's articles of association (Redemption Obligation of Shares).
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. the procedures for the submission of proposals and nominations by the
shareholders; or
. interested party transactions.
However, amendments or repeals with respect to the first seven matters
listed above may be made by a simple majority vote of Triple S shareholders at
any meeting of shareholders where such amendment has been recommended for
approval by two-thirds of all directors holding office.
Under Triple S's articles of incorporation and bylaws, approval of the
holders of shares representing at least 80% of the combined voting power of the
capital stock of Triple S entitled to vote is required to amend or repeal any
of the articles of the Triple S articles of incorporation relating to:
. evaluation by the board of directors of certain offers toward the
corporation.
Under Michigan law, the shareholders or the board of directors may adopt,
amend or repeal the bylaws of a corporation unless the articles of
incorporation or bylaws provide that the power to adopt new bylaws is reserved
exclusively to the shareholders or that the bylaws or any particular bylaw may
not be altered or repealed by the board. The Triple S bylaws provide that
bylaws may be adopted, amended or repealed by a majority vote of the Triple S
board of directors at a regular or special meeting of the Triple S board of
directors or by a vote of the holders of a majority of the stock of Triple S
voting at any annual or special meeting, if the proposed amendment, repeal or
adoption is contained in the notice of such meeting.
Preference Stock
The Triple S articles of incorporation authorize the Triple S board of
directors:
. to provide for the issuance of one or more series of preference stock;
. to issue up to 1,000,000 shares of preferred stock; and
. to fix for each series of stock, its designations, relative voting, dividend,
liquidation and other rights, preferences, and limitations.
Under Finnish corporate law, a corporation may issue series of preference
stock, when provided by the corporation's articles of association. A
corporation's shareholders may vote to authorize the issuance of preference
stock at a general meeting of shareholders. The board of directors may
authorize the issuance of preference stock when authorized to do so at a
general meeting of shareholders. Any such authorization given by the
shareholders at a general meeting to the board of directors may remain in
effect for a fixed period of time not to exceed one year.
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Provisions Applicable to Eimo Shareholders
Eimo's articles of association divide the corporation's shares into Eimo
Series K shares and Eimo Series A shares. Eimo is authorized to issue a maximum
of 25,000,000 Eimo Series K shares. Eimo may issue a minimum of 25,000,000 and
a maximum of 160,000,000 Eimo Series A shares. An Eimo Series K share can be
converted into an Eimo Series A share upon demand by the share owner.
Shareholders' Votes on Certain Transactions
Generally, under Michigan law, unless the articles of incorporation provide
for the vote of a larger portion of the stock, completion of a merger or
consolidation of substantially all of a corporation's assets or dissolution
requires:
. the approval of the board of directors; and
. approvals by the vote of the holders of a majority of the outstanding stock
or, if a class or series is entitled to vote on the plan as a class, the
affirmative vote of the holders of a majority of the outstanding shares of
the class or series.
Triple S's articles of incorporation do not provide for the vote of a larger
portion of the stock for a merger or consolidation.
Generally, under Finnish corporate law, all important decisions require
approval by the vote of holders of at least two-thirds of votes cast and shares
represented at a general meeting. Finnish corporate law requires that before a
merger or a consolidation can be approved by the shareholders, a merger plan
setting forth the terms and conditions for the transaction must be adopted by
the corporation's board of directors. After the adoption of the merger plan by
the board of directors, the merger plan must be submitted to the shareholders
of the target corporation for approval. The merger plan must also be submitted
for approval by the shareholders of the surviving corporation if at least 5% of
the shareholders so request. Approval of the merger plan generally requires
approval by two-thirds of both the votes cast and the shares represented at the
general meeting. If the corporation has more than one class of shares with
different voting rights, approval of the merger plan also requires the vote of
two-thirds of the shares of each such class of shares represented at the
general meeting. A business combination may also be effected by means of an
exchange offer, that is, an offer made in contravention of shareholders
preemptive rights by which shares of a target corporation are exchanged for
shares in an acquiring corporation, which requires approval by two-thirds of
the votes cast and shares represented at the general meeting of the acquiring
corporation. An exchange offer does not require the adoption of any formal
merger plan.
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Rights of Inspection
Michigan law allows any shareholder to inspect the corporation's stock
ledger, a list of its shareholders, its other books and records; and to make
copies or extracts of those materials during normal business hours, provided
that:
. the shareholder makes a written demand describing with reasonable
particularity his or her purpose and the records he or she desires to
inspect, and the records sought are directly related to that purpose; or
. the inspection is for a purpose reasonably related to the person's interest
as a shareholder.
Under Finnish corporate law, shareholders may, during ordinary business
hours, examine the corporation's list of shareholders, to the extent it is
available at the corporation, the corporation's list of shares and the minutes
of the general meetings of shareholders. In addition, shareholders are entitled
to request information from the members of the corporation's board of directors
and the president and chief executive officer in a general meeting of
shareholders regarding issues relating to the corporation's financial
statements and financial condition as well as other issues considered in the
meeting. The board of directors and the president and chief executive officer
have an obligation to provide the requested information unless they determine
that the release of such information would be materially detrimental to the
corporation. If the board of directors determines that releasing the requested
information would be materially detrimental to the corporation, the information
must be provided to one of the corporation's auditors within two weeks of the
general meeting. The auditor must, within one month of the general meeting,
prepare a statement as to the materiality to the corporation of the requested
information, as reflected in the corporation's accounts, and this statement
must be made available to the shareholders at the principal executive offices
of the corporation.
Standard of Conduct for Directors
Michigan law states that a director shall discharge his or her duties as a
director in the following manner:
. in good faith;
. with the care an ordinarily prudent person in a like position would exercise
under similar circumstances; and
. in a manner he or she reasonably believes to be in the best interests of the
corporation.
In discharging his or her duties, a director or officer is entitled to rely
on information, opinions, reports or statements, including financial statements
Under Finnish corporate law, directors and officers must discharge their
duties with that degree of care and skill that an "ordinary prudent person"
would exercise under similar circumstances in like position, and breach of this
standard constitutes negligence. Courts will not second guess the business
judgements of directors and officers if exercised in good faith on the basis of
available information.
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Provisions Applicable to Eimo Shareholders
and other financial data, if prepared or presented by any of the following:
. one or more directors, officers or employees of the corporation, or of a
business organization under joint control or common control, whom the
director or officer reasonably believes to be reliable and competent in the
matters presented;
. legal counsel, public accountants, engineers or other persons as to matters
the director or officer reasonably believes are within the person's
professional or expert competence; and
. a committee of the board of which he or she is not a member if the director
or officer reasonably believes the committee merits confidence.
A director or officer is not entitled to rely on the information set forth
above if he or she has knowledge concerning the matter in question that makes
reliance otherwise permitted by the above section unwarranted.
Classification of the Board of Directors
Michigan law permits the articles of incorporation or a shareholder-adopted
bylaw to provide that directors be divided into one, two or three classes, with
the term of office of one class of directors to expire each year. Triple S's
articles of incorporation provide that the Triple S board of directors will be
divided into three classes of directors with:
. the number of directors divided as evenly as possible among the three
classes; and
. each class elected to serve for a term of three years.
The provision of Triple S's articles of incorporation relating to the
classification of the Triple S board of directors board may only be amended or
repealed with the affirmative vote of the holders of shares representing at
least two-thirds of the issued and outstanding shares of capital stock of
Triple S entitled to vote in the election of directors; provided, however, that
such amendment or repeal may be made by majority vote of such shareholders
Finnish corporate law requires limited corporations with share capital
greater than 80,000 euros to have a board of directors of at least three
members. Furthermore, at least half of the members of the board of directors
must be residents of a European Economic Area country, unless the Finnish
Ministry of Trade and Industry has granted an exception to such requirement.
Eimo's articles of association provide that the Eimo board of directors
shall have a minimum of four and a maximum of eight members. The term of office
of a member of the Eimo board of directors expires at the closing of the first
annual general meeting following the election.
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at any meeting of shareholders duly called and convened where such amendment
has been recommended for approval by two-thirds of all directors then holding
office.
The Triple S board of directors currently consists of eight members, three
of whom are executive officers of Triple S.
The Eimo board of directors currently consists of six members, one of whom
is part of the corporation's executive management.
Removal of Directors
Michigan law provides that a director may be removed with or without cause
by the holders of a majority of voting power of the shares entitled to vote at
an election of directors, except that directors may not be removed in certain
situations in the case of a corporation having cumulative voting.
Under Triple S's articles of incorporation, directors of Triple S may be
removed only for cause by the affirmative vote of holders of two-thirds of
issued and outstanding shares of the corporation's stock entitled to vote
thereon at a meeting duly called and convened for that purpose.
Finnish corporate law provides that, directors may be removed from office
any time, with or without cause, by a majority of votes cast at a general
meeting.
Vacancies on the Board of Directors
Under Michigan law, unless otherwise provided in the articles of
incorporation or the bylaws, vacancies on a board of directors and newly
created directorships resulting from an increase in the number of directors may
be filled by the shareholders or the board of directors. If the directors
remaining in office constitute fewer than a quorum of the board of directors,
the vacancy may be filled by a majority of the directors in office. In the case
of a classified board of directors, directors elected to fill vacancies or
newly created directorships will hold office until the next election of the
class for which the directors have been chosen.
Triple S's articles of incorporation provide that:
. any vacancies on the Triple S board of directors will be filled only by the
affirmative vote of a majority of the remaining directors in office, even if
less than a quorum; and
. newly created directorships will be filled only by the affirmative vote of a
majority of the remaining
Finnish corporate law provides that vacancies on the board of directors may
only be filled by a majority of votes cast at a general meeting except where
articles of association of the corporation prescribe otherwise.
Eimo's articles of association do not contain any special provisions
relating to the removal of directors or filling of vacancies on the Eimo board
of directors.
173
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
directors in office at any meeting duly called and noticed.
Triple S's articles of incorporation also provide that any directors chosen
to fill a vacancy not resulting from an increase in the number of directors
will serve only until the next annual meeting of shareholders. No decrease in
the number of directors shall shorten the term of any incumbent director.
Liability of Directors and Officers
Michigan law permits a corporation's articles of incorporation to include a
provision eliminating or limiting the personal liability of a director to the
corporation and its shareholders for damages arising from a breach of fiduciary
duty as a director. However, no provision can limit the liability of a director
for:
. any breach of his duty of loyalty to the corporation or its shareholders;
. acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;
. intentional or negligent payment of unlawful dividends or stock purchases or
redemptions; or
. any transaction from which he derives an improper personal benefit.
Triple S's articles of incorporation provide that a director of Triple S
will not be personally liable to Triple S or its shareholders for monetary
damages for breach of fiduciary duty as a director.
Under Finnish corporate law, directors may become personally liable to the
corporation for damages caused to shareholders based on negligence or
intentional acts. Personal liability to a third party, including creditors,
employees and contractors of the corporation, requires, in addition to
negligence or an intentional act, a breach of a provision of the Finnish
Companies Act or the corporation's articles of association. Under Finnish law,
directors and officers must discharge their duties with that degree of care and
skill that an "ordinary prudent person" would exercise under similar
circumstances in a like position, and breach of this standard constitutes
negligence.
Courts will not second guess the business judgement of directors and
officers if exercised in good faith on the basis of available information.
174
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
Indemnification of Directors and Officers
Michigan law provides that a corporation may indemnify any officer or
director who is made a party to any third party suit or proceeding on account
of being a director, officer or employee of the corporation against expenses,
including attorney's fees, judgments, penalties, fines and amounts paid in
settlement reasonably incurred by him in connection with the action, through,
among other things, a majority vote of a quorum consisting of directors who
were not parties to the suit or proceeding if the officer or director:
. acted in good faith and in a manner he reasonably believed to be in the best
interests of the corporation; and
. in a criminal proceeding, had no reasonable cause to believe his conduct was
unlawful.
Triple S's articles of incorporation provide that Triple S will indemnify
its current and former directors and officers to the fullest extent permitted
by law
Triple S maintains directors' and officers' insurance.
Finnish corporate law does not address the question of whether a corporation
may, in advance, agree to indemnify its directors and officers for costs and
expenses incurred by them as a result of suits or claims arising out of their
past or future service to the corporation. Market practice in Finland has been
to not include any specific indemnity provisions in the articles of association
of publicly listed corporations, but rather to retroactively discharge the
directors and officers of the corporation from any and all liabilities relating
to their activities on behalf of the corporation by proposing resolutions to
that effect for the consideration of shareholders at the annual general meeting
and through the establishment of insurance plans. Adoption of a resolution in
favor of indemnification by the shareholders prevents the corporation from
bringing a lawsuit against the director or officer based on facts that the
corporation or the shareholders were aware of at the time of the adoption of
the resolution. However, shareholders may bring a suit against the officers or
directors in the name of the corporation based on facts they were not aware of
at the time of the adoption of the resolution. In addition, shareholders may,
despite the adoption of the resolution, bring a suit in the name of the
corporation if a director or officer has caused damage directly to the
shareholders.
Shareholders' Suits
Under Michigan law, a shareholder may initiate a derivative action to
enforce a right of a corporation if the corporation fails to enforce the right
itself. An individual may also commence a class action suit on behalf of
himself and other similarly situated shareholders where the requirements for
maintaining class action under Michigan law have been met. The shareholder must
meet the following criteria:
. state that the plaintiff was a shareholder at the time of the act or omission
of which the plaintiff complains or that the plaintiff's shares thereafter
devolved on the plaintiff by operation of law from one who was a shareholder
at the time of the act or omission; and
Under Finnish corporate law, individual shareholders may initiate derivative
actions to enforce the rights of a corporation only in limited circumstances.
Derivative actions may generally be initiated only upon a vote of shareholders
at a general meeting. After a general meeting has resolved to discharge the
management from liability in respect of the latest fiscal year, shareholders
generally cannot initiate a derivative action against management relating to
that fiscal year. In some situations, when the general meeting does not result
in the initiation of a derivative action against management or the enforcement
of other rights of the corporation, shareholders can initiate a derivative
175
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
. the shareholder fairly and adequately represents the interests of the
corporation in enforcing the rights of the corporation.
Additionally, the plaintiff must remain a shareholder through the duration
of the derivative suit unless the failure to continue to be a shareholder is
the result of corporate action in which the former shareholder did not
acquiesce and the derivative proceeding was commenced prior to the termination
of the former shareholder's status as a shareholder.
action; provided, however, that an action can generally be initiated only by a
group of shareholders holding, in the aggregate, at least 10% of all the issued
shares or at least two-thirds of the shares represented at the general meeting.
Takeover Related Provisions
Under Michigan law, directors generally have a duty to act without self-
interest, on a well-informed basis and in a manner they reasonably believe to
be in the best interests of the shareholders. Nevertheless, a Michigan court
will generally apply a policy of judicial deference to board of director
decisions to adopt anti-takeover measures in the face of a potential takeover
where the directors are able to show that:
. they had reasonable grounds for believing that there was a danger to
corporate policy and effectiveness from an acquisition proposal; and
. the board action taken was reasonable in relation to the threat posed.
Triple S's articles of incorporation permit the Triple S board of directors
to take into account, in determining whether to take any action, the interests
of clients, creditors, employees and other constituencies, including the
communities in which Triple S does business.
Finnish corporate law does not contain any specific restrictions on business
combinations between a Finnish corporation and a significant shareholder or an
interested shareholder nor any specific obligations for directors in connection
with takeovers.
Restrictions on foreign ownership of Finnish corporations were abolished as
of January 1, 1993.
Disclosure of Interests
Triple S is required by the rules of the SEC to disclose in the proxy
statement relating to its annual meeting of shareholders the identity and
number of shares of Triple S common stock beneficially owned by:
. each of its directors;
. its chief executive officer;
According to Eimo's articles of association, a shareholder with a redemption
obligation (a shareholder whose proportion of all corporate shares or votes
entitled by such shares, under certain conditions, reaches or exceeds 33 1/3%
or 50%) must inform the Eimo board of directors thereof in writing to the
corporation's address within seven days after such obligation arises.
176
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
. each of its four most highly compensated executive officers other than its
chief executive officer;
. all of its directors and executive officers as a group; and
. any beneficial owner of 5% or more of the Triple S common stock of whom
Triple S is aware.
Under the Finnish Securities Market Act of 1989 a shareholder is required to
notify a Finnish listed corporation and the Finnish Financial Supervision
Authority when its voting participation in, or its percentage ownership of,
issued share capital of the corporation reaches, exceeds or falls below 5%,
10%, 15%, 20%, 25%, 33 1/3%, 50% or 66 2/3%, calculated in accordance with the
Securities Market Act, or when a shareholder enters into an agreement or other
arrangement having such effect. A Finnish listed corporation receiving such
information must make disclosure to the public and to the Helsinki Stock
Exchange thereof.
Limitation on Enforceability of Civil Liabilities under U.S. Federal Securities
Laws Ability to Bring Suits, Enforce Judgments and Enforce U.S. Laws
Triple S is a U.S. corporation incorporated under the laws of Michigan and
has substantial assets located in the United States. As a result, investors
generally can initiate lawsuits in the United States against Triple S and its
directors and officers and can enforce lawsuits based on U.S. federal
securities laws in U.S. courts.
Eimo is organized under the laws of the Republic of Finland. None of Eimo's
directors and executive officers are residents of the United States, except for
Daniel B. Canavan and Evan C. Harter, who will become directors following the
closing of the merger with Triple S, and the majority of the assets of Eimo
are, before the closing of the merger, located outside the United States.
As a result, U.S. investors may find it difficult in a lawsuit based on
civil liability provisions of U.S. federal securities law:
. to effect service within the United States upon Eimo and the directors and
officers of Eimo located outside the United States;
. to enforce in U.S. courts or outside the United States, judgments obtained
against those persons in U.S. courts;
. to enforce in U.S. courts judgments obtained against those persons in courts
in jurisdictions outside the United States; and
. to enforce against those persons in Finland, without a specific court order
of a relevant Finnish court whether in original actions or in actions for the
enforcement of judgments of U.S. courts, civil liabilities based solely upon
the U.S. federal securities laws.
177
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
Short Swing Profits
Directors and officers of Triple S are subject to rules under the Securities
Exchange Act that may require directors and officers to forfeit to Triple S any
"short swing" profits realized from purchases and sales, as determined under
the Securities Exchange Act and the rules thereunder, of Triple S equity
securities.
Directors and officers of Eimo are not subject to the Securities and
Exchange Act "short swing" profit rules because Eimo is a foreign private
issuer under the Exchange Act which is not subject to these rules.
The Finnish Securities Market Act of 1989 contains provisions with respect
to the trading of listed corporation's securities. Directors and auditors of a
Finnish publicly listed corporation are under an obligation to disclose their
shareholdings and are prohibited from misusing privileged or inside information
to trade in the corporation's securities. No such disclosure regulations apply
to officers and other employees of the corporation, but they also are
prohibited from misusing privileged or inside information to trade in a
corporation's securities.
Proxy Statements and Reports
Notices and Reports to Shareholders
Under the Securities Exchange Act proxy rules, Triple S must comply with
notice and disclosure requirements relating to the solicitation of proxies for
shareholder meetings.
The board of directors may represent a shareholder by proxy when provided in
the corporation's articles of association. Eimo's articles of association do
not contain any such provision. At general meetings, the board of directors is
under an obligation to inform shareholders of the subject matters presented in
the agenda of the meeting, but there are no regulations regarding notices and
reports to shareholders.
As a foreign private issuer, Eimo will not be subject to the proxy rules
under the Securities Exchange Act.
In addition, under the rules of the NASDAQ National Market, Eimo is required
to distribute copies of its annual report to its ADS holders.
178
Provisions Currently Applicable to Triple S Shareholders
Provisions Applicable to Eimo Shareholders
Reporting Requirements
As a U.S. public corporation, Triple S must file with the SEC, among other
reports and notices:
. an annual report on Form 10-K within 90 days after the end of each fiscal
year;
. a quarterly report on Form 10-Q within 45 days after the end of each fiscal
quarter; and
. current reports on Form 8-K upon the occurrence of important corporate events
Under Finnish corporate law, a corporation has to file its annual report
and/or consolidated annual report to the Trade Registry within two months after
adoption of the financial statements and/or the consolidated financial
statements. Additionally, a corporation has to file any amendment to its
articles of association and any change concerning directors of the corporation
with the Trade Registry.
Under the Finnish Securities Market Act of 1989, publicly listed
corporations are obligated to report any information which may influence the
decision making of investors. At a minimum, publicly listed corporations, such
as Eimo, have to provide the following:
. an annual report and/or consolidated annual report including auditors report,
no later than one week prior to the annual general meeting;
. a financial statement bulletin, immediately following the financial
statement, presenting correct and sufficient information on the financial
statement, including among other things:
-- a report on the operations of the corporation;
-- its development and investments as well as the development of any
financing situation;
-- the operational environment; and
-- the operations of the corporation during the current financial period.
. interim reports and/or consolidated interim reports quarterly, no later than
two months after the end of the reporting period.
Additionally, the corporation is under a continuous obligation to report any
material corporate event. Reporting requirements are satisfied by publishing a
stock exchange release with the Helsinki Stock Exchange.
Additionally, Eimo is subject to the rules of the Helsinki Stock Exchange.
As a foreign private issuer with securities quoted on the NASDAQ National
Market and registered under Section 12 of the Securities Exchange Act, Eimo
will be required to publicly file with the SEC Annual Reports on Form 20-F
within six months after the end of each fiscal year and reports on Form 6-K.
179
ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS
Eimo is organized under the laws of the Republic of Finland. All of the
directors of Eimo, except for Daniel B. Canavan and Evan C. Harter following
the merger, and all of its executive officers, as well as some of the experts
named in this document, are not residents of the United States, and a
substantial portion of the assets of Eimo and a substantial number of its
directors and a substantial number of its officers are located outside the
United States As a result, it may not be possible for investors to effect
service of process within the United States upon these persons. Likewise, it
may not be possible to enforce against them in U.S. courts judgments obtained
in U.S. courts based upon civil liability provisions of the federal securities
laws of the United States. Eimo has been advised by Mr. Antti Farkkila from
Asianajotoimisto Farkkila, Haapanen, Lunkka & Rautiala Oy, that there is great
uncertainty as to the enforceability in Finland, at least without a specific
court order from the relevant Finnish court, in original actions or actions for
the enforcement of judgments of U.S. courts, of civil liabilities based solely
upon the federal securities laws of the United States.
WHERE YOU CAN FIND MORE INFORMATION
Triple S files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Following the
merger, Eimo will be required to file annual and special reports, including
annual reports on Form 20-F, which it will first file in 2002 with respect to
fiscal year 2001, and other information with the SEC. You may read and copy any
reports, statements or other information on file with the SEC at the SEC's
public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. SEC filings are also available to the public from commercial
document retrieval services and, for the Triple S filings and the registration
statement of which this document forms a part, at the Internet world wide web
site maintained by the SEC at www.sec.gov.
Eimo has filed a registration statement on Form F-4 to register with the SEC
the Eimo Series A shares underlying the Eimo ADSs that Triple S shareholders
will receive in the merger and a registration statement on Form F-6 in respect
of the Eimo ADSs. This document is a part of the registration statement on Form
F-4 and constitutes a prospectus of Eimo, as well as being a proxy statement of
Triple S for its special shareholders' meeting.
The Eimo Series A shares are listed on the Helsinki Stock Exchange under the
symbol "EIMAV." We expect that after the merger, the Eimo ADSs will be listed
on the NASDAQ National Market under the symbol "EIMO."
You should rely only on the information contained in this document to vote
on the transaction. No one has been authorized to provide you with information
that is different from what is contained in this document. This document is
dated July 13, 2001. You should not assume that the information contained in
this document is accurate as of any date other than that date, and neither the
mailing of this document to Triple S shareholders nor the issuance of Eimo ADSs
in the merger shall create any implication to the contrary.
180
EXPERTS
The consolidated financial statements of Eimo as of December 31, 1999 and
2000 and for each of the three years in the period ended December 31, 2000
included in this document have been so included in reliance on the report of
Grant Thornton Finland, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Triple S as of March 31, 2000 and
2001 included in this document as of and for each of the three fiscal years in
the period ended March 31, 2001 have been audited by BDO Seidman, LLP,
independent public accountants, as indicated in their report with respect to
the financial statements and are included in this document in reliance upon the
authority of said firm as experts in giving said reports.
LEGAL MATTERS
The validity of the Eimo Series A shares, including those underlying the
ADSs, to be issued to Triple S shareholders in connection with the merger, as
well as other legal matters in connection with the merger will be passed upon
for Eimo by Asianajotoimisto Farkkila, Haapanen, Lunkka & Rautiala Oy. Other
specified legal matters in connection with the merger will be passed upon for
Eimo by Smith, Gambrell & Russell, LLP, Atlanta, Georgia. Specified legal
matters relating to federal income tax matters relating to the merger have been
and will be passed upon for Triple S by Schiff Hardin & Waite, Chicago,
Illinois.
INDEPENDENT PUBLIC ACCOUNTANT
Representatives of BDO Seidman, LLP will be present at the Triple S special
meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
FINNISH LISTING PARTICULARS AND CIRCULAR
A principal statute governing the securities market in Finland is the
Finnish Securities Market Act of 1989, as amended. The Finnish Securities
Market Act specifies minimum disclosure requirements for Finnish companies
applying for listing on the Helsinki Exchanges or making a public offering of
securities in Finland. The Finnish Securities Market Act contains regulations
with respect to requirements for publishing listing particulars and circulars
when public offering of securities is to be made.
In connection with the merger, no public offering of Eimo's securities will
be made in Finland. The intended share capital increase will occur as a result
of issuing new Eimo Series A shares solely to holders of Triple S shares and
options, and not to the public in Finland. Consequently, no listing particulars
and/or circular under the Finnish Securities Market Act is required.
181
INDEX TO EIMO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................... F-2
Consolidated Income Statements for the years ended December 31, 1998, 1999,
and 2000 and the three month periods ended March 31, 2000 and 2001........ F-3
Consolidated Balance Sheets as of December 31, 1999 and 2000 and March 31,
2001...................................................................... F-4
Equity Reconciliations as of December 31, 1998, 1999, and 2000 and March
31, 2000 and 2001......................................................... F-5
Consolidated Cash Flow Statements for the years ended December 31, 1998,
1999, and 2000 and the three month periods ended March 31, 2000 and 2001.. F-6
Notes to the Eimo Consolidated Financial Statements........................ F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Eimo Oyj, formerly Eimo-Yhtiot Oy
and Makron Oy:
We have audited the accompanying consolidated balance sheets of Eimo Oyj and
its subsidiaries as of December 31, 2000 and 1999, and the related consolidated
income statements, equity reconciliation and consolidated statements of cash
flows for each of the three years in the period ended December 31, 2000, all
expressed in euros. 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 auditing standards generally
accepted in the United States of America. 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 reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Eimo Oyj and
its subsidiaries as of December 31, 2000 and 1999, and the consolidated results
of their operations, equity reconciliation and cash flows for each of the three
years in the period ended December 31, 2000, in conformity with Finnish
Accounting Standards.
Finnish Accounting Standards vary in certain respects from accounting
principles generally accepted in the United States of America. The application
of the latter would have affected the determination of consolidated net profit
for the years ended December 31, 2000 and 1999, and the determination of
consolidated shareholders' equity at December 31, 2000, 1999 and 1998, to the
extent summarized in Note 17 to the consolidated financial statements.
Grant Thornton Finland
/s/ Grant Thornton Finland
- -------------------------
Helsinki, Finland
June 1, 2001
F-2
EIMO OYJ AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(in thousands except per share data)
Three months ended
Year ended December 31, March 31,
---------------------------------- -----------------------
1998 1999 2000 2000 2000 2001 2001
Note ------- ------- ------- ------- ------ ------- ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(unaudited)
Sales................... 2 59,630 78,011 105,530 93,204 18,958 26,954 23,806
Changes in inventories
of finished goods and
work in process........ 1,163 (98) 3,986 3,520 1,153 (993) (877)
Production for internal
use.................... 259 229
Loss from affiliated
entities............... (27) (24)
Other operating income.. 3 198 728 327 289 87 218 192
Raw materials and
services
Raw materials and
consumables
Purchases during the
financial year...... (21,198) (25,650) (54,504) (48,138) (7,472) (10,384) (9,171)
Change in
inventories......... 2,545 439 3,812 3,367 (583) (557) (492)
External services..... (5,524) (4,479) (6,783) (5,991) (909) (2,250) (1,987)
Personnel expenses...... 4
Wages and salaries.... (10,261) (14,205) (17,583) (15,529) (3,750) (4,877) (4,307)
Social security
expenses
Pension expenses..... (1,464) (1,786) (2,417) (2,135) (610) (707) (624)
Other social security
expenses............ (1,070) (1,388) (1,790) (1,581) (331) (450) (398)
Depreciation and
amortization .......... 5 (3,869) (4,629) (6,319) (5,581) (1,291) (2,021) (1,785)
Other operating
expenses............... (5,006) (7,728) (10,822) (9,558) (2,554) (3,656) (3,229)
------- ------- ------- ------- ------ ------- ------
Operating profit 15,144 19,215 13,669 12,072 2,698 1,277 1,128
Financial income and
expenses............... 6
Interest income....... 28 320 171 151 117 42 37
Interest expenses..... (475) (139) (442) (390) (1) (369) (326)
Other financial
items................ (153) (1,197) 29 26 (2) 41 36
------- ------- ------- ------- ------ ------- ------
Profit before taxes and
extraordinary
expenses............... 14,544 18,199 13,427 11,859 2,812 991 875
Extraordinary items..... 7
Extraordinary income.. -- 528 -- -- -- -- --
Extraordinary
expenses............. (3) -- (857) (757) -- (1,361) (1,202)
------- ------- ------- ------- ------ ------- ------
Profit before taxes 14,541 18,727 12,570 11,102 2,812 (370) (327)
Income tax expenses..... 8
For financial period
and previous years... (3,830) (4,708) (3,183) (2,811) (927) (824) (728)
Change in deferred tax
liability............ (313) (436) (601) (531) 112 782 691
Minority interests.... (7) (6) -- 60 53
------- ------- ------- ------- ------ ------- ------
Net profit for the
period................. 10,398 13,583 8,779 7,754 1,997 (352) (311)
======= ======= ======= ======= ====== ======= ======
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All euro balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-3
EIMO OYJ AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
As of
As of December 31, March 31,
--------------------- ---------------
1999 2000 2000 2001 2001
Note ------ ------- ------ ------- ------
(Euro) (Euro) $ (Euro) $
(unaudited)
Assets
Non-current assets
Intangible assets, net............ 9 381 1,323 1,168 3,428 3,028
Tangible assets, net.............. 9
Land and water................... 347 637 563 636 562
Buildings and structures......... 10,012 16,639 14,696 16,558 14,624
Machinery and equipment.......... 19,679 34,831 30,763 35,229 31,114
Other tangible assets............ 752 895 790 851 751
Advance payments and construction
in progress..................... 3,478 2,386 2,107 3,606 3,185
Investments
Holdings in affiliates........... -- 2,086 1,842 2,252 1,989
Other assets..................... 9 62 72 64 105 93
------ ------- ------ ------- ------
34,711 58,869 51,993 62,665 55,346
------ ------- ------ ------- ------
Current assets
Inventories
Materials and supplies........... 5,016 9,314 8,226 9,166 8,096
Work in process.................. 1,197 2,219 1,960 2,371 2,094
Finished products/goods.......... 1,309 3,789 3,346 2,643 2,334
Advance payments................. 330 1,100 972 1,032 911
Short-term receivables
Trade receivables................ 10,670 20,057 17,714 21,744 19,205
Loan receivables................. 4 252 223 1,298 1,146
Other receivables................ 40 2,382 2,104 2,024 1,788
Prepaid expenses and other current
assets........................... 1,151 2,418 2,136 1,753 1,548
Cash and cash equivalents......... 16,718 1,665 1,472 4,437 3,919
Deferred tax assets............... -- -- -- 931 822
------ ------- ------ ------- ------
36,435 43,196 38,153 47,399 41,863
------ ------- ------ ------- ------
Total assets...................... 71,146 102,065 90,146 110,064 97,209
====== ======= ====== ======= ======
SHAREHOLDERS' EQUITY AND
LIABILITIES
Shareholders' equity.............. 11
Share capital..................... 11,600 11,600 10,245 11,600 10,245
Share premium reserve............. 18,124 18,124 16,007 18,124 16,007
Retained earnings................. 12,955 14,566 12,865 23,627 20,867
Net profit for the period......... 13,583 8,779 7,754 (352) (311)
------ ------- ------ ------- ------
56,262 53,069 46,871 52,999 46,808
------ ------- ------ ------- ------
Minority interests................ -- 1,664 1,470 1,693 1,495
------ ------- ------ ------- ------
Liabilities
Deferred tax liability............ 12 2,312 2,980 2,632 3,129 2,764
Non-current liabilities........... 13
Loans from financial
institutions.................... 157 16,107 14,226 26,654 23,541
Current liabilities
Loans from financial
institutions.................... 118 3,982 3,517 4,385 3,873
Other interest bearing
liabilities..................... -- 77 68 2,779 2,454
Advances received................ 629 2,563 2,264 3,761 3,322
Accounts payable................. 5,213 17,330 15,306 9,538 8,424
Other non-interest bearing
liabilities..................... 1,046 719 635 409 361
Accruals and deferred income..... 14 5,409 3,574 3,157 4,717 4,166
------ ------- ------ ------- ------
14,884 47,332 41,805 55,372 48,906
------ ------- ------ ------- ------
Total shareholders' equity and
liabilities...................... 71,146 102,065 90,146 110,064 97,209
====== ======= ====== ======= ======
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All euro balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-4
EIMO OYJ AND SUBSIDIARIES
EQUITY RECONCILIATIONS
(in thousands)
December 31, March 31,
-------------------------------- ---------------------
1998 1999 2000 2000 2000 2001 2001
------ ------ ------- ------- ------ ------ ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(unaudited)
Share capital at
beginning of period.... 1,514 1,682 11,600 10,245 11,600 11,600 10,245
Share issue............. 168 269 -- -- -- -- --
Bonus issue (transfer
from share premium
reserve)............... -- 9,649 -- -- -- -- --
------ ------ ------- ------- ------ ------ ------
Share capital at end of
period................. 1,682 11,600 11,600 10,245 11,600 11,600 10,245
------ ------ ------- ------- ------ ------ ------
Share premium reserve at
beginning of period.... -- 5,718 18,124 16,007 18,124 18,124 16,007
Share premium........... 5,718 22,055 -- -- -- -- --
Bonus issue (transfer to
share capital)......... -- (9,649) -- -- -- -- --
------ ------ ------- ------- ------ ------ ------
Share premium reserve at
end of period.......... 5,718 18,124 18,124 16,007 18,124 18,124 16,007
------ ------ ------- ------- ------ ------ ------
Revaluation reserve at
beginning of period.... 965 -- -- -- -- -- --
To reverse revaluation
made to buildings...... (965) -- -- -- -- -- --
------ ------ ------- ------- ------ ------ ------
Revaluation reserve at
end of period.......... -- -- -- -- -- -- --
------ ------ ------- ------- ------ ------ ------
Retained earnings at
beginning of period.... 7,015 14,553 26,538 23,439 26,538 23,345 20,619
To reverse revaluation
made to buildings...... (2,860) -- -- -- -- -- --
Translation difference
and other comprehensive
income................. -- -- (372) (329) 27 282 248
Dividend payment........ -- (1,598) (11,600) (10,245) -- -- --
Net profit for the
period................. 10,398 13,583 8,779 7,754 1,997 (352) (311)
------ ------ ------- ------- ------ ------ ------
Retained earnings at end
of period.............. 14,553 26,538 23,345 20,619 28,562 23,275 20,556
------ ------ ------- ------- ------ ------ ------
Total shareholders'
equity................. 21,953 56,262 53,069 46,871 58,286 52,999 46,808
====== ====== ======= ======= ====== ====== ======
Distributable funds
Retained earnings at
December 31............ 14,553 26,538 23,345 20,619
Untaxed reserves
included in retained
earnings............... (4,593) (5,660) (7,295) (6,444)
------ ------ ------- -------
Distributable funds at
December 31............ 9,960 20,878 16,050 14,175
====== ====== ======= =======
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All euro balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-5
EIMO OYJ AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(in thousands)
Three months ended
Year ended December 31, March 31,
---------------------------------- -----------------------
1998 1999 2000 2000 2000 2001 2001
------- ------- ------- ------- ------ ------- ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(unaudited)
Cash flow from operating
activities
Operating profit........ 15,144 19,215 13,669 12,072 2,698 1,277 1,128
Adjustments............. 3,914 4,625 6,318 5,580 1,291 2,064 1,823
Change in net working
capital................ (7,155) (2,088) (7,436) (6,567) (2,260) (4,759) (4,203)
------- ------- ------- ------- ------ ------- ------
Cash flow generated by
operations............. 11,903 21,752 12,551 11,085 1,729 (1,418) (1,252)
Interest received....... 28 320 171 151 116 41 36
Interest and other
financial costs paid... (628) (1,336) (413) (364) (3) (379) (335)
Income taxes paid....... (2,929) (2,351) (4,969) (4,389) (692) (1,246) (1,100)
------- ------- ------- ------- ------ ------- ------
Net cash provided by
operating activities... 8,374 18,385 7,340 6,483 1,150 (3,002) (2,651)
------- ------- ------- ------- ------ ------- ------
Cash flow from investing
activities
Acquisition of
subsidiary shares, net
of cash................ (1,821) -- (4,550) (4,019) (5,648) (1,257) (1,110)
Capital expenditures.... (14,136) (15,281) (24,235) (21,404) -- (2,735) (2,416)
Proceeds from sales of
fixed assets........... 385 99 1 1 -- -- --
------- ------- ------- ------- ------ ------- ------
Net cash used in
investing activities... (15,572) (15,182) (28,784) (25,422) (5,648) (3,992) (3,526)
------- ------- ------- ------- ------ ------- ------
Cash flow from financing
activities
Proceeds from (payments
of) long-term
liabilities, net....... 2,063 (10,132) 13,634 12,042 59 10,411 9,194
Proceeds from (payments
of) short-term
borrowings, net........ 157 (1,553) 3,826 3,380 (10) 416 367
Dividends paid.......... -- (1,598) (11,600) (10,245) -- -- --
Proceeds from issuance
of share capital....... 5,886 22,324 1,388 1,226 -- -- --
Merger costs............ -- -- (857) (757) -- (1,061) (937)
------- ------- ------- ------- ------ ------- ------
Net cash used in
(provided by) financing
activities............. 8,106 9,041 6,391 5,646 49 9,766 8,624
------- ------- ------- ------- ------ ------- ------
Net increase in cash and
cash equivalents....... 908 12,244 (15,053) (13,293) (4,449) 2,772 2,447
Cash and cash
equivalents at
beginning of period.... 3,566 4,474 16,718 14,765 16,718 1,665 1,472
------- ------- ------- ------- ------ ------- ------
Cash and cash
equivalents at end of
period................. 4,474 16,718 1,665 1,472 12,269 4,437 3,919
======= ======= ======= ======= ====== ======= ======
Supplemental cash flow
information
Adjustments include:
Depreciation and
amortization........... 3,869 4,629 6,319 5,581 1,291 2,021 1,785
Profits and losses on
sale of fixed assets... 45 (4) (1) (1) -- 43 38
------- ------- ------- ------- ------ ------- ------
Other Adjustments....... 3,914 4,625 6,318 5,580 1,291 2,064 1,823
======= ======= ======= ======= ====== ======= ======
Change in working
capital consists of:
Change in inventories... (3,703) (671) (8,567) (7,566) (570) 1,536 1,357
Change in interest-free
receivables............ (5,694) (1,270) (11,224) (9,913) (732) (2,948) (2,604)
Change in prepaid
expenses and other
current assets......... (1,035) (111) (1,237) (1,092) (1,024) 2,175 1,921
Change in interest-free
liabilities............ 3,277 (36) 13,592 12,004 66 (5,522) (4,877)
------- ------- ------- ------- ------ ------- ------
(7,155) (2,088) (7,436) (6,567) (2,260) (4,759) (4,203)
======= ======= ======= ======= ====== ======= ======
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
All euro balances have been restated from Finnish markka into euros using the
conversion rate as of January 1, 1999.
F-6
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Summary of significant accounting policies
Business
Eimo Oyj, a Finnish company, together with its subsidiaries (collectively
referred to as "Eimo"), manufactures injection molded precision plastic
components for its customers, primarily the mobile communications industry
located primarily in Europe. Headquartered in Lahti, Finland, Eimo employs
approximately 900 people and has production facilities at a total of five sites
in Finland, as well as one each in the Netherlands, Hungary and the Peoples
Republic of China.
Sales to the mobile communications industry accounted for 85%, 91% and 92%
of total sales during the years ended December 31, 1998, 1999 and 2000,
respectively, and 91% and 92% during the three month periods ended March 31,
2000 and 2001, respectively. Sales to one customer accounted for 59%, 73% and
68% of total sales during the years ended December 31, 1998, 1999 and 2000,
respectively, and 67% and 65% during the three month periods ended March 31,
2000 and March 31, 2001, respectively. Eimo's results of operations would
likely be materially adversely affected by the loss of this major customer.
History and Restructuring
Eimo's business has changed significantly over the years.
Eimo commenced its business operations in 1957 when Mr. Unto Eilamo began to
make buttons under the business name of Eimo-Muovi Ky, a private company
organized that same year under the laws of Finland. The current legal entity,
Eimo Oyj was organized on March 12, 1965 under the name Insinooritoimisto
Teraspeikko, Norvasto ja Paananen. It changed its name to Makron Oy in 1978 in
order to conduct business operations unrelated to Eimo's current operations. By
1985, Makron Oy was engaged in the engineering/machine manufacturing business
and it was controlled by the Paananen family. In 1985, Makron Oy acquired a
controlling interest in Eimo-Muovi Ky, whose name was changed to Eimo-Muovi Oy
to denote its limited liability status and later changed its name to Eimo Oy in
1997.
The engineering works operations of the Makron group and all non-plastics
related subsidiaries were sold on January 2, 1998 but remained under the
control of the Paananen family. As a result of such divestitures, Makron Oy
became a holding company for Eimo Oy and two other wholly owned subsidiaries
also engaged in the plastics business, Eimo-Tekniikka Oy and Tasoplast Oy.
Makron Oy then changed its name to Eimo-Yhtiot Oy and had Eimo Oy, Eimo-
Tekniikka Oy and Tasoplast Oy as its operating subsidiaries.
During 1998, three private equity funds as well as some of Eimo's key
personnel became shareholders of Eimo-Yhtiot Oy, collectively acquiring a total
of 10.75% of Eimo's share capital.
On December 31, 1998, Eimo Oy, Eimo-Teknikka Oy and Tasoplast Oy merged into
Eimo-Yhtiot Oy to form the current company, which changed its name to Eimo Oy.
In February 1999, the name of Eimo Oy was changed to Eimo Oyj in contemplation
of the listing of the company on the Helsinki Stock Exchange in connection with
its initial public offering. Oyj is the abbreviation for public limited
companies in Finland.
The assets and liabilities of the combined entities were recorded at their
carrying values. Costs relating to the 1998 restructurings were not material
and were expensed as incurred.
The private equity funds remained owners through the merger of the plastics
subsidiaries into Eimo-Yhtiot Oy on December 31, 1998. The private equity funds
sold part of their shareholding at the initial public offering in March 1999
and the remainder later in 1999 and the first quarter 2000. Since March 2000,
they have not owned any shares of Eimo Oyj.
F-7
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Basis of Presentation
The consolidated financial statements of Eimo are prepared in accordance
with and comply with Finnish Accounting Standards. The financial statements
are prepared under the historical cost convention.
Eimo has previously prepared and reported its consolidated financial
statements in Finnish Markka ("FIM"). With the introduction of the euro ("EUR"
or "(Euro)") on January 1, 1999, Eimo has elected to present the accompanying
consolidated financial statements in euros. Accordingly, the consolidated
financial statements for each period presented have been restated into euros
using the Finnish markka/euro irrevocable conversion rate at January 1, 1999,
of (Euro)1.00=FIM 5.94573. Eimo's 1998 euro financial statements depict the
same trends as would have been presented if it had continued to present its
consolidated financial statements in Finnish Markka. The financial statements
for these periods will not be comparable to the financial statements of other
companies that report in euros and that restated amounts from financial
statements from a different currency than the Finnish Markka.
Acquisitions
Makron Oy acquired Eimo Oy in several steps between December 1985 and June
1997. The business combination was accounted for as a purchase and resulted in
goodwill of (Euro)1,763,000. Goodwill was amortized using the straight-line
method over a useful life of ten years. However, the carrying value of
goodwill as of December 31, 1998 was written off and charged against retained
earnings, as allowed under FAS.
Makron Oy acquired Tasoplast Oy in December 1989. The business combination
was accounted for as a purchase and resulted in goodwill of (Euro)875,000.
Goodwill was amortized using the straight-line method over a useful life of
ten years. However, the carrying value of goodwill as of December 31, 1997 was
written off in connection with the restructuring of Eimo in 1998.
In September 1998, Eimo acquired a real estate company Kiinteisto Oy
Hollolanpuhti. The business combination was accounted for as a purchase and
resulted in negative goodwill of (Euro)528,000. This real estate company was
merged with Eimo during 1999 and the negative goodwill was recorded as
extraordinary income in 1999.
On September 30, 2000, Eimo completed its acquistion of the total share
capital of Ensto Plastic Kft from Ensto Saloplast Oy for approximately
(Euro)2.8 million in cash. The company is located in Pecs, Hungary and it owns
an injection molding factory of approximately 5500 square meters in size which
employs approximately 50 persons in its operations. The production machinery
was modified to fit Eimo's production needs and the production of mobile
communications parts has commenced. The business combination was accounted for
as a purchase business combination, and the excess of the purchase price over
the fair market value of the net assets resulted in goodwill of approximately
(Euro)774,000. Goodwill is amortized on a straight-line basis over an
estimated useful life of ten years. The results of operations of this
acquisition are included in the consolidated results of operation of Eimo from
the date of such acquisition.
In November 2000, Eimo also took a series of actions to expand into the
Chinese and other Asian markets.
First, in November 2000, Eimo acquired a 35% ownership interest in CIM
Technology Ltd., a British Virgin Islands company doing business in the
People's Republic of China. In connection with such acquisition, Eimo made a
HKD 15 million ((Euro)2.3 million) cash investment in CIM Technology Ltd. CIM
Technology Ltd. is a joint venture by Eimo with the former majority
shareholders of CIM Precision Molds (HK) Limited, a premier mold manufacturer
whose operations are located in Hong Kong. CIM Technology Ltd. will establish
a mold manufacturing subsidiary in Guangdong Province, People's Republic of
China. In exchange for their
F-8
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
collective ownership interest of 65% in CIM Technology, Ltd., Mr. Lai and Mr.
Woo contributed to CIM Technology, Ltd. all of the capital stock of CIM
Precision Molds (HK) Ltd. owned by them which represented 56.9% of the issued
and outstanding capital stock of such company. Eimo accounted for this
investment under the equity method of accounting. Eimo recorded the investment
at cost, which exceeded the proportionate share of the net book value of CIM
Technology Ltd., which resulted in approximately (Euro)1.0 million of goodwill
which will be amortized over 5 years and will offset any future undistributed
earnings from affiliated entities. No dividends were received during fiscal
2000 and the three months ended March 31, 2001.
Second, in November 2000, Eimo announced the further expansion of its
operations in the People's Republic of China through Eimo (HK) Ltd., a
controlled and 70% owned joint venture company which will later acquire Century
Step Company, Ltd. and its wholly owned manufacturing subsidiary, Century Step
Plastic (Shenzhen) Company, Ltd. (collectively referred to as "Century Step").
Such acquisition was completed January 1, 2001. Eimo (HK) Ltd. is 70% directly
owned by Eimo and Eimo has an additional 10.5% indirect interest in Eimo (HK)
Ltd. by virtue of the ownership interests of its minority partner, CIM
Technology, Ltd., in Eimo (HK) Ltd.
The acquisition of Century Step provided Eimo with immediate entry into the
Chinese and Asian markets. Century Step had consolidated sales of approximately
HKD 19 million ((Euro)2.7 million) in 2000 and HKD 17 million ((Euro)2.4
million) in 1999. Century Step employs approximately 180 people, of which 170
are located in the People's Republic of China. Century Step conducts its
manufacturing operations in a 4,000 square meters leased facility located in
Shenzhen, Guangdong Province, People's Republic of China. Although Century Step
has traditionally served the consumer goods sector, it has recently been
developing more advanced manufacturing capabilities in order to begin
manufacturing precision engineered plastic parts. Of the total purchase price
of HKD 18.5 million ((Euro)2.6 million), an amount equal to HKD 8.5 million
((Euro)1.2 million) has been paid in cash to the sellers, while the HKD 10
million ((Euro)1.4 million) balance will be utilized to fund a five year loan
to Eimo (HK) Ltd. In addition, Century Step is expected to require
approximately 1 million of additional capital investment during 2001 to upgrade
and expand its manufacturing capabilities.
Eimo accounted for the transaction as a purchase business combination and
consolidated the assets and liabilities and the results of operations of
Century Step from the date of acquisition. Eimo allocated the purchase price
based on the fair value of the assets acquired and liabilities assumed. The
fair market value of the net assets acquired at January 1, 2001 was
approximately HKD 3.5 million ((Euro)0.5 million). The excess of the cost over
the fair market value of the net assets acquired was approximately HKD 15
million ((Euro)2.1 million), which is being amortized over 5 years using a
straight line method.
Principles of Consolidation
The consolidated financial statements include the accounts of Eimo and its
wholly-owned and majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated. The equity method of accounting
is used for companies and other investments in which Eimo had investments in
which Eimo had significant influence. Generally significant influence is
represented by an ownership interest of at least 20% and not more than 50%.
Unaudited Interim Financial Information
The financial statements as of March 31, 2001 and for each of the three
month periods ended March 31, 2000 and 2001 are unaudited; however, in the
opinion of management, all normal recurring adjustments necessary for a fair
presentation of the financial statements for the interim periods have been
included. Results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for the full fiscal
year or any future periods.
F-9
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Functional Currency
The functional currency of Eimo is the euro.
Transactions in foreign currencies are recorded at the rate of exchange
prevailing at the date of the transaction. Foreign currency receivables and
payables are translated at the exchange rate applicable on the transaction
date. At the end of the month, foreign currency denominated receivables and
liabilities are translated using the month-end exchange rate. The unrealized
foreign currency gains and losses due to the exchange rate fluctuations are
recognized in the income statement.
At December 31, 1999, Eimo did not have any translation differences. This
was due to the fact that Eimo's Netherlands subsidiary also used the euro as
its functional currency. At December 31, 2000, Eimo had translation differences
amounting to (Euro)373,000. These differences related to Eimo HK and CIM
Technology Ltd. Under FAS, translation differences are recorded as a separate
item under retained earnings.
Forward Exchange Contracts
In fiscal 2000, Eimo entered into a forward exchange contract to hedge the
risk associated with certain purchase commitments denominated in Japanese yen
and U.S. dollars. Eimo does not engage in currency speculation. Gains or losses
from such contracts are included in determining net income in accordance with
the requirements for other foreign currency transactions.
As of March 31, 2001, Eimo had entered into two forward currency exchange
contracts relating to U.S. Dollars in an amount of $6,000,000. These contracts
hedged a corresponding U.S. Dollar loan of $6,000,000. Under FAS, any income
from these derivative transactions is offset against any corresponding currency
loss.
Convenience Translation
The euro amounts have been converted into U.S. dollars solely for the
convenience of reader at the March 31, 2001 closing exchange rate of 0.8832
U.S. dollars to one euro.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, cash held in banks and
other highly liquid debt instruments purchased with a maturity of three months
or less. In addition, a low-risk mutual fund amounting to (Euro)3,585,000 was
classified as cash and cash equivalents as of December 31, 1999. A low risk
mutual fund amounting to (Euro)3,535,000 was classified as cash and cash
equivalents as of March 31, 2000. The mutual fund primarily invests in
government and agency, municipal and corporate bonds. This fund is adjusted to
market value at the end of each accounting period. Unrealized market gains are
included in earnings and were not deemed material at December 31, 1999.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the weighted average method, which approximates the first-in, first-out (FIFO)
method. The cost of finished goods and work in progress is comprised of raw
materials, direct labor and other direct costs but excludes overhead, variable
costing.
F-10
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property, Plant and Equipment
Property, plant and equipment are generally stated at cost less accumulated
depreciation. However, certain unconditional government grants to the
acquisition of the fixed assets have been deducted from the purchase price of
the assets.
Expenditures for renewals and improvements are capitalized. Repairs and
maintenance expenditures are expensed as incurred.
Depreciation and amortization is computed by the straight-line method over
the estimated useful lives of the assets as follows:
Years
--------
Intangible assets................................................... 0-5
Buildings........................................................... 25 or 40
Building improvements............................................... 10
Machinery and equipment............................................. 3-10
Other tangible assets............................................... 2-10
Eimo is reimbursed for certain capital expenditures by two major customers.
The reimbursed amounts for years ended December 2000, 1999, and 1998 were
(Euro)13,771,000, (Euro)5,522,000 and (Euro)4,575,000, respectively. The
reimbursed amounts for the three month periods ended March 31, 2000 and 2001
were (Euro)1,048,000 and (Euro)4,646,000, respectively.
Revaluations
According to previous accounting legislation it was possible to revaluate
buildings, land and marketable securities if the fair value of these assets
significantly exceeded their book value. These revaluations were voluntary and
they could be reversed at any time.
If a revaluation was made, it was included in the asset subject to
revaluation. The same amount had to be recorded as a revaluation reserve. This
revaluation reserve was not distributable, as described in Note 11 of the
Consolidated Financial Statements. The revaluation reserve was also allowed to
be reclassified to share capital.
Prior to 1998, Eimo had revalued certain land and buildings resulting in a
reserve of approximately (Euro)1 million. However, all these revaluations were
reversed during the year ended December 31, 1998, as permitted under Finnish
Accounting Standards.
Government Grants
Eimo has received government grants relating to acquisition of fixed assets,
employment, research and development, marketing and product development.
Grants relating to the acquisition of fixed assets have been deducted from
the purchase price of the assets. Accumulated grants as of December 1998, 1999
and 2000 amounted to (Euro)1,538,000, (Euro)2,213,000 and (Euro)2,316,000,
respectively. The accumulated grants as of March 31, 2000 and 2001 were
(Euro)2,213,000 and (Euro)2,316,000, respectively.
Other grants include employment and research and development grants received
from the Finnish government. These grants have been recognized as income and
recorded as other operating income when all conditions are fulfilled (see Note
3). In fiscal 1998, the other government grants have been netted against
F-11
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the corresponding expenses. Other grants received for years ended December
1998, 1999 and 2000 were (Euro)67,000, (Euro)391,000 and (Euro)261,000,
respectively. Other grants received for the three month periods ended March 31,
2000 and 2001 were (Euro)332,000 and (Euro)87,000, respectively.
Intangible Assets
Intangible assets primarily consists of capitalized computer software
expenses and capitalized connection fees paid to electricity companies. The
depreciation and amortization period for intangible assets vary from 0 to 5
years.
Other Tangible Assets
Other tangible assets primarily consists of leasehold improvements and
certain customer-specified equipment. The depreciation and amortization periods
for other tangible assets vary from 2 to 10 years.
Long-Lived Assets
Eimo evaluates long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when estimated undiscounted
future cash flows expected to result from the use of the asset and its eventual
disposition is less than its carrying amount.
Income Taxes
The income tax expense is calculated on a consolidated basis based on
taxable profit for the period together with tax adjustments for previous years
and the change in deferred income taxes.
Eimo follows the liability method of accounting for deferred taxes and
provides deferred taxes based on enacted income tax rates in effect on the
dates temporary differences between financial reporting and tax bases of assets
and liabilities are expected to reverse. The applied tax rate in Finland for
Eimo Oyj was 28%, 28% and 29% for the years ended December 31, 1998, 1999 and
2000, respectively.
Due to the fact that the corporate taxation rules and regulations are
consistent with Finnish Accounting Standards, the only significant temporary
difference relates to accelerated tax depreciation. Under the Finnish Companies
Act, the temporary differences for untaxed reserves are excluded from
distributable funds.
As of March 31, 2001, Eimo recorded a deferred tax asset of (Euro)931,000
from losses to carry forwards in Finland and Hungary and certain consolidated
entities. The applied tax rate in Hungary is 18%.
As of March 31, 2000, Eimo recorded a deferred asset of (Euro)139,000 from
losses to carry forwards in Netherlands. The applied tax rate in the
Netherlands is 35%.
Stock Splits
Eimo Oyj's Series A shares were split one hundred-for-one on February 22,
1999 and four-for-one on April 12, 2000, effected as stock dividends. All stock
option data and earnings and dividend per share amounts in the consolidated
financial statements have been restated to give effect to the stock splits.
Revenue Recognition
Revenue is recognized on plastic molded products when the products are
shipped to customers. Revenue on molds is recognized when the mold is completed
and samples of molded parts produced are shipped to customers. Customer
acceptance is required prior to the recognition of revenue on molds. Prior to
that time, mold revenue and direct mold costs are deferred. Losses are
recognized when they become probable and reasonable estimates of the amount of
loss can be made.
F-12
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs for the years ended December 31, 1998, 1999 and 2000 were
(Euro)572,000, (Euro)1,204,000 and (Euro)2,400,000 respectively, and
development costs for each of the three month periods ended March 31, 2000 and
2001 were (Euro)600,000 and (Euro)440,000 respectively.
Reclassifications
Amounts reported in the prior year financial statements have been
reclassified to conform with the current years' presentation.
Note 2--Sales by destination
Year ended December 31,
----------------------------
1998 1999 2000 2000
------ ------ ------- ------
(Euro) (Euro) (Euro) $
(in thousands)
Finland........................................ 31,604 49,147 41,531 36,680
Other European countries....................... 24,448 25,744 61,090 53,955
Other countries................................ 3,578 3,120 2,909 2,569
------ ------ ------- ------
Total........................................ 59,630 78,011 105,530 93,204
====== ====== ======= ======
Note 3--Other operating income
Year ended December 31,
-------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Government/EU grants............................... -- 391 261 230
Rental income...................................... 181 206 63 56
Pension refund..................................... -- 90 -- --
Other income....................................... 17 41 3 3
--- --- --- ---
Total............................................ 198 728 327 289
=== === === ===
Note 4--Personnel information
Remuneration of members of the Eimo board of directors
Year ended December 31,
-------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Remuneration...................................... 7 10 16 14
Average number of the personnel by category
Year ended
December 31,
--------------
1998 2000
------ ------
Workers....................................................... 384 624
Salaried staff................................................ 73 144
------ ------
Total....................................................... 457 768
====== ======
F-13
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Depreciation and amortization according to plan
Year ended December 31,
--------------------------
1998 1999 2000 2000
------ ------ ------ -----
(Euro) (Euro) (Euro) $
(in thousands)
Intangible assets................................. 27 41 86 76
Consolidated goodwill............................. -- -- 74 65
Buildings......................................... 265 402 656 579
Machines and equipment............................ 3,106 3,758 5,228 4,618
Other tangible assets............................. 471 428 275 243
----- ----- ----- -----
Total........................................... 3,869 4,629 6,319 5,581
===== ===== ===== =====
Note 6--Financial income and expenses
Year ended December 31,
--------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Income from short-term investments............... 28 320 171 151
Interest of current debts........................ (1) (1) -- --
Interest of non-current debts.................... (474) (138) (442) (390)
Costs to raise capital in a share issue.......... -- (1,162) -- --
Other financial costs............................ (153) (35) 29 26
---- ------ ---- ----
Total.......................................... (600) (1,016) (242) (213)
==== ====== ==== ====
Note 7--Extraordinary income and expenses
Extraordinary income
Year ended December 31,
-------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Merger gain........................................ -- 528 -- --
Extraordinary expense
Year ended December 31,
-------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Merger expenses................................... -- -- (840) (742)
Other items....................................... (3) -- (17) (15)
--- --- ----
Total........................................... (3) -- (857) (757)
=== === ==== ====
F-14
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8--Income taxes
Year ended December 31,
------------------------------
1998 1999 2000 2000
------ ------ ------ ------
(Euro) (Euro) (Euro) $
(in thousands)
Tax on extraordinary items................... -- -- 249 220
Tax on operating items....................... (3,830) (4,708) (3,432) (3,031)
Change in deferred taxes..................... (313) (436) (601) (531)
------ ------ ------ ------
Total...................................... (4,143) (5,144) (3,784) (3,342)
====== ====== ====== ======
Note 9--Non-current assets
Intangible assets
Year ended December 31, 2000
------------------------------
Other
Consolidated Intangible
Goodwill Assets Total
------------ ---------- ------
(Euro) (Euro) (Euro)
(in thousands)
Acquisition cost at January 1................ -- 701 701
Additions.................................... 809 351 1,160
Disposals.................................... -- -- --
Acquisition cost at December 31.............. 809 1,052 1,861
--- ----- -----
Accumulated amortization at January 1........ -- 378 378
Depreciation................................. 74 86 160
---
Accumulated amortization at December 31...... 74 464 538
--- ----- -----
Net book value at December 31, 1999.......... 735 588 1,323
--- ----- -----
Net book value at December 31, 1998.......... -- 323 323
=== ===== =====
Tangible assets
Year ended December 31, 2000
--------------------------------------------------------
Land Buildings Machinery Other
and and and tangible Construction
water structures equipment assets in progress Total
------ ---------- --------- -------- ------------ ------
(Euro) (Euro) (Euro) (Euro) (Euro) (Euro)
(in thousands)
Acquisition cost at
January 1.............. 347 12,028 33,725 1,635 3,478 51,213
Additions............... 290 7,458 20,722 437 -- 28,907
Disposals............... -- -- 1,092 1,092
--- ------ ------ ----- ----- ------
Acquisition cost at
December 31............ 637 19,486 54,447 2,072 2,386 79,028
--- ------ ------ ----- ----- ------
Accumulated amortization
at January 1........... -- 2,191 14,389 901 17,481
Depreciation............ -- 656 5,227 276 6,159
--- ------ ------ ----- ----- ------
Accumulated amortization
at December 31......... -- 2,847 19,616 1,177 23,640
--- ------ ------ ----- ----- ------
Net book value at
December 31, 2000...... 637 16,639 34,831 895 2,386 55,388
=== ====== ====== ===== ===== ======
Net book value at
December 31, 1999...... 347 10,012 19,679 752 3,478 34,268
--- ------ ------ ----- ----- ------
Book value of production
machinery and equipment
on December 31, 2000... 32,673
======
F-15
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments
Year ended
December 31, 2000
------------------------
Holdings
In Other
Affiliates Assets Total
---------- ------ ------
(Euro) (Euro) (Euro)
(in thousands)
Acquisition cost at January 1...................... 62 62
Additions.......................................... 2,253 10 2,263
Disposals.......................................... -- -- --
Translation Difference............................. (140) -- (140)
Share of profit from minority interest............. (10) -- (10)
----- --- -----
Acquisition cost at December 31, .................. 2,103 72 2,175
Accumulated amortization at January 1.............. -- -- --
Amortization....................................... 17 -- 17
----- --- -----
Accumulated amortization at December 31............ 17 -- 17
Net book value at December 31, 2000................ 2,086 72 2,158
----- --- -----
Net book value at December 31, 1999................ -- 62 62
----- --- -----
Note 10--Consolidated Subsidiaries
The following represents Eimo's subsidiaries and percentage of ownership of
Eimo therein.
As of
December 31,
--------------
1999 2000
------ ------
% %
Eimo B.V...................................................... 100 100
Eimo Kft...................................................... 100 100
Eimo (HK) Ltd................................................. -- 70
In February 1999, Eimo established Eimo B.V., a plastic injection molding
company that is located in Helmond, the Netherlands. In September 2000, Eimo
acquired a plastic injection molding company that is located in Pees, Hungary.
In November 2000, Eimo established Eimo (HK) Ltd, a 70% owned joint venture
company located in Hong Kong.
Note 11--Shareholders' equity
Under Finnish law, shareholders' equity is divided into restricted and
unrestricted equity. Restricted equity consists of undistributable shareholder
funds such as the share capital. Other shareholders' funds are included in
unrestricted equity. The amount of any dividend is limited to the amount of
distributable funds based upon the financial statements approved by the
shareholders. Eimo's distributable funds include the profit and retained
earnings from the preceding fiscal year, and other unrestricted equity less
reported losses, capitalized incorporation costs, research and development
costs, the acquisition cost of Eimo's own or any parent company shares and
amounts that are reserved or otherwise left undistributed. Eimo may not
distribute more than the amount of distributable equity shown on its financial
statements or its consolidated financial statements, whichever is lower.
F-16
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under its articles of association, Eimo Oyj's issued share capital may not
be less than (Euro)10,000,000 or more than (Euro)40,000,000. The issued share
capital may be increased or reduced between these limits without amendment to
the articles of association. The minimum number of Series A shares is
25,600,000 and the maximum number is 128,000,000. The minimum number of Series
K shares is 0 and the maximum number is 25,600,000.
Series A shares entitle the holder to one vote per share. Series K shares
entitle the holder to twenty votes per share. Under the articles of association
of Eimo Oyj, its Series K shares may be converted into Series A shares
according to certain procedures specified in the articles of association.
Under the terms of the merger agreement with Triple S Plastics, Inc. all
Eimo Series K shares, entitled to 20 votes per share, will be converted one-
for-one into Series A shares, entitled to 1 vote per share, resulting in a
single series of authorized and outstanding common stock.
The nominal value of Eimo's common stock was adjusted in November 17, 1999,
resulting in a transfer of share premium to share capital.
The figures used in this document have been adjusted for the stock splits
above.
Changes in number of shares
Series A Series K Total
------------------ -------------------- ----------
(1 vote per share) (20 votes per share)
At December 31, 1997....... 28,800,000 7,200,000 36,000,000
Share issue................ 4,000,000 -- 4,000,000
---------- --------- ----------
At December 31, 1998....... 32,800,000 7,200,000 40,000,000
Share issue (public
offering)................. 6,400,000 -- 6,400,000
---------- --------- ----------
At December 31, 1999 and
December 31, 2000......... 39,200,000 7,200,000 46,400,000
========== ========= ==========
Note 12--Deferred tax liability
As of December 31,
-------------------
1999 2000 2000
------ ------ -----
(Euro) (Euro) $
(in thousands)
On depreciation difference............................... 2,312 2,980 2,632
Note 13--Long-term liabilities
As of December 31,
-------------------
1999 2000 2000
------ ------ -----
(Euro) (Euro) $
(in thousands)
Falling due for payment in more than 5 years............. -- 425 375
Note 14--Accrued expenses and deferred income
As of December 31,
-------------------
1999 2000 2000
------ ------ -----
(Euro) (Euro) $
(in thousands)
Personnel expenses....................................... 2,420 2,828 2,498
Accruals................................................. 632 350 309
Tax liability............................................ 2,357 396 350
----- ----- -----
Total.................................................... 5,409 3,574 3,157
===== ===== =====
F-17
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15--Collateral, contingent liabilities and other commitments
Mortgages and other pledges given as collateral for own liabilities and
commitments
As of December 31,
--------------------
1999 2000 2000
------ ------ ------
(Euro) (Euro) $
(in thousands)
Mortgages............................................... 7,703 8,081 7,137
Chattel mortgages given as pledges...................... 8,097 16,819 14,855
Total of other pledges.................................. 204 85 75
------ ------ ------
Total................................................... 16,004 24,985 22,067
====== ====== ======
Total liabilities and guarantees for which mortgages and pledges have been
given
As of December 31,
--------------------
1999 2000 2000
------ ------ ------
(Euro) (Euro) $
(in thousands)
Loans from financial institutions....................... 204 19,296 17,042
Guarantees and contingent liabilities................... 336 336 297
--- ------ ------
Total................................................... 540 19,632 17,339
=== ====== ======
Note 16--Subsequent events
Proposed Merger with Triple S Plastics, Inc.
On May 25, 2001, Eimo and Triple S Plastics, Inc. of the United States
announced that they had entered into a formal merger agreement under re-
negotiated terms, which reinstates, amends and restates the original agreement
entered into in July 2000, as amended in February 2001. Under the terms of the
amended and restated merger agreement, Triple S shareholders and option holders
will receive 4.5 Eimo Series A shares for each Triple S share outstanding or
issuable upon exercise of Triple S options, issuable in the form of Eimo ADS.
At March 31, 2001, Triple S had 3,814,169 shares and 943,200 options issued and
outstanding.
The transaction is subject to approval by the stockholders of Eimo Oyj and
Triple S Plastics, Inc. and certain government entities and agencies. The
merger is intended to be tax free to the shareholders of Triple S Plastics,
Inc. Eimo intends to account for the transaction as an acquisition in
accordance with interpretation No. 1591/1999 of the Finnish Accounting Board,
which makes the recording of goodwill optional. As a result, Eimo will not
record any goodwill as a result of this acquisition.
Note 17--Summary of differences between Finnish Accounting Standards and
Generally Accepted Accounting Principles in the United States of America
The consolidated financial statements are prepared in accordance with
Finnish Accounting Standards, which differ in certain respects from the U.S.
Generally Accepted Accounting Principles. Such differences include methods for
measuring and presenting the amounts shown in the consolidated financial
statements, as well as additional disclosures required by U.S. Generally
Accepted Accounting Principles.
F-18
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A. Reconciliation of net profit and shareholders equity
The following is a summary of the significant adjustments to net profit and
shareholders equity required when reconciling such amounts recorded in Eimo's
consolidated financial statements to the corresponding amounts in accordance
with U.S. Generally Accepted Accounting Principles.
Reconciliation of Net Profit
Three months ended
Year ended December 31, March 31,
------------------------------ ----------------------
1998 1999 2000 2000 2000 2001 2001
------ ------ ------ ------ ------ ------ ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(in thousands, except for
per share amounts) (unaudited)
Net profit (loss) in
accordance with Finnish
Accounting Standards... 10,398 13,583 8,779 7,754 1,997 (352) (311)
U.S. Generally Accepted
Accounting Principles
adjustments:
a) inventory
capitalization......... 496 504 297 262 409 1,674 1,479
b) depreciation relating
to business
combination............ 15 (198) (84) (74) (25) (9) (8)
c) stock based
compensation........... -- (8) (284) (251) (234) 167 148
d) costs incurred with
initial public
offering............... -- 1,162 -- -- -- -- --
e) reversed merger
gain................... -- (528) 12 11 6 6 5
f) defined benefit plan
adjustment............. (160) (404) (157) (139) (39) -- --
g) foreign currency
hedging................ -- -- -- -- -- 75 66
h) Deferred tax effect
on U.S. Generally
Accepted Accounting
Principles
adjustments............ (89) 184 (37) (33) (114) (505) (446)
------ ------ ------ ------ ------ ------ ------
Net income in accordance
with U.S. Generally
Accepted Accounting
Principles............. 10,660 14,295 8,526 7,530 2,000 1,056 933
====== ====== ====== ====== ====== ====== ======
Earnings per share in
accordance with U.S.
Generally Accepted
Accounting Principles:
Earnings per share:
Basic................. .27 .32 .18 0.16 0.04 0.02 0.02
Diluted............... .27 .32 .18 0.16 0.04 0.02 0.02
Weighted average shares
(thousands):
Basic................. 40,000 44,800 46,400 46,400 46,400 46,400 46,400
Effect of warrants.... -- 158 345 345 337 -- --
------ ------ ------ ------ ------ ------ ------
Diluted............... 40,000 44,958 46,745 46,745 46,737 46,400 46,400
====== ====== ====== ====== ====== ====== ======
F-19
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reconciliation of shareholders' equity
Three months ended
As of December 31, March 31,
------------------------------ ----------------------
1998 1999 2000 2000 2000 2001 2001
------ ------ ------ ------ ------ ------ ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(in thousands) (unaudited)
Shareholders' equity in
accordance with Finnish
Accounting Standards... 21,953 56,262 53,069 46,871 58,286 52,999 46,808
U.S. Generally Accepted
Accounting Principles
adjustments:
a) inventory
capitalization......... 1,370 1,874 2,171 1,918 2,283 3,845 3,397
b) business
combination............ 881 683 598 528 657 589 520
c) stock-based
compensation........... -- -- -- -- -- -- --
d) costs incurred with
initial public
offering............... -- -- -- -- -- -- --
e) reversed merger
gain................... -- (528) (516) (456) (522) (510) (450)
f) defined benefit plan
adjustment............. (244) (648) (805) (711) (687) (805) (711)
g) foreign currency
hedging................ -- -- -- -- -- 75 66
h) Deferred tax effect
on U.S. Generally
Accepted Accounting
Principles
adjustments............ (542) (358) (395) (349) (472) (900) (795)
------ ------ ------ ------ ------ ------ ------
Shareholders' equity in
accordance with U.S.
Generally Accepted
Accounting Principles.. 23,418 57,285 54,122 47,801 59,545 55,293 48,835
====== ====== ====== ====== ====== ====== ======
(a) Inventory Capitalization
Under Finnish Accounting Standards, fixed costs are allowed to be
capitalized when the amount of fixed costs are material. Thus, the cost of
finished goods and work in progress is comprised of raw material, direct labor
and other major direct costs but excludes overhead. Under U.S. Generally
Accepted Accounting Principles, all significant direct and indirect fixed costs
clearly related to production constitute a part of inventory costs which must
be capitalized. For U.S. Generally Accepted Accounting Principles purposes
overhead costs related to production have been included in inventories.
(b) Business Combinations
As described in Note 1, Eimo has entered into several business combinations.
These business combinations were accounted for as purchases under Finnish
Accounting Standards and resulted in goodwill. Prior to 1997, Eimo recorded
goodwill for the portion of the purchase price which exceeded the net book
value of the net assets of the subsidiaries, as permitted by Finnish Accounting
Standards. In 1998, in connection with a restructuring among entities under
common control, all of the goodwill was eliminated by Eimo as a charge against
retained earnings as permitted by Finnish Accounting Standards.
Under U.S. Generally Accepted Accounting Principles, goodwill arising on
consolidation is the portion of the purchase price that exceeds the fair market
value of the subsidiary's net assets. The assets of the subsidiary are to be
recorded at their fair market values, thus reducing the amount of goodwill
recorded by Eimo.
Adjustments have been made to reverse the goodwill that was charged against
retained earnings in 1998 and to allocate a portion of the amount previously
recorded as goodwill to property, land and buildings.
F-20
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(c) Stock-Based Compensation
Eimo has issued warrants to key personnel pursuant to a Warrant Program
adopted in 1999. The plan is a variable plan in which the exercise price is
dependent on future dividends and other variable factors. Under Finnish
Accounting Standards, no compensation is recognized for equity compensation
benefits for stock warrants under a variable plan until the options are
exercisable.
As allowed by Statement of Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), under U.S. Generally Accepted
Accounting Principles, Eimo has elected to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and
related interpretations in accounting for its Warrant Program.
For purposes of U.S. Generally Accepted Accounting Principles, compensation
expense for a variable stock based compensation plan, is measured at the end of
each accounting period and recognized rateably over the service period.
(d) Costs Incurred in Connection with Initial Public Offering
On March 23, 1999, Eimo completed it's initial public offering and listed
its Series A shares on the Helsinki Stock Exchange. Under Finnish Accounting
Standards, costs incurred in connection with raising capital is expensed as
incurred. Under U.S. Generally Accepted Accounting Principles, all costs
incurred in connection with raising capital should be offset against the
proceeds of the offering and should not be recognized in the income statement.
(e) Reversed Merger Gain
In 1998, Eimo acquired shares in a real estate company Kiinteisto Oy
Hollolanpuhti, which was later merged with Eimo in 1999 pursuant to the
restructuring. The fair market value of the assets exceeded the purchase price,
which Eimo recognized as extraordinary income in accordance with Finnish
Accounting Standards.
Under U.S. Generally Accepted Accounting Principles this excess should not
have been recognized as extraordinary income, but should have reduced the
carrying value of the non-current assets acquired.
(f) Defined Benefit Plan
In Finland, plans are generally funded through payments to insurance
companies, pension funds or by own provisions, as determined by periodic
actuarial calculations. Any deficits or benefits requiring additional
contributions are funded through payments or provisions allocated over a period
of years not exceeding the expected remaining lives of the participating
employees. Eimo has met the minimum funding requirements.
Under U.S. Generally Accepted Accounting Principles, SFAS No. 87 "Employers
Accounting For Pensions," pension expense is based on a specific methodology
that includes a designated actuarial approach and reflects the concept of
accrual accounting. Under U.S. Generally Accepted Accounting Principles,
pension expense is recorded on a full accrual basis and reflected in the income
statement over the working lives of the employees provided with such benefits.
Under U.S. Generally Accepted Accounting Principles, Eimo has estimated the
effect on net income and stockholders equity assuming the adoption of SFAS
No. 87 as of January 1, 1998. The adoption of SFAS No. 87 on the actual
effective date of January 1989 was not feasible.
F-21
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of January 1, 1998, an unrecognized transition obligation was determined and
is being amortized over the then average future working lifetime of employee
participants commencing January 1, 1989.
(g) Foreign Currency Hedging
Eimo enters into forward exchange contracts which, under Finnish Accounting
Standards, are treated as hedges of future income. The matching principle is
used to match the gain or loss under these hedging contracts to the foreign
currency transaction or profits to which they relate. Under U.S. GAAP, these
instruments qualify for hedge accounting and any unrealised gain or loss on
hedges of future profits of transactions must be valued at the year end at
market rates and recognised in the net income of the current year.
(h) Deferred Taxation
Finnish Accounting Standards requires that no provision for deferred
taxation should be recorded if there is reasonable evidence that such taxation
will not be payable in the foreseeable future. Deferred tax assets are only
recognized when they are expected to be recoverable without replacement by
equivalent deferred tax assets.
U.S. Generally Accepted Accounting Principles requires full provision of
deferred taxation liabilities and permits deferred tax assets to be recognized
if their realization is considered to be more likely than not.
B. Differences in Financial Statement Presentation
Eimo's consolidated financial statements are presented in accordance with
Finnish Accounting Standards, which differ in certain respects from U.S.
Generally Accepted Accounting Principles.
Consolidated Balance Sheets
The consolidated balance sheet presented in accordance with Finnish
Accounting Standards is substantially similar to that of U.S. Generally
Accepted Accounting Principles. The principal differences as they relate to
Eimo have been outlined below.
. Balance sheets under Finnish Accounting Standards are presented in
reverse order of liquidity. Under U.S. Generally Accepted Accounting
Principles, balance sheets are presented in order of liquidity.
. Under Finnish Accounting Standards, certain marketable securities may be
classified as cash and cash equivalents. Under U.S. Generally Accepted
Accounting Principles, only instruments with original maturities of
three months or less can be classified as cash equivalents.
. Eimo has a line of credit facility with a bank. Amounts borrowed under
such line of credit have been classified as a long-term liability. Under
U.S. Generally Accepted Accounting Principles, amounts owed under a line
of credit are generally presented as a current liability.
Consolidated Income Statement
The consolidated income statement prepared in accordance with Finnish
Accounting Standards is different in certain material respects to the income
statement presentation used by companies in the same industry in the United
States. The principal differences as they relate to Eimo have been outlined
below.
. Under Finnish Accounting Standards, costs and expenses are classified by
function and certain costs are not allocated to cost of production or
selling and administrative functions. For instance all salary costs are
reported on one line item, whereas under U.S. Generally Accepted
Accounting Principles, manufacturing companies may present production
salaries as a component of cost of sales.
. Under Finnish Accounting Standards, direct costs relating to a business
combination are recognized as extraordinary expenses in the period they
are incurred. Under U.S. Generally Accepted Accounting
F-22
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principles, all direct costs of a purchase business combination that had
been postponed do not qualify to be classified as an extraordinary loss
and should be presented as a component of operating income.
Presented below is the consolidated income statement of Eimo in accordance
with U.S. Generally Accepted Accounting Principles.
Three months ended
Year ended December 31, March 31,
---------------------------------- -------------------------
1998 1999 2000 2000 2000 2001 2001
------- ------- ------- ------- ------- ------- -------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(in thousands) (unaudited)
Net sales............... 59,630 78,011 105,530 93,204 18,958 26,954 23,806
Cost of sales........... (41,429) (55,293) (86,957) (76,800) (14,985) (22,352) (19,742)
------- ------- ------- ------- ------- ------- -------
Gross profit......... 18,201 22,718 18,573 16,404 3,973 4,602 4,064
Selling and marketing
expenses............... (903) (1,336) (1,703) (1,504) (390) (521) (460)
General and
administrative
expenses............... (2,081) (3,148) (3,911) (3,454) (903) (1,233) (1,089)
Direct costs of
postponed acquisition.. -- -- (857) (757) -- (1,361) (1,202)
Loss from affiliated
companies.............. -- -- (27) (24) -- -- --
Other operating income.. 275 875 521 460 135 267 236
------- ------- ------- ------- ------- ------- -------
Operating income..... 15,492 19,109 12,596 11,125 2,815 1,754 1,549
Other income (expense).. (600) 146 (242) (214) 114 (211) (186)
------- ------- ------- ------- ------- ------- -------
Income before income
taxes and minority
interest............... 14,892 19,255 12,354 10,911 2,929 1,543 1,363
Income tax expense... (4,232) (4,960) (3,821) (3,375) (929) (547) (483)
Income (loss) from
minority
interest .............. -- -- (7) (6) -- 60 53
------- ------- ------- ------- ------- ------- -------
Net income........... 10,660 14,295 8,526 7,530 2,000 1,056 933
======= ======= ======= ======= ======= ======= =======
F-23
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Consolidated Statement of Changes in Shareholders' Equity
The components of shareholders' equity under U.S. Generally Accepted
Accounting Principles are as follows:
Accumulated
other
Share capital Share Retained comprehensive
Shares (at value) premium earnings income Total Total
------ ------------- ------- -------- ------------- ------- -------
(Euro) (Euro) (Euro) (Euro) (Euro) $
(in thousands)
Balance at December 31,
1997................... 36,000 1,514 -- 5,358 -- 6,872 6,069
Net profit for the
year................... -- -- -- 10,660 -- 10,660 9,415
Share issue............. 4,000 168 5,718 -- -- 5,886 5,199
------ ------ ------ ------- ---- ------- -------
Balance at December 31,
1998................... 40,000 1,682 5,718 16,018 -- 23,418 20,683
Change in nominal
value.................. -- 9,649 (9,649) -- -- -- --
Dividends paid.......... -- -- -- (1,598) -- (1,598) (1,411)
Stock based
compensation........... -- -- 8 -- -- 8 7
Net profit for the
year................... -- -- -- 14,295 -- 14,295 12,625
Initial public offering,
net of direct costs.... 6,400 269 20,893 -- -- 21,162 18,690
------ ------ ------ ------- ---- ------- -------
Balance at December 31,
1999................... 46,400 11,600 16,970 28,715 -- 57,285 50,594
Dividends paid.......... -- -- -- (11,600) -- (11,600) (10,245)
Stock based
compensation........... -- -- 284 -- 284 251
Comprehensive income -- -- -- -- -- -- --
Foreign currency
translation loss...... -- -- -- (373) (373) (329)
Net profit for the
period................ -- -- -- 8,526 -- 8,526 7,530
------ ------ ------ ------- ---- ------- -------
Comprehensive income.... 8,153 7,201
------- -------
Balance at December 31,
2000................... 46,400 11,600 17,254 25,641 (373) 54,122 47,801
Dividends paid
(unaudited)............ -- -- -- -- -- --
Stock based compensation
(unaudited)............ -- -- (167) -- -- (167) (148)
Comprehensive income -- -- -- --
Foreign currency
translation profit.... -- -- -- -- 282 282 249
Net profit for the
year.................. -- -- -- 1,056 1,056 933
------ ------ ------ ------- ---- ------- -------
Comprehensive income.... 1,338 1,182
------- -------
Balance at March 31,
2001 (unaudited)....... 46,400 11,600 17,087 26,697 (91) 55,293 48,835
====== ====== ====== ======= ==== ======= =======
Consolidated Statement of Cash Flows
The consolidated cash flow statement has been prepared in conformity with
Finnish Accounting Standards. The principal differences between this statement
and cash flow statements presented in accordance with U.S. Financial Accounting
Standard No. 95 are as follows:
. Under Finnish Accounting Standards movements in short-term investments,
such as marketable securities, are included in cash. Under U.S.
Generally Accepted Accounting Principles movements in trading securities
are classified as an operating activity.
. Costs incurred in connection with the initial public offering were
included in net profit under operating activities in accordance with
Finnish Accounting Standards. Under U.S. Generally Accepted Accounting
Principles, these costs would be presented as a cash used in financing
activities.
F-24
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Set out below is a summary consolidated cash flow statement under U.S.
Generally Accepted Accounting Principles:
Three months ended
Year ended December 31, March 31,
----------------------------------- ----------------------
1998 1999 2000 2000 2000 2001 2001
------- ------- -------- ------- ------ ------ ------
(Euro) (Euro) (Euro) $ (Euro) (Euro) $
(in thousands) (unaudited)
Net cash provided by
operating activities... 8,374 23,132 7,340 6,483 4,685 (3,002) (2,651)
Net cash used in
investing activities... (15,572) (22,353) (28,784) (25,422) (5,648) (3,992) (3,526)
Net cash used in
financing activities... 8,106 7,880 6,391 5,646 49 9,766 8,625
------- ------- -------- ------- ------ ------ ------
Net increase (decrease)
in cash and cash
equivalents under U.S.
Generally Accepted
Accounting Principles.. 908 8,659 (15,053) (13,293) (914) 2,772 2,448
======= ======= ======== ======= ====== ====== ======
Note 18--Additional disclosures required under U.S. Generally Accepted
Accounting Principles
A. Summary of Significant Accounting Policies
Marketable Securities
Marketable securities consist of mutual funds that primarily invest in
government and agency, municipal and corporate bonds. These marketable
securities are classified as trading securities and are adjusted to market
value at the end of each accounting period. Unrealized market gains and losses
are included in earnings and were not deemed material at December 31, 1999.
Realized investment income for the years ended December 31, 1998, 1999 and 2000
was (Euro)0, (Euro)119,000 and (Euro)27,000, respectively.
Fair Value of Financial Instruments
Eimo's financial instruments consist of cash and cash equivalents, foreign
currency forward exchange contracts, marketable securities, receivables,
payables, short-term borrowings as well as long and short term debts.
The carrying values of the financial assets (cash and cash equivalents,
marketable securities and receivables) are a reasonable estimate of the fair
values because of the short term maturity of such instruments.
The carrying values of short-term borrowings and current portion of long-
term debt are a reasonable estimate of the fair values because of the short
maturity of such instruments.
The carrying values of floating rate long-term debt approximate their fair
values because the stated interest rates approximate the fair value interest
rates.
Foreign Currency Translation
The functional currency of two of the Company's foreign subsidiaries, Eimo
Hong Kong and CIM Technology Ltd., are their local currency, the Hong Kong
Dollar. Assets and liabilities of these subsidiaries are translated into euros
at the year-end rate of exchange. Revenue and expenses are translated at the
weighted-average exchange rates for the year. The resulting translation
adjustments are charged or credited to other comprehensive income.
Comprehensive Income
Comprehensive income includes all changes in equity during a period from
non-owner sources. Accumulated other comprehensive income consists of foreign
currency translation adjustments.
F-25
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Goodwill Amortization
For purposes of U.S. Generally Accepted Accounting Principles goodwill is
amortized using the straight-line method over 10 years.
Earnings Per Share
Basic earnings per common share are based on the weighted average number of
common shares outstanding.
Diluted earnings per common share are based on the assumption that all
dilutive potential common shares and dilutive warrants were converted at the
beginning of the year.
Warrants to purchase 860,000 Eimo Series A shares which were outstanding
during the three month period ended March 31, 2001 were not included in the
computation of diluted earnings per share because the option exercise price was
greater than the average market price of the Eimo Series A shares. Diluted
earnings per share for the year ended December 31, 1998 was based only on the
weighted average number of Eimo Series A shares outstanding, as there were no
potential dilutive instruments.
Segment Information
Eimo has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"). SFAS No. 131 established standards for
the way in which publicly-held companies report financial and descriptive
information about their operating segments in financial statements for both
interim and annual periods, and requires additional disclosures with respect to
products and services, geographic areas of operation and major customers. Eimo
operates as a single operating segment. The adoption of SFAS No. 131 has no
impact on Eimo's consolidated financial position, results of operations or cash
flows.
Derivative Financial Instruments
SFAS 133 "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), as amended by Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of SFAS 133" ("SFAS 137"). This statement established
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments imbedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. This statement also specifies new methods of accounting for hedging
transactions, prescribes the items and transactions that may be hedged, and
specified detailed criteria to be met to qualify for hedge accounting. Eimo
uses derivative financial instruments to hedge the risk associated with certain
firm sales commitments, anticipated revenue streams and certain assets and
liabilities denominated in currencies other than the euro. The adoption of SFAS
133 did not have a material impact on Eimo's financial position or results of
operations.
At March 31, 2001, Eimo had derivative instruments outstanding to hedge a
loan denominated in US dollars of $6,000,000. The derivative instruments have
been accounted for as fair value hedges, whereby any gain on the forward
exchange contract is recognized and included in foreign currency transaction
gains and losses for the three months ended March 31, 2001 and offset against
any loss on the fair market value of the outstanding loan. The adoption of the
statement resulted in recording a derivative financial instrument asset of
(Euro)274,000 at March 31, 2001.
Eimo has formally documented the hedging relationship between the forward
foreign currency exchange contract and the underlying loan, as well as its risk
management objective and strategy for undertaking the hedge transaction. This
process includes linking the derivative financial instrument that has been
designated as
F-26
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
a fair value hedge to the liability on the balance sheet. Eimo also formally
assesses, both at the hedge's inception and on an ongoing basis, whether the
derivative instrument used in the hedging transaction is highly effective in
offsetting changes in the cash flows of the hedged item. If Eimo determines
that the derivative is not highly effective as a hedge or that it has ceased to
be a highly effective hedge, Eimo will discontinue hedge accounting
prospectively.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101, as amended which, summarizes and clarifies certain
existing accounting principles for the recognition and classification of
revenues in the financial statements. SAB 101 did not have a significant effect
on Eimo's consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions
Involving Stock Compensation--an Interpretation of Accounting Principles Board
("APB") Opinion No. 25." FIN 44 clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the accounting
consequence of various modifications to the terms of the previously fixed stock
options or awards; and the accounting for an exchange of stock compensation
awards in a business combination. FIN 44 was effective July 1, 2000, but
certain conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The application of FIN 44 did not have a
material impact on Eimo's financial position or results of operations.
B. Long-Term Debt
Long-term debt consists of:
As of December 31, As of
-------------------- March 31,
1999 2000 2000 2001
------ ------ ------ -------------
(Euro) (Euro) $ (Euro) $
(in thousands)
Loans from OP-rahoitus(1)................... 204 86 76 57 50
Loans from OP-rahoitus(2)................... 1,089 962
Loans from TEKES(3)......................... 71 160 141 160 141
Line of Credit--Sampo(4).................... 3,980 3,515 3,329 2,940
Line of Credit--SHB(5)...................... 4,159 3,673 4,087 3,610
Line of Credit--Nordia(6)................... -- -- -- 2,577 2,276
Line of Credit POP(7)....................... -- 570 503 1,663 1,469
Bullet loans from Nordia(8)................. -- 3,300 2,915 10,099 8,919
Loan from Handelsbanken(9).................. -- 3,000 2,650 3,000 2,650
Financial leases(10)........................ -- -- -- 380 336
Loan from Nordia(11)........................ -- 4,200 3,709 4,200 3,709
Loans from Mr. Lai(12)...................... -- -- 2,780 2,455
Loan from Hungarian Development Bank(13).... -- 634 560 596 526
--- ------ ------ ------ ------
Long-term debt.............................. 275 20,089 17,742 34,017 30,043
Current maturities of long-term debt........ 118 12,688 11,206 16,651 14,706
--- ------ ------ ------ ------
Long-term debt, less current maturities..... 157 7,401 6,536 17,366 15,337
=== ====== ====== ====== ======
- --------
(1) Loans from OP-rahoitus are low-interest loans and subject to government
subsidy. The interest rate is variable, based on three month's market rate
(Euribor)+1.5%-government subsidy, and was 0.9% and 2.3%
F-27
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
at December 31, 1999 and 2000, respectively. The loan is payable in
quarterly installments and is due by December 20, 2001. Certain machinery
is pledged as collateral for this loan.
(2) Loans from OP-rahoitus are repayable in monthly installments beginning in
June 2001 and mature in June 2006. The loans bear interest at a variable
rate, which rate was approximately 5.3% at December 31, 2000.
(3) TEKES is a government agency that grants low-interest bearing loans to
stimulate the growth and attract high-tech companies in Finland. The loan
is payable in annual installments and is due by May 22, 2006. Interest is
payable annually at a variable rate that approximated 1% and 2% at
December 31, 1999 and 2000, respectively.
(4) Eimo has a (Euro)4.0 million secured line-of-credit agreement with a bank,
with interest payable on the principal balance at a variable rate based on
market interest rates, which was 5.1% at December 31, 2000. Eimo's assets
are pledged as collateral under the agreement.
(5) Eimo has a (Euro)5.0 million secured line-of-credit agreement with a bank,
with interest payable on the principal balance at a variable rate based on
market interest rates, which was 5.1% at December 31, 2000. Eimo's assets
are pledged as collateral under the agreement.
(6) Eimo has an (Euro)7.0 million secured line-of-credit agreement with a
bank, with interest on the unpaid principle balance at a variable rate
based on market interest rates, which was 5.1% at December 31, 2000.
Eimo's assets are pledged as collateral under the agreement.
(7) Eimo has an (Euro)2.0 million secured line-of-credit agreement with a
bank, with interest on the unpaid principle balance at a variable rate
based on market interest rates (approximately 5.1% at December 31, 2000).
Eimo's assets are pledged as collateral under the agreement.
(8) These bullet loans expire on June 28, 2001 ((Euro)3,300) and February 20,
2003 ((Euro)6,600). Interest rate is variable and was approximately 5.0%
at December 31, 2000.
(9) This loan is a bullet loan with all principal and interest due at maturity
on June 9, 2004. The loan bears interest at a variable rate which was
approximately 5.7% as of December 31, 2000.
(10) These are commercial financial leases. Interest rate was approximately
6.5% as of December 31, 2000.
(11) This loan is payable in half-year installments and it matures on April 2,
2006. The loan has a variable interest rate which was approximately 5.4%
as of December 31, 2000.
(12) These are loans from Mr. Lai amounting to (Euro)1.5 million and (Euro)1.3
million. (Euro)1.3 million is non-interest bearing and is due in year
2001.
(13) This loan is from Hungarian Development Bank which is a Hungarian
government agency that provides subsidized loans to investors in Hungary.
Interest rates are based on a formula and interest is payable if Eimo
does not achieve certain revenue milestones for each year. If the
milestones are met, the interest is waived. The loan is guaranteed by
Bank Austria Creditanstalt Hungary Rt. Eimo has given a letter of
guarantee to that Bank. The principal amount of the loan is repayable in
quarterly installments over its five year term.
Except for the loan from the Hungarian Development Bank, the loan from Mr.
Lai and financial leases, all of Eimo's long-term debt obligations are
denominated in euro currencies.
Aggregate maturities of long-term debt are as follows:
(Euro) $
---------------
(in thousands)
December 31, 2001.......................................... 12,688 11,206
2002 ...................................................... 1,018 899
2003....................................................... 1,018 899
2004....................................................... 4,058 3,584
2005....................................................... 882 779
2006....................................................... 425 375
------- -------
20,089 17,742
======= =======
F-28
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
C. Foreign currency exchange gains and losses
The aggregate foreign exchange gains and losses included in the consolidated
income statements for the years ended December 31, 1998, 1999 and 2000 are as
follows:
Year ended December 31,
-------------------------
1998 1999 2000 2000
------ ------ ------ ----
(Euro) (Euro) (Euro) $
(in thousands)
Sales........................................... (4) 17 22 19
Costs and expenses.............................. (88) (366) (205) (181)
Net financial items............................. 0 18 46 41
--- ---- ---- ----
Total........................................... (92) (331) (137) (121)
=== ==== ==== ====
D. Income taxes
The following is a reconciliation of the statutory tax rate to Eimo's
effective tax rate.
Year ended
December 31,
-----------------
1998 1999 2000
---- ---- ----
Statutory income tax rate............................... 28.0% 28.0% 29.0%
Other items............................................. 0.5% (0.5%) 1.0%
---- ---- ----
Effective income tax rate............................... 28.5% 27.5% 30.0%
==== ==== ====
The following temporary differences gave rise to a current deferred tax
asset and noncurrent deferred tax liability at December 31, 1999 and 2000 and
March 31, 2001:
December 31,
---------------------
1999 2000 2000 March 31, 2001
------ ------ ----- ----------------
(Euro) (Euro) $ (Euro) $
(in thousands)
(unaudited)
Deferred tax liability:
Depreciation and other................. 3,060 3,805 3,361 4,459 3,938
----- ----- ----- ------- -------
3,060 3,805 3,361 4,459 3,938
----- ----- ----- ------- -------
Deferred tax asset:
Pension................................ (188) (233) (206) (233) (206)
Net operating loss carry forward....... -- -- -- (800) (707)
Goodwill............................... (153) (150) (132) (148) (131)
Other.................................. (49) (47) (42) (180) (159)
----- ----- ----- ------- -------
(390) (430) (380) (1,361) (1,203)
----- ----- ----- ------- -------
Net deferred tax liability............... 2,670 3,375 2,981 3,098 2,735
===== ===== ===== ======= =======
E. Related party transactions
Prior to January 2, 1998, Eimo Oyj was a part of a group of companies owned
by the Paananen family. Financing for all of the companies was conducted at the
group level. After the operational restructuring on January 2, 1998, which
created the current Eimo, certain financial transactions were still conducted
at a group level. A number of such financial transactions occurred between Eimo
and other companies held by the Paananen family. Both the amount of loans and
receivables varied between Eimo and the other companies during the first half
of 1998. Additionally, Eimo had a loan of approximately (Euro)168,000 from the
Paananen family with interest at 5% which was fully paid in February 1998.
F-29
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On December 22, 1998, Teraspeikko Oy, a company 100% held by the Paananen
family, bought a 6,219 square meter parcel of land from Eimo for approximately
(Euro)16,800, which Eimo believes to have been the approximate fair market
value of such land. Teraspeikko Oy is in the business of manufacturing concrete
fastening parts.
On December 22, 1998, Eimo sold a 3.3468 hectares parcel of land to Jalo
Paananen. The purchase price was approximately (Euro)13,600, which Eimo
believes to have been the approximate fair market value of the property based
on an independent third party appraisal.
During the spring of 2000, Nostera Oy, a company controlled by the Paananen
family, sold and transferred certain telephone connections to Eimo in
connection with its rapid expansion and the relocation of its corporate
headquarters to Lahti, Finland. The purchase price was approximately
(Euro)9,000, which Eimo believes to have been no greater than the purchase
price Eimo would have paid in an independent arms-length transaction.
Eimo outsources its accounting function to a company that is 90% owned by
the Paananen family. Accounting fees were approximately (Euro)161,000 and
(Euro)165,000 for the years ended December 31, 1999 and 2000, respectively.
Similarly, another company that is substantially owned by the Paananen
family charged Eimo approximately (Euro)75,000 for the year ended December 31,
1999 for management fees and other administrative costs. No charges were made
in 2000.
Eimo previously leased approximately 1,000 square meters, and currently
leases 500 square meters, of primarily office space at its Lahti facility at
market rates to various companies under the control of the Paananen family.
F. Stock-based compensation--1999 Warrant Plan
On November 17, 1999, Eimo introduced the 1999 Warrant Plan (the "1999
Plan") which is accounted for in accordance with APB Opinion 25 and related
Interpretations. The 1999 Plan allows Eimo to grant warrants to group
management, members of the board of directors and other key personnel and has
reserved 1,200,000 shares of common stock for such plan on a split adjusted
basis. The 1999 Plan is a variable plan in which the exercise price is
dependent on future dividends and other variable factors. The warrants must be
exercised by May 31, 2006. The exercise price for the shares will be (Euro)5.00
per share, less the amount of the dividends per share paid before the start of
the subscription period, and possibly adjusted by a factor that is based on the
performance of Eimo's Series A shares and the shares of two other companies
operating in the same sector. The warrants vest 30%, 30% and 40% after 2.5, 3.5
and 4.5 years. Warrants generally are vested from two to four years from the
date of the grant.
A summary of the stock activity follows:
Weighted Weighted
Average Average
Shares Fair Value Fair Value
-------- ---------- ----------
(Euro) $
Warrants outstanding at December 31, 1998...... -- -- --
Granted........................................ 610,000 4.62
--------
Warrants outstanding at December 31, 1999...... 610,000 4.62
Granted........................................ 360,000 5.56
Cancelled...................................... (110,000) 4.62
--------
Warrants outstanding at December 31, 2000...... 860,000 5.01 4.42
========
F-30
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
All outstanding warrants were granted under the terms of the 1999 Plan and,
therefore, no warrants were exercisable at December 1999, December 2000 and
March 31, 2001. These warrants were accounted for as a variable plan, and the
value of the warrants is measured at the end of each accounting period, and
compensation expense is recognized rateably over the service period. These
warrants were accounted for as a variable plan, and the value of the warrants
is measured at the end of each accounting period, and compensation expense is
recognized rateably over the service period.
Had compensation cost for the 1999 Plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS No.
123, Eimo's basic and diluted earnings per share would have approximated the
following:
Years ended December 31
--------------------------
1998 1999 2000 2000
------ ------ ------ -----
(Euro) (Euro) (Euro) $
Net Income (in thousands)
As reported....................................... 10,660 14,295 8,526 7,530
Pro Forma......................................... 10,660 14,287 7,843 6,927
Basic Earnings Per Share
As reported....................................... 2.27 0.32 0.18 0.16
Pro Forma......................................... 2.27 0.32 0.17 0.15
Diluted Earnings Per Share
As reported....................................... 0.27 0.32 0.18 0.16
Pro Forma......................................... 0.27 0.32 0.17 0.15
The fair value of each warrant grant under the 1999 Plan is estimated on the
date of grant using the Black-Scholes options-pricing model with the following
weighted-average assumptions
Years
ended
December
31,
-----------
1999 2000
---- -----
Expected life (in years)........................................... 5 5
Interest rate...................................................... 4.0% 4.5%
Volatility......................................................... 85.0% 100.0%
Dividend yield..................................................... -- --
Eimo 2001 Group Warrant Program
On May 15, 2001, the shareholders of Eimo authorized the Board of Directors
to decide upon the issuance by Eimo of warrants to persons belonging to Eimo's
group management, members of the Eimo board of directors and other key
personnel, and waived the subscription rights of existing shareholders in
connection with the shares issuable pursuant to such warrants. Warrants under
the program are issuable to management and other key personnel of Eimo at the
discretion of its board of directors. Under the 2001 Group Warrant Program,
Eimo can issue up to 1,000,000 warrants. Each warrant will entitle the holder
to subscribe for one Eimo Series A share.
The warrants will be exercisable in three tranches. The subscription period
for 300,000 of the warrants will start on June 1, 2002, the subscription period
for another 300,000 warrants will start on June 1, 2003, and the subscription
period for the remaining 400,000 warrants will start on June 1, 2004. The
subscription exercise period for all warrants issuable under the program will
end on May 31, 2006. The subscription price for the shares will be (Euro)2.70.
F-31
EIMO OYJ AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
No warrants have been granted under the 2001 Group Warrant Program. Under
the terms of the program, no warrants will be exercisable before June 2002.
All other terms and conditions of the 2001 Group Warrant Program are
identical with the 1999 Group Warrant Program.
The maximum number of warrants that collectively can be issued under both
the 1999 Group Warrant Program and the 2001 Group Warrant Program has been
limited to 1,500,000.
G. Defined benefit plan
Eimo sponsors a defined benefit plan covering all eligible employees. The
defined benefit plan is non-contributory. The accrual rate of the plan is
1/160th of Final Pensionable Salary for each year of Pensionable Service to
retirement or earlier leaving service.
The TEL Basic Pension system is a statutory pension system, which is
regulated by a law enacted by the Finnish parliament. The TEL Basic Pension is
partly funded and partly pay-as-you-go. The pay-as-you-go system is financed
together by all Finnish employers and employees. In Finland each employee earns
a statutory pension during his active years of employment. The total statutory
pension cannot exceed 60% of pensionable salary. Full pension is paid at the
age of 65. Under the TEL system the insured is covered for old age pension,
disability pension, unemployment pension and family pension. An essential
feature of TEL is that only a small portion of the pension is funded. The major
portion is covered under the pay-as-you-go system.
The funded status of the defined benefit plan and the resulting prepaid
pension benefit are summarized as follows:
As of December 31,
---------------------
1999 2000 2000
------ ------ -----
(Euro) (Euro) $
(in thousands)
Change in benefit obligation
Projected benefit obligation at beginning of year........ 1,066 1,393 1,231
Service cost............................................. 287 350 309
Interest cost............................................ 74 101 89
Plan amendments.......................................... (325) -- --
Plan net losses.......................................... 532 274 242
Benefits paid............................................ (242) (362) (320)
----- ----- -----
Projected benefit obligation at end of year.............. 1,392 1,756 1,551
===== ===== =====
Changes in plan assets
Fair value of plan assets at beginning of year........... -- -- --
Actual return on plan assets............................. 15 20 18
Employee contributions................................... 227 342 302
Acquisitions............................................. -- -- --
Benefits paid............................................ (242) (362) (320)
----- ----- -----
Fair value of plan assets at end of year................. 0 0 0
===== ===== =====
F-32
EIMO OYJ AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31,
----------------------
1999 2000 2000
------ ------ ------
(Euro) (Euro) $
(in thousands)
Funded status
Plan assets less than
benefit obligation....... (1,392) (1,756) (1,551)
Unrecognized:
Net transition
obligation............. 152 114 100
Plan net actuarial...... 917 1,140 1,007
Prior service cost...... (325) (303) (267)
------ ------ ------
Accrued benefit cost...... (648) (805) (711)
====== ====== ======
Weighted-average
assumptions as of
December 31
Discount rate for benefit
obligation............... 5.80% 5.80% 5.80%
Expected return on plan
assets................... 5.80% 5.80% 5.80%
Rate of compensation
increase................. 2.80% 4.00% 4.00%
Components of net periodic
pension cost
Service cost.............. 287 350 304
Interest cost............. 74 101 89
Expected return on plan
assets................... (15) (20) (18)
Net amortization of
unrecognize transition
obligation............... 38 38 33
Amortization of prior
service cost............. -- (22) (19)
Recognized net actuarial
loss..................... 20 52 46
------ ------ ------
Net periodic pension cost
(income)................. 404 499 435
====== ====== ======
H. Leases
Eimo leases office equipment, under operating leases expiring at various
dates through 2003. Rent expense amounted to approximately (Euro)34,000 and
(Euro)66,000 for the years ended December 31, 1999 and 2000, respectively. At
December 31, 2000, minimum rental commitments under non-cancellable leases are
as follows:
(Euro) $
------ ---
(in thousands)
2001................................................... 68 60
2002................................................... 50 44
2003................................................... 10 9
2004................................................... 3 2
--- ---
Total minimum payments required........................ 131 115
=== ===
I. Proposed Merger with Triple S Plastics, Inc.
For US GAAP purposes, the proposed merger with Triple S Plastics, Inc., as
described in Note 16, will be accounted for as a purchase business combination.
Any goodwill that may result from the acquisition will be amortized on a
straight line basis over the estimated useful life over twenty years.
F-33
INDEX TO TRIPLE S CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets as of March 31, 2000 and 2001................ F-35
Consolidated Statements of Income for the years ended March 31, 1999,
2000 and 2001........................................................... F-36
Consolidated Statements of Shareholders' Equity for the years ended March
31, 1999, 2000 and 2001................................................. F-37
Consolidated Statements of Cash Flows for the years ended March 31, 1999,
2000 and 2001........................................................... F-38
Notes to Consolidated Financial Statements............................... F-39
Report of Independent Certified Public Accountants....................... F-51
Report of Independent Certified Public Accountants on Financial Statement
Schedule................................................................ F-52
Schedule II--Valuation and Qualifying Accounts........................... F-53
F-34
TRIPLE S PLASTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31,
----------------
2000 2001
------- --------
ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 1,806 $ 998
Accounts receivable, less allowance of $300 and $250 for
possible losses........................................... 13,929 19,657
Refundable income taxes.................................... -- 665
Inventories (Note 3)....................................... 6,344 7,935
Deferred income taxes (Note 7)............................. 427 674
Other...................................................... 656 1,475
------- --------
Total Current Assets..................................... 23,162 31,404
------- --------
Property, Plant and Equipment (Notes 2, 5 and 6):
Land and buildings......................................... 8,228 14,119
Leasehold improvements..................................... 617 1,064
Machinery and equipment.................................... 26,989 31,346
Office furniture and equipment............................. 4,648 5,507
------- --------
40,482 52,036
Less accumulated depreciation and amortization............. 16,726 20,737
------- --------
Net Property, Plant and Equipment........................ 23,756 31,299
------- --------
Other:
Goodwill, net of accumulated amortization of $848 and
$2,153 (Notes 12 and 14).................................. 3,641 3,737
Miscellaneous (Notes 2, 8 and 14).......................... 927 815
------- --------
Total Other Assets....................................... 4,568 4,552
------- --------
$51,486 $ 67,255
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 4)..................................... -- $ 582
Accounts payable........................................... $ 5,543 9,699
Accrued compensation....................................... 1,570 2,304
Income taxes............................................... 831 --
Other current liabilities.................................. 1,878 3,546
Current maturities of long-term debt (Note 5).............. 1,312 1,992
------- --------
Total Current Liabilities................................ 11,134 18,123
Long-Term Debt, less current maturities (Note 5)........... 4,618 7,706
Other Liabilities (Note 8 and 15).......................... -- 392
Deferred Income Taxes (Note 7)............................. 1,949 1,879
------- --------
Total Liabilities........................................ 17,701 28,100
------- --------
Commitments and Contingencies (Notes 6, 8, and 16)
Shareholders' Equity (Note 10):
Preferred stock, no par value, 1,000,000 shares authorized,
none issued............................................... -- --
Common stock, no par value, 10,200,000 shares authorized,
3,759,716 and 3,814,169 shares issued and outstanding..... 14,529 15,143
Retained earnings.......................................... 19,256 24,116
Accumulated other comprehensive loss (Note 15)............. -- (104)
------- --------
Total Shareholders' Equity............................... 33,785 39,155
------- --------
$51,486 $ 67,255
======= ========
See accompanying notes to consolidated financial statements.
F-35
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Years ended March 31,
-------------------------
1999 2000 2001
------- ------- --------
Net Sales........................................... $67,772 $95,102 $155,168
Cost of Sales....................................... 56,647 77,175 128,228
------- ------- --------
Gross Profit........................................ 11,125 17,927 26,940
Selling and Marketing Expenses...................... 3,521 4,235 2,798
General and Administrative Expenses (Note 14)....... 8,770 8,933 14,789
------- ------- --------
Operating Income (Loss)........................... (1,166) 4,759 9,353
------- ------- --------
Other Expense:
Interest expense, net............................. 339 296 596
Other expense..................................... -- -- 347
------- ------- --------
Total Other Expense............................... 339 296 943
------- ------- --------
Income (Loss) Before Income Tax Expense (Benefit)... (1,505) 4,463 8,410
Income Tax Expense (Benefit) (Note 7)............... (453) 1,692 3,710
------- ------- --------
Net Income (Loss) Before Minority Interest.......... (1,052) 2,771 4,700
Minority Interest in Net Loss of Subsidiary......... -- -- 160
------- ------- --------
Net Income (Loss)................................. $(1,052) $ 2,771 $ 4,860
======= ======= ========
Earnings (Loss) Per Share (Note 11):
Basic............................................. $ (.28) $ .74 $ 1.29
======= ======= ========
Diluted........................................... $ (.28) $ .66 $ 1.08
======= ======= ========
Shares Used in Computing Earnings Per Share (Note
11):
Basic............................................. 3,745 3,755 3,779
Diluted........................................... 3,745 4,213 4,490
See accompanying notes to consolidated financial statements.
F-36
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
Accumulated Other
Comprehensive Loss
-----------------------
Fair Market
Foreign Value of Total
Common Retained Currency Interest Shareholders'
Stock Earnings Translation Rate Swap Equity
------- -------- ----------- ----------- -------------
Balance, March 31,
1998................... $14,444 $17,537 -- -- $31,981
Issuance of 5,251 shares
of common stock........ 24 -- -- -- 24
Net loss for the year... -- (1,052) -- -- (1,052)
------- ------- ---- ---- -------
Balance, March 31,
1999................... 14,468 16,485 -- -- 30,953
Issuance of 12,514
shares of common
stock.................. 61 -- -- -- 61
Net income for the
year................... -- 2,771 -- -- 2,771
------- ------- ---- ---- -------
Balance, March 31,
2000................... 14,529 19,256 -- -- 33,785
Issuance of 54,453
shares of common stock,
including $418 income
tax benefit............ 614 -- -- -- 614
Other comprehensive loss
(Note 15).............. -- -- $(16) $(88) (104)
Net income for the
year................... -- 4,860 -- -- 4,860
------- ------- ---- ---- -------
Balance, March 31,
2001................... $15,143 $24,116 $(16) $(88) $39,155
======= ======= ==== ==== =======
See accompanying notes to consolidated financial statements.
F-37
TRIPLE S PLASTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended March 31,
--------------------------
1999 2000 2001
------- ------- --------
Operating Activities
Net income (loss).................................. $(1,052) $ 2,771 $ 4,860
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation..................................... 3,684 3,766 4,566
Amortization and impairment charge in 2001....... 169 293 1,348
Provision for losses on accounts receivable...... 1,071 93 --
Deferred income taxes............................ (177) (301) (317)
Loss (gain) on sale of property, plant and
equipment....................................... (12) 966 298
Minority interest in loss of subsidiary.......... -- -- (160)
Changes in assets and liabilities, net of amounts
acquired from business acquisition:
Receivables:
Trade........................................ 2,708 (4,535) (5,643)
Refundable income taxes...................... (930) 737 (665)
Inventories.................................... (690) (1,958) (1,581)
Other assets................................... (333) (101) (641)
Accounts payable and accruals.................. 1,228 (349) 5,788
Income taxes payable........................... -- 831 (831)
------- ------- --------
Cash Provided by Operating Activities.............. 5,666 2,213 7,022
Investing Activities
Purchases of property, plant and equipment......... (3,437) (7,149) (11,132)
Proceeds from sale of property, plant and
equipment......................................... 18 3,353 17
Decrease in restricted cash........................ 2,932 -- --
Business acquisition (Notes 9 and 12).............. (909) -- (1,310)
------- ------- --------
Cash Used in Investing Activities.................. (1,396) (3,796) (12,425)
Financing Activities
Proceeds from issuance of common stock............. 24 61 614
Net borrowings under note payable.................. -- -- 582
Principal payments on long-term debt............... (2,483) (2,266) (1,761)
Proceeds from issuance of long-term debt........... -- -- 5,160
Other financing activities......................... -- -- 16
------- ------- --------
Cash Provided By (Used in) Financing Activities.... (2,459) (2,205) 4,611
------- ------- --------
Increase (Decrease) in Cash and Cash Equivalents... 1,811 (3,788) (792)
Effect of Exchange Rate Changes on Cash and Cash
Equivalents....................................... -- -- (16)
Cash and Cash Equivalents, beginning of year....... 3,783 5,594 1,806
------- ------- --------
Cash and Cash Equivalents, end of year............. $ 5,594 $ 1,806 $ 998
======= ======= ========
See accompanying notes to consolidated financial statements.
F-38
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Business
Triple S Plastics, Inc. is a plastics engineering services company, serving
the telecommunications, automotive, consumer products, medical and other
industries with rapid prototyping and design models, mold design and
engineering services, mold manufacturing, plastic injection molding, and post-
molding assembly and finishing operations.
During the years ended March 31, 2001, 2000 and 1999, a telecommunications
customer accounted for 72%, 59%, and 34% of net sales, respectively.
Acquisitions and Goodwill
The financial statements include the net assets of businesses purchased at
their fair value at the acquisition date. The excess of acquisition costs over
the fair value of net assets acquired is included in and has been allocated to
goodwill. Goodwill is amortized on a straight-line basis over lives ranging
from 3 to 30 years.
Principles of Consolidation
The consolidated financial statements include the accounts of Triple S and
its wholly owned subsidiaries and joint venture over which it has financial or
management control. All material intercompany accounts and transactions have
been eliminated.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for renewals
and betterments are capitalized and maintenance and repairs are expensed as
incurred. Depreciation and amortization are computed by the straight-line
method over the estimated useful lives of the assets as follows:
Buildings....... 40 years
Machinery and
equipment...... 5 to 10 years
Office furniture
and equipment.. 3 to 10 years
Leasehold
improvements... 10 years or the term of the lease, if less
Income Taxes
Triple S follows the liability method of accounting for income taxes and
provides deferred income taxes based on enacted income tax rates in effect on
the dates temporary differences between the financial reporting and tax bases
of assets and liabilities are expected to reverse. The effect on deferred tax
assets and liabilities of a change in income tax rates is recognized in the
period that includes the enactment date.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, receivables, and accounts
payable approximate fair value based upon the liquidity and short-term nature
of the items. The carrying value of notes payable and long-term
F-39
debt approximates the fair value based upon short-term and long-term borrowings
at approximate market interest rates. The fair value of the interest rate swap
is discussed in Note 15.
Shipping and Handling Costs
Amounts billed to customers for shipping and handling are recorded as
revenue. Shipping and handling costs incurred by Triple S are included in cost
of sales.
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 at the
date of the financial statements. Actual results could differ from those
estimates.
Revenue Recognition
Revenue is recognized on plastic molded products when the products are
shipped to customers. Revenue on molds is recognized when the mold is completed
and samples of molded parts produced by the tool are shipped to customers.
Molds are constructed to customer specifications. When mold construction is
complete, samples are produced and are measured against customer-required
tolerances. Samples are shipped when the required tolerances are met. Prior to
that time, mold revenue and direct mold costs are deferred. Losses are
recognized when reasonable estimates of the amount of loss can be made.
Foreign Currency Translation
The financial statements of Triple S's international affiliate is translated
into U.S. dollars using current exchange rates for the balance sheets and
average exchange rates for statements of income and cash flows. Unrealized
translation adjustments are included in accumulated other comprehensive loss in
shareholders' equity. Transaction gains and losses, such as those resulting
from the settlement of foreign currency receivables or payables, are included
in current net income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and held in banks, money
market funds, commercial paper and other short-term investments with an
original maturity of three months or less when purchased.
Interest Rate Swap Agreements
Triple S enters into interest rate swap agreements to reduce the impact of
changes in interest rates on its floating rate borrowings. Interest rate swap
agreements are contracts to exchange floating rates for fixed rate interest
payments over the life of the agreements without the exchange of the underlying
notional amounts. The notional amounts of interest rate swap agreements are
used to measure interest to be paid or received and do not represent the amount
of exposure to credit loss. The differential paid or received on interest rate
agreements is recognized as an adjustment to interest expense.
The counterparty to Triple S's interest rate swap agreements is a commercial
bank with which Triple S has other financial relationships. While Triple S is
exposed to credit loss in the event of nonperformance by the counterparty,
Triple S does not anticipate nonperformance by the other party, and no material
loss would be expected from such nonperformance.
Triple S does not enter into interest rate swap agreements, or other
derivative financial instruments, for trading purposes.
F-40
TRIPLE S PLASTICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Triple S has formally documented the relationship between the interest rate
swap and the long-term borrowings, as well as its risk management objective and
strategy for undertaking the hedge transaction. This process includes linking
the derivative that has been designated as a cash flow hedge to the specific
liability on the balance sheet. Triple S also formally assesses, both at the
hedge's inception and on an ongoing basis, whether the derivative used in the
hedging transaction is highly effective in offsetting changes in the cash flows
of the hedged item. If Triple S determines that the derivative is not highly
effective as a hedge or that it has ceased to be a highly effective hedge,
Triple S will discontinue hedge accounting prospectively.
Long-Lived Assets
Triple S evaluates long-lived assets, including goodwill, for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. An impairment loss is recognized when
estimated undiscounted future cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount (see also
Note 14).
Stock Based Compensation
Triple S has adopted Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation. Statement of Financial Accounting
Standards No. 123 allows companies to continue to measure compensation cost for
stock-based employee compensation plans using the intrinsic value method of
accounting as prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations. Triple S
has elected to continue its Accounting Principles Board Opinion No. 25
accounting treatment for stock-based compensation, and has adopted the
provisions of Statement of Financial Accounting Standards No. 123 requiring
disclosure of the pro forma effect on net earnings and earnings per share as if
compensation cost had been recognized based upon the estimated fair value at
the date of grant for options awarded.
Earnings Per Share
Triple S has adopted Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which establishes standards for computing and presenting
earnings per share for entities with publicly held common stock or potential
common stock. Statement of Financial Accounting Standards No. 128 simplifies
the standards for computing earnings per share and makes them comparable to
international earnings per share standards. The statement requires dual
presentation of "basic" and "diluted" earnings per share, which replace primary
and fully diluted earnings per share, respectively, required under previous
guidance.
Segment Information
Triple S has adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information. Statement
of Financial Accounting Standards No. 131 established standards for the way in
which publicly held companies report financial and descriptive information
about their operating segments in financial statements for both interim and
annual periods, and requires additional disclosures with respect to products
and services, geographic areas of operation and major customers. Triple S's
primary operations are in one segment--the design and manufacture of highly
engineered thermoplastic components. Other operations include mold making and
rapid prototyping. Triple S has aggregated its operating segments into a single
reportable segment as prescribed by Statement of Financial Accounting Standards
No. 131. Revenue from external customers for each type of product and service
is not reported separately as it is not considered practicable to do so.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. Statement of Financial
F-41
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Standards No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. This statement is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000, as amended
by Statement of Financial Accounting Standards 137.
Triple S uses derivative financial instruments to manage the economic impact
of fluctuations in interest rates. Triple S enters into interest rate swaps to
manage these economic risks. Statement of Financial Accounting Standards No.
133 did not have a significant effect on the consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Staff
Accounting Bulletin No. 101, as amended, summarizes and clarifies certain
existing accounting principles for the recognition and classification of
revenues in the financial statements. Staff Accounting Bulletin No. 101 did not
have a significant effect on the consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation of Accounting
Principles Board Opinion No. 25. Financial Accounting Standards Board
Interpretation 44 clarifies the following:
. the definition of an employee for purposes of applying Accounting
Principles Board Opinion No. 25;
. the criteria for determining whether a plan qualifies as a
noncompensatory plan;
. the accounting consequence of various modifications to the terms of the
previously fixed stock options or awards; and
. the accounting for an exchange of stock compensation awards in a
business combination.
Financial Accounting Standards Board Interpretation No. 44 was effective
July 1, 2000, but certain conclusions in Financial Accounting Standards Board
Interpretation No. 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The application of Financial Accounting Standards
Board Interpretation No. 44 did not have a material impact on the consolidated
financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
2. Asset Held for Sale
As discussed in Note 14, Triple S's Tucson, Arizona facility was sold in
December 1999 and, at that time, the Victor Plastics facility was being held
for sale. These facilities were written down to their estimated fair market
value in the first quarter ended June 30, 1999, and depreciation of the
facilities was terminated at the time of closure. In September 2000, management
decided to reactivate the Victor Plastics facility. The asset has been
reclassified from "asset held for sale" to "property, plant and equipment," and
depreciation of the asset has been resumed.
3. Inventories
Inventories are summarized as follows:
March 31,
-------------
2000 2001
------ ------
Raw materials and packaging................................... $3,658 $5,070
Finished goods and work-in-process............................ 2,686 2,865
------ ------
Total inventories........................................... $6,344 $7,935
====== ======
F-42
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Line of Credit
Triple S has a $10,000 unsecured line-of-credit agreement with a bank, due
on demand, with interest on the unpaid principal balance at a variable rate
based on certain financial ratios (effectively 7.5% at March 31, 2001). There
was $582 outstanding under this agreement at March 31, 2001. There were no
borrowings under this agreement at March 31, 2000.
5. Long-Term Debt
Long-term debt consisted of:
March 31,
-------------
2000 2001
------ ------
Putnam County Industrial Revenue Bond........................ -- $4,500
Note payable to Dynacept Company (now known as MLM
Liquidation Corp.).......................................... $2,730 2,730
Michigan Strategic Fund Limited Obligation Revenue Bonds
(1989 and 1990 series)...................................... 1,560 1,080
Note payable to Manaus Refrigerantes Ltda.................... -- 576
Mortgage note payable to bank................................ 598 542
Georgetown Industrial Development Corporation Revenue Bond... 1,042 270
------ ------
Long-term debt............................................... 5,930 9,698
Current maturities of long-term debt......................... 1,312 1,992
------ ------
Long-term debt, less current maturities...................... $4,618 $7,706
====== ======
The Putnam County Industrial Development Bond provides for annual principal
payments ranging from $220 to $395 plus interest through January 2016. In
addition, the bonds require the establishment of a separate bank account funded
at levels indicated in the various bond agreements. These funds were equal to
or in excess of required balances as of March 31, 2001. The bonds provide for
interest at a variable rate equal to the issuing bank's tax-exempt rate. In
connection with the bonds, Triple S entered into an interest rate swap
agreement in January 2001, expiring in December 2008, essentially to fix the
interest rate at 4.51%. At March 31, 2001, the interest rate in effect on these
bonds was 3.75% and the notional amount of the swap agreement amounted to
$4,500. The bonds are collateralized by a letter of credit with a bank.
The note payable to Dynacept Company provides for monthly installments of
interest only, at a rate of 5%, with the entire principal balance due and
payable in full on March 31, 2003. The note is secured by a letter of credit
with a bank.
The Michigan Strategic Fund Limited Obligation Revenue Bonds (1989 and 1990
series) provide for semi-annual interest payments with rates that vary from
7.3% to 7.65% and annual principal payments through September 2001. The bonds
are collateralized by a letter of credit with a bank.
The note payable to Manaus Refrigerantes Ltda. provides for monthly
principal payments ranging from $12 to $43 plus interest through August 2002.
Interest is fixed at 6%. The note is unsecured.
The mortgage note payable to the bank, provides for monthly payments of
$8.5, including interest at 7.95% through February 2008.
The Georgetown Industrial Development Corporation Revenue Bond provides for
monthly principal payments ranging from $63 to $80 plus interest through August
2001. The bonds provide for interest at 77% of the bank's prime rate,
effectively 6.16% at March 31, 2001.
F-43
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The above debt, except the notes payable to Dynacept Company and Manaus
Refrigerantes Ltda., is secured by property and equipment. In connection with
the overall bank financing agreement, Triple S must comply with certain
financial and non-financial restrictive covenants. The restrictive covenants
include limitations on the amount of required working capital, the ratio of
debt to tangible net worth and the minimum amount of tangible net worth.
Maturities of long-term debt for the four fiscal years succeeding 2002 are:
2003--$3,241; 2004--$312; 2005--$344; and 2006--$361.
6. Leases and Commitments
Triple S leases certain manufacturing facilities and transportation
equipment under operating leases expiring at various dates through 2006.
Management expects that in the normal course of business, leases will be
renewed or replaced by other leases. Minimum lease payments required under
operating leases for future years are as follows: 2002--$1,003; 2003--$785;
2004--$444; 2005--$127; 2006--$9.
Total lease expense for facilities and equipment amounted to $1,420 in 2001;
$1,066 in 2000; and $706 in 1999.
7. Income Taxes
Income tax expense (benefit) consisted of the following:
Years Ended March
31,
---------------------
1999 2000 2001
----- ------ ------
Current:
Federal............................................ $(276) $1,781 $3,881
State and local.................................... -- 212 146
----- ------ ------
(276) 1,993 4,027
Deferred............................................. (177) (301) (317)
----- ------ ------
Total income tax expense (benefit)................. $(453) $1,692 $3,710
===== ====== ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of Triple S's deferred tax assets and liabilities
were as follows:
March 31,
----------
2000 2001
---- -----
Deferred tax assets
Accrued compensation and benefits................................ $72 $ 445
Inventory valuation and related reserves......................... 227 314
Deferred revenue................................................. -- 123
Accounts receivable reserves..................................... 143 85
Accrued expenses related to plant closing........................ 51 --
Other............................................................ 58 41
--- -----
551 1,008
--- -----
F-44
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax liabilities
Accumulated depreciation and amortization................. (1,949) (2,113)
Accounts receivable valuation............................. (111) (56)
Other..................................................... (13) (44)
------- -------
(2,073) (2,213)
------- -------
Net deferred tax liability................................ $(1,522) $(1,205)
======= =======
A reconciliation of the statutory federal income tax rate to Triple S's
effective income tax rate was as follows:
Years Ended
March 31,
------------------
1999 2000 2001
----- ---- ----
Statutory federal income tax rate...................... (34.0%) 34.0% 34.0%
Non-deductible goodwill................................ -- -- 4.1
Foreign subsidiary losses for which no income tax
benefit was received.................................. -- -- 2.6
State and local income taxes, net of federal income tax
effect................................................ -- 4.7 1.3
Other.................................................. 3.9 (.8) 2.1
----- ---- ----
Effective income tax rate.............................. (30.1%) 37.9% 44.1%
===== ==== ====
8. Employee Benefit Plans
Triple S maintains a defined contribution plan (401K) covering substantially
all employees. Under the Plan, employees' contributions are made on a tax-
deferred basis and are partially matched by Triple S. Total expense under the
Plan was $128, $168, and $131 for 2001, 2000 and 1999, respectively.
Triple S has a deferred compensation plan that enables certain employees of
Triple S to defer receipt of a portion of their compensation. Triple S funds
the deferred compensation liabilities by contributing to rabbi trusts.
Contributions consist of investments in money market and mutual funds. During
the fourth quarter of fiscal 2001, Triple S adopted Emerging Issues Task Force
Issue No. 97-14, Accounting for Deferred Compensation Arrangements Where
Amounts Earned are Held in a Rabbi Trust and Invested. The adoption of this
accounting standard resulted in an increase in other assets and an increase in
other liabilities of approximately $304.
The following information pertains to trading securities included in the
Deferred Compensation Plan at March 31, 2001:
Fair Value--
Equity securities..................................................... $304
Cost--
Equity securities..................................................... $484
Gross Unrealized Losses
(Included in Earnings)--
Equity securities..................................................... $180
F-45
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Supplemental Disclosures of Cash Flow Information
Years Ended March
31,
------------------
1999 2000 2001
------ ---- ------
Operating Activities:
Interest paid, net of amount capitalized................ $ 614 $500 $ 665
Interest received....................................... $ 264 $193 $ 68
Income taxes paid, net of refunds received.............. $ 654 $124 $5,108
Non-cash Investing and Financing Activities:
Capital expenditures included in accounts payable....... $ 688 $ -- $ --
Long-term debt and notes payable related to
acquisition............................................ $2,730 $ -- $ 369
Equipment addition related to acquisition............... $ -- $ -- $ 274
10. Common Stock
Triple S maintains a stock option plan for key employees and has reserved
920,000 shares of common stock for such plan. The options may be exercised
within ten years from the date of grant and the exercise price must equal the
fair market value of Triple S's stock at the date of the grant. The options
generally vest from two to five years from the date of grant.
Triple S also maintains an Outside Director Stock Option Plan and has
reserved 300,000 shares of common stock for such plan. The options may be
exercised within three-and-a half to ten years from the date of grant and the
exercise price must equal the fair market value of Triple S's stock at the date
of the grant. The options become vested six months to three years after the
grant date.
A summary of stock option activity (which includes both plans) is as
follows:
Weighted
Option Price Average Price
Shares Per Share Per Share
------- ------------- -------------
Options outstanding at March 31, 1998.... 338,200 $5.00--$12.50 $ 7.23
Granted.................................. 49,000 $4.63--$ 6.56 $ 6.28
Canceled................................. (35,000) $6.25--$12.50 $ 6.80
-------
Options outstanding at March 31, 1999.... 352,200 $4.63--$12.50 $ 7.14
Granted.................................. 660,000 $3.13--$10.50 $ 3.93
Canceled................................. (45,000) $4.88--$12.50 $ 6.94
Exercised................................ (5,500) $6.13--$ 7.25 $ 6.33
-------
Options outstanding at March 31, 2000.... 961,700 $3.13--$12.50 $ 4.95
Granted.................................. 50,000 $ 17.63 $17.63
Canceled................................. -- -- --
Exercised................................ (68,500) $4.88--$12.50 $ 8.47
-------
Options outstanding at March 31, 2001.... 943,200 $3.13--$17.63 $ 5.31
=======
F-46
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
There were 202,800 and 252,800 shares available for future grant under the
plans at March 31, 2001 and 2000, respectively. The following table summarizes
significant ranges of outstanding and exercisable options at March 31, 2001:
Options
Options Outstanding Exercisable
------------------------------ ----------------
Weighted Weighted Weighted
Ranges of Average Average Average
Exercise Remaining Exercise Exercise
Prices Shares Life in Years Price Shares Price
----------- ------- ------------- -------- ------- --------
$3.01 to $4.00 470,000 8.0 $ 3.13 470,000 $ 3.13
$4.01 to $5.00 154,000 6.3 $ 4.88 75,499 $ 4.88
$5.01 to $6.00 1,000 5.3 $ 5.75 1,000 $ 5.75
$6.01 to $7.00 170,200 5.6 $ 6.39 101,368 $ 6.37
$7.01 to $8.00 77,000 6.1 $ 7.25 77,000 $ 7.25
$8.01 to $9.00 -- -- -- -- --
over $9.00 71,000 2.7 $15.97 17,666 $12.31
For all plans, options of 742,533, 647,029, and 137,032 shares were
exercisable at March 31, 2001, 2000, and 1999 with a weighted average exercise
price of $4.40, $4.45, and $7.83, respectively.
The weighted average fair value per share of stock based compensation issued
during fiscal 2001, 2000 and 1999 was $3.31, $1.86 and $3.24 respectively. The
fair value was estimated using the Black-Scholes model with the following
weighted average assumptions:
1999 2000 2001
---- ---- ----
Expected life (in years).................................... 6.9 4.5 2.7
Interest rate............................................... 5.59% 5.29% 6.05%
Volatility.................................................. 37.9% 54.0% 56.3%
Dividend yield.............................................. -- -- --
Stock based compensation costs would have reduced pre-tax income by
$445,000, $997,000, and $292,000 in 2001, 2000 and 1999, respectively, if the
fair values of such compensation had been recognized as compensation expense on
a straight-line basis over the vesting periods of the grants.
As permitted by Statement of Financial Accounting Standards No. 123, Triple
S has elected to continue following the guidance of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, for measurement and
recognition of stock-based transactions with employees. Accordingly, no
compensation cost has been recognized for Triple S's option plans. Had Triple S
determined compensation cost based on the fair value at the grant date for its
stock options, consistent with the method of Statement of Financial Accounting
Standards No. 123, Triple S's net earnings and net earnings per share would
approximate the following pro forma amounts:
Years Ended March 31,
----------------------
1999 2000 2001
------- ------ ------
Net Earnings (Loss):
As reported......................................... $(1,052) $2,771 $4,860
Pro forma........................................... $(1,242) $2,113 $4,566
Basic Earnings (Loss) per Share:
As reported......................................... $ (.28) $ .74 $ 1.29
Pro forma........................................... $ (.33) $ .56 $ 1.21
Diluted Earnings (Loss) per Share:
As reported......................................... $ (.28) $ .66 $ 1.08
Pro forma........................................... $ (.33) $ .50 $ 1.02
F-47
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Triple S maintains an Employee Stock Purchase Plan and reserved 100,000
shares of Common Stock for such plan. Under the plan, any eligible employee may
purchase stock at a price equal to 85% of the fair market value as of the last
day of the option period.
11. Earnings Per Share
Earnings per share has been computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 128. The following table sets
forth the computation of basic and diluted earnings per share:
Years Ended March 31,
----------------------
1999 2000 2001
------- ------ ------
Net income (loss)................................... $(1,052) $2,771 $4,860
======= ====== ======
Weighted average shares outstanding for basic
earnings per share................................. 3,745 3,755 3,779
Effect of dilutive stock options.................... -- 458 711
------- ------ ------
Adjusted weighted average shares outstanding for
diluted earnings per share......................... 3,745 4,213 4,490
======= ====== ======
Basic earnings per share............................ $ (.28) $ .74 $ 1.29
Diluted earnings per share.......................... $ (.28) $ .66 $ 1.08
Options to purchase 25,000 and 386,200 shares of common stock in fiscal
years 2000 and 1999, respectively, were not included in the computation of
diluted earnings per share because the option exercise price was greater than
the average market price of the stock. In fiscal year 2001, all options were
included in the computation of diluted earnings per share because the option
exercise price was less than the average market price of the stock. Diluted
earnings per share for the year ended March 31, 1999 is based only on the
weighted average number of common shares outstanding as the inclusion of 3,000
common share equivalents would have been anti-dilutive.
12. Business Acquisitions
On June 1, 1998, Triple S Plastics, Inc. purchased, for cash of $909 and
long-term debt of $2,730 the assets of Dynacept Company, Inc. (Dynacept).
Dynacept is a rapid prototyping and model making organization that produces
concept models, engineering prototypes, and pre-production samples. The
transaction has been accounted for using the purchase method. The results of
Dynacept have been included in Triple S's consolidated financial statements
from June 1, 1998. Goodwill, amounting to $3,300, is being amortized on a
straight-line basis over 8 years.
On June 16, 2000, Triple S Plastics, Inc. purchased, for cash of $1,310,
assumption of long-term debt of $309 and a note payable of $60, the outstanding
stock of Burco Precision Products, Inc. (Burco), a precision mold-building
business located in Denton, Texas. The transaction has been accounted for using
the purchase method. Burco's results have been included in Triple S's
consolidated financial statements from the date of acquisition. Remaining
goodwill of $430, after the impairment charge discussed in Note 14, is being
amortized on a straight-line basis over 3 years.
13. Formation of Joint Venture
On August 30, 2000 Triple S announced the formation of a new business in
Manaus, Brazil. The business, Triple S Cosmosplast da Amazonia, Ltda., was
formed in collaboration with Cosmosplast Industria e Comercio
F-48
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
de Plasticos Ltds., a Brazilian plastics company serving the electronics and
other selected consumer goods industries. Triple S owns a 70% interest in the
new business and Cosmosplast Industria owns 30%. In establishing this business,
and to acquire certain real estate, Triple S issued long-term debt consisting
of a note payable described in Note 5.
14. General and Administrative Expenses
On April 30, 2001, Triple S announced that, following a review of production
capacity needs at its two Texas facilities, it was transferring most production
from its Ft. Worth plant to its Georgetown plant. Triple S is planning to
maintain a full-capability presence at the Ft. Worth facility and will return
that plant to production levels as the results from new sales initiatives
warrant. Triple S expects the production transfer to be completed by July 1,
2001. Accordingly, in the fourth quarter of fiscal 2001 Triple S recorded a
pre-tax charge of $279 of additional depreciation and other costs associated
with the Ft. Worth realignment. In addition, expenses related to the terminated
merger with Eimo Oyj of $2,808 as discussed in Note 16, and an impairment
charge of $900 related to Burco goodwill, as a result of changes in the
business environment noted above, were recorded in fiscal 2001. These pre-tax
charges are classified in General and Administrative Expenses in the
Consolidated Statements of Income in fiscal 2001.
On June 18, 1999, Triple S announced that it was closing its Tucson, Arizona
facility and transferring the machinery and equipment from that facility to its
new facility in Fort Worth, Texas and other locations in Michigan. The charge
recorded in the first quarter ended June 30, 1999, reflects the cost of closing
the Tucson facility and impairment charges related to the planned disposition
of the Victor Plastics facility. The loss on closing and impairment charge
included the write down of property, plant and equipment to market value of
$1,151 and closedown expenses of $161. The adjustment to market value included
a provision of $675 for the Tucson facility, Tucson machinery and equipment of
$326 and the Victor Plastics facility of $150. Closedown expenses consisted of
an inventory provision of $84 and severance payments of $77 related to the
termination of all 100 employees at the Tucson facility. The market value of
the property, plant, and equipment was the amount at which the assets could be
sold in a current transaction between willing parties, other than in a forced
or liquidation sale. This pre-tax charge is classified in General and
Administrative Expenses in the Consolidated Statements of Income in fiscal
2000. The sale of the Tucson facility was final and all other costs were
incurred as of December 1999. No additional provision for closing costs was
necessary.
Near the end of the third quarter of fiscal year 1999, two of Triple S's
customers filed for protection under Chapter 11 of the U.S. Bankruptcy Code and
a third customer indicated that it was having extreme financial difficulty
obtaining needed additional financing to pay amounts owed to Triple S.
Accordingly, in the third quarter of fiscal 1999 Triple S recorded a pre-tax
provision of $1,441 for losses on accounts receivable of $1,221, inventories on
hand for these customers of $200, and legal costs of $20. This pre-tax charge
is classified in General and Administrative Expenses in the Consolidated
Statements of Income in fiscal 1999.
The above charges, classified in General and Administrative Expenses, are
summarized as follows:
Years Ended March
31,
--------------------
1999 2000 2001
------ ------ ------
Merger costs.......................................... -- -- $2,808
Impairment charge..................................... -- -- 900
Ft. Worth realignment................................. -- -- 279
Tucson plant closing costs............................ -- $1,312 --
Provision for losses.................................. $1,441 -- --
------ ------ ------
Total pre-tax charge in General and Administrative
Expenses............................................. $1,441 $1,312 $3,987
====== ====== ======
F-49
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of all changes in shareholders'
equity during the period other than from transactions with shareholders.
Comprehensive income (loss) consists of the following:
Years Ended March 31,
----------------------
1999 2000 2001
------- ------ ------
Net income (loss).................................... $(1,052) $2,771 $4,860
Other comprehensive loss--
Derivative adjustment............................... -- -- (88)
Foreign currency translation adjustments............ -- -- (16)
------- ------ ------
Comprehensive income (loss).......................... $(1,052) $2,771 $4,756
======= ====== ======
The above derivative adjustment of $(88), included in other liabilities at
March 31, 2001, consisted of a change in the fair value of the derivative of
$(143), tax effect of $45, and a reclassification adjustment to expense of $10.
16. Commitments and Contingencies
On April 30, 2001, subsequent to year-end, Triple S announced that a dispute
had arisen regarding the legal effect of the separate termination notices given
by Triple S and Eimo Oyj in connection with the termination in March of the
planned merger of the two companies. Eimo filed an action in federal court in
Delaware seeking damages from Triple S, claiming that the termination of the
merger agreement by Triple S, after Eimo itself had given notice of
termination, constituted a breach of the agreement that entitles Eimo to
damages consisting of certain expenses not exceeding $1,000, a termination fee
of $6,400 and other unspecified damages. Triple S believes that Eimo's suit is
without merit and has filed a motion to dismiss the case for failure to state a
cause of action. Triple S will defend the action vigorously and does not
believe that it owes Eimo a termination fee, expenses or other damages.
17. Quarterly Information (Unaudited)
First Second Third Fourth
Fiscal 2000 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
Net sales..................................... $19,246 $23,709 $27,964 $24,183
Gross profit.................................. $ 3,540 $ 4,544 $ 5,288 $ 4,555
Net income (loss)............................. $ (621) $ 973 $ 1,289 $ 1,130
Basic earnings (loss) per share............... $ (.17) $ .26 $ .34 $ .31
Diluted earnings (loss) per share............. $ (.17) $ .24 $ .30 $ .26
First Second Third Fourth
Fiscal 2001 Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- -------
Net sales..................................... $32,138 $39,713 $46,613 $36,704
Gross profit.................................. $ 6,611 $ 8,294 $ 7,790 $ 4,245
Net income (loss)............................. $ 2,211 $ 2,711 $ 1,289 $(1,351)
Basic earnings (loss) per share............... $ .59 $ .72 $ .34 $ (.36)
Diluted earnings (loss) per share............. $ .50 $ .59 $ .28 $ (.36)
F-50
TRIPLE S PLASTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Triple S Plastics, Inc.
Vicksburg, Michigan
We have audited the accompanying consolidated balance sheets of Triple S
Plastics, Inc. as of March 31, 2001 and 2000 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended March 31, 2001. These financial statements are the
responsibility of Triple S's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Triple S
Plastics, Inc. at March 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.
BDO Seidman, LLP
Kalamazoo, Michigan
May 3, 2001
F-51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL
STATEMENT SCHEDULE
The Board of Directors
Triple S Plastics, Inc.
Vicksburg, Michigan
The audits referred to in our report dated May 3, 2001 relating to the
consolidated financial statements of Triple S Plastics, Inc., included the
audit of the financial statement schedule listed in the accompanying index.
This financial statement schedule is the responsibility of Triple S's
management. Our responsibility is to express an opinion on this financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Kalamazoo, Michigan
May 3, 2001
F-52
TRIPLE S PLASTICS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Balance Additions
at charged to Charged Balance
beginning costs and against Other at end of
Description of period expenses reserves changes period
----------- --------- ---------- -------- ------- ---------
Reserves and allowances
deducted from asset accounts:
Allowance for uncollectible
accounts receivable:
Year ended March 31, 2001.... $300,000 -- $ 50,000 -- $250,000
Year ended March 31, 2000.... $709,000 $ 93,000 $502,000 -- $300,000
Year ended March 31, 1999.... $350,000 $1,071,000 $712,000 -- $709,000
Reserve for inventory
obsolescence:
Year ended March 31, 2001.... $250,000 $ 46,000 -- -- $296,000
Year ended March 31, 2000.... $110,000 $ 140,000 -- -- $250,000
Year ended March 31, 1999.... $493,340 -- $383,340 -- $110,000
F-53
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
by and among
EIMO OYJ,
SPARTAN ACQUISITION CORP.
and
TRIPLE S PLASTICS, INC.
dated as of
May 25, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I THE MERGER..................................................... A-2
Section 1.1 The Merger.............................................. A-2
Section 1.2 Effective Time.......................................... A-2
Section 1.3 Closing................................................. A-2
Section 1.4 Directors and Officers of the Surviving Corporation..... A-2
Section 1.5 Subsequent Actions...................................... A-3
Section 1.6 Other Agreements........................................ A-3
ARTICLE II CONVERSION OF SECURITIES...................................... A-3
Section 2.1 Conversion of Capital Stock............................. A-3
Section 2.2 Exchange of Certificates................................ A-4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ A-6
Section 3.1 Organization; Qualification; Charter Documents.......... A-7
Section 3.2 Subsidiaries and Affiliates............................. A-7
Section 3.3 Capitalization.......................................... A-7
Section 3.4 Authorization; Validity of Agreement; Company Action.... A-8
Section 3.5 Board Approvals; Takeover Statutes...................... A-8
Section 3.6 Vote Required........................................... A-8
Section 3.7 Consents and Approvals; No Violations................... A-8
Section 3.8 SEC Reports and Financial Statements.................... A-9
Section 3.9 No Undisclosed Liabilities.............................. A-9
Section 3.10 Absence of Certain Changes.............................. A-9
Section 3.11 Litigation.............................................. A-10
Section 3.12 Employee Benefit Plans.................................. A-10
Section 3.13 Tax Matters; Government Benefits........................ A-12
Section 3.14 Title to Properties; Encumbrances....................... A-12
Section 3.15 Environmental Laws...................................... A-13
Section 3.16 Intellectual Property................................... A-13
Section 3.17 Compliance with Laws.................................... A-13
Section 3.18 Labor Difficulties...................................... A-13
Section 3.19 Information to be Supplied.............................. A-14
Section 3.20 Opinion of Financial Advisor............................ A-14
Section 3.21 Brokers or Finders...................................... A-14
Section 3.22 Company Agreements...................................... A-14
Section 3.23 Interested Party Transactions........................... A-14
Section 3.24 Certain Liabilities and Agreement....................... A-14
i
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER....... A-14
Section 4.1 Organization; Qualification; Charter Documents......... A-15
Section 4.2 Subsidiaries and Affiliates............................ A-15
Section 4.3 Capitalization......................................... A-15
Section 4.4 Authorization; Validity of Agreement; Necessary
Action................................................. A-16
Section 4.5 Board Approvals; Takeover Statutes..................... A-16
Section 4.6 Vote Required.......................................... A-16
Section 4.7 Consents and Approvals; No Violations.................. A-17
Section 4.8 Parent Public Reports and Financial Statements......... A-17
Section 4.9 No Undisclosed Liabilities............................. A-17
Section 4.10 Absence of Certain Changes............................. A-17
Section 4.11 Litigation............................................. A-18
Section 4.12 Tax Matters; Government Benefits....................... A-18
Section 4.13 Title to Properties; Encumbrances...................... A-19
Section 4.14 Environmental Laws..................................... A-19
Section 4.15 Intellectual Property.................................. A-19
Section 4.16 Compliance with Laws................................... A-19
Section 4.17 Labor Difficulties..................................... A-20
Section 4.18 Information to be Supplied............................. A-20
Section 4.19 Merger Sub's Operations................................ A-20
Section 4.20 Brokers or Finders..................................... A-20
Section 4.21 Parent Agreements...................................... A-20
Section 4.22 Interested Party Transactions.......................... A-21
ARTICLE V COVENANTS..................................................... A-21
Section 5.1 Conduct of the Business of Company..................... A-21
Section 5.2 Conduct of the Business of Parent...................... A-24
Section 5.3 Company Shareholder Meeting; Parent Shareholder
Meeting; Preparation of Proxy Statement/Prospectus..... A-25
Section 5.4 Access................................................. A-26
Section 5.5 Confidentiality........................................ A-26
Section 5.6 Reasonable Best Efforts ............................... A-26
Section 5.7 Employee Stock Options................................. A-28
Section 5.8 No Solicitation by the Company......................... A-29
Section 5.9 No Solicitation by the Parent ......................... A-30
Section 5.10 Publicity.............................................. A-31
ii
Section 5.11 Notification of Certain Matters........................ A-31
Section 5.12 State Takeover Laws.................................... A-31
Section 5.13 Tax Treatment.......................................... A-31
Section 5.14 Governance Matters..................................... A-32
Section 5.15 Merger Sub Compliance.................................. A-32
Section 5.16 Employee Benefits...................................... A-32
Section 5.17 Indemnification........................................ A-33
Section 5.18 Control of Other Party's Business...................... A-34
Section 5.19 HSE Listing and Nasdaq Listing; Exchange Act Reports... A-34
Section 5.20 No Series K Shares..................................... A-35
ARTICLE VI CONDITIONS................................................... A-35
Section 6.1 Conditions Precedent to Obligations of Parent and
Merger Sub............................................. A-35
Section 6.2 Conditions Precedent to Obligations of the Company..... A-36
Section 6.3 Frustration of Closing Conditions...................... A-37
Section 6.4 Conditions Not Otherwise a Limitation of Rights........ A-37
ARTICLE VII TERMINATION................................................. A-38
Section 7.1 Termination............................................ A-38
Section 7.2 Effect of Termination.................................. A-39
Section 7.3 Payment of Certain Fees and Expenses................... A-39
ARTICLE VIII DEFINITIONS AND INTERPRETATION............................. A-40
Section 8.1 Definitions............................................ A-40
Section 8.2 Interpretation......................................... A-47
ARTICLE IX MISCELLANEOUS................................................ A-48
Section 9.1 Amendment and Modification ............................ A-48
Section 9.2 Representations and Warranties......................... A-48
Section 9.3 Notices................................................ A-48
Section 9.4 Counterparts; Telecopier............................... A-49
Section 9.5 Entire Agreement; No Third Party Beneficiaries......... A-49
Section 9.6 Severability........................................... A-49
Section 9.7 Governing Law.......................................... A-49
Section 9.8 Enforcement and Interpretation......................... A-49
Section 9.9 WAIVER OF JURY TRIAL................................... A-50
Section 9.10 Time of Essence........................................ A-50
Section 9.11 Extension; Waiver...................................... A-50
iii
Section 9.12 Assignment.............................................. A-50
Section 9.13 Mutual Release and Settlement Agreement................. A-50
Section 9.14 Preamble................................................ A-50
Section 9.15 Termination of Prior Agreements......................... A-50
Section 9.16 2001 Form 10-K.......................................... A-50
Section 9.17 Incorporation By Reference In Disclosure Schedules...... A-50
Section 9.18 Certain Waivers......................................... A-51
Exhibits
--------
1.1(a) Certificate of Merger--Michigan
1.1(b) Certificate of Merger--Delaware
1.6(a) Form of Reinstatement of Company Shareholder Agreement
1.6(b) Form of Reinstatement of Parent Shareholder Agreement
1.6(c) Form of Reinstatement of Conversion Agreement
1.6(d)(i) Form of Release and Resignation Agreement of Daniel B. Canavan
1.6(d)(ii) Form of Release and Resignation Agreement of Victor V.
Valentine, Jr.
1.6(d)(iii) Form of Employment Agreement of A. Christian Schauer
6.1(k) Form of Liquidity and Registration Rights Agreement
9.13 Form of Mutual Release and Settlement Agreement
9.16 2001 10-K Draft
Schedules
Company Disclosure Schedule--Schedule A
Parent Disclosure Schedule--Schedule B
iv
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of May 25, 2001,
by and among EIMO OYJ, a company organized under the laws of the Republic of
Finland ("Parent"), SPARTAN ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub") and TRIPLE S PLASTICS, INC., a
Michigan corporation (the "Company"). As used in this Agreement, capitalized
terms have the meanings ascribed to them in Article VIII.
Preamble
WHEREAS, the Board of Directors of each of Parent, Merger Sub and the
Company has approved, and deems it advisable and in the best interests of its
respective shareholders and consistent with and in furtherance of its
respective business strategies and goals, for Parent to acquire all of the
outstanding shares of the Company through the merger of Merger Sub with and
into the Company upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, the Board of Directors of Parent has
approved this Agreement and the Merger in accordance with the laws of the
Republic of Finland, upon the terms and subject to the conditions set forth
herein;
WHEREAS, the parties desire to reinstate, amend and restate that certain
Agreement and Plan of Merger dated as of July 13, 2000, as amended by Amendment
Number One thereto dated as of February 3, 2001 (the "Original Agreement");
WHEREAS, this Agreement shall, upon execution, be in full force and effect
notwithstanding any notice of intent to terminate or notice of termination
given prior to the date of this Agreement, all of which are expressly withdrawn
subject only to the fulfillment of the conditions set forth in Section 9.13 of
this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Merger Sub and the Company have approved this Agreement and the Merger in
accordance with the DGCL and the MBCA, respectively, and upon the terms and
subject to the conditions set forth herein;
WHEREAS, the parties hereto intend that the Merger shall qualify for U.S.
federal income tax purposes as a reorganization (a "Section 368
Reorganization") within the meaning of Section 368(a) of the U.S. Internal
Revenue Code of 1986, as amended (together with the rules and regulations
promulgated thereunder, the "Code");
WHEREAS, the Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger;
WHEREAS, as a condition and inducement to Parent's and Merger Sub's entering
into this Agreement and incurring the obligations set forth herein, each of the
Major Company Shareholders and the other shareholders of the Company who are
signatory thereto, concurrently herewith, is entering into the Company
Shareholder Agreement dated as of the date hereof, with Parent and Merger Sub,
pursuant to which the Major Company Shareholders are agreeing, among other
things, to grant Parent a proxy with respect to the voting of the Shares held
by the Major Company Shareholders all upon the terms and subject to the
conditions set forth in the Company Shareholder Agreement;
WHEREAS, as a condition and inducement to the Company's entering into this
Agreement and incurring the obligations set forth herein, each of the Major
Parent Shareholders, concurrently herewith, is entering into the Parent
Shareholder Agreement dated as of the date hereof, with the Company, pursuant
to which the Major
Parent Shareholders are agreeing, among other things, to grant the Company a
proxy with respect to the voting of the Parent Ordinary Shares and the Parent
Series K Shares held by the Major Parent Shareholders, all upon the terms and
subject to the conditions set forth in the Parent Shareholder Agreement; and
WHEREAS, as a further condition and inducement to the Company's entering
into this Agreement and incurring the obligations set forth herein, each of the
Major Parent Shareholders, concurrently herewith, is entering into the
Conversion Agreement dated as of the date hereof, with the Company, pursuant to
which the Major Parent Shareholders are agreeing, among other things, to
convert the Parent Series K Shares held by the Major Parent Shareholders into
Parent Ordinary Shares, effective as of the Effective Time, all upon the terms
and subject to the conditions set forth in the Conversion Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, the Company and Merger Sub shall consummate a
merger pursuant to which (a) Merger Sub shall be merged with and into the
Company and the separate corporate existence of Merger Sub shall thereupon
cease, (b) the Company shall be the successor or surviving corporation in the
Merger (the "Surviving Corporation") and shall continue to be governed by the
laws of the State of Michigan, and (c) the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises
shall continue unaffected by the Merger, except as set forth in this Section
1.1. Pursuant to the Merger, (x) the articles of incorporation of the Company
shall be amended at and as of the Effective Time as set forth in the
Certificates of Merger in the form of Exhibit 1.1(a) and Exhibit 1.1(b) hereof
(collectively, the "Certificate of Merger"), and, as so amended, shall be the
articles of incorporation of the Surviving Corporation until thereafter amended
as provided by law and such articles of incorporation, and (y) the bylaws of
the Company shall be, at and as of the Effective Time, the bylaws of the
Surviving Corporation until thereafter amended as provided by law, by the
articles of incorporation or by such bylaws. The Merger shall have the effects
specified in the MBCA and the DGCL.
Section 1.2 Effective Time. Subject to the terms of this Agreement, Parent,
Merger Sub and the Company will cause the Merger to be consummated by causing
the Certificate of Merger to be executed and filed on the Closing Date (or on
such other date as Parent and the Company may agree) with the Department of
Consumer and Industry Services of the Corporation Division of the State of
Michigan, as provided in the MBCA, and with the Secretary of State of the State
of Delaware, as provided in the DGCL. The Merger shall become effective on the
later of (a) the time at which the Certificate of Merger is duly filed with the
Department of Consumer and Industry Services of the Corporation Division of the
State of Michigan, (b) the time at which the Certificate of Merger is duly
filed with the Secretary of State of the State of Delaware, or (c) such other
time as is agreed upon by the parties and specified in the Certificate of
Merger (the "Effective Time").
Section 1.3 Closing. The closing of the Merger shall take place at 10:00
a.m. on a date to be agreed upon by the parties, and if such date is not agreed
upon by the parties, the Closing shall occur on the second Business Day after
satisfaction or waiver of all of the conditions set forth in Article VI, at the
offices of Smith, Gambrell & Russell, LLP, 1230 Peachtree Street, N.E.,
Atlanta, Georgia 30309, or such other location as shall be agreed upon by the
parties.
Section 1.4 Directors and Officers of the Surviving Corporation. The
directors of Merger Sub (plus two additional persons acceptable to Parent in
its sole discretion, one of which is to be nominated by the Company
A-2
and the other to be nominated by the Parent prior to the Closing) and the
officers of the Company immediately prior to the Effective Time shall, from and
after the Effective Time, be the directors and officers, respectively, of the
Surviving Corporation until their successors shall have been duly elected or
appointed or qualified or until their earlier death, resignation or removal in
accordance with the articles of incorporation and the bylaws of the Surviving
Corporation. If, at the Effective Time, a vacancy shall exist on the Company
Board of Directors or in any office of the Surviving Corporation, such vacancy
may thereafter be filled in the manner provided by law.
Section 1.5 Subsequent Actions. If at any time after the Effective Time the
Surviving Corporation will consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Merger Sub acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger, or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, and shall execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such deeds, bills of sale, instruments of
conveyance, assignments and assurances and to take and do, and shall take and
do, in the name and on behalf of each of such corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect
or confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to carry out
this Agreement.
Section 1.6 Other Agreements. Simultaneously with the execution and delivery
of this Agreement, the following agreements will be executed and delivered: (a)
the Reinstatement of Company Shareholder Agreement in the form of Exhibit
1.6(a) hereto among Parent, Merger Sub and each of the Major Company
Shareholders and the other shareholders of the Company who are signatory
thereto (the "Company Shareholder Agreement"), (b) the Reinstatement of Parent
Shareholder Agreement in the form of Exhibit 1.6(b) hereto among the Company
and each of the Major Parent Shareholders (the "Parent Shareholder Agreement"),
(c) the Reinstatement of Conversion Agreement in the form of Exhibit 1.6(c)
hereto among the Company, Parent and each of the Major Parent Shareholders (the
"Conversion Agreement"), (d) the Release and Resignation Agreements between the
Company and Daniel B. Canavan and Victor V. Valentine, Jr. in the form of
Exhibit 1.6(d)(i) and Exhibit 1.6(d)(ii), respectively, and (e) the Employment
and Severance Agreement between the Company and A. Christian Schauer in the
form of Exhibit 1.6(d)(iii), (collectively, the "Severance Agreements"). For
the avoidance of doubt, E.A.T Invest Oy, an entity under common control of
Parent, and Anja Paananen are not parties to this Agreement, nor any agreement
referred to in this section or elsewhere in this Agreement.
ARTICLE II
Conversion of Securities
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue
of the Merger and without any further action on the part of the holders of any
Shares or holders of Merger Sub Common Stock:
(a) Merger Sub Common Stock. Each issued and outstanding share of Merger
Sub Common Stock shall be converted into and become one fully paid and non-
assessable share of common stock, no par value, of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All Shares
that are owned by the Company as treasury stock and any Shares owned by
Parent, Merger Sub or any other wholly-owned Subsidiary of Parent shall be
cancelled and retired and shall cease to exist, and no consideration shall
be delivered in exchange therefor. For the avoidance of doubt, this Section
2.1(b) shall not apply to any Shares owned by E.A.T Invest Oy, an entity
under common control with Parent.
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(c) Conversion of Shares. Each issued and outstanding Share (other than
Shares to be cancelled in accordance with Section 2.1(b)) shall be
converted into the right to receive from Parent pursuant to Section 2.1(e)
a number of Parent Ordinary Shares equal to the Exchange Ratio, which shall
be delivered in the form of American Depositary Shares (the "Parent ADSs"),
each representing the right to receive (in book entry form) ten Parent
Ordinary Shares (the "Merger Consideration"), evidenced by one or more
American Depositary Receipts ("Parent ADRs") issued in accordance with the
Deposit Agreement, provided, however, that the ratio between the number of
Parent Ordinary Shares represented by each ADS may be decreased by Parent
in its sole discretion or increased by Parent with the consent of the
Company. At the Effective Time, all Shares shall no longer be outstanding,
shall be canceled and retired and shall cease to exist, and each
certificate (a "Certificate") formerly representing any of such Shares
shall thereafter represent only the right to receive the Merger
Consideration and the right, if any, to receive pursuant to Section 2.2(f)
cash in lieu of fractional Parent ADSs and any dividend or distribution
pursuant to Section 2.2(d), in each case without interest. Parent shall,
following the Closing, pay all stamp duties, stamp duty reserve tax and
other taxes and similar levies imposed in connection with the issuance or
creation of the Parent Ordinary Shares, Parent ADSs and any Parent ADRs in
connection therewith.
(d) Exchange Ratio. The Exchange Ratio shall be 4.5.
(e) Issuance of Merger Consideration. In consideration of the issuance
to Parent by the Surviving Corporation of shares of common stock of the
Surviving Corporation pursuant to Section 2.1(a) hereof, Parent shall issue
to the depositary for the Parent ADSs such number of Parent Ordinary Shares
as is equal to the number of Shares outstanding immediately prior to the
Effective Time multiplied by the Exchange Ratio under the Deposit Agreement
to permit the issuance of Parent ADSs.
(f) Extraordinary Adjustments. In the event that, subsequent to the date
of this Agreement but prior to the Effective Time, (x) the Company changes
the number of Shares, or Parent changes the number of Parent Ordinary
Shares (other than as a result of converting Series K Shares of Parent into
Series A shares of Parent as elsewhere described herein), issued and
outstanding as a result of a stock split, stock combination, dividend of
stock or other securities (or a record date within such period with respect
to such a dividend), recapitalization, redenomination of share capital or
other similar transaction, the Exchange Ratio and other items dependent
thereon shall be appropriately adjusted to provide to the holders of Shares
the same economic effect and percentage ownership of Parent Ordinary Shares
as contemplated by this Agreement prior to such stock split, stock
combination, dividend, recapitalization, redenomination or similar
transaction, or (y) the Company changes the number of Shares issued and
outstanding or issues additional Company Options, the Exchange Ratio and
other items dependent thereon shall be appropriately adjusted.
Section 2.2 Exchange of Certificates
(a) Appointment of Exchange Agent. Prior to the Effective Time, Parent shall
appoint a bank or trust company (which may be the depositary under the Deposit
Agreement) reasonably acceptable to the Company as exchange agent (the
"Exchange Agent") for the purposes of exchanging the Certificates for Parent
ADSs. Promptly after the Effective Time, Parent will send, or will cause the
Exchange Agent to send, to each holder of record of Shares as of the Effective
Time a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and shall be in customary
form and have such other customary provisions as the Company and Parent may
reasonably specify) providing instructions for use in effecting the surrender
of Certificates in exchange for certificates representing Parent ADRs which
represent Parent ADSs and cash in lieu of fractional Parent ADSs.
(b) Exchange Fund. Within three Business Days following the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article II, certificates for the Parent ADRs representing the Parent
ADSs issuable pursuant to Section 2.1(c) in exchange for outstanding Shares and
cash in an amount sufficient for payment in lieu of fractional Parent ADSs
pursuant to Section 2.2(f) and any
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dividends or distributions to which holders of Shares may be entitled pursuant
to Section 2.2(d). The cash amounts payable pursuant to Section 2.2(d) and
Section 2.2(f) are referred to collectively as the "Exchange Fund." The
Exchange Agent shall invest any cash included in the Exchange Fund as directed
by the Surviving Corporation on a daily basis; provided that no such investment
or loss thereon shall affect the amounts payable to the Company's shareholders
pursuant to this Article. Any interest and other income resulting from such
investments shall promptly be paid to the Surviving Corporation. All Parent
ADSs to be issued and delivered to the holders of Shares in accordance with
this Agreement shall, as of the Effective Time, have been registered under the
Securities Act pursuant to a registration statement on Form F-6 declared
effective by the SEC, and the Parent Ordinary Shares underlying such Parent
ADSs shall, as of the Effective Time, have been registered under the Securities
Act pursuant to a registration statement on Form F-4 declared effective by the
SEC.
(c) Exchange Procedures. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with the letter of transmittal referred
to in Section 2.2(a) duly executed and completed in accordance with its terms,
the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate or certificates representing one or more Parent ADRs
representing, in the aggregate, that whole number of Parent ADSs to be received
in accordance with Section 2.1(c), (ii) the amount of dividends or other
distributions, if any, with a record date on or after the Effective Time which
theretofore became payable with respect to such Parent ADSs in accordance with
Section 2.2(d), and (iii) the cash amount payable in lieu of fractional Parent
ADSs in accordance with Section 2.2(f), in each case which such holder has the
right to receive pursuant to the provisions of this Article, and the
Certificate so surrendered shall forthwith be canceled. In no event shall the
holder of any Certificate be entitled to receive interest on any funds to be
received in the Merger. In the event of a transfer of ownership of Shares which
is not registered in the transfer records of the Company, one or more Parent
ADRs representing that whole number of Parent ADSs to be received in accordance
with Section 2.1(c), plus any dividends or other distributions to which the
transferor would otherwise be entitled pursuant to Section 2.2(d), plus the
cash amount payable in lieu of fractional Parent ADSs in accordance with
Section 2.2(f), may be issued to a transferee if the Certificate representing
such Shares is presented to the Exchange Agent accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section, and subject to Section 2.2(d), each Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive the whole number of Parent ADSs into which the number of Shares shown
thereon have been converted as contemplated by this Article plus the cash
amount payable in lieu of fractional Parent ADSs in accordance with Section
2.2(f).
(d) Distributions With Respect To Unexchanged Shares. No dividends or other
distributions declared, made or paid after the Effective Time with respect to
Parent Ordinary Shares with a record date on or after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
Parent ADSs represented thereby and no cash payment in lieu of fractional
Parent ADSs shall be paid to any such holder pursuant to Section 2.2(f) until
the holder of record of such Certificate shall surrender such Certificate in
accordance with this Section 2.2. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the record
holder of the Parent ADRs which represent Parent ADSs issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
dividends or other distributions, if any, with a record date on or after the
Effective Time which theretofore became payable, but which were not paid by
reason of the immediately preceding sentence, with respect to such Parent ADSs,
and (ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date on or after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such Parent ADSs. Dividends or other distributions with a record date on or
after the Effective Time but prior to surrender of Certificates by holders
thereof payable in respect of Parent ADSs held by the Exchange Agent shall be
held in trust for the benefit of such holders of Certificates.
(e) No Further Ownership Rights In Shares. All Parent ADRs (and the Parent
ADSs represented by such Parent ADRs) issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 2.2(f)) shall be deemed to have been issued at the
Effective Time
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in full satisfaction of all rights pertaining to the Shares represented
thereby, subject, however, to the Surviving Corporation's obligation to pay any
dividends which may have been declared by the Company on the Shares in
accordance with the terms of this Agreement and which remained unpaid at the
Effective Time. From and after the Effective Time, the stock transfer books of
the Company shall be closed and there shall be no further registration of
transfers thereon of the Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section.
(f) No Fractional Shares. No certificate or scrip representing fractional
Parent ADSs will be issued in the Merger upon the surrender for exchange of
Certificates, and such fractional Parent ADS interests will not entitle the
owner thereof to vote or to any rights of a holder of Parent ADSs. In lieu of
any such fractional Parent ADS, each holder of Certificates who would otherwise
have been entitled to a fraction of a Parent ADS in exchange for such
Certificates (after taking into account all Certificates delivered by such
holder) pursuant to this Section shall receive from the Exchange Agent a cash
payment in lieu of such fractional Parent ADS, determined by multiplying (A)
$1.75 by (B) the number of underlying Parent Ordinary Shares represented by the
fractional Parent ADS interest to which such holder would otherwise be
entitled.
(g) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the shareholders of the Company for one (1) year after
the Effective Time shall be delivered to or as directed by Parent, upon demand,
and any holders of Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent (subject to abandoned property,
escheat and other similar laws) as a general creditor for payment of their
claim for Parent ADSs, any cash in lieu of fractional Parent ADSs and any
dividends or distributions with respect to Parent ADSs. Any amounts remaining
unclaimed by any holder of Certificates formerly representing Shares
immediately prior to such time when such amounts would otherwise escheat to or
become the property of any Governmental Entity (as hereinafter defined), shall,
to the extent permitted by applicable laws, become the property of Parent, free
and clear of all claims or interests of any Person previously entitled thereto.
Neither Parent, the Surviving Corporation nor the Exchange Agent shall be
liable to any holder of Certificates formerly representing Shares with respect
to any Parent ADRs (or dividends or distributions with respect thereto), or
cash payable in respect of fractional Parent ADSs, delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law,
rule, regulation or Order.
(h) Lost, Stolen or Destroyed Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent in its discretion and as a condition precedent to the
issuance thereof, the posting by such person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or the Exchange Agent with respect to
such Certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed Certificate the applicable Merger Consideration with
respect to the Shares formerly represented thereby, any cash in lieu of
fractional Parent ADSs, and unpaid dividends and distributions in respect of or
on Parent ADSs deliverable in respect thereof, pursuant to this Agreement.
(i) Withholding Rights. Each of the Surviving Corporation and Parent shall
be entitled to deduct and withhold from the Merger Consideration (and any
dividends or distributions thereon) otherwise payable hereunder to any Person
such amounts as it is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or foreign
income or other tax law.
ARTICLE III
Representations and Warranties of the Company
Except (i) as set forth in the Company Disclosure Schedule attached hereto
as Schedule A, or (ii) as otherwise reported, disclosed or referenced in the
Company SEC Documents (including the exhibits thereto) or
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the 2001 10-K Draft, in each case, where as to the relevant statement, such
report, disclosure or reference does not contain any untrue statement of a
material fact, or omit to state a material fact required to be stated therein
or necessary in order to make the statements made therein, the Company
Financial Statements or the financial statements included in the 2001 10-K
Draft, in light of the circumstances under which they were made, not
misleading, the Company represents and warrants to Parent and Merger Sub that
all of the statements contained in this Article III are true and correct as of
the date of this Agreement (or, if made as of a specified date, as of such
date). Each exception set forth in the Company Disclosure Schedule is
identified by reference to a specific section of this Agreement and, except as
otherwise specifically stated with respect to such exception, relates only to
such section.
Section 3.1 Organization; Qualification; Charter Documents. (a) The Company
(i) is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation; (ii) has full corporate power and
authority to carry on its business as it is now being conducted and to own,
lease and operate the properties and assets it now owns, leases or operates or
purports to own, lease or operate; and (iii) is duly qualified or licensed to
do business as a foreign corporation in good standing in every jurisdiction in
which ownership of property or the conduct of its business requires such
qualification, except where the failure to have such power and authority or to
be so qualified, licensed or in good standing could not reasonably be expected
to, individually or in the aggregate, have a Company Material Adverse Effect.
(b) The Company has heretofore delivered to Parent complete and correct
copies of the Charter Documents of the Company and each Company Subsidiary as
amended to date. All such Charter Documents are in full force and effect, and
neither the Company nor any Company Subsidiary is in violation of any provision
of its respective Charter Documents except for breaches which would not
materially restrict the ability of Company to consummate the Merger or could
not reasonably be expected to have a Company Material Adverse Effect.
Section 3.2 Subsidiaries and Affiliates. The Company Disclosure Schedule
sets forth the name and jurisdiction of incorporation of each Company
Subsidiary and the jurisdictions in which each such Company Subsidiary is
qualified to do business. The Company does not own, directly or indirectly, any
capital stock or other equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or similar
interest in, any corporation or have any direct or indirect equity or ownership
interest in any business other than publicly traded securities constituting
less than one percent of the outstanding equity of the issuing entity. All the
outstanding capital stock of each Company Subsidiary is owned directly or
indirectly by the Company, free and clear of all pledges, claims, liens,
charges, options, agreements, limitations on voting rights, encumbrances or
security interests of any kind (collectively, "Liens"), and is validly issued,
fully paid and non-assessable, and there are no outstanding options, rights or
agreements of any kind relating to the issuance, sale or transfer of any
capital stock or other equity securities of any such Company Subsidiary to any
Person except the Company. Each Company Subsidiary (i) is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation; (ii) has full corporate power and authority to carry on its
business as it is now being conducted and to own the properties and assets it
now owns; and (iii) is duly qualified or licensed to do business as a foreign
corporation in good standing in every jurisdiction in which ownership of
property or the conduct of its business requires such qualification, except
where the failure to have such power and authority or to be so qualified,
licensed or in good standing could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect.
Section 3.3 Capitalization. (a) The authorized capital stock of the Company
consists of 10,200,000 shares of common stock, no par value per share, and
1,000,000 shares of preferred stock, no par value per share. As of the date
hereof, (i) 3,814,169 Shares are issued and outstanding, (ii) no Shares are
held in the treasury of the Company or by any Subsidiary of the Company, (iii)
no shares of preferred stock are issued and outstanding, (iv) an aggregate of
943,200 Shares are issuable upon exercise of outstanding Company Options,
including, without limitation, options under the Company's "Employee Stock
Option Plan," the "Outside Director Stock Option Plan," the "Employee Stock
Purchase Plan" and any Company Award (collectively, the "Company
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Stock Plans"), and (v) an aggregate of 1,146,000 shares (including the 943,200
shares referenced in clause (iv)) are reserved for issuance in connection with
the issuance of Shares under Company Stock Plans. All the outstanding shares of
the Company's capital stock are, and all Shares which may be issued pursuant to
the exercise of outstanding Company Options will be, when issued in accordance
with the respective terms thereof, duly authorized, validly issued, fully paid
and non-assessable. There is no Voting Debt of the Company or any Company
Subsidiary issued and outstanding. Except as set forth above and except for the
Transactions, as of the date hereof, (i) there are no shares of capital stock
of the Company authorized, issued or outstanding; (ii) there are no existing
options, warrants, calls, pre-emptive rights, subscriptions or other rights,
agreements, arrangements or commitments of any character, relating to the
issued or unissued capital stock of the Company or any Company Subsidiary,
obligating the Company or any Company Subsidiary to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or Voting
Debt of, or other equity interest in, the Company or any Company Subsidiary or
securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company or any Company Subsidiary to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment and (iii) there are no outstanding
obligations (contingent or otherwise) of the Company or any Company Subsidiary
to repurchase, redeem or otherwise acquire any Shares, or the capital stock of
the Company, or any Company Subsidiary or Affiliate of the Company. Since March
31, 2001, the Company has not issued or repriced any Company Options under any
Company Stock Plan.
(b) Except as expressly contemplated by this Agreement, there are no voting
trusts or other agreements or understandings to which the Company or any
Company Subsidiary is a party with respect to the voting of the capital stock
of the Company or any of the Subsidiaries.
Section 3.4 Authorization; Validity of Agreement; Company Action. The
Company has full corporate power and authority to execute and deliver this
Agreement, and, subject in the case of consummation of the Merger to obtaining
the Company Shareholder Approval, to consummate the Transactions. The
execution, delivery and performance by the Company of this Agreement and the
consummation by it of the Transactions, have been duly and validly authorized
by the Company Board of Directors and, except for obtaining the Company
Shareholder Approval and the filing of merger documents as set forth herein, no
other corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement or the consummation by
it of the Transactions. This Agreement has been duly executed and delivered by
the Company and, assuming due and valid authorization, execution and delivery
thereof by Parent and Merger Sub, this Agreement is a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, moratorium and other
similar laws relating to creditors' rights and general principles of equity.
Section 3.5 Board Approvals; Takeover Statutes. The Company Board of
Directors, at a meeting duly called and held, has (i) unanimously determined
that each of the Agreement and the Merger are in the best interests of the
Company and its shareholders, (ii) adopted this Agreement, and approved the
Merger and the other Transactions, and (iii) resolved to recommend that the
shareholders of the Company approve this Agreement and the Merger, and none of
the aforesaid actions by the Company Board of Directors has been amended,
rescinded or modified. The Company Board of Directors has taken all necessary
action such that Chapters 7A and 7B of the MBCA, Article IX of the Company's
Articles of Incorporation, and Article II, Section 8 of the Company's Bylaws do
not, and, unless the Agreement is terminated, shall not in the future, to the
extent within its control, apply to this Agreement, the Merger or the other
Transactions. To the knowledge of the Company, no other state takeover statute
is applicable to the Merger or the other Transactions.
Section 3.6 Vote Required. The affirmative vote of the holder of a majority
of the outstanding Shares is the only vote of the holders of any class or
series of the Company's capital stock necessary to adopt this Agreement and
approve the Merger and the other Transactions.
Section 3.7 Consents and Approvals; No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the
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HSR Act, Finnish corporation and securities law, Non-U.S. Monopoly Laws, state
securities or blue sky laws, the MBCA and the DGCL, none of the execution,
delivery or performance of this Agreement by the Company or the consummation by
the Company of the Transactions will (i) conflict with or result in any breach
of any provision of the articles of incorporation, the bylaws or similar
organizational documents of the Company, (ii) require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii)
result in a violation or breach of, or constitute (with or without due notice
or the passage of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Company Agreement, or (iv) violate any Order,
statute, rule or regulation applicable to the Company, any Company Subsidiary
or any of their properties or assets, except, with respect to the foregoing
clauses (ii), (iii) and (iv), as could not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect. There
are no third party consents or approvals required to be obtained under the
Company Agreements prior to the consummation of the Transactions, except where
the failure to obtain such consents or approvals could not reasonably be
expected to, individually or in the aggregate, have a Company Material Adverse
Effect.
Section 3.8 SEC Reports and Financial Statements. The Company has filed with
the SEC true and complete copies of the Company SEC Documents. As of their
respective dates or, if amended, as of the date of the last such amendment
filed prior to the date hereof, the Company SEC Documents, including, without
limitation, any financial statements or schedules included therein (a) did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading and (b) complied in all material respects with the applicable
requirements of the Exchange Act and the Securities Act, as the case may be,
and the applicable rules and regulations of the SEC thereunder. None of the
Company Subsidiaries is required to file any forms, reports or other documents
with the SEC. The Company Financial Statements have been prepared from, and are
in accordance with, in each case, in all material respects, the books and
records of the Company and its consolidated Subsidiaries, and comply as to
form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with U.S. GAAP (except, in the case of unaudited financial
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the period involved (except as may be stated in the notes thereto) and
fairly present in all material respects the consolidated financial position and
the consolidated results of operations and cash flows (and changes in financial
position, if any) of the Company and its consolidated Subsidiaries as of the
times and for the periods referred to therein, subject, with respect to interim
unaudited financial statements, to normal and recurring year-end adjustments
that are not reasonably likely to be material in amount.
Section 3.9 No Undisclosed Liabilities. Except (a) as disclosed in the
Company Financial Statements and (b) for liabilities and obligations (i)
incurred in the ordinary course of business and consistent with past practice
since the Balance Sheet Date pursuant to the terms of this Agreement, or (ii)
incurred pursuant to, or in furtherance of, this Agreement or the Transactions,
neither the Company nor any Company Subsidiary has any liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise,
which could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
Section 3.10 Absence of Certain Changes. Since the Balance Sheet Date,
except as disclosed in the Company SEC Documents filed prior to the date
hereof, (i) the Company and each Company Subsidiary has conducted its
respective business only in the ordinary and usual course, (ii) there have not
occurred any events, changes, effects or circumstances (including the
incurrence of any liabilities of any nature, whether or not accrued, contingent
or otherwise) having or which could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and (iii)
there has not been (1) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of the Company's capital stock, (2) any split, combination or
reclassification of any of the Company's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of the Company's capital stock, except for
issuances of Company Common Stock upon
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the exercise of Company Options awarded prior to the date hereof, (3) (A) any
granting by the Company or any of its Subsidiaries to any current or former
director, executive officer or other key employee of the Company or its
Subsidiaries of any increase in compensation, bonus or other benefits, except
for normal increases in the ordinary course of business or as was required
under any employment agreements identified on the Company Disclosure Schedule
in effect as of the date hereof, (B) any granting by the Company or any of its
Subsidiaries to any such current or former director, executive officer or key
employee of any increase in severance or termination pay, except in the
ordinary course of business, or (C) any entry by the Company or any of its
Subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, other than in
the ordinary course of business, (4) except insofar as may have been disclosed
in the Company SEC Documents or required by a change in U.S. GAAP, any change
in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business or (5) except insofar as may have
been disclosed in the Company SEC Documents, any tax election that individually
or in the aggregate would reasonably be expected to have a Company Material
Adverse Effect on the Company or any of its tax attributes or any settlement or
compromise of any material income tax liability.
Section 3.11 Litigation. There is no action, suit or proceeding by or before
any court or governmental or other regulatory or administrative agency or
commission pending or, to the best knowledge of the Company, threatened against
or involving the Company or any Company Subsidiary; or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
the Company or any Company Subsidiary pursuant to this Agreement or in
connection with the Transactions; other than, in each case, those the outcome
of which, individually or in the aggregate, would not (i) reasonably be
expected to have a Company Material Adverse Effect, or (ii) reasonably be
expected to materially impair or delay the ability of the Company to perform
its obligations under the Agreement.
Section 3.12 Employee Benefit Plans. (a) As used herein, "Plan" shall mean
each incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of Section 3(1) of ERISA);
each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of Section 3(2) of ERISA); each employment, termination or
severance agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by the Company or by any ERISA
Affiliate, or to which the Company or an ERISA Affiliate is party, for the
benefit of any director, employee or former employee of the Company or any
Company Subsidiary.
(b) The Company has delivered or made available to the Parent true, correct
and complete copies of all documents relating to the Plans, including but not
limited to: (i) all Plan documents, amendments and trust instruments; (ii) all
insurance and annuity contracts related to any Plans; (iii) COBRA notices and
forms, including election forms used to notify employees and their dependents
of their continuation coverage rights under the Company's group health plans;
(iv) the most recently filed Form 5500 annual reports prior to July 13, 2000;
and (v) actuarial reports, summary plan descriptions and favorable
determination letters for the Plans. Since the date these documents were
supplied to Parent, no Plan amendments have been adopted, no changes to these
documents have been made, and no amendments or changes will be adopted or made
prior to the Closing Date in each case that could reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect.
(c) All of the Plans subject to ERISA comply in all material respects and
have been administered in compliance in all material respects with (i) the
provisions of ERISA, (ii) all provisions of the Code, applicable to secure the
intended tax consequences, (iii) all applicable state and federal securities
laws and (iv) all other applicable laws, rules, regulations and collective
bargaining agreements, except where the failure to so comply or to be so
administered would not result in any Company Material Adverse Effect. The
Company has not
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received any written notice from any Governmental Entity questioning or
challenging such compliance that could reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect.
(d) Neither the Company nor its ERISA Affiliates has engaged in any
transaction or acted or failed to act in any manner that could subject the
Company to any direct or indirect liability (by indemnity or otherwise) for a
breach of any fiduciary or co-fiduciary duty under ERISA, or liability for a
prohibited transaction (within the meaning of ERISA Section 406 or Code Section
4975) that could reasonably be expected to, individually or in the aggregate,
have a Company Material Adverse Effect.
(e) No Plan is subject to Title IV of ERISA, and neither the Company nor any
of its ERISA Affiliates has incurred any liability under Title IV of ERISA
arising in connection with the termination of any plan covered or previously
covered by Title IV of ERISA that could become, after the Closing Date, an
obligation of the Company or any of its ERISA Affiliates, in each case, that
could reasonably be expected to, individually or in the aggregate, have a
Company Material Adverse Effect.
(f) Neither the Company nor any of its ERISA Affiliates has ever
established, maintained, contributed to or otherwise participated in, or had an
obligation to maintain, contribute to, or otherwise participate in, any multi-
employer plan within the meaning of ERISA Section 4001(a)(3).
(g) To the Company's knowledge, none of the Plans provides welfare benefits,
including, without limitation, death or medical benefits (whether or not
insured), with respect to current or former employees beyond their retirement
or other termination of service (other than coverage required by COBRA or any
similar state law).
(h) Except as described in the Company Disclosure Schedule, there are no
insurance reserves, trusts or escrow accounts that have been established to
provide for payments under welfare plans within the meaning of Section 3(1) of
ERISA.
(i) Each Plan which is intended to be qualified under Code Section 401(a)
("Qualified Retirement Plan") has received from the Internal Revenue Service a
favorable determination letter to the effect that the plan in form satisfies
the requirements for qualification under Code Section 401(a) (taking into
account the provisions of the Tax Reform Act of 1986). To the Company's
knowledge, no event has occurred or circumstances exist that will or could give
rise to disqualification of a Qualified Retirement Plan and no amendment to any
Qualified Retirement Plan made since applying for such determination letter
could cause a disqualification of such Plan.
(j) The Company has the right pursuant to the terms of each Plan that is a
welfare plan within the meaning of Section 3(1) of ERISA and all agreements
related to such Plan unilaterally to terminate such Plan (or its participation
in such Plan) or to amend the terms of such Plan at any time.
(k) Except as set forth in Exhibit 6.1(d)(iii), the transactions
contemplated by this Agreement will not result in any additional payments to or
benefit accruals for, or any increase in the vested interest of, any current or
former officer, employee or director or their dependents under any Plan. The
Company is not obligated to reimburse or increase the compensation of or
payments to any current or former officer, employee or director of the Company
in order to make such person whole for any excise tax such person may pay under
Section 4999 of the Code due to an excess parachute payment under Section 280G
of the Code.
(l) Except as expressly provided in this Agreement, there is no pending or,
to the knowledge of the Company, threatened complaint, claim (other than a
routine claim for benefits), proceeding, audit, or investigation of any kind in
or before any Governmental Entity with respect to any Plan that could
reasonably be expected to result in a Company Material Adverse Effect.
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(m) Except as set forth in Section 3.13 of the Company Disclosure Schedule
or Exhibit 1.6(d)(iii), the Company has made no changes to any Plan since June
30, 2000 resulting in any increase in benefits under any Plan, other than
increases in employee cash salaries in the ordinary course of business;
provided that, in the case of each employee, any such increase has not exceeded
10% of such employee's cash salary payable during the twelve month period ended
June 30, 2000, nor has the Company granted any Company Options to any Person at
less than 100% of fair market value since June 30, 2000.
Section 3.13 Tax Matters; Government Benefits. The Company and each of its
Subsidiaries has filed all Tax Returns that are required to be filed by the
Company and its Subsidiaries, and all such Tax Returns are complete and correct
in all material respects, or requests for extensions to file such returns or
reports have been timely filed, granted and have not expired, except to the
extent that such failure to file, to be complete or correct or to have
extensions granted that remain in effect individually or in the aggregate would
not reasonably be expected to have a Company Material Adverse Effect. The
Company and each of its Subsidiaries have duly paid or caused to be duly paid
in full or made provision in accordance with U.S. GAAP (or there has been paid
or provision has been made on their behalf) for the payment of all Taxes (as
hereinafter defined) shown as due on such Tax Returns. The most recent
financial statements contained in the Company SEC Documents reflect an adequate
reserve for all Taxes payable by the Company and the Company Subsidiaries for
all taxable periods and portions thereof accrued through the date of such
financial statements.
(a) No notification has been received by the Company or by any Company
Subsidiary that an audit, examination or other proceeding is pending or, to the
Company's knowledge, threatened with respect to any Taxes due from or with
respect to or attributable to the Company or any Company Subsidiary or any Tax
Return filed by or with respect to the Company or any Company Subsidiary,
except for those that would not reasonably be expected to have a Company
Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
(c) None of the Company or any Company Subsidiary has been a member of any
affiliated group within the meaning of Section 1504(a) of the Code, or any
similar affiliated or consolidated group for tax purposes under state, local or
foreign law (other than a group, the common parent of which is the Company), or
has any liability for Taxes of any person (other than the Company and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 or any similar
provision of state, local or foreign law as a transferee or successor, by
contract or otherwise.
Section 3.14 Title to Properties; Encumbrances. Except as set forth in the
2001 Form 10-K Draft, each of the Company and the Company Subsidiaries has good
and valid title to, or has valid leasehold interests in or valid rights under
contract to use, all the tangible properties and assets which it purports to
own or use, including all the tangible properties and assets reflected in the
Balance Sheet (except for properties and assets disposed of since the date of
the Balance Sheet in the ordinary course of business consistent with past
practice), in each case, free and clear of all title defects or objections,
liens, claims, charges, security interests or other encumbrances of any nature
whatsoever except, with respect to all such properties and assets, for (a)
liens shown on the Balance Sheet as securing specified liabilities or
obligations and liens incurred in connection with the purchase of property
and/or assets, if such purchase was effected after the date of the Balance
Sheet, with respect to which no default exists; (b) minor imperfections of
title, if any, none of which are substantial in amount, detract from the value
or impair the use of the property subject thereto, or impair the operations of
the Company or any Company Subsidiary and which have arisen only in the
ordinary course of business and consistent with past practice since the date of
the Balance Sheet; (c) liens for current taxes not yet due; and (d) such title
defects, failure to have valid leasehold interest in, or objections, liens,
claims, charges, security interests or other encumbrances of any nature
whatsoever, if any, as individually or in the aggregate could not reasonably be
expected to have a Company Material Adverse Effect.
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Section 3.15 Environmental Laws. Except as disclosed in the Company SEC
Documents (a) the Company and each Company Subsidiary is in compliance with all
Environmental Laws, including compliance with any permits or other governmental
authorizations or the terms and conditions thereof, except in the case of the
matters covered by this sentence where the failure to be in compliance with
such laws could not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect; (b) in the past five (5) years,
neither the Company nor any Company Subsidiary has received any communication
or notice, whether from a governmental authority or otherwise, alleging any
violation of or noncompliance with any Environmental Laws by the Company or any
Company Subsidiary or for which any of them is responsible, and there is no
pending or, to the Company's knowledge, threatened Environmental Claim, except
where such communication, notice or Environmental Claim could not reasonably be
expected to, individually or in the aggregate, have a Company Material Adverse
Effect; and (c) to the Company's knowledge, there are no past or present facts
or circumstances that could form the basis of any Environmental Claim against
the Company or any Company Subsidiary or against any person or entity whose
liability for any Environmental Claim the Company or any Company Subsidiary has
retained or assumed either contractually or by operation of law, except where
such Environmental Claim, if made, could not reasonably be expected to,
individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.16 Intellectual Property. Except as could not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) either the Company or a Company Subsidiary owns, or is licensed or
otherwise possesses legally enforceable rights to use the Company Intellectual
Property, (ii) to the Company's knowledge, the conduct of the business of the
Company and the Company Subsidiaries with the Company Intellectual Property
does not infringe any Intellectual Property rights or any other proprietary
right of any Person, and neither the Company nor any Company Subsidiary has
received any written notice from any other Person pertaining to or challenging
the right of the Company or any Company Subsidiary to use any of the Company
Intellectual Property, and (iii) neither the Company nor any Company Subsidiary
has made any claim of a violation or infringement by others of its rights to or
in connection with the Company Intellectual Property which is still pending.
Section 3.17 Compliance with Laws. The Company and its Subsidiaries are in
compliance with each applicable law, rule or regulation of any United States
federal, state, local, or foreign government or agency thereof which affects
the business, properties or assets of the Company and its Subsidiaries, and no
notice, charge, claim, action or assertion has been received by the Company or
any Company Subsidiary or has been filed, commenced or, to the Company's
knowledge, threatened against the Company or any Company Subsidiary alleging
any such violation, except for any matter otherwise covered by this sentence
which could not reasonably be expected to, individually or in the aggregate,
have a Company Material Adverse Effect. All licenses, permits and approvals
required under such laws, rules and regulations are in full force and effect,
and the Company is in compliance with the terms thereof, except where the
failure to be in full force and effect or to be in such compliance could not
reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect.
Section 3.18 Labor Difficulties. (a) There is no unfair labor practice
complaint against the Company or any Company Subsidiary pending before the
National Labor Relations Board, except for any occurrence that individually or
in the aggregate could not reasonably be expected to have a Company Material
Adverse Effect; (b) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Company Subsidiary, except where such strike,
dispute, slowdown or stoppage could not reasonably be expected to have a
Company Material Adverse Effect; (c) to the Company's knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company and its Subsidiaries; and
(d) no grievance which might have, individually or in the aggregate, a Company
Material Adverse Effect, arising out of or under collective bargaining
agreements is pending.
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Section 3.19 Information to be Supplied. None of the information to be
supplied by the Company specifically for inclusion or incorporation by
reference (i) in the registration statement on Form F-4 (the "F-4") or on Form
F-6 to be filed with the SEC by Parent in connection with the issuance of
Parent ADSs in the Merger (the "Registration Statement") will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) in any filing by Parent or Merger Sub with the Finnish
Financial Supervision or the HSE in respect of the Merger (including, without
limitation, any listing particulars under the Securities Market Act of 1989, as
amended (the "Market Act"), Chapter 2, Section 3 relating to Parent Ordinary
Shares (the "Listing Particulars") and any shareholder circular to be
distributed to the shareholders of Parent) (together with any amendments or
supplements thereto, the "Parent Disclosure Documents"), or (iii) in the Proxy
Statement will, at the date it is first mailed to the Company's shareholders or
at the time of the Company Shareholder Meeting, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations hereunder and all applicable state
laws, except that no representation or warranty is made by the Company with
respect to statements made or incorporated by reference therein based on
information supplied by Parent specifically for inclusion or incorporation by
reference in the Proxy Statement.
Section 3.20 Opinion of Financial Advisor. The Company has received the
opinion of its investment advisor, Pacific Crest Securities Inc., dated May 24,
2001, to the effect that, as of such date, the Exchange Ratio is fair to the
Company's shareholders from a financial point of view. A copy of such opinion
will be provided to the Parent promptly after the execution of this Agreement.
Section 3.21 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person acting on behalf of the Company is or
will be entitled to any brokers' or finder's fee or any other commission or
similar fee in connection with any of the Transactions except for Pacific-Crest
Securities, Inc.
Section 3.22 Company Agreements. Except as set forth in the Company SEC
Documents or as permitted pursuant to this Agreement, neither the Company nor
any of its Subsidiaries is a party to or bound by (i) any agreement relating to
the incurring of indebtedness (including sale and leaseback and capitalized
lease transactions and other similar financing transactions) providing for
payment or repayment in excess of $500,000, (ii) any "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) or (iii)
any non-competition agreement which purports to limit in any material respect
the manner in which, or the localities in which, all or any portion of the
business of the Company and its Subsidiaries, taken as a whole, is or would be
conducted (collectively, the "Company Agreements").
Section 3.23 Interested Party Transactions. To the Company's knowledge,
since February 9, 2001, no event has occurred that would be required to be
reported as a "Certain Relationship" or "Related Transaction" pursuant to Item
404 of Regulation S-K promulgated by the SEC.
Section 3.24 Certain Liabilities and Agreement. The Company's maximum
liability, whether as a shareholder (quotaholder), guarantor, partner,
contractor or otherwise, with respect to current commitments relating to its
Brazilian operations are not expected to exceed, between the date hereof and
December 31, 2001, $3,000,000 in the aggregate without regard to any amounts
that the Company is permitted to expend pursuant to Section 5.1(b)(iv)(B).
ARTICLE IV
Representations and Warranties of Parent and Purchaser
Except (i) as set forth in the Parent Disclosure Schedule attached hereto as
Schedule B, or (ii) as otherwise reported, disclosed or referenced in the
Parent Disclosure Documents (including the exhibits thereto), whereas
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to such the relevant statement, report, disclosure or reference does not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, Parent represents and warrants to the Company that all of the
statements contained in this Article IV are true and correct as of the date of
this Agreement (or, if made as of a specified date, as of such date). Each
exception set forth in the Parent Disclosure Schedule is identified by
reference to a specific section of this Agreement and, except as otherwise
specifically stated with respect to such exception, relates only to such
section. Parent acknowledges that the Parent Disclosure Documents do not
include the Form F-4 Registration Statement dated February 9, 2001, as filed
with the SEC.
Section 4.1 Organization; Qualification; Charter Documents. (a) Each of
Parent and Merger Sub (i) is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation; (ii) has
full corporate power and authority to carry on its business as it is now being
conducted and to own, lease and operate the properties and assets it now owns,
leases or operates or purports to own, lease or operate; and (iii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which ownership of property or the conduct of its
business requires such qualification, except where the failure to have such
power and authority or to be so qualified, licensed or in good standing could
not reasonably be expected to, individually or in the aggregate, have a Parent
Material Adverse Effect.
(b) Parent has heretofore delivered or made available to the Company
complete and correct copies of the Charter Documents of Parent and each Parent
Subsidiary, as amended to date. All such Charter Documents are in full force
and effect, and neither Parent nor any Parent Subsidiary is in violation of any
provision of its respective Charter Documents except for breaches which would
not materially restrict the ability of Parent to consummate the Merger or could
not reasonably be expected to have a Parent Material Adverse Effect.
Section 4.2 Subsidiaries and Affiliates. The Parent Disclosure Schedule sets
forth the name and jurisdiction of incorporation of each Parent Subsidiary and
the jurisdictions in which each Parent Subsidiary is qualified to do business.
The Parent does not own, directly or indirectly, any capital stock or other
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation or have
any direct or indirect equity or ownership interest in any business other than
publicly traded securities constituting less than one percent of the
outstanding equity of the issuing entity. All the outstanding capital stock of
each Parent Subsidiary is owned directly or indirectly by the Parent free and
clear of all Liens, and is validly issued, fully paid and non-assessable, and
there are no outstanding options, rights or agreements of any kind relating to
the issuance, sale or transfer of any capital stock or other equity securities
of any such Parent Subsidiary to any person except the Parent. Each Parent
Subsidiary (i) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation; (ii) has full
corporate power and authority to carry on its business as it is now being
conducted and to own the properties and assets it now owns; and (iii) is duly
qualified or licensed to do business as a foreign corporation in good standing
in every jurisdiction in which ownership of property or the conduct of its
business requires such qualification, except where the failure to have such
power and authority or to be so qualified, licensed or in good standing could
not reasonably be expected to, individually or in the aggregate, have a Parent
Material Adverse Effect.
Section 4.3 Capitalization. (a) The authorized capital stock of the Parent
consists of 160,000,000 Parent Ordinary Shares and 25,000,000 Series K Shares.
As of the date hereof, (i) 39,200,000 Parent Ordinary Shares are issued and
outstanding, (ii) no Parent Ordinary Shares are held in the treasury of the
Parent or held by any Subsidiary of Parent, (iii) 7,200,000 Series K Shares are
issued and outstanding, (iv) 1,200,000 Parent Ordinary Shares are issuable
under the Parent's 1999 Warrant Plan, and (v) 1,000,000 Parent Ordinary Shares
are issuable under the 2001 Warrant Plan (the "2001 Warrant Plan") approved at
Parent's 2001 Annual General Meeting. The maximum aggregate number of shares
that may be outstanding at any one time under the 1999 Warrant Plan and the
2001 Warrant Plan is 1,500,000. Immediately after the Effective Time as
contemplated by the Conversion Agreement, no Series K Shares will be
outstanding. All the outstanding shares
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of the Parent's capital stock are, and all Parent Ordinary Shares which may be
issued pursuant to the exercise of outstanding Parent Options or upon
conversion of Series K Shares into Parent Ordinary Shares will be, when issued
in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable and, except as set forth on the Parent
Disclosure Schedule, are free of any pre-emptive or other similar rights. There
is no Voting Debt of the Parent or any Parent Subsidiary issued and
outstanding. Except as set forth above and except for the Transactions, as of
the date hereof, (i) there are no shares of capital stock of the Parent
authorized, issued or outstanding; (ii) except for warrants issued under the
1999 Warrant Plan, securities issuable under the 2001 Warrant Plan, or as
expressly contemplated by this Agreement, there are no existing options,
warrants, calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or
unissued capital stock of the Parent or any Parent Subsidiary, obligating the
Parent or any Parent Subsidiary to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or Voting Debt of, or
other equity interest in, the Parent or any Parent Subsidiary or securities
convertible into or exchangeable for such shares or equity interests, or
obligating the Parent or any Parent Subsidiary to grant, extend or enter into
any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment and (iii) there are no outstanding obligations
(contingent or otherwise) of the Parent or any Parent Subsidiary to repurchase,
redeem or otherwise acquire any Parent Ordinary Shares, the Series K Shares, or
the other capital stock of the Parent, or any Parent Subsidiary or Affiliate of
the Parent.
(b) Except as expressly contemplated by this Agreement, there are no voting
trusts or other agreements or understandings to which the Parent or any Parent
Subsidiary is a party with respect to the voting of the capital stock of the
Parent or any of the Parent Subsidiaries.
(c) The Parent Ordinary Shares underlying the Parent ADSs to be issued as
part of the Merger Consideration, when issued and delivered in accordance with
the terms of this Agreement, will have been duly authorized, validly issued,
fully paid and non-assessable and will be free of any preemptive or other
similar rights, except as set forth on the Parent Disclosure Schedule.
Section 4.4 Authorization; Validity of Agreement; Necessary Action. Each of
Parent and Merger Sub has full corporate power and authority to execute and
deliver this Agreement and, with respect to Parent, subject in the case of
consummation of the Merger to obtaining the Parent Shareholder Approval, to
consummate the Transactions. The execution, delivery and performance by Parent
and Merger Sub of this Agreement and the consummation of the Merger and the
Transactions have been duly and validly authorized by the Boards of Directors
of Parent and Merger Sub, and by Parent as the sole shareholder of Merger Sub,
and no other corporate action on the part of Parent and Merger Sub is necessary
to authorize the execution and delivery by Parent and Merger Sub of this
Agreement or, except with respect to Parent for obtaining the Parent
Shareholder Approval and the filing of merger documents as set forth herein,
the consummation of the Transactions. This Agreement has been duly executed and
delivered by Parent and Merger Sub, and, assuming due and valid authorization,
execution and delivery hereof by the Company, is a valid and binding obligation
of each of Parent and Merger Sub, enforceable against each of them in
accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium and other similar laws relating to creditors' rights and general
principles of equity.
Section 4.5 Board Approvals; Takeover Statutes. The Parent Board of
Directors, at a meeting duly called and held, has (i) unanimously determined
that each of the Agreement and the Merger are in the best interests of the
Parent and its shareholders, (ii) adopted this Agreement and approved the
Merger and the other Transactions, and (iii) resolved to recommend that the
shareholders of the Parent approve this Agreement and the Merger, and none of
the aforesaid actions by the Parent Board of Directors has been amended,
rescinded or modified. To the knowledge of Parent, no Finnish takeover statute
is applicable to the Merger or the other Transactions.
Section 4.6 Vote Required. The affirmative vote of the holders of two-thirds
of the Parent Ordinary Shares and the Series K Shares, voting as a single
class, represented at a meeting of shareholders of Parent is
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the only vote of the holders of any class or series of the Parent's capital
stock necessary to adopt this Agreement and approve the Merger and the other
Transactions.
Section 4.7 Consents and Approvals; No Violations. Except for the filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, Non-U.S.
Monopoly Laws, Finnish corporation law, the Finnish Companies Act and Finnish
and other securities law, the MBCA and the DGCL, none of the execution,
delivery or performance of this Agreement by Parent or Merger Sub or the
consummation by Parent or Merger Sub of the Transactions will (i) conflict with
or result in any breach of any provision of the respective articles of
association or bylaws or similar organizational documents of Parent or Merger
Sub, (ii) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (iii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which Parent, or any of its Subsidiaries or Merger Sub is a party
or by which any of them or any of their respective properties or assets may be
bound, or (iv) violate any Order, statute, rule or regulation applicable to
Parent, any of its Subsidiaries or any of their properties or assets, except,
with respect to the foregoing clauses (ii), (iii) and (iv), as could not
reasonably be expected to, individually or in the aggregate, have a Parent
Material Adverse Effect. There are no third party consents or approvals
required to be obtained under the Parent Agreements prior to the consummation
of the Transactions, except where the failure to obtain such consents or
approvals could not reasonably be expected to, individually or in the
aggregate, have a Parent Material Adverse Effect.
Section 4.8 Parent Public Reports and Financial Statements. The Parent has
filed, and has heretofore made available to the Company, true and complete
copies of, all reports, filings, registration statements and other documents
required to be filed by it with the HSE, the Finnish Trade Registry, the
Finnish Financial Supervision and the Decision of the Ministry of Finance since
March 23, 1999. As of their respective dates or, if amended, as of the date of
the last such amendment filed prior to the date hereof, the Parent Public
Reports, including, without limitation, any financial statements or schedules
included therein (a) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading and (b) complied as to form in all
material respects with the applicable requirements of the Finnish Companies Act
and the Market Act, as the case may be, and the applicable rules and
regulations of the HSE and the Finnish Trade Registry. None of the Parent
Subsidiaries is required to file any forms, reports or other documents with the
Finnish Trade Registry or the Finnish Financial Supervision or under the Market
Act or the Finnish Companies Act. The Parent Financial Statements have been
prepared from, and are in accordance with, the books and records of the Parent
and its consolidated Subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the HSE, the Market Act and the Finnish Companies Act with respect thereto,
have been prepared in accordance with Finnish GAAP applied on a consistent
basis during the period involved (except as may be stated in the notes thereto)
and fairly present in all material respects the consolidated financial position
and the consolidated results of operations and cash flows (and changes in
financial position, if any) of the Parent and its consolidated Subsidiaries as
of the times and for the periods referred to therein.
Section 4.9 No Undisclosed Liabilities. Except (a) as disclosed in the
Parent Financial Statements, (b) for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice since the
Parent Balance Sheet Date pursuant to the terms of this Agreement, or (c)
incurred pursuant to, or in furtherance of, this Agreement or the Transactions,
neither the Parent nor any Parent Subsidiary has any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise, which could
reasonably be expected to, individually or in the aggregate, have a Parent
Material Adverse Effect.
Section 4.10 Absence of Certain Changes. Since the Parent Balance Sheet
Date, except as disclosed in the Parent Public Reports filed prior to the date
hereof, (i) the Parent and each Parent Subsidiary has conducted
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its respective business only in the ordinary and usual course, (ii) there have
not occurred any events, changes, effects or circumstances (including the
incurrence of any liabilities of any nature, whether or not accrued, contingent
or otherwise) having or which could reasonably be expected to, individually or
in the aggregate, have a Parent Material Adverse Effect, and (iii) there has
not been (1) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of
Parent's capital stock except as set forth on the Parent Disclosure Schedule,
(2) any split, combination or reclassification of any of Parent's capital stock
or any issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of Parent's capital stock,
except for issuances of Parent Ordinary Shares upon the exercise of Parent
Options awarded prior to the date hereof, (3) (A) any granting by Parent or any
of its Subsidiaries to any current or former director, executive officer or
other key employee of Parent or its Subsidiaries of any increase in
compensation, bonus or other benefits, except for normal increases in the
ordinary course of business or as was required under any employment agreements
in effect as of the date hereof, (B) any granting by Parent or any of its
Subsidiaries to any such current or former director, executive officer or key
employee of any increase in severance or termination pay, except in the
ordinary course of business, or (C) any entry by Parent or any of its
Subsidiaries into, or any amendment of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any such
current or former director, executive officer or key employee, other than in
the ordinary course of business, (4) except insofar as may have been disclosed
in Parent Public Reports or required by a change in Finnish GAAP, any change in
accounting methods, principles or practices by Parent materially affecting its
assets, liabilities or business or (5) except insofar as may have been
disclosed in Parent Public Reports, any tax election that, individually or in
the aggregate, would reasonably be expected to have a Parent Material Adverse
Effect on Parent or any of its tax attributes or any settlement or compromise
of any income tax liability.
Section 4.11 Litigation. There is no action, suit, or proceeding by or
before any court or governmental or other egulatory or administrative agency or
commission pending or, to the best knowledge of the Parent, threatened against
or involving the Parent or any Parent Subsidiary, or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
the Parent or any Parent Subsidiary pursuant to this Agreement or in connection
with the Transactions, other than, in each case, the outcome of which,
individually or in the aggregate, would not (i) reasonably be expected to have
a Parent Material Adverse Effect, or (ii) reasonably be expected to materially
impair or delay the ability of the Company to perform its obligations under
this Agreement.
Section 4.12 Tax Matters; Government Benefits. The Parent and each of its
Subsidiaries have filed all Tax Returns that are required to be filed by the
Parent and its Subsidiaries, and all such Tax Returns are complete and correct
in all material respects, or requests for extensions to file such returns or
reports have been timely filed, granted and have not expired, except to the
extent that such failure to file, to be complete or correct or to have
extensions granted that remain in effect, individually or in the aggregate,
would not reasonably be expected to have a Parent Material Adverse Effect. The
Parent and each of its Subsidiaries have duly paid or caused to be duly paid in
full or made provision in accordance with Finnish GAAP (or there has been paid
or provision has been made on their behalf) for the payment of all Taxes shown
as due on such Tax Returns.
(a) No notification has been received by the Parent or by any Parent
Subsidiary that an audit, examination or other proceeding is pending or, to the
Parent's knowledge, threatened with respect to any Taxes due from or with
respect to or attributable to the Parent or any Parent Subsidiary or any Tax
Return filed by or with respect to the Parent or any Parent Subsidiary where
there is a reasonable possibility of a materially adverse determination.
(b) Neither the Parent nor any of its Subsidiaries has taken any action or
knows of any fact, agreement, plan or other circumstance that is reasonably
likely to prevent the Merger from qualifying as a reorganization within the
meaning of Section 368(a) of the Code.
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Section 4.13 Title to Properties; Encumbrances. Each of the Parent and the
Parent Subsidiaries has good and valid title to, or has valid leasehold
interests in or valid rights under contract to use, all the tangible properties
and assets which it purports to own or use, including, without limitation, all
the tangible properties and assets reflected in the Parent Balance Sheet
(except for properties and assets disposed of since the date of the Parent
Balance Sheet in the ordinary course of business consistent with past
practice), in each case, free and clear of all title defects or objections,
liens, claims, charges, security interests or other encumbrances of any nature
whatsoever except, with respect to all such properties and assets, for (a)
liens shown on the Parent Balance Sheet as securing specified liabilities or
obligations and liens incurred in connection with the purchase of property
and/or assets, if such purchase was effected after the date of the Parent
Balance Sheet, with respect to which no default exists; (b) minor imperfections
of title, if any, none of which are substantial in amount, materially detract
from the value or impair the use of the property subject thereto, or impair the
operations of the Parent or any Parent Subsidiary and which have arisen only in
the ordinary course of business and consistent with past practice since the
date of the Parent Balance Sheet; (c) liens for current taxes not yet due; and
(d) such title defects or objections, liens, claims, charges, security
interests or other encumbrances of any nature whatsoever, if any, as
individually or in the aggregate could not reasonably be expected to have a
Parent Material Adverse Effect.
Section 4.14 Environmental Laws. Except as disclosed in the Parent Public
Reports (a) the Parent and each Parent Subsidiary are in compliance with all
Environmental Laws, including, but not limited to, compliance with any permits
or other governmental authorizations or the terms and conditions thereof,
except in the case of the matters covered by this sentence where the failure to
be in compliance with such laws could not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect; (b) in the
past five (5) years neither the Parent nor any Parent Subsidiary has received
any communication or notice, whether from a governmental authority or
otherwise, alleging any violation of or noncompliance with any Environmental
Laws by the Parent or any Parent Subsidiary or for which any of them is
responsible, and there is no pending or, to the Parent's knowledge, threatened
Environmental Claim, except where such communication, notice or Environmental
Claim could not reasonably be expected to, individually or in the aggregate,
have a Parent Material Adverse Effect; and (c) to the Parent's knowledge, there
are no past or present facts or circumstances that could form the basis of any
Environmental Claim against the Parent or any Parent Subsidiary or against any
person or entity whose liability for any Environmental Claim the Parent or any
Parent Subsidiary has retained or assumed either contractually or by operation
of law, except where such Environmental Claim, if made, could not reasonably be
expected to, individually or in the aggregate, have a Parent Material Adverse
Effect.
Section 4.15 Intellectual Property. Except as could not, individually or in
the aggregate, reasonably be expected to have a Parent Material Adverse Effect,
(i) either the Parent or a Parent Subsidiary owns, or is licensed or otherwise
possesses legally enforceable rights to use the Parent Intellectual Property,
(ii) to the Parent's knowledge, the conduct of the business of the Parent and
the Parent Subsidiaries with the Parent Intellectual Property does not infringe
any Intellectual Property rights or any other proprietary right of any Person,
and neither the Parent nor any Parent Subsidiary has received any written
notice from any other Person pertaining to or challenging the right of the
Parent or any Parent Subsidiary to use any of the Parent Intellectual Property,
and (iii) neither the Parent nor any Parent Subsidiary has made any claim of a
violation or infringement by others of its rights to or in connection with the
Parent Intellectual Property which is still pending.
Section 4.16 Compliance with Laws. The Parent and its Subsidiaries are in
compliance with each applicable law, rule or regulation of any United States
federal, state, local, Finnish, or other foreign government or agency thereof
which affects the business, properties or assets of the Parent and its
Subsidiaries, and no notice, charge, claim, action or assertion has been
received by the Parent or any Parent Subsidiary or has been filed, commenced
or, to the Parent's knowledge, threatened against the Parent or any Parent
Subsidiary alleging any such violation, except for any matter otherwise covered
by this sentence which could not reasonably be expected to, individually or in
the aggregate, have a Parent Material Adverse Effect. All licenses, permits and
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approvals required under such laws, rules and regulations are in full force and
effect, and each of Parent and its Subsidiaries is in compliance with the terms
thereof, except where the failure to be in full force and effect or to be in
such compliance could not reasonably be expected to, individually or in the
aggregate, have a Parent Material Adverse Effect.
Section 4.17 Labor Difficulties. (a) There is no unfair labor practice
complaint against the Parent or any Parent Subsidiary pending before any
Finnish governmental or administrative agency, except for any occurrence that
individually or in the aggregate could not reasonably be expected to have a
Parent Material Adverse Effect; (b) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to the knowledge of Parent, threatened against
or affecting the Parent or any Parent Subsidiary, except where such strike,
dispute, slowdown or stoppage could not reasonably be expected to have a Parent
Material Adverse Effect; (d) to the Parent's knowledge, there is no
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Parent and its Subsidiaries; and
(e) no grievance which might have, individually or in the aggregate, a Parent
Material Adverse Effect, arising out of or under collective bargaining
agreements is pending.
Section 4.18 Information to be Supplied. (a) None of the information
supplied or to be supplied by Parent specifically for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (ii) the Proxy Statement will, at the date it is first mailed to
the Company's shareholders or at the time of the Company Shareholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations thereunder, except that no representation or warranty is made by
Parent with respect to statements made or incorporated by reference therein
based on information supplied by the Company specifically for inclusion or
incorporation by reference in the Registration Statement.
(b) The Parent Disclosure Documents will, at all relevant times, include all
information relating to Parent and its Subsidiaries which is required to enable
the Parent Disclosure Documents and the parties hereto to comply in all
material respects with all Finnish statutory and other legal and regulatory
provisions (including, without limitation, the Market Act and the rules and
regulations made thereunder, and the rules and requirements of the HSE) and all
such information contained in such documents will, as of the date of such
filing, be in all material respects, in accordance with the facts and will not
omit anything materially likely to affect the import of such information.
(c) Notwithstanding the foregoing provisions of this Section, no
representation or warranty is made by Parent with respect to statements made or
incorporated by reference in the Registration Statement or the Listing
Particulars based on information supplied by the Company expressly for
inclusion or incorporation by reference therein.
Section 4.19 Merger Sub's Operations. Merger Sub was formed solely for the
purpose of engaging in the Transactions and has not engaged in any business
activities or conducted any operations other than in connection with the
Transactions.
Section 4.20 Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person acting on behalf of Parent or Merger
Sub is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee in connection with any of the Transactions, except
Conventum Corporate Finance Oy.
Section 4.21 Parent Agreements. Except as set forth in the Parent Public
Reports or as permitted pursuant to this Agreement, neither the Parent nor any
of its Subsidiaries is a party to or bound by (i) any
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agreement relating to the incurring of indebtedness (including sale and
leaseback and capitalized lease transactions and other similar financing
transactions) providing for payment or repayment in excess of $500,000, (ii)
any "material contract" (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC, exclusive of any compensation agreements which would
otherwise be included in such term with respect to a U.S. registrant) or (iii)
any non-competition agreement which purports to limit in any material respect
the manner in which, or the localities in which, all or any portion of the
business of the Parent and its Subsidiaries, taken as a whole is conducted
(collectively, the "Parent Agreements").
Section 4.22 Interested Party Transactions. Section 4.22 of the Parent
Disclosure Schedule sets forth a description of any event that, to Parent's
Knowledge, exists or has occurred since January 1, 1999 that would be required
to be reported as a "Certain Relationship" or "Related Transaction" pursuant to
Item 404 of Regulation S-K promulgated by the SEC, assuming, for purposes of
this section only, that the Parent was and is subject to the reporting
requirements of the Securities Act and the Exchange Act.
ARTICLE V
Covenants
Section 5.1 Conduct of the Business of Company. The Company agrees that,
except as set forth in the Company Disclosure Schedule, or as permitted,
required or specifically contemplated by, or otherwise described in, this
Agreement or otherwise consented to or approved in writing by Parent (which
consent or approval shall not be unreasonably withheld or delayed), during the
period commencing on the date hereof until the earlier of the termination of
this Agreement or the Effective Time:
(a) the Company and each of its Subsidiaries shall conduct their
respective operations in all material respects only according to their
ordinary and usual course of business consistent with past practice and
shall use their reasonable best efforts to preserve intact their respective
business organization, keep available the services of their officers,
employees and consultants and maintain satisfactory relationships with
licensors, suppliers, distributors, clients, joint venture partners and
others having significant business relationships with them;
(b) by way of illustration and not limitation, neither the Company nor
any of its Subsidiaries shall:
(i) make any change in or amendment to the Company's Charter
Documents or increase the number of members on the Company Board of
Directors beyond a total of eight members;
(ii) issue, sell, pledge, dispose of or encumber, or authorize to
issue or sell, pledge, dispose of or encumber, any shares of its capital
stock or any other securities, or issue or sell, or authorize to issue
or sell, any securities convertible into, or options, warrants,
convertible securities or other rights to purchase or subscribe to, or
enter into any arrangement or contract with respect to the issuance or
sale of, any shares of its capital stock or any other securities, or
make any other changes in its capital structure, other than (i) the
issuance of Shares upon the exercise of Company Options outstanding as
of March 31, 2001, in accordance with their then present terms or (ii)
issuances by a wholly-owned Subsidiary of the Company of capital stock
to such Subsidiary's parent, the Company or another wholly-owned
Subsidiary of the Company.
(iii) declare, pay or set aside any dividend or other distribution
(whether in cash, stock or property or any combination thereof) or
payment with respect to, or split, combine, redeem or reclassify, or
purchase or otherwise acquire, any shares of its capital stock or its
other securities, other than dividends payable by a wholly-owned
Subsidiary of the Company to the Company or another wholly-owned
Subsidiary of the Company;
(iv) incur any capital expenditures or any obligations or liabilities
in respect thereof, except for those (A) incurred in the ordinary course
of business of the Company and its Subsidiaries, or (B) incurred in
connection with the Company's existing operations in Brazil in an amount
not to exceed
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$3,000,000, or (C) not otherwise described in clauses (A) and (B)
which, as to this clause (C), do not exceed $3,000,000 in the
aggregate;
(v) acquire (whether pursuant to merger, stock or asset purchase or
otherwise) in one transaction or series of related transactions (A) any
assets (including any equity interests), other than acquisitions of
inventory, supplies, services and raw materials in the ordinary course
of business consistent with past practice, or (B) all or substantially
all of the equity interests of any Person or any business or division
of any Person other than in connection with transactions permitted by
Section 5.1(b)(iv)(B);
(vi) (A) grant any options under the Company Stock Plans or
otherwise grant any Company Option or Company Award, or (B) establish,
adopt, enter into or amend any bonus, profit sharing or similar plan,
agreement, trust, fund, policy or arrangement, or (C) except in the
ordinary course of business consistent with past practice and except to
the extent required under existing employee and director benefit plans,
agreements or arrangements as in effect on the date of this Agreement,
increase the compensation or fringe benefits of any of its directors,
officers or employees or grant any severance or termination pay not
currently required to be paid under existing severance plans or enter
into any employment, consulting or severance agreement or arrangement
with any present, former or prospective director, officer or other
employee of the Company or any of its Subsidiaries, or establish,
adopt, enter into or amend in any material respect or terminate any
collective bargaining, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees,
except as may be required by law;
(vii) transfer, lease, license, guarantee, sell, mortgage, pledge,
renovate, rehabilitate, dispose of, encumber or subject to any Lien,
any assets of the Company or any of its Subsidiaries except for (A)
sales of assets or Liens made or granted in the ordinary course of
business, and (B) sales of assets which are not, individually or in the
aggregate, material to the Company and its Subsidiaries, taken as a
whole;
(viii) except as required by applicable law or U.S. GAAP and after
notice to Parent, take any action to change accounting policies or
procedures (including, without limitation, procedures with respect to
revenue recognition, payments of accounts payable and collection of
accounts receivable);
(ix) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its Subsidiaries (other
than the Merger) or any agreement relating to a Company Acquisition
Proposal, except as provided for in Section 7.1(c)(iv);
(x) (A) incur any material indebtedness for borrowed money, issue
any debt securities, or assume or guarantee any such indebtedness of
another Person (other than indebtedness owing to or guarantees of
indebtedness owing to the Company or any direct or indirect wholly-
owned Subsidiary of the Company) or endorse or otherwise become
responsible for the obligations of any Person or (B) make any loans or
advances to any other Person, other than to the Company or to any
direct or indirect wholly-owned Subsidiary of the Company, except, in
the case of clause (A), for borrowings (1) in the ordinary course of
business consistent with past practice, including without limitation
borrowings under existing credit facilities in the ordinary course of
business consistent with past practice, (2) in connection with the
Transactions, or (3) in connection with financing activities relating
to activities described in Section 5.1(b)(iv), but only to the extent
otherwise permitted thereunder;
(xi) accelerate the payment, right to payment or vesting of any
bonus, severance, profit sharing, retirement, deferred compensation,
stock option (including any options issued pursuant to the Company
Stock Plans or under any Company Award), insurance or other
compensation or benefits, or amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire,
or permit any Subsidiary to amend the terms or change the period of
exercisability of,
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purchase, repurchase, redeem or otherwise acquire, any of its
securities or any securities of its subsidiaries, including, without
limitation, Shares, or any option, warrant or right, directly or
indirectly, to acquire any such securities;
(xii) settle, pay or discharge any claim, suit or other action
brought or threatened against the Company with respect to or arising
out of a shareholder's equity interest in the Company, or pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise) over
$250,000, individually or in the aggregate, other than (A) the payment,
discharge or satisfaction (1) of any such claims, liabilities or
obligations in the ordinary course of business and consistent with past
practice or (2) of claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) contained in the Company SEC
Documents; provided, in each case, that any such settlement provides
for a complete release of the Company and its Subsidiaries and imposes
no obligation on the Company or its Subsidiaries other than the payment
of money; and (B) the settlement contemplated by Section 9.13;
(xiii) enter into any agreement, understanding or commitment that
materially restrains, limits or impedes the Company's or any of its
Subsidiaries' ability to compete with or conduct any business or line
of business, including, but not limited to, geographic limitations on
the Company's or any of its Subsidiaries' activities;
(xiv) plan, announce, implement or effect (A) any plant or facility
closing (whether or not on a temporary or permanent basis) or (B) any
material reduction in labor force, lay-off, early retirement program,
severance program or other program or effort concerning the termination
of employment of employees of the Company or its Subsidiaries,
provided, however, that (1) routine employee terminations for cause,
(2) cost savings measures as Triple S may implement in the ordinary
course of business, and (3) announced cost savings measures with
respect to its Forth Worth, Texas facility shall not be considered
subject to this clause (xiv); further provided, however, that the
Company may, in connection with cost saving measures resulting in the
actual termination of employees, pay up to $500,000 in the aggregate to
any employees of the Company, other than (i) any person identified as
an executive officer in the Company's Annual Report on Form 10-K/A
filed with the SEC on July 31, 2000, and (ii) for the avoidance of
doubt, any person identified as a director of the Company in the
foregoing report, so long as the amount of any payment to any
individual employee shall not exceed $10,000, and (iii) the Company may
implement other cost savings measures outside of the ordinary course of
its business, after notice to, and with the Consent of, Parent, which
consent shall not be unreasonably refused or delayed.
(xv) knowingly take any action or fail to take any action which
action or failure to act would prevent, or would be reasonably likely
to prevent, the Merger from qualifying (A) for "pooling of interests"
accounting treatment under Finnish GAAP or (B) as a Section 368
Reorganization;
(xvi) take any action including, without limitation, the adoption of
any shareholder rights plan or amendments to its Certificate of
Incorporation or By-Laws (or comparable governing documents), which
would, directly or indirectly, restrict or impair the ability of Parent
to vote, or otherwise to exercise the rights and receive the benefits
of a shareholder with respect to, securities of the Company that may be
acquired or controlled by Parent or Merger Sub or permit any
shareholder to acquire securities of the Company on a basis not
available to Parent or Merger Sub in the event that Parent or Merger
Sub were to acquire any shares of the Company Common Stock;
(xvii) materially modify, amend or terminate any material contract
to which it is a party or waive any of its material rights or claims
except, in each case, in the ordinary course of business consistent
with past practice;
(xviii) make any tax election or settle or compromise any United
States federal, state, local or non-United States tax liability if the
effect thereof would be adverse in any material respect to the Company;
or
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(xix) modify, amend, or terminate the Agreement of Operational
Partnership between the Company and Cosmosplast Industria E Comercio de
Plasticos LTDA, dated September 2, 2000, or any of the ancillary
agreements or charter documents pertaining thereto (including, but not
limited to, the Corporate Constitution Agreement of Triple S
Cosmosplast Da Amzonia LTDA, dated August 14, 2000).
(xx) agree, in writing or otherwise, to take any of the foregoing
actions.
Section 5.2 Conduct of the Business of Parent. The Parent agrees that,
except as set forth in the Parent Disclosure Schedule, or as permitted,
required or specifically contemplated by, or otherwise described in, this
Agreement or otherwise consented to or approved in writing by the Company
(which consent or approval shall not be unreasonably withheld or delayed),
during the period commencing on the date hereof until the earlier of the
termination of this Agreement or the Effective Time, neither the Parent nor any
of its Subsidiaries shall:
(a) except as contemplated in the Conversion Agreement, make any change
in or amendment to the Parent's articles of association, by-laws, or
similar organizational documents;
(b) except pursuant to the terms of the Conversion Agreement, issue,
sell, pledge, dispose of or encumber, or authorize to issue or sell,
pledge, dispose of or encumber (i) more than 7,500,000 shares of its
capital stock in connection with one or more acquisitions of unaffiliated
third party entities (whether pursuant to merger, stock or asset purchase
or otherwise), or (ii) more than 1,500,000 shares of its capital stock
pursuant to Parent Options, or authorize to issue or sell, any securities
convertible into, or options, warrants, convertible securities or other
rights to purchase or subscribe to, or enter into any arrangement or
contract with respect to the issuance or sale of, (x) more than 7,500,000
shares in the aggregate of its capital stock in connection with one or more
acquisitions (whether pursuant to merger, stock or asset purchase or
otherwise) of unaffiliated third party entities , or (y) more than
1,500,000 shares of its capital stock pursuant to the 1999 Warrant Plan or
the 2001 Warrant Plan, or make any other changes in its capital structure,
other than (1) the issuance of Parent Ordinary Shares upon the exercise of
Parent Options, subject to the limitations in clause (b)(ii) and clause
(b)(y) or (2) issuances by a wholly-owned Subsidiary of the Parent of
capital stock to such Subsidiary's parent, the Parent or another wholly-
owned Subsidiary of the Parent;
(c) except as contemplated in the Conversion Agreement, declare, pay or
set aside any dividend or other distribution (whether in cash, stock or
property or any combination thereof) or payment with respect to, or split,
combine, redeem or reclassify, or purchase or otherwise acquire shares of
Parent's capital stock or its other securities, other than dividends
payable by a wholly-owned Subsidiary of the Parent to the Parent or another
wholly-owned Subsidiary of the Parent;
(d) knowingly take any action or fail to take any action, which action
or failure to act would prevent, or would be reasonably likely to prevent,
the Merger from qualifying as a Section 368 Reorganization;
(e) take any action including, without limitation, the adoption of any
shareholder rights plan or amendments to its articles of association or
bylaws (or comparable governing documents), which would, directly or
indirectly, restrict or impair the ability of the Company's shareholders to
vote, or otherwise to exercise the rights and receive the benefits of a
shareholder with respect to, securities of the Parent that may be acquired
by the Company's shareholders in the Merger;
(f) adopt or enter into a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Parent or any of its Subsidiaries (other than
the Merger) or any agreement relating to a Parent Acquisition proposal,
except as provided for in Section 7.1(b)(iv);
(g) accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock option
(including any options issued pursuant to the Parent 1999 Warrant Plan or
the 2001 Warrant Plan under any award (including restricted stock, deferred
stock, phantom stock, stock equivalent or stock unit) for capital stock of
the Parent, or otherwise), insurance or
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other compensation or benefits, or amend the terms or change the period of
exercisability of, purchase, repurchase, redeem or otherwise acquire, or
permit any Subsidiary to amend the terms or change the period of
exercisability, purchase, repurchase, redeem or otherwise acquire, any of
its securities or any securities of its subsidiaries, including, without
limitation, Parent Ordinary Shares, or any option, warrant or right,
directly or indirectly, to acquire any such securities;
(h) amend the Parent's 1999 Warrant Plan, the 2001 Warrant Plan or
increase the total number of shares in the aggregate authorized for actual
issuance under such plans beyond the 1,500,000 shares currently authorized
for actual issuance under such plans without further approval of Parent's
shareholders and the Company; or
(i) agree, in writing or otherwise, to take any of the foregoing
actions.
Section 5.3 Company Shareholder Meeting; Parent Shareholder Meeting;
Preparation of Proxy Statement/Prospectus. The Company Shareholder Meeting. The
Company, acting through its Board of Directors, shall, in accordance with
applicable law, duly call, convene and hold a meeting of the holders of the
Shares (the "Company Shareholder Meeting") as soon as reasonably practicable
for the purpose of voting upon the approval and adoption of this Agreement and
the Merger, and the Company agrees that this Agreement and the Merger shall be
submitted at such meeting. Except as provided in Section 5.8: (i) the Company
Board of Directors shall recommend approval and adoption by its shareholders of
this Agreement (the "Company Recommendation"), and (ii) neither the Company's
Board of Directors nor any committee thereof shall amend, modify, withdraw,
condition or qualify the Company Recommendation in a manner adverse to Parent.
(a) Parent Shareholder Meeting. Parent, acting through its Board of
Directors, shall, in accordance with applicable law, duly call, convene and
hold a meeting of the holders of Parent Ordinary Shares (the "Parent
Shareholder Meeting") at approximately the same time as the Company Shareholder
Meeting, but in no event later than one (1) Business Day after such Company
Shareholder Meeting for the purpose of voting upon the Transactions, including
the Merger and the issuance of Parent Ordinary Shares hereunder and Parent
agrees that this Agreement and the issuance of Parent Ordinary Shares hereunder
shall be submitted at such meeting. Except as provided in Section 5.9: (i)
Parent's Board of Directors shall recommend approval by its shareholders of the
Transactions, including the issuance of Parent Ordinary Shares pursuant to the
Merger and, subject to receipt of all consents from the nominee required under
Finnish laws, the election of Evan C. Harter, Daniel B. Canavan or, in lieu of
such persons, such other persons as the Company shall designate with the
consent of Parent, which consent will not be unreasonably refused or delayed,
as members of the Parent's Board of Directors as contemplated by Section 5.14
(the "Parent Recommendation"), and (ii) neither Parent's Board of Directors nor
any committee thereof shall amend, modify, withdraw, condition or qualify the
Parent Recommendation in a manner adverse to the Company.
(b) Preparation of Registration Statement and Proxy
Statement/Prospectus. Promptly after the date hereof, Parent and the Company
shall prepare and Parent shall file with the SEC the Registration Statement, in
which the Proxy Statement (which also shall be filed by the Company under
separate cover) and the Prospectus will be included. Each of the Company and
Parent shall use all reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. The Company shall mail the Proxy Statement
(including the Prospectus) to its shareholders as promptly as practicable after
the Registration Statement is declared effective under the Securities Act,
comply in all material respects with the proxy solicitation rules and
regulations under the Exchange Act in connection with the solicitation of such
shareholders and, if necessary, after the Proxy Statement shall have been so
mailed, promptly circulate amended, supplemental or supplemented proxy
material, and, if required in connection therewith, resolicit proxies. Parent
shall also take any action required to be taken under any applicable state
securities or blue sky laws in connection with the issuance of Parent ADSs in
the Merger. No filing of, or amendment or supplement to the Proxy Statement,
the Prospectus or the Registration Statement will be made by the Company or
Parent
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without the approval of the other party, which will not be unreasonably
withheld or delayed. Each party will advise the other party, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of Parent ADSs issuable in
connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement, the Prospectus or the
Registration Statement or comments thereon and responses thereto or requests by
the SEC for additional information. If at any time prior to the Effective Time,
the Company or Parent discovers any information relating to either party, or
any of their respective Affiliates, officers or directors, that should be set
forth in an amendment or supplement to the Proxy Statement, the Prospectus or
the Registration Statement, so that such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, the party that discovers such information shall
promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law or regulation, disseminated to the
shareholders of the Company and Parent.
(c) Preparation and Filing of Form F-6. Parent shall promptly prepare and
cause the depositary under the Deposit Agreement to file with the SEC a
registration statement on Form F-6 (the "Form F-6") with respect to the
registration of the Parent ADSs under the Securities Act and use its reasonable
best efforts to have the Form F-6 declared effective as promptly as possible.
Section 5.4 Access. The Company shall (and shall cause each of its
Subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of Parent, reasonable access during normal business hours
during the period prior to the Closing Date, to all its properties, books,
contracts, commitments and records and, during such period, the Company shall
(and shall cause each of its Subsidiaries to) furnish promptly to the Parent
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of
federal securities laws and (ii) all other information concerning its business,
properties and personnel as Parent may reasonably request for purposes
consistent with this Agreement and the Transactions contemplated hereby.
(a) The Parent shall (and shall cause each of its Subsidiaries to) afford to
the officers, employees, accountants, counsel and other representatives of the
Company, reasonable access during normal business hours during the period prior
to the Closing Date, to all its properties, books, contracts, commitments and
records and, during such period, the Parent shall (and shall cause each of its
Subsidiaries to) furnish promptly to the Company (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws, and
(ii) all other information concerning its business, properties and personnel as
the Company may reasonably request for purposes consistent with this Agreement
and the Transactions contemplated hereby.
(b) Any investigation pursuant to this Section shall be conducted in a
manner which will not interfere unreasonably with the conduct of the business
of the other party.
Section 5.5 Confidentiality. Information concerning (a) the Company and its
Subsidiaries obtained by the Parent and Merger Sub and (b) the Parent and its
Subsidiaries obtained by the Company and its Subsidiaries, in each case,
through their respective officers, employees, accountants, counsel and other
representatives pursuant to Section 5.4 or otherwise, shall be subject to the
provisions of (i) the Confidentiality Agreement by and between the Company and
Parent dated June 1, 2000 and (ii) the Confidentiality Agreement by and between
the Company and Parent entered into in May 2001 (the "Confidentiality
Agreements"), the provisions of which shall continue through the earlier of the
Effective Time or two (2) years after the termination of this Agreement,
subject to all duties applicable to trade secrets.
Section 5.6 Reasonable Best Efforts. Prior to the Closing, upon the terms
and subject to the conditions of this Agreement, Parent, Merger Sub and the
Company agree to use their respective reasonable best efforts to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable
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(subject to any applicable laws) to consummate and make effective the Merger
and the other Transactions as promptly as practicable including, but not
limited to (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the Merger and the other
Transactions and the taking of such actions as are necessary to obtain any
requisite approvals, consents, orders, exemptions or waivers by any third party
or Governmental Entity, and (ii) the satisfaction of that party's and the other
parties' conditions to Closing.
(b) Prior to the Closing, each party shall promptly consult with the other
parties hereto with respect to, provide any necessary information with respect
to, and provide the other parties (or their respective counsel) with copies of,
all filings made by such party with any Governmental Entity or any other
information supplied by such party to a Governmental Entity in connection with
this Agreement, the Merger and the other Transactions. Each party hereto shall
promptly inform the other of any communication from any Governmental Entity
regarding any of the Transactions. If any party hereto or Affiliate thereof
receives a request for additional information or documentary material from any
such Governmental Entity with respect to any of the Transactions, then such
party shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request. To the extent that
transfers, amendments or modifications of permits (including environmental
permits) are required as a result of the execution of this Agreement or
consummation of any of the Transactions, each party shall use its reasonable
best efforts to effect such transfers, amendments or modifications.
(c) If required under the HSR Act, the Company and Parent shall file as soon
as practicable notifications under the HSR Act and respond as promptly as
practicable to any inquiries received from the Federal Trade Commission and the
Antitrust Division of the Department of Justice for additional information or
documentation and respond as promptly as practicable to all inquiries and
requests received from any State Attorney General or other Governmental Entity
in connection with antitrust matters. Concurrently with the filing of
notifications under the HSR Act or as soon thereafter as practicable, the
Company and Parent shall each request early termination of the HSR Act waiting
period, and each shall use its reasonable best efforts to take such action as
may be required to cause the expiration of the waiting period under the HSR Act
or other Non-U.S. Monopoly Laws with respect to the Transactions as promptly as
practicable after the execution of this Agreement. Each of the Company and the
Parent shall use all reasonable efforts to resolve such objections, if any, as
may be asserted by any Governmental Entity with respect to the Transactions
under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended,
the Federal Trade Commission Act, as amended, and any Non-U.S. Monopoly Laws
(collectively, "Antitrust Laws"). In connection with the filings under the
Antitrust Laws, if any administrative or judicial action or proceeding is
instituted (or threatened to be instituted) challenging any Transaction as
violative of any Antitrust Law, each of Parent and the Company shall cooperate
and use all reasonable efforts to contest and resist any such action or
proceeding and to have vacated, lifted, reversed or overturned any Order, that
is in effect and that prohibits, prevents or restricts consummation of the
Merger or any other Transactions, unless either party, in good faith,
determines that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither the Company nor Parent shall have
any obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond the date of a ruling preliminarily enjoining the
Merger issued by a court of competent jurisdiction.
(d) Notwithstanding anything to the contrary in Section 5.6(a), (b) or (c),
(i) neither Parent nor any of its Subsidiaries shall be required to divest or
hold separate any of their respective businesses, product lines or assets, or
to take or agree to take any other action or agree to any limitation, that
could reasonably be expected to have a Parent Material Adverse Effect on Parent
or on Parent combined with the Company after the Effective Time, and (ii) for
purposes of this Section, neither the Company nor any of its Subsidiaries shall
be entitled to divest, nor shall it commit to divest, any of their respective
businesses, product lines or assets, or to take or agree to take any other
action or agree to any limitation, that could reasonably be expected to have a
Company Material Adverse Effect on the Company or on the Company combined with
the Parent after the Effective Time.
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Section 5.7 Employee Stock Options. (a) As of the Effective Time (i) each
outstanding Company Employee Stock Option, and any other Company Option
(together, the "Adjusted Options") shall be exchanged for an option to purchase
the number of Parent ADSs derived by multiplying the number of Shares subject
to such Company Employee Stock Option or other Company Option immediately prior
to the Effective Time by the Exchange Ratio and dividing the result by the
number of Parent Ordinary Shares represented by each Parent ADS (rounded to the
nearest whole number of Parent ADSs), at an exercise price per Parent ADS equal
to (X) the exercise price for each such Share subject to such option (Y)
divided by the Exchange Ratio (Z) with the result multiplied by the number of
Parent Shares represented by each Parent ADS (rounded down to the nearest whole
cent), and all references in each such option to the Company shall be deemed to
refer to Parent, where appropriate, and (ii) Parent shall assume the
obligations of the Company under the Company Stock Plans. The other terms of
each Adjusted Option, and the plans under which they were issued, shall
continue to apply in accordance with their terms, subject to Section 5.7(d)."
(b) As of the Effective Time, each outstanding award (including restricted
stock, deferred stock, phantom stock, stock equivalents and stock units)
("Company Award") under any Company Stock Plan shall be exchanged for a similar
instrument of Parent, in each case with such adjustments (and no other
adjustments) to the terms of such Company Awards as are necessary to preserve
the value inherent in such Company Awards with no detrimental effects, taken as
a whole, on the holder thereof, and the Parent shall assume the obligations of
the Company under the Company Awards. The other terms of each Company Award,
and the plans or agreements under which they are issued, shall continue to
apply in accordance with their terms subject to Section 5.7(d).
(c) The Company and Parent agree that each of the Company Stock Plans and
Parent Stock Plans shall be amended, to the extent necessary and appropriate to
reflect the transactions contemplated by this Agreement, including, but not
limited to the exchange of Shares held or to be awarded or paid pursuant to
such benefit plans, programs or arrangements into Parent ADSs on a basis
consistent with the transactions contemplated by this Agreement. The actions to
be taken by the Company and Parent pursuant to this Section 5.7(c) shall
include the submission by the Company or Parent of the amendments to the Parent
Stock Plans or the Company Stock Plans to their respective shareholders, if
such submission is determined to be necessary by counsel to the Company or
Parent after consultation with one another; provided, however, that such
approval shall not be a condition to the consummation of the Merger.
(d) Notwithstanding anything in Section 5.7(a) or Section 5.7(b) above to
the contrary, if the exchange or conversion of any Adjusted Option or Company
Award shall be prohibited or restricted under any applicable law, rule or
regulation applicable to Parent, Parent shall, in lieu thereof, provide the
holder at the Effective Time with substantially the same economic benefit
calculated as of the Effective Time.
(e) Parent shall (i) reserve for issuance the number of Parent Ordinary
Shares underlying Parent ADSs that will become subject to the benefit plans,
programs and arrangements referred to in this Section and (ii) issue or cause
to be issued the appropriate number of Parent Ordinary Shares to be represented
by Parent ADSs pursuant to applicable plans, programs and arrangements, upon
the exercise or maturation of rights existing thereunder on the Effective Time
or thereafter granted or awarded. No later than the Effective Time, the Parent
shall prepare and file with the SEC a registration statement on Form S-8 (or
other appropriate form) registering a number of Parent Ordinary Shares
underlying Parent ADSs necessary to fulfill Parent's obligations under this
Section. For such period as the Parent shall be a reporting company under the
Exchange Act, Parent shall use its reasonable best efforts to keep such
registration statement effective (and the current status of the prospectus
required thereby to be maintained) for as long as Adjusted Options or the
Company Awards remain outstanding.
(f) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Options and Company Awards appropriate notices setting
forth such holders' rights pursuant to the Company Stock Plans and the
agreements evidencing the grants of such Company Options and Company Awards and
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that such Company Options and Company Awards and the related agreements shall
be assumed by Parent and shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 5.7 after
giving effect to the Merger).
Section 5.8 No Solicitation by the Company. Neither the Company nor any
Company Subsidiary shall (and the Company shall cause the officers, directors,
employees, representatives and agents of the Company and each Company
Subsidiary, including, but not limited to, investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or provide any information to,
any Person or group (other than Parent, any of its Affiliates or
representatives) concerning any Company Acquisition Proposal, except that
nothing contained in this Section 5.8(a) or any other provision hereof shall
prohibit the Company or the Company Board of Directors from (i) taking and
disclosing to the Company's shareholders a position with respect to a tender or
exchange offer by a third party pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act, or (ii) making any disclosure to the Company's
shareholders if, in the good faith judgment of the Board, after consultation
with outside counsel, failure to make such disclosures would be contrary to its
obligations under applicable law, provided that the Company may not, except as
permitted by Section 5.8(c), withdraw or modify, or propose to withdraw or
modify, its position with respect to the Merger. Upon execution of this
Agreement, the Company will immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. Notwithstanding the foregoing, prior to the approval
of the Merger and this Agreement at the Company Shareholders Meeting (or, if
the Merger has not been consummated within thirty (30) days after the Company
Shareholders Meeting (except by reason of the Company's failure to fulfill any
obligation under this Agreement), such actions occur more than thirty (30) days
after the Company Shareholder Meeting), the Company may furnish information
concerning its business, properties or assets to any Person pursuant to
appropriate confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group concerning a Company
Acquisition Proposal if such proposal is a Company Superior Proposal not
solicited in violation of this Agreement. A Company Acquisition Proposal will
be a Company Superior Proposal only if:
(x) a Person has, on an unsolicited basis, submitted a written proposal
to the Company Board of Directors relating to any Company Acquisition
Proposal which the Board determines in good faith (based on the advice of a
financial adviser of nationally recognized reputation) to be more favorable
to the Company and its shareholders and for which financing, to the extent
required, is then committed or which in the good faith judgment of the
Company Board of Directors, is reasonably capable of being obtained by such
Person; and
(y) the Company Board of Directors determines in good faith, after
consultation with outside counsel, that such action is required to act in a
manner consistent with the Board's fiduciary duties to the Company's
shareholders under applicable law.
(a) The Company will immediately notify Parent, orally and in writing, of
the existence of any Company Acquisition Proposal, or any modification of or
amendment to any Company Acquisition Proposal, or any request for nonpublic
information relating to the Company or any of its Subsidiaries in connection
with a Company Acquisition Proposal, and the Company will immediately
communicate to Parent, orally and in writing, the terms of any Company
Acquisition Proposal, modification or request which it may receive, the
identity of the party making such Company Acquisition Proposal, modification or
request, and whether the Company is providing or intends to provide the Person
making the Company Acquisition Proposal, modification or request with access to
information concerning the Company, and will immediately provide to Parent
copies of any written materials received by the Company describing or stating
such Company Acquisition Proposal. The Company will promptly provide to Parent
any non-public information concerning the Company provided to any other party
which was not previously provided to Parent.
(b) Except as set forth in this Section 5.8(c), neither the Company Board of
Directors nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or
A-29
Merger Sub, the approval or recommendation by such Board of Directors or any
such committee of this Agreement or the Merger, (ii) approve or recommend or
propose to approve or recommend, any Company Acquisition Proposal, or (iii)
enter into any agreement with respect to any Company Acquisition Proposal.
Notwithstanding the foregoing, prior to the Effective Time, the Company Board
of Directors may withdraw or modify its approval or recommendation of this
Agreement or the Merger, approve or recommend a Company Superior Proposal, or
enter into an agreement with respect to a Company Superior Proposal, and may
terminate this Agreement in order to concurrently enter into an agreement with
respect to such Company Superior Proposal, in each case at any time after the
fifth (5th) Business Day following delivery to Parent of written notice from
the Company advising Parent that the Company Board of Directors has received a
Company Superior Proposal which it intends to accept, specifying the material
terms and conditions of such Company Superior Proposal, and identifying the
Person making such Company Superior Proposal, but only if the Company shall
have caused its financial and legal advisors to, if requested by the Parent,
negotiate with Parent to make such adjustments in the terms and conditions of
this Agreement as would enable the Company to proceed with the transactions
contemplated herein on such adjusted terms and, at the end of such five (5)
Business Day period, the Company Board of Directors, in good faith continues
reasonably to believe, that the Company Acquisition Proposal constitutes a
Company Superior Proposal.
Section 5.9 No Solicitation by the Parent. (a) Neither the Parent nor any
Parent Subsidiary shall (and the Parent shall cause the officers, directors,
employees, representatives and agents of the Parent and each Parent Subsidiary,
including, but not limited to, investment bankers, attorneys and accountants,
not to), directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any Person or
group (other than the Company, any of its Affiliates or representatives)
concerning any Parent Acquisition Proposal, except that nothing contained in
this Section 5.9(a) or any other provision hereof shall prohibit the Parent or
the Parent Board of Directors from making any disclosure to the Parent's
shareholders if, in the good faith judgment of the Board, failure to so
disclose would be inconsistent with the best interests of its shareholders;
provided that the Parent may not, except as permitted by Section 5.9(c),
withdraw or modify, or propose to withdraw or modify, its position with respect
to the Merger. Upon execution of this Agreement, the Parent will immediately
cease any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. Notwithstanding the
foregoing, prior to the Effective Time, the Parent may furnish information
concerning its business, properties or assets to any Person pursuant to
appropriate confidentiality agreements, and may negotiate and participate in
discussions and negotiations with such entity or group concerning a Parent
Acquisition Proposal if such proposal is a Parent Inclusive Superior Proposal.
A Parent Acquisition Proposal will be a "Parent Superior Proposal" only if a
Person has, on an unsolicited basis, submitted a written proposal to the
Parent's Board of Directors relating to any Parent Acquisition Proposal which
the Board reasonably determines in good faith (based on the advice of a
financial adviser of a recognized reputation) to recommend to Parent's
shareholders. A Parent Superior Proposal will be a Parent Inclusive Superior
Proposal only if such Parent Superior Proposal does not contemplate, provide
for, or require termination of this Agreement as a condition to such proposal,
and expressly permits (but need not require) Parent to consummate the Merger
without modification in any adverse respect of this Agreement or the
Transactions. If at any time a Parent Superior Proposal becomes a Parent
Exclusive Superior Proposal, Parent will immediately cease any then existing
activities, discussions or negotiations with respect thereto until after the
earlier of the termination of the Merger Agreement, the Effective Time or such
date as any Parent Superior Proposal ceases to be a Parent Exclusive Superior
Proposal. For purposes of this Agreement, a Parent Exclusive Superior Proposal
means any Parent Superior Proposal that is not a Parent Inclusive Superior
Proposal
(b) The Parent will immediately notify the Company, orally and in writing,
of the existence of any Parent Acquisition Proposal, or any modification of or
amendment to any Parent Acquisition Proposal, or any request for nonpublic
information relating to the Parent or any of its Subsidiaries in connection
with a Parent Acquisition Proposal and the Parent will immediately communicate
to the Company, orally and in writing, the terms of any Parent Acquisition
Proposal, modification or request which it may receive, the identity of the
party making such Parent Acquisition Proposal, modification or request, and
whether the Parent is providing or
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intends to provide the Person making the Parent Acquisition Proposal,
modification or request with access to information concerning the Parent, and
will immediately provide to the Company copies of any written materials
received by Parent describing or stating such Parent Acquisition Proposal. The
Parent will promptly provide to the Company any non-public information
concerning the Parent provided to any other party which was not previously
provided to the Company.
(c) Except as set forth below in this Section 5.9(c), neither the Parent's
Board of Directors nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to the Company, the approval
or recommendation by such Board of Directors or any such committee of this
Agreement or the Merger, (ii) approve or recommend or propose to approve or
recommend, any Parent Acquisition Proposal, or (iii) enter into any agreement
with respect to any Parent Acquisition Proposal. Notwithstanding the foregoing,
prior to the Effective Time, (i) the Parent's Board of Directors may withdraw
or modify its approval or recommendation of this Agreement or the Merger,
approve or recommend a Parent Inclusive Superior Proposal, or enter into an
agreement with respect to a Parent Inclusive Superior Proposal, and (ii) may
terminate this Agreement in order to concurrently enter into an agreement with
respect to such Parent Inclusive Superior Proposal, in each case at any time
after the fifth (5th) Business Day following delivery to the Company of written
notice from the Parent advising the Company that the Parent's Board of
Directors has received a Parent Inclusive Superior Proposal which it intends to
accept, specifying the terms and conditions of such Parent Inclusive Superior
Proposal, and identifying the Person making such Parent Inclusive Superior
Proposal. In the event the Company has not advised Parent in writing that the
Company objects to the Parent Inclusive Superior Proposal prior to the
expiration of the five (5) Business Day period referred to above, the Company
will be presumed to have not objected to the Parent Inclusive Superior Proposal
and Parent may proceed to consummate the Merger and the Transactions and the
Parent Inclusive Superior Proposal. In the event the Company objects to the
Parent Inclusive Superior Proposal, the Parent shall within two (2) Business
Days thereafter either (A) abandon the Parent Inclusive Superior Proposal and
immediately provide written notice to the Company of such abandonment, or (B)
terminate this Agreement and pay to the Company the Termination Fee and
Expenses as provided in Section 7.3.
Section 5.10 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, until the Effective Time or the date the
Transactions are terminated or abandoned pursuant to Article VII, each of the
Company and Parent shall use reasonable efforts to consult with the other party
prior to the Company, Parent or any of their respective Affiliates issuing or
causing the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other Transactions without prior written
approval of the other party, except for references to earlier releases or
announcements and except as may be required by law or by any listing agreement
with a national securities exchange or trading market.
Section 5.11 Notification of Certain Matters. Each of the Company and the
Parent shall give prompt notice to the other of (i) the occurrence or non-
occurrence of any event, the occurrence or non-occurrence of which would cause
any representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Effective Time and (ii)
any material failure of such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
5.11 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
Section 5.12 State Takeover Laws. If any state takeover statute other than
Chapter 7A and Chapter 7B of the MBCA becomes or is deemed to become applicable
to the Agreement, the acquisition of Shares or the related voting power
pursuant to the Merger or the other Transactions, the Company and the Parent
shall take all action necessary to render such statute inapplicable to all of
the foregoing.
Section 5.13 Tax Treatment. (a) Prior to the Effective Time, each party
shall use its reasonable best efforts to cause the Merger to qualify as a
Section 368 Reorganization and will not take any action reasonably likely to
cause the Merger not so to qualify.
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(b) Each of the Parent and the Company shall cooperate with each other in
obtaining the opinion of Schiff Hardin & Waite, counsel to the Company, dated
as of the Closing Date, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code. In connection
therewith, each of the Company and the Parent shall deliver to Schiff Hardin &
Waite customary representation letters in form and substance reasonably
satisfactory to such counsel, and the Company shall obtain any representation
letters from appropriate shareholders and shall deliver any such letters
obtained to Schiff Hardin & Waite (the representation letters referred to in
this sentence are collectively referred to as the "Tax Certificates").
(c) The Company shall prepare and timely file all reports, forms, returns,
or other information required to be filed by it in order for the Merger to
qualify for an exception to the general rule of Section 367(a)(1) of the Code.
After the Merger, Parent shall cause the Surviving Corporation to prepare and
timely file (to the extent legally entitled to do so) all reports, forms,
returns, or other information required to be filed by the Company after the
Merger in order for the Merger to qualify for an exception to the general rule
of Section 367(a)(1) of the Code.
(d) After the Merger, Parent agrees that it shall provide the information
required to be provided by it under Treasury Regulation Section 1.367(a)-8(b)
for the applicable period in order to ensure that any holder of Company Common
Stock that is a five-percent transferee shareholder (as defined in Treasury
Regulation Section 1.367(a)-3(c)(5)(ii)) that filed a gain recognition
agreement (as defined in Treasury Regulation Section 1.367(a)-(8)) with respect
to the Merger is entitled to non-recognition treatment for U.S. federal income
tax purposes.
(e) Parent shall not take, and, after the Merger, Parent shall cause the
Company not to take, any position with respect to Taxes that is inconsistent
with the treatment of the Merger as a Section 368 Reorganization.
Section 5.14 Governance Matters. Prior to the Effective Time, the Board of
Directors of Parent shall take all necessary action to (i) cause the
resignation of (or will cause the removal of, if a resignation is not tendered)
Markku Salonen, as a director of Parent, and (ii) appoint Evan C. Harter and
Daniel B. Canavan to serve as members of such Board of Directors of Parent,
effective as of the Effective Time, until the first annual meeting of Parent
Shareholders following the Effective Time.
Section 5.15 Merger Sub Compliance. Parent shall cause Merger Sub to comply
with all of its obligations under or related to this Agreement.
Section 5.16 Employee Benefits. (a) As of the Effective Time, and subject to
subsection (b) Parent shall either (i) cause the Company Plans (as defined in
Section 3.12 of this Agreement) in effect at the date of this Agreement, to
remain in effect as of the Effective Time, or (ii) maintain employee benefit
plans which, in the aggregate, provide a substantially similar level of
benefits as those provided under comparable Company Plans with respect to
employees of the Company covered under such plans as of the date of this
Agreement; provided, however, that the foregoing shall not apply to any
provisions of any Company Plan under which employees may receive, or under
which employee benefits are based on, Company Common Stock or to the extent
inconsistent with any employment agreement with any employee.
(b) Except as set forth in the Employment Agreement to be entered into with
Christian Schauer, Parent has no current plans to institute any salary
reduction program applicable to the employees of the Surviving Corporation.
From and after the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, provide to each continuing employee of the Company and each
Company Subsidiary annual salary (excluding any cash bonus which shall be
governed by the next sentence hereof) in an amount not less than the annual
salary such employee was entitled to receive from the Company or Company
Subsidiary for the twelve month period ended March 31, 2001, plus such
annualized increases in such compensation (if any) instituted prior to the
Effective Time, in good faith, in the ordinary course of business consistent
with past practices, except, in no event shall such increases exceed ten
percent (10%) of an employee's cash salary payable during the twelve
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month period ended March 31, 2001. Parent shall, or shall cause the Surviving
Corporation to, provide to each continuing employee of the Company and each
Company Subsidiary payments under the Company bonus and incentive Plans with
respect to the fiscal year ending March 31, 2002, based on the greater of (A)
the bonus and incentive compensation to which such employee would have been
entitled pursuant to the Company bonus and incentive Plans in effect on the
date hereof; or (B) the bonus and incentive compensation to which such employee
would be entitled pursuant to any alternative bonus plan as to which such
employee may become entitled to participate, at the option of the Parent, after
the Effective Time. Notwithstanding the foregoing, nothing in this Agreement
shall in any way restrict or limit Parent or the Surviving Corporation with
respect to their ability to terminate one or more of the employees of the
Surviving Corporation from and after the Effective Date or be deemed in any way
to create an employment contract or condition of employment.
(c) Employees of the Company and each Company Subsidiary as of the Effective
Time shall be credited with service accrued prior to the Effective Time with
the Company and any Company Subsidiary for purposes of determining eligibility
to participate, vesting, eligibility for early retirement and vacation and paid
time off entitlement under any employee benefit plan or arrangement established
or maintained by Parent or the Surviving Corporation and made available to such
employees.
Section 5.17 Indemnification. (a) From and after the Effective Time, the
Parent shall, to the fullest extent not prohibited by applicable law,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer, director or employee of the Company or any of its Subsidiaries (each,
an "Indemnified Party") against (i) all losses, expenses (including reasonable
attorneys' fees and expenses), claims, damages or liabilities or, subject to
the proviso of the next succeeding sentence, amounts paid in settlement,
arising out of actions or omissions occurring at or prior to the Effective Time
(and whether asserted or claimed prior to, at or after the Effective Time) that
are, in whole or in part, based on or arising out of the fact that such person
is or was a director, officer or employee of the Company or any of its
Subsidiaries or served as a fiduciary under or with respect to any employee
benefit plan (within the meaning of Section 3(3) of ERISA) at any time
maintained by or contributed to by the Company or any of its Subsidiaries
("Indemnified Liabilities"), and (ii) all Indemnified Liabilities to the extent
they are based on or arise out of or pertain to the transactions contemplated
by this Agreement, in each case, until the expiration of the applicable statute
of limitations. In the event of any such loss, expense, claim, damage or
liability (whether or not arising before the Effective Time), (i) the Parent
shall, subject to the limitations set forth herein, pay the reasonable fees and
expenses of counsel selected by the Indemnified Parties, which counsel shall be
reasonably satisfactory to the Parent, promptly after statements therefor are
received and otherwise advance to such Indemnified Party upon request
reimbursement of documented expenses reasonably incurred, (ii) the Parent and
the Company will cooperate in the defense of such matter, and (iii) any
determination required to be made with respect to whether an Indemnified
Party's conduct complies with the standards set forth under applicable law and
the articles of incorporation or bylaws shall be made by independent counsel
mutually acceptable to the Parent and the Indemnified Party; provided, however,
that the Parent shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld or delayed).
In the event that any Indemnified Party is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Parent shall reimburse such Indemnified Party for all of
its expenses in bringing and pursuing such action. Each Indemnified Party shall
be entitled to the advancement of expenses to the full extent contemplated in
this Section 5.17(a) in connection with any such action, provided that the
person to whom expenses are advanced provides an undertaking to repay such
advance if it is ultimately determined that such person is not entitled to
indemnification. The Indemnified Parties, as a group, may retain only one law
firm to represent them in each applicable jurisdiction with respect to any
single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two
or more Indemnified Parties, in which case each Indemnified Person with respect
to whom such a conflict exists (or group of such Indemnified Persons who, among
them, have no such conflict) may retain one separate law firm in each
applicable jurisdiction. In addition, from and after the Effective Time,
directors and officers of the Company who become directors or officers of the
Parent will be entitled to indemnification under the Parent's Charter
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Documents, as the same may be amended from time to time in accordance with
their terms and applicable law, and to all other indemnity rights and
protections as are afforded to other directors and officers of the Parent.
(b) In the event that the Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of the Parent assume the obligations set forth in
this Section 5.17.
(c) For six years after the Effective Time, the Parent shall maintain in
effect (x) the Company's current directors' and officers' liability insurance
or other directors' and officers' liability insurance with a reputable and
financially sound insurer that provides coverage that is no less favorable than
the Company's current policy, in each case, covering acts or omissions
occurring prior to the Effective Time with respect to those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy on terms with respect to such coverage and amount no less favorable than
those of such policy in effect on the date hereof, and (y) the Company's
current fiduciary liability insurance policies for employees who serve or have
served as fiduciaries under or with respect to any employee benefit plans
described in Section 5.17(a) with coverages and in amounts no less favorable
than those of such policy in effect on the date hereof; provided, that in no
event shall the Parent be required to pay aggregate premiums for insurance
under this Section 5.17(c) in excess of 150% of the aggregate premiums paid by
the Company for its year ended March 31, 2000 for such insurance; provided,
further, that if the annual premiums of such insurance coverage exceed such
amount, the Parent shall be obligated to obtain a policy with the best coverage
reasonably available, in the reasonable judgment of the Board of Directors of
the Parent, for a cost up to but not exceeding such amount.
(d) The provisions of this Section 5.17 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her
heirs and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
Section 5.18 Control of Other Party's Business. Nothing contained in this
Agreement shall give the Parent, directly or indirectly, the right to control
or direct the Company's operations prior to the Effective Time. Nothing
contained in this Agreement shall give the Company, directly or indirectly, the
right to control or direct the Parent's operations prior to the Effective Time.
Prior to the Effective Time, each of the Parent and the Company shall exercise,
consistent with the terms and conditions of this Agreement, complete control
and supervision over its respective operations.
Section 5.19 HSE Listing and Nasdaq Listing; Exchange Act Reports. The
Parent shall use its reasonable best efforts (i) to cause the Parent Ordinary
Shares underlying the Parent ADSs issuable to the Company's shareholders as
contemplated by this Agreement to be approved for listing on the HSE, and (ii)
to cause the Parent ADSs issuable to the Company's shareholders as contemplated
by this Agreement to be approved for listing on the Nasdaq National Market, in
each case, prior to the Closing Date. The Parent shall use its reasonable best
efforts to keep the Parent ADSs listed on the Nasdaq National Market (or, if
not then eligible for listing thereon, on the Nasdaq SmallCap Market, or, if
then eligible for listing thereon), for not less than three months following
the Closing Date, and shall, during such period, use its best efforts to file
all reports required under the Exchange Act. If the listing of Parent ADS's on
the Nasdaq National Market or Nasdaq Small Cap Market ceases during the first
twelve months after the Effective Time, the Parent shall use its reasonable
best efforts (in accordance with and subject to applicable U.S. laws), which
shall include the obligation to spend up to, but not more than, $50,000 to
establish and thereafter for a limited period not to exceed twelve months from
the Effective Time maintain for the benefit of its United States stockholders,
a brokerage service through third parties that would be available to such
stockholders twenty-four hours a day and that would facilitate the execution of
sale transactions of Parent Ordinary Shares for those stockholders on the HSE.
The Parent shall have no liability or obligation with respect to the
undertaking to any shareholder or otherwise, beyond the expenditure of up to
the aforesaid $50,000 in accordance with this Section 5.19.
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Section 5.20 No Series K Shares. The Parent shall not, at any time after the
Closing, issue any Series K Shares.
ARTICLE VI
Conditions
Section 6.1 Conditions Precedent to Obligations of Parent and Merger
Sub. The respective obligations of Parent and Merger Sub to effect the Merger
shall be subject to the satisfaction or waiver at or prior to the Effective
Time, of each of the following conditions:
(a) Shareholder Approval. Each of the Company Shareholder Approval and
the Parent Shareholder Approval shall have been obtained;
(b) Antitrust Approvals. All waiting periods (and any extension thereof)
under the HSR Act and the Non-U.S. Monopoly Laws applicable to the Merger
shall have expired or been terminated, and all consents, waivers, approvals
and authorizations required to be obtained, and all filings or notices
required to be made by the parties hereto with any Governmental Entity
pursuant to the HSR Act and the Non-U.S. Monopoly Laws shall have been
obtained or made;
(c) Injunction. No preliminary or permanent injunction or other order
shall have been issued by any federal, state or foreign court or by any
federal, state or foreign governmental or regulatory agency, body or
authority and be in effect at the Effective Time which prohibits,
restrains, restricts or enjoins the consummation of the Merger, provided,
however, that, in the case of an injunction or other order, each of the
parties shall have used reasonable best efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may have been entered;
(d) Statutes. No federal, state or foreign statute, rule, regulation,
executive order, decree or order of any kind shall have been enacted,
entered, promulgated or enforced by any court or governmental authority
which prohibits, restrains, restricts or enjoins the consummation of the
Merger or has the effect of making the Merger illegal;
(e) No Material Adverse Effect. Since the date hereof, no event shall
have occurred that has had, or could reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect;
(f) HSE Listing and Nasdaq Listing. The Parent Ordinary Shares to be
issued in the Merger shall have been authorized for listing on the HSE
following the due issuance thereof, and the Parent ADSs representing such
Parent Ordinary Shares shall have been approved for quotation on the Nasdaq
National Market;
(g) Registration Statement. Each of the Registration Statement and the
Form F-6 shall have become effective in accordance with the provisions of
the Securities Act, no stop order suspending the effectiveness of either
the Registration Statement or the Form F-6 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated by the
SEC and not concluded or withdrawn;
(h) Representations and Warranties True. (A) The representations and
warranties of the Company contained herein that are qualified by reference
to a Company Material Adverse Effect shall be true and correct when made
and on the Closing Date (except for representations and warranties made as
of a specified date, which need be true and correct only as of the
specified date), as if made on and as of such date, (B) all other
representations and warranties of the Company shall have been true and
correct when made and on and as of the Closing Date, except for
representations and warranties made as of a specified date, which need be
true and correct only as of the specified date, as if made on and as of
such date, in each case, where the failure of such representations and
warranties to be true or correct could not reasonably be expected to,
individually or in the aggregate, result in a Company Material Adverse
Effect, and (C) the failure of any representations and warranties of the
Company contained in this Agreement to
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be true and correct (disregarding for purposes of this Section 6.1(h)(C),
all qualifications therein which reference a Company Material Adverse
Effect) shall not have, or be reasonably likely to have, in the aggregate,
a Company Material Adverse Effect;
(i) Performance. The Company shall have performed or complied in all
material respects with all material agreements, covenants and undertakings
(or, if any such agreement, covenant or undertaking is qualified as to
materiality then the Company shall have performed or complied with such
agreement or covenant or undertaking in all respects in accordance with its
terms) contained herein required to be performed or complied with by it
prior to or at the time of the Closing;
(j) Compliance Certificate. The Company shall have delivered to Parent a
certificate, dated the date of the Closing, signed by the Chief Executive
Officer or Chief Financial Officer of the Company, certifying as to the
fulfillment of the conditions specified in Section 6.1(h) and Section
6.1(i);
(k) Liquidity and Registration Rights Agreement. Parent and each of the
Major Shareholders shall have entered into the Liquidity and Registration
Rights Agreement in substantially the form set forth as Exhibit 6.1(k)
attached hereto; and
(l) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made by the Company for the authorization, execution and delivery of
this Agreement and the consummation by it of the transactions contemplated
hereby shall have been obtained and made by the Company, except where the
failure to receive such consents, waivers, approvals, authorizations or
orders would not, individually or in the aggregate with all other such
failures, have a Company Material Adverse Effect.
Section 6.2 Conditions Precedent to Obligations of the Company. The
obligations of the Company to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Effective Time, of each of the
following conditions:
(a) Shareholder Approval. Each of the Company Shareholder Approval and
the Parent Shareholder Approval shall have been obtained;
(b) Antitrust Approvals. All waiting periods (and any extension thereof)
under the HSR Act and the Non-U.S. Monopoly Laws applicable to the Merger
shall have expired or been terminated, and all consents, waivers, approvals
and authorizations required to be obtained, and all filings or notices
required to be made by the parties hereto with any Governmental Entity
pursuant to the HSR Act and the Non-U.S. Monopoly Laws shall have been
obtained or made;
(c) Injunction. No preliminary or permanent injunction or other order
shall have been issued by any federal, state or foreign court or by any
federal, state or foreign governmental or regulatory agency, body or
authority and be in effect at the Effective Time which prohibits,
restrains, restricts or enjoins the consummation of the Merger, provided,
however, that, in the case of an injunction or other order, each of the
parties shall have used reasonable best efforts to prevent the entry of any
such injunction or other order and to appeal as promptly as possible any
such injunction or other order that may have been entered;
(d) Statutes. No federal, state or foreign statute, rule, regulation,
executive order, decree or order of any kind shall have been enacted,
entered, promulgated or enforced by any court or governmental authority
which prohibits, restrains, restricts or enjoins the consummation of the
Merger or has the effect of making the Merger illegal;
(e) No Material Adverse Effect. Since the date hereof, no event shall
have occurred that has had, or could reasonably be expected to have,
individually or in the aggregate, a Parent Material Adverse Effect;
(f) HSE Listing and Nasdaq Listing. The Parent Ordinary Shares to be
issued in the Merger shall have been authorized for listing on the HSE
following the due issuance thereof, and the Parent ADSs representing such
Parent Ordinary Shares shall have been approved for quotation on the Nasdaq
National Market;
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(g) Registration Statement. Each of the Registration Statement and the
Form F-6 shall have become effective in accordance with the provisions of
the Securities Act, no stop order suspending the effectiveness of either
the Registration Statement or the Form F-6 shall have been issued by the
SEC and no proceedings for that purpose shall have been initiated by the
SEC and not concluded or withdrawn;
(h) Tax Opinion. The Company shall have received an opinion of Schiff
Hardin & Waite in form and substance reasonably satisfactory to the Company
on the basis of certain facts, representations and assumptions set forth in
such opinion, dated as of the Closing Date, to the effect that (i) the
Merger will be treated for U.S. federal income tax purposes as a Section
368 Reorganization and (ii) each of Parent and the Company will be a party
to the reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, such counsel shall be entitled to rely upon the Tax
Certificates;
(i) Representations and Warranties True. (A) The representations and
warranties of the Parent contained herein that are qualified by reference
to a Parent Material Adverse Effect shall be true and correct when made and
on the Closing Date (except for representations and warranties made as of a
specified date, which need be true and correct only as of the specified
date), as if made on and as of such date, (B) all other representations and
warranties of the Parent shall have been true and correct when made and on
and as of the Closing Date, except for representations and warranties made
as of a specified date, which need be true and correct only as of the
specified date, as if made on and as of such date, in each case, where the
failure of such representations and warranties to be true or correct could
not reasonably be expected to, individually or in the aggregate, result in
a Parent Material Adverse Effect, and (C) the failure of any
representations and warranties of the Parent contained in this Agreement to
be true and correct disregarding for purposes of this Section 6.2(i)(C),
all qualifications therein which reference a Parent Material Adverse
Effect), shall not have, or be reasonably likely to have, in the aggregate,
a Parent Material Adverse Effect;
(j) Performance. Parent shall have performed or complied in all material
respects with all material agreements, undertakings and covenants (or, if
any such agreement, covenant or undertaking is qualified as to materiality
then the Company shall have performed or complied with such agreement or
covenant or undertaking in all respects) contained herein required to be
performed or complied with by it prior to or at the time of the Closing;
(k) Compliance Certificate. Parent shall have delivered to the Company a
certificate, dated the date of the Closing, signed by the Chief Executive
Officer or Chief Financial Officer of Parent, certifying as to the
fulfillment of the conditions specified in Section 6.2(i) and Section
6.2(j);
(l) Liquidity and Registration Rights Agreement. Parent and each of the
Major Company Shareholders shall have entered into the Liquidity and
Registration Rights Agreement in substantially the form set forth as
Exhibit 6.1(k) attached hereto;
(m) Consents Obtained. All material consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required
to be made, by Parent or Merger Sub for the authorization, execution and
delivery of this Agreement and the consummation by them of the transactions
contemplated hereby shall have been obtained and made by Parent or Merger
Sub, except where the failure to receive such consents, waivers, approvals,
authorizations or orders would not, individually or in the aggregate with
all other such failures, have a Parent Material Adverse Effect; and
Section 6.3 Frustration of Closing Conditions. Neither the Parent nor the
Company may rely on the failure of any condition set forth in Section 6.1 or
Section 6.2, as the case may be, to be satisfied if such failure was caused by
such party's failure to use reasonable best efforts to consummate the Merger
and the other Transactions, as required by and subject to Section 5.6.
Section 6.4 Conditions Not Otherwise a Limitation of Rights. For the
avoidance of doubt, the parties expressly agree that in the case of Parent a
failure of, or impossibility of performance of, any condition set forth in
Section 6.1(h) or Section 6.1(i) shall constitute a breach of the
representations and warranties of Parent
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and that in the case of the Company a failure of, or impossibility of
performance of, any condition set forth in Section 6.2(i) or Section 6.2(j)
shall constitute a breach of the representations and warranties of the Company
which, in each case, shall entitle the parties to exercise their respective
rights in connection therewith under this Agreement.
ARTICLE VII
Termination
Section 7.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after the Company Shareholder Approval
or the Parent Shareholder Approval:
(a) by mutual written consent duly authorized by the respective Boards
of Directors of Parent and the Company; or
(b) by Parent:
(i) if, prior to the Effective Time, the Company has breached in any
material respect any representation, warranty, covenant or other
agreement contained in this Agreement, which (A) would give rise to the
failure of a condition set forth in clause (h) or (i) of Section 6.1,
(ii) which is not cured within thirty (30) days after written notice
thereof or is incapable of being cured by the Company, or (B) has not
been waived by Parent pursuant to the provisions hereof;
(ii) if the Company willfully and materially breaches its
obligations under Section 5.8;
(iii) if at the Company Shareholder Meeting (including any
adjournment or postponement thereof) the Company Shareholder Approval
shall not have been obtained; or
(iv) in accordance with Section 5.9(c); provided, that, in order for
the termination of this Agreement pursuant to this Section 7.1(b)(iv)
to be deemed effective, Parent shall have complied with all provisions
contained in Section 5.9 and Section 7.3, including the payment of the
Termination Fee and Expenses as provided therein.
(c) by the Company:
(i) if, prior to the Effective Time, Parent or Merger Sub has
breached in any material respect any representation, warranty, covenant
or other agreement contained in this Agreement which (A) would give
rise to the failure of a condition set forth in clauses (i) and (j) of
Section 6.2, which is not cured within thirty (30) days after written
notice thereof or is incapable of being cured by the Parent; or (B) has
not been waived by the Company pursuant to the provisions hereof;
(ii) if the Parent willfully and materially breaches its obligations
under Section 5.9;
(iii) if at the Parent Shareholder Meeting (including any
adjournment or postpone-ment thereof), the Parent Shareholder Approval
shall not have been obtained; or
(iv) in accordance with Section 5.8(c); provided, that, in order for
the termination of this Agreement pursuant to this Section 7.1(c)(iv),
to be deemed effective, the Company shall have complied with all
provisions contained in Section 5.8 and Section 7.3, including the
payment of the Termination Fee and Expenses as provided therein.
(d) by either Parent or the Company:
(i) if the Effective Time of the Merger has not occurred on or prior
to February 28, 2002 (the "Termination Date"); provided, that the right
to terminate this Agreement pursuant to this clause shall not be
available to any party whose failure to fulfill any material obligation
of this Agreement or other material breach of this Agreement has been
the cause of, or resulted in, the failure of the Effective Time of the
Merger to have occurred on or prior to the aforesaid date; or
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(ii) if any court of competent jurisdiction or any Governmental
Entity having authority with respect thereto shall have issued an
order, decree or ruling or taken any other action permanently
restricting, enjoining, restraining or otherwise prohibiting the
Transactions and such order, decree, ruling or other action shall have
become final and non-appealable and prior to such termination and
subject to the exclusions under Section 5.6(c), the parties shall have
used reasonable best efforts to resist, resolve, or lift, as
applicable, such judgment, injunction, order or decree.
Section 7.2 Effect of Termination. In the event of termination of this
Agreement by Parent or the Company, as provided in Section 7.1, this Agreement
shall forthwith become void and there shall be no liability or obligation
hereunder on the part of the Company, Parent or Merger Sub or their respective
officers or directors (except as set forth in Section 3.21, Section 4.20,
Section 5.5, this Section 7.2 and Sections 7.3, 9.3, 9.5, 9.6, 9.7, 9.8, 9.9,
Section 9.10, Section 9.15 and Section 9.18, which shall survive the
termination); provided, however, that nothing contained in this Section 7.2 or
in Section 7.3 shall relieve any party hereto from any liability for any
willful and material breach by such party of any of its representations,
warranties, covenants or agreements set forth in this Agreement which entitled
the party to terminate or rescind this Agreement, whether by the express
provisions hereof or otherwise.
Section 7.3 Payment of Certain Fees and Expenses. (a) Except as set forth in
this Section 7.3, all fees and expenses incurred by Parent and/or Merger Sub in
connection with this Agreement and the Transactions contemplated hereby shall
be paid by Parent and/or Merger Sub, and all fees and expenses incurred by the
Company in connection with this Agreement and the Transactions contemplated
hereby shall be paid by the Company, in each case, whether or not the Merger is
consummated; provided, however that:
(i) subject to Section 7.3(a)(ii) below, Parent and the Company shall
share equally all SEC filing fees and printing expenses incurred in
connection with the printing and filing of the Proxy Statement (including
any preliminary materials related thereto), the Registration Statement,
and, in each case, any amendments or supplements thereto, and
(ii) whether or not the transactions contemplated by this Agreement are
consummated, the Company shall, in addition to the payment of fees and
expenses incurred by it, pay by wire transfer to Eimo on the third Business
Day of each month, beginning with the first month following the month in
which this Agreement is executed, the sum of $100,000 per month for
application by Eimo to the following costs incurred by Eimo in connection
with the negotiation, drafting, preparation and execution of this Agreement
and the documents and transactions contemplated hereby:
(A) all outside legal fees and expenses;
(B) all printing costs and related expenses incurred by Eimo after
the date of this Agreement in connection with the printing and filing
of the Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement and, in each case, any pre-
effective or post-effective amendments or supplements thereto;
(C) all outside accounting fees and expenses incurred by Eimo after
the date of this Agreement in connection with the negotiation,
drafting, preparation and execution of this Agreement and the documents
and transactions contemplated hereby; and
(D) in addition to the costs and expenses covered under clauses (A)
through (C) above, all filing fees and other costs incurred in
connection with a filing under the HSR Act;
provided, however, that the total amount payable by the Company pursuant to
this Section 7.3(a)(ii) shall not exceed $400,000 in the aggregate and further
provided that, in the event the transactions contemplated by this Agreement are
not consummated and Eimo's expenses provided for by this Section 7.3(a)(ii) are
less than $400,000, Eimo shall promptly, after a final accounting, but in no
event later than sixty (60) days after Termination of this Agreement, refund to
Triple S any payments by Triple S which are not applied by Eimo to payment of
the expenses set forth in this Section 7.3(a)(ii), but further provided,
however, that if this
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Agreement is terminated by Eimo under circumstances that would otherwise
entitle Eimo to payment of Expenses, that Eimo may set off such excess amounts
paid to it, if any, against any other Expenses, it being agreed that any such
set-off shall not constitute a satisfaction or compromise of any remaining
Expenses otherwise due to Eimo.
Each party represents, warrants and covenants that it has paid, or will pay
within seven (7) days after the date hereof, all printing expenses for which
it has been invoiced prior to the date of this Agreement.
(b) If this Agreement is terminated by Parent in accordance with Section
7.1(b)(i) as a result of a willful breach by the Company, or is terminated by
Parent in accordance with Section 7.1(b)(ii), or Section 7.1(b)(iii), then the
Company shall pay to Parent the Termination Fee and its Expenses. If this
Agreement is terminated by Parent in accordance with Section 7.1(b)(iv), then
Parent shall pay to the Company the Termination Fee and the Company's
Expenses. If this Agreement is terminated by Parent in accordance with Section
7.1(b)(i) hereof as a result of a non-willful breach by Company, then the
Company shall pay to Parent the Parent's Expenses.
(c) If this Agreement is terminated by the Company pursuant to Section
7.1(c)(i) as a result of a willful breach by Parent or is terminated by the
Company in accordance with Section 7.1(c)(ii), Section 7.1(c)(iii) or Section
7.1(c)(iv), then Parent shall pay to the Company the Termination Fee and its
Expenses. If this Agreement is terminated by the Company in accordance with
Section 7.1(c)(i) as a result of a non-willful breach by Parent, then Parent
shall pay the Company its Expenses.
(d) The parties acknowledge that the agreements contained in Section 7.3(b)
and Section 7.3(c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, the Company and Parent
would not enter into this Agreement.
(e) Any payment of the Termination Fee and/or the Expenses pursuant to this
Section 7.3 shall be made:
(1) in the case of a termination pursuant to Section 7.1(b)(i), Section
7.1(b)(ii), Section 7.1(b)(iii), Section 7.1(c)(i), Section 7.1(c)(ii) or
Section 7.1(c)(iii), within one Business Day after termination of this
Agreement,
(2) in the case of a termination pursuant to Section 7.1(b)(iv), $1.4
million of the Termination Fee will be paid within one Business Day after
termination of this Agreement, and, if a Parent Inclusive Superior Proposal
is consummated within one year from the date of such termination, the
remaining $0.8 million of the Termination Fee, and the Expenses of the
Company, will be paid upon the consummation of the Company Superior
Proposal,
(3) in the case of a termination pursuant to Section 7.1(c)(iv), $1.4
million of the Termination Fee will be paid within one Business Day after
termination of this Agreement, and, if a Company Proposal is consummated
within one (1) year from the date of such termination, the remaining $0.8
million of the Termination Fee, and the Expenses of the Parent and Merger
Sub, will be paid upon the consummation of the Company Superior Proposal.
(f) If either party fails to pay to (or reimburse) the other party any fee
or expense due hereunder (including the Termination Fee), such party shall pay
the costs and expenses (including legal fees and expenses) in connection with
any action, including the filing of any lawsuit or other legal action, taken
to collect payment, together with interest on the amount of any unpaid fee
and/or expense at the publicly announced prime rate of Citibank, N.A. from the
date such fee was required to be paid to the date it is paid.
ARTICLE VIII
Definitions and Interpretation
Section 8.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context clearly requires otherwise:
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"Adjusted Option" shall have the meaning set forth in Section 5.7(a).
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
"Agreement" or "this Agreement" shall mean this Amended and Restated
Agreement and Plan of Merger, together with the Exhibits hereto and the Parent
Disclosure Schedule and the Company Disclosure Schedule.
"Antitrust Laws" shall have the meaning set forth in Section 5.6(c).
"Balance Sheet" shall mean the March 31, 2001 audited balance sheet of the
Company and its consolidated subsidiaries included in the 2001 10-K Draft.
"Balance Sheet Date" shall mean the date of the Balance Sheet.
"Business Day" means a day other than a Saturday, a Sunday or a day on which
banks in New York, New York or Helsinki, Finland are permitted or required to
close.
"Certificate" shall have the meaning set forth in Section 2.1(c).
"Charter Documents" means as to any Person the articles of incorporation and
bylaws or comparable organizational documents.
"Closing" shall mean the closing referred to in Section 1.3.
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall have the meaning set forth in the fifth "whereas" clause of
this Agreement.
"Company" shall have the meaning set forth in the first paragraph of this
Agreement.
"Company Acquisition Proposal" shall mean any proposal or offer to acquire
not less than 100% of the business or properties of the Company or a
corresponding portion of the capital stock of the Company, whether by merger,
tender offer, exchange offer, sale of securities or assets, or similar
transactions involving the Company or any Subsidiary, division or operating or
principal business unit of the Company.
"Company Agreements" shall have the meaning set forth in Section 3.22.
"Company Award" shall have the meaning set forth in Section 5.7(b).
"Company Board of Directors" shall mean the board of directors of the
Company.
"Company Disclosure Schedule" shall mean the disclosure schedule of even
date herewith prepared by the Company and delivered to Parent simultaneously
with the execution hereof.
"Company Financial Statements" shall mean the financial statements
(including any related notes thereto) of the Company included in the Company
SEC Documents and the 2001 10-K Draft.
"Company Intellectual Property" shall mean all Intellectual Property that is
necessary to conduct the business of the Company and its Subsidiaries as
presently conducted.
"Company Material Adverse Effect" shall mean any event, change, occurrence,
effect, fact or circumstance that is or may reasonably be expected to be
materially adverse to (i) the ability of the Company to perform its obligations
under this Agreement or to consummate the Transactions, or (ii) the business,
tangible assets, liabilities, results of operations or financial condition of
the Company and its Subsidiaries, taken as a
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whole, other than any event, change, occurrence, effect, fact or circumstance
(A) relating to the economy or securities markets of the United States or any
other region in general, (B) relating to changes in conditions generally
applicable to the industries in which the Company and its Subsidiaries are
involved, (C) resulting from entering into this Agreement or the consummation
of the Transactions or the announcement thereof, or (D) relating to its
business, financial condition or results of operations that has been disclosed
in writing to the other party prior to the date of this Agreement, and
provided, however, that notwithstanding anything in this Agreement to the
contrary, the past, present or future loss, in whole or in part, of any
customer or any customer account, order, contract, program or other similar
agreement with any customer, or sales in connection therewith for any reason,
other than (1) the breach by the Company of any obligation under this Agreement
which is a direct or indirect cause of such loss, or (2) the material breach by
the Company of its obligations to such customer under any such order, contract,
program or other agreement (an "Occurrence"), shall not (x) constitute a
Company Material Adverse Effect, or (y) be asserted or relied upon as a breach
or a misrepresentation of any representation, covenant or agreement set forth
herein, or a failure of any condition under this Agreement, or (z) permit any
party to terminate this Agreement.
"Company Option" shall mean an option or other right to purchase Shares
which has been granted by the Company and which is outstanding at the Effective
Time.
"Company Recommendation" shall have the meaning set forth in Section 5.3(a).
"Company SEC Documents" shall mean each form, report, schedule, statement
and other document required to be filed by the Company since March 31, 2000
under the Exchange Act or the Securities Act; provided, however, that none of
the information or statements made by or incorporated by reference in the
Company SEC Documents based on information supplied by Parent specifically for
inclusion or incorporation by reference in the Company SEC Documents shall be
deemed to be part of any Company SEC Document, and no representation or
warranty is made in this Agreement by the Company with respect to any such
information or statements.
"Company Shareholder Agreement" shall mean the agreement, dated as of the
date hereof, among the Major Company Shareholders, Parent and Merger Sub,
pursuant to which each Major Company Shareholder has granted Parent a proxy
with respect to the voting of all of the Shares held by the Major Company
Shareholders upon the terms and subject to the conditions set forth therein.
"Company Shareholder Meeting" shall have the meaning set forth in Section
5.3(a).
"Company Stock Plans" shall have the meaning set forth in Section 3.3(a).
"Company Subsidiary" shall mean each Person which is a Subsidiary of the
Company.
"Company Superior Proposal" shall mean an Acquisition Proposal which
satisfies both subsection (x) and subsection (y) of Section 5.8(a).
"Company's knowledge" or "best knowledge of the Company" shall mean the
actual knowledge of A. Christian Schauer, Daniel B. Canavan and Victor V.
Valentine, Jr.
"Confidentiality Agreement" shall have the meaning set forth in Section 5.5.
"Conversion Agreement" shall have the meaning set forth in Section 1.6(c).
"Copyrights" shall mean U.S. and foreign registered and unregistered
copyrights (including, but not limited to, those in computer software and
databases), rights of publicity and all registrations and applications to
register the same.
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"Deposit Agreement" shall mean the Deposit Agreement to be entered into
among Parent, and either Citibank N.A., The Bank of New York, or Morgan
Guaranty Trust Company, as Parent may select, as depositary, and all holders
and beneficial owners from time to time of the Parent ADSs, in substantially
the form filed with the SEC under cover of Form F-6 on February 9, 2001 in
connection with the Original Agreement.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Effective Time" shall have the meaning set forth in Section 1.2.
"Environmental Claim" shall mean any claim, action, investigation or notice
by any person or entity alleging potential liability for investigatory, cleanup
or governmental response costs, or natural resources or property damages
relating to (i) the presence, or release into the environment, of any Materials
of Environmental Concern at any location owned or operated by the Company or
any Company Subsidiary, or the Parent or any Parent Subsidiary, as the case may
be, or (ii) any violation of any Environmental Law.
"Environmental Law" shall mean each federal, state, local and foreign law
and regulation relating to pollution, protection or preservation of human
health or the environment, including, without limitation, each law and
regulation relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the generation,
storage, containment (whether above ground or underground), disposal, transport
or handling of Materials of Environmental Concern, or the preservation of the
environment or mitigation of adverse effects thereon and each law and
regulation with regard to record keeping, notification, disclosure and
reporting requirements respecting Materials of Environmental Concern.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall mean any trade or business, whether or not
incorporated, that together with the Company would be deemed a "single
employer" within the meaning of Section 4001(b) of ERISA.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 2.2(a).
"Exchange Fund" shall have the meaning set forth in Section 2.2(b).
"Exchange Rate" for any date shall mean the official exchange rate between
U.S. Dollars and Euros, as announced by the Bank of Finland on such date.
"Expenses" shall mean the reasonable and documented expenses of a party
incurred in connection with the negotiation and execution of this Agreement and
the transactions contemplated hereby (including but not limited to, reasonable
fees and expenses of counsel and accountants, and out-of-pocket expenses and
reasonable fees of financial advisors), but not exceeding the sum of $1,000,000
in the aggregate.
"Finnish Companies Act" shall mean the Companies Act of 1978, as amended, in
Finland.
"Finnish Financial Supervision" shall mean the Financial Supervision
Authority of Finland.
"Finnish GAAP" shall mean generally accepted accounting principles of the
Republic of Finland, as in effect from time to time.
"Finnish Trade Registry" shall mean the Trade Register Department of Finnish
National Board of Patents and Registration.
"Form F-4" shall have the meaning set forth in Section 3.19.
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"Governmental Entity" shall mean a court, arbitral tribunal, administrative
agency or commission or other governmental or other regulatory authority or
agency.
"HSE" shall mean the Helsinki Exchanges.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnified Liabilities" shall have the meaning set forth in Section
5.17(a).
"Indemnified Party" shall have the meaning set forth in Section 5.17(a).
"Intellectual Property" shall mean all of the following: Trademarks,
Patents, Copyrights and Trade Secrets.
"Liens" shall have the meaning set forth in Section 3.2.
"Listing Particulars" shall have the meaning set forth in Section 3.19.
"Major Company Shareholders" shall mean A. Christian Schauer, Daniel B.
Canavan and Victor V. Valentine, Jr.
"Major Parent Shareholders" shall mean Jalo Paananen, Elmar Paananen,
Annamarie Jukko and Topi Paananen.
"Market Act" shall have the meaning set forth in Section 3.19.
"Materials of Environmental Concern" shall mean toxic or hazardous
substances, materials or wastes, solid wastes; petroleum, petroleum derivatives
and petroleum products; asbestos or asbestos-containing materials;
polychlorinated biphenyls; radon or lead or lead-based paints or materials.
"MBCA" shall mean the Michigan Business Corporation Act, as amended.
"Merger" shall mean the merger of Merger Sub into the Company described in
Section 1.1.
"Merger Consideration" shall have the meaning set forth in Section 2.1(c).
"Merger Sub" shall have the meaning set forth in the first paragraph of this
Agreement.
"Merger Sub Common Stock" shall mean common stock, par value $.01 per share,
of Merger Sub.
"Non-U.S. Monopoly Laws" shall mean any applicable non-U.S. laws intended to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade.
"Order" means any decree, judgment, injunction, writ or similar judicial or
administrative action and whether temporary, preliminary or permanent.
"Parent" shall have the meaning set forth in the first paragraph of this
Agreement.
"Parent Acquisition Proposal" shall mean any proposal or offer to acquire
all or a substantial part of the business or properties of the Parent or all or
a substantial portion of the capital stock of the Parent, whether by merger,
tender offer, exchange offer, sale of securities or assets, or similar
transactions involving the Parent or any Subsidiary, division or operating or
principal business unit of the Parent.
"Parent ADRs" shall have the meaning set forth in Section 2.1(c).
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"Parent ADSs" shall have the meaning set forth in Section 2.1(c).
"Parent Agreements" shall have the meaning set forth in Section 4.21.
"Parent Balance Sheet Date" shall mean the date of the most recent audited
balance sheet of the Parent and its consolidated subsidiaries included in the
Parent Financial Statements.
"Parent Disclosure Documents" shall have the meaning set forth in Section
3.19.
"Parent Disclosure Schedule" shall mean the disclosure schedule of even date
herewith prepared and signed by Parent and delivered to the Company
simultaneously with the execution hereof.
"Parent Exclusive Superior Proposal" shall have the meaning set forth in
Section 5.9(a).
"Parent Financial Statements" shall mean the financial statements (including
any related notes thereto) of the Parent included in the Parent Public Reports.
"Parent Inclusive Superior Proposal" shall have the meaning set forth in
Section 5.9(a).
"Parent Intellectual Property" shall mean all Intellectual Property that is
necessary to conduct the business of Parent and its Subsidiaries as presently
conducted.
"Parent Material Adverse Effect" shall mean any event, change, occurrence,
effect, fact or circumstance that is or may reasonably be expected to be
materially adverse to (i) the ability of Parent to perform its obligations
under this Agreement or to consummate the Transactions, or (ii) the business,
tangible assets, liabilities, results of operations or financial condition of
Parent and its Subsidiaries, taken as a whole, other than any event, change,
occurrence, effect, fact or circumstance (A) relating to the economy or
securities markets of Finland or any other region in general, (B) relating to
changes in conditions generally applicable to the industries in which Parent
and its Subsidiaries are involved, (C) resulting from entering into this
Agreement or the consummation of the Transactions or the announcement thereof,
or (D) relating to its business, financial condition or results of operations
that has been disclosed in writing to the other party prior to the date of this
Agreement. and provided, however, that notwithstanding anything in this
Agreement to the contrary, the past, present or future loss, in whole or in
part, of any customer or any customer account, order, contract, program or
other similar agreement with any customer, or sales in connection therewith for
any reason, other than (1) the breach by the Parent of any obligation under
this Agreement which is a direct or indirect cause of such loss, or (2) the
material breach by the Parent of its obligations to such customer under any
such order, contract, program or other agreement (an "Occurrence"), shall not
(x) constitute a Parent Material Adverse Effect, or (y) be asserted or relied
upon as a breach or a misrepresentation of any representation, covenant or
agreement set forth herein, or a failure of any condition under this Agreement,
or (z) permit any party to terminate this Agreement.
"Parent Option" shall mean an option to purchase Parent Ordinary Shares,
including warrants issued under the Parent's 1999 Warrant Plan or under
securities issued under the 2001 Warrant Plan.
"Parent Ordinary Shares" shall mean validly issued, fully paid and non-
assessable ordinary A shares of Parent.
"Parent Public Reports" shall mean (i) Parent's annual report for its fiscal
year ended December 31, 2000, as filed with the Finnish Trade Registry, (ii)
Parent's quarterly reports for each fiscal quarter subsequent to December 31,
2000 as submitted to the Finnish Financial Supervision, (iii) the Parent
Disclosure Documents, and (iv) all other reports, schedules, registration
statements and other documents filed by Parent with the Finnish Trade Registry
or the Finnish Financial Supervision or the HSE.
"Parent Recommendation" shall have the meaning set forth in Section 5.3(b).
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"Parent Shareholder Agreement" shall mean the agreement, dated as of the
date hereof, among the Major Parent Shareholders and the Company pursuant to
which each Major Parent Shareholder has granted the Company a proxy with
respect to the voting of the Parent Ordinary Shares and the Parent Series K
Shares upon the terms and subject to the conditions set forth therein.
"Parent Shareholder Meeting" shall have the meaning set forth in Section
5.3(b).
"Parent Superior Proposal" shall have the meaning set forth in Section
5.9(a).
"Parent's knowledge" or "best knowledge of the Parent" shall mean the actual
knowledge of Elmar Paananen and Jalo Paananen.
"Patents" shall mean issued U.S. and foreign patents and pending patent
applications, patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, reexaminations, and extension thereof, any
counterparts claiming priority therefrom, utility models, patents of
importation/confirmation, certificates of invention and like statutory rights.
"Person" shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or
organization.
"Plan" shall have the meaning set forth in Section 3.12(a).
"Prospectus" shall mean the prospectus of Parent to be prepared by Parent
and included in the Registration Statement filed by Parent with the SEC
pursuant to Section 5.3(c), together with all amendments and supplements
thereto and including the exhibits thereto.
"Proxy Statement" shall mean the proxy statement of the Company prepared by
the Company and included in the Registration Statement to be filed by Parent
with the SEC pursuant to Section 5.3(c), together with all amendments and
supplements thereto and including the exhibits thereto.
"Registration Statement" shall have the meaning set forth in Section 3.19.
"SEC" shall mean the United States Securities and Exchange Commission.
"Section 368 Reorganization" shall have the meaning set forth in the fifth
"whereas" clause of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series K Shares" shall mean validly issued, fully paid and non-assessable
Series K shares of Parent.
"Shares" shall mean shares of common stock, no par value, issued by the
Company.
"Subsidiary" shall mean, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (a) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries or
(b) such party or any other Subsidiary of such party is a general partner
(excluding any such partnership where such party or any Subsidiary of such
party does not have a majority of the voting interest in such partnership).
"Surviving Corporation" shall have the meaning set forth in Section 1.1.
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"Tax" or "Taxes" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
governmental authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, custom duty, unemployment, capital
stock, transfer, franchise, payroll, withholding, social security, minimum
estimated, and other taxes, and shall include interest, penalties or additions
attributable thereto.
"Tax Certificates" shall have the meaning set forth in Section 5.13(b).
"Tax Return" shall mean any material return or report relating to Taxes.
"Termination Date" shall have the meaning set forth in Section 7.1(d)(i).
"Termination Fee" shall mean the sum of $2,200,000 in U.S. currency.
"Title IV Plan" shall mean a Plan that is subject to Section 302 or Title IV
of ERISA or Section 412 of the Code.
"Trademarks" shall mean U.S. and foreign registered and unregistered
trademarks, trade dress, service marks, logos, trade names, corporate names and
all registrations and applications to register the same.
"Trade Secrets" shall mean all categories of trade secrets as defined in the
Uniform Trade Secrets Act including, but not limited to, business information.
"Trading Day" shall mean any day on which securities are traded on the HSE.
"Transactions" shall mean the transactions provided for or contemplated by
this Agreement, including, without limitation, the Company Shareholder
Agreement, the Parent Shareholder Agreement, the Conversion Agreement and the
Merger.
"U.S. GAAP" shall mean United States generally accepted accounting
principles.
"Voting Debt" shall mean indebtedness having general voting rights and debt
convertible into securities having such rights.
Section 8.2 Interpretation.
(a) When a reference is made in this Agreement to a section or article, such
reference shall be to a section or article of this Agreement unless otherwise
clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in this
Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof", "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.
(d) The plural of any defined term shall have a meaning correlative to such
defined term, and words denoting any gender shall include all genders. Where a
word or phrase is defined herein, each of its other grammatical forms shall
have a corresponding meaning.
(e) A reference to any party to this Agreement or any other agreement or
document shall include such party's successors and permitted assigns.
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(f) A reference to any legislation or to any provision of any legislation
shall include any modification or re-enactment thereof, any legislative
provision substituted therefor and all regulations and statutory instruments
issued thereunder or pursuant thereto.
(g) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
ARTICLE IX
Miscellaneous
Section 9.1 Amendment and Modification. This Agreement may be amended by the
parties at any time before or after the Company Shareholder Approval or the
Parent Shareholder Approval; provided, however, that after any such approval,
there shall not be made any amendment that by law requires further approval by
the shareholders of the Company or the Parent without the further approval of
such shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Section 9.2 Representations and Warranties. None of the representations and
warranties in this Agreement or in any schedule, instrument or other document
delivered pursuant to this Agreement shall survive the Effective Time. The
foregoing sentence shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time.
Section 9.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (which
is confirmed) or sent by an overnight courier service, such as Federal Express,
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Eimo Oyj
Norokatu 5
FIN-15101 Lahti
FINLAND
Attention: Elmar Paananen
Telephone No.: 011-358-3850-5430
Telecopy No.: 011-3583-850-5405
with a copy (which shall not constitute notice) to:
Smith, Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Promenade II, Suite 3100
Atlanta, Georgia 30309
Attention: John D. Saunders, Esq.
Telephone No.: (404) 815-3500
Telecopy No.: (404) 685-6982
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and
if to the Company, to:
Triple S Plastics, Inc.
7950 Moorsbridge Road, Suite 200
Portage, MI 49024
Attention: A. Christian Schauer
Telephone No.: 616-383-0770
Telecopy No.: 616-327-2621
with a copy (which shall not constitute notice) to:
Schiff Hardin & Waite
6600 Sears Tower
Chicago, Illinois 60606
Attention: John F. Adams, Esq.
Telephone No.: (312) 258-5541
Telecopy No.: (312) 258-5700
Section 9.4 Counterparts; Telecopier. This Agreement and the agreements
referred to herein may be executed in one or more counterparts, all of which
together shall be considered one and the same agreement. Transmission by
telecopier of an executed counterpart of the Agreement and such other
agreements shall be deemed to constitute due and sufficient delivery of such
counterparts.
Section 9.5 Entire Agreement; No Third Party Beneficiaries. This Agreement
and the Confidentiality Agreement (including the documents and the instruments
referred to herein and therein): (a) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and thereof, and (b)
except as provided in Article II, Section 5.7, Section 5.16, Section 5.17 and
Section 5.19 are not intended to confer upon any person other than the parties
hereto and thereto any rights or remedies hereunder.
Section 9.6 Severability. Any term or provision of this Agreement that is
held by a court of competent jurisdiction or other authority to be invalid,
void or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
Transactions are fulfilled to the extent possible.
Section 9.7 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Section 9.8 Enforcement and Interpretation. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
interpret or enforce specifically the terms and provisions of this Agreement in
any court of the United States located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the parties hereto (a)
consents to submit itself to the exclusive personal jurisdiction of any Federal
court located in the State of Delaware or any Delaware state court in the event
any dispute arises out of this Agreement or any of the Transactions
contemplated by this Agreement (b) agrees that it will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court and (c)
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agrees that it will not bring any action relating to this Agreement or any of
the Transactions contemplated by this Agreement in any court other than a
Federal or state court sitting in the State of Delaware.
Section 9.9 WAIVER OF JURY TRIAL. EACH OF PARENT, MERGER SUB AND THE COMPANY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 9.10 Time of Essence. Each of the parties hereto hereby agrees that,
with regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
Section 9.11 Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) waive compliance
by the other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf
of such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
Section 9.12 Assignment. Neither this Agreement not any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
content of the other parties, except that Merger Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned Subsidiary of Parent. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.
Section 9.13 Mutual Release and Settlement Agreement. The parties shall
concurrently with the execution of this Agreement enter into a Mutual Release
and Settlement Agreement in the form attached as Exhibit 9.13.
Section 9.14 Preamble. It is further understood and agreed that all of the
terms of this Agreement, including, without limitation, the Preamble, are
contractual, an integral part of this Agreement, and not mere recitals, and
each of the parties hereto warrant that they understand the terms of this
Agreement and that they intend to be bound thereby.
Section 9.15 Termination of Prior Agreements. For the avoidance of doubt, it
is hereby expressly agreed by the parties that: (i) the Employment Agreements
entered into in connection with the Original Agreement are of no force and
effect and the Company warrants that such agreements were terminated without
the imposition of any liability on the part of the Company or any other Person;
and (ii) the Lock Up Agreement entered into in connection with the Original
Agreement is hereby terminated.
Section 9.16 2001 Form 10-K. Attached as Exhibit 9.16 is a draft (the "2001
10-K Draft") of the Company's Annual Report on Form 10-K for its fiscal year
ended March 31, 2001. Such draft is accurate and complete in all material
respects and the 2001 10-K, when filed, will contain no material changes from
the 2001 10-K Draft, except that the 2001 10-K Draft does not include any
disclosure about the transactions contemplated hereby or by the agreements
referenced herein (including the Mutual Release and Settlement Agreement),
which disclosure may be included in the Company's 2001 10-K as filed with the
SEC.
Section 9.17 Incorporation By Reference In Disclosure Schedules. The parties
agree that, notwithstanding anything to the contrary contained herein, the
Company Disclosure Schedule shall for all purposes (i) be deemed to include any
matter reported, disclosed or reflected in the Company SEC Documents
A-50
(including the exhibits thereto), the 2001 10-K Draft, the Company Financial
Statements or the financial statements included in the 2001 10-K Draft, in each
case, with respect to each representation, warranty, covenant and agreement
contained herein to which such matter relates if the failure of such matter to
be included in the Company Disclosure Schedule would otherwise result in a
breach of any such representation, warranty, covenant or agreement, provided
that the applicable document referred to in this clause (i) with respect to
which any such matter is deemed to be included in the Company Disclosure
Schedule did not, as to such matter, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading, and (ii) with respect to any other matter
required to be disclosed in the Company Disclosure Schedule (whether or not a
specific exception to the Company Disclosure Schedule is included in or
referenced in the applicable representation, warranty or covenant), be deemed
to include such matter except where the failure of any such matter to be
affirmatively scheduled could reasonably be expected, individually or in the
aggregate, to result in a Company Material Adverse Effect (without giving
effect to any other materiality qualification in the applicable representation,
warranty or covenant).
(a) The parties agree that, notwithstanding anything to the contrary
contained herein, the Parent Disclosure Schedule shall for all purposes (i)
be deemed to include any matter reported, disclosed or reflected in the
Parent Public Records (including the exhibits thereto), or the Parent
Financial Statements, in each case, with respect to each representation,
warranty, covenant and agreement contained herein to which such matter
relates if the failure of such matter to be included in the Parent
Disclosure Schedule would otherwise result in a breach of any such
representation, warranty, covenant or agreement, provided that the
applicable document referred to in this clause (i) with respect to which
any such matter is deemed to be included in the Parent Disclosure Schedule
did not, as to such matter, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein in order to
make the statements made therein, in the light of the circumstances under
which they were made, not misleading, and (ii) with respect to any other
matter required to be disclosed in the Parent Disclosure Schedule (whether
or not a specific exception to the Parent Disclosure Schedule is included
in or referenced in the applicable representation, warranty or covenant),
be deemed to include such matter except where the failure of any such
matter to be affirmatively scheduled could reasonably be expected,
individually or in the aggregate, to result in a Parent Material Adverse
Effect (without giving effect to any other materiality qualification in the
applicable representation, warranty or covenant).
Section 9.18 Certain Waivers. The parties waive all breaches of
representations, warranties, covenants and agreements contained in this
Agreement that occurred prior to the date hereof to the extent that such
breaches, directly or indirectly, related to, arose in connection with, or
resulted from the loss by Parent or the Company of business, accounts, orders,
programs or sales from their respective principal customer.
A-51
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Amended and Restated Agreement to be signed by their respective officers
thereunto duly authorized as of the date first written above.
EIMO OYJ
/s/ Elmar Paananen
By___________________________________
Name: Elmar Paananen
Title: Executive Vice Chairman
SPARTAN ACQUISITION CORP.
/s/ Elmar Paananen
By___________________________________
Name: Elmar Paananen
Title: President and Secretary
TRIPLE S PLASTICS, INC.
/s/ A. Christian Schauer
By___________________________________
Name: A. Christian Schauer
Title: Chief Executive Officer
A-52
[LETTERHEAD OF PACIFIC CREST]
May 24, 2001
Board of Directors
Triple S Plastics, Inc.
7950 Moorsbridge, Suite 200
Portage, MI 49024
Members of the Board:
We understand that Triple S Plastics, Inc. ("Triple S") and Eimo Oyj ("Eimo")
will enter into an Agreement and Plan of Merger substantially in the form of
the draft revised as of May 23, 2001, reviewed by us (the "Merger Agreement"),
which provides, among other things, for the merger of Spartan Acquisition Corp.
("Merger Sub"), a new wholly owned subsidiary of Eimo, with and into Triple S,
with Triple S being the surviving entity (the "Merger"). As a result of the
Merger, the separate corporate existence of Merger Sub will cease and Triple S
will be a wholly-owned subsidiary of Eimo. Upon the effective date of the
Merger, each issued and outstanding share of common stock of Triple S will be
converted into the right to receive ordinary shares of Eimo, represented by
American Depositary Shares, according to the Exchange Ratio as set forth in the
Merger Agreement (the "Exchange Ratio").
You have requested our opinion as to whether the Exchange Ratio is fair, from a
financial point of view, to the holders of Triple S common stock.
For purposes of the opinion, we have:
1. reviewed certain publicly available financial statements and other
information of Triple S and Eimo;
2. reviewed internal financial analyses and forecasts for Triple S and Eimo
prepared by their managements;
3. discussed the past and current operations and financial condition and the
prospects of Triple S and Eimo with senior executives of Triple S and Eimo,
respectively;
4. reviewed certain information relating to, and discussed with senior
executives of Triple S and Eimo, certain of the strategic implications and
operational benefits anticipated from the Merger;
5. reviewed the reported prices and trading activity for the common stock of
Triple S and the ordinary shares of Eimo;
6. compared the financial performance, reported prices and trading activity of
Triple S and Eimo with those of certain other comparable publicly-traded
companies and their securities;
Board of Directors
Triple S Plastics, Inc.
May 24, 2001
Page 2
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7. reviewed the financial terms, to the extent publicly available, of certain
precedent transactions we deemed relevant;
8. participated in certain discussions and negotiations among representatives
of Triple S and Eimo and their legal advisors;
9. reviewed the Merger Agreement and certain related documents; and
10. performed such other analyses and considered such other factors as we
deemed appropriate.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us, and that there has been no material change in the assets,
financial condition, business or prospects of Triple S since the date of the
most recent financial statements made available to us. With respect to the
anticipated strategic, financial and operational benefits of the Merger, we
assumed that the information provided was reasonably prepared on bases
reflecting the best currently available estimates and judgments as to the
strategic implications and operational benefits anticipated to result from the
Merger. We also assumed that the final form of the Merger Amendment will be
substantially the same as the last draft reviewed by us. In addition, we have
assumed that the Merger shall qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the U.S. Internal
Revenue Code of 1986, as amended.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to Triple S and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of Triple S. The
opinion set forth herein is necessarily based on business, economic, market and
other conditions as they exist and can be evaluated by us at the date of this
letter.
We are not expressing any opinion as to what the value of the American
Depositary Shares representing the ordinary shares of Eimo actually will be
when issued to stockholders pursuant to the Merger or the price at which the
American Depositary Shares representing the ordinary shares of Eimo will trade
subsequent to the Merger. We have not been asked to consider, and the opinion
does not address, the relative merits of the Merger as compared to any
alternative business strategies that might exist for Triple S or the effect of
any other transaction in which Triple S might engage.
Pacific Crest Securities Inc. has been engaged to render financial advisory
services to Triple S in connection with the Merger and will receive a fee for
our services, a significant portion of which is contingent upon the
consummation of the Merger.
Our advisory services and the opinion expressed herein are provided for the use
of the Board of Directors of Triple S in its evaluation of the proposed Merger,
and our opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote in connection with
the proposed Merger. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Pacific Crest Securities Inc. be
made, without our prior consent which consent will not be unreasonably
withheld; provided, however, that this letter may be reproduced in full and
referred to in the Proxy Statement/Prospectus to be provided to holders of
Triple S common stock in connection with the Merger.
B-2
Board of Directors
Triple S Plastics, Inc.
May 24, 2001
Page 3
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The opinion set forth herein is delivered subject to the conditions, scope of
engagement, limitations and understandings set forth in this opinion and in our
engagement letter with Triple S, and subject to the understanding that the
obligations of Pacific Crest Securities Inc. in connection with delivering this
opinion are
solely corporate obligations, and no officer, director, employee, agent,
shareholder or controlling person of Pacific Crest Securities Inc. shall be
subjected to any personal liability whatsoever to any person, nor will any such
claim be asserted by or on behalf of you or your affiliates.
Based on and subject to the foregoing, we are of the opinion that, on the date
hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Triple S common stock.
Very truly yours,
/s/ Erik J. Krieger
- -----------------------------
PACIFIC CREST SECURITIES INC.
B-3
ANNEX C
ARTICLES OF ASSOCIATION OF EIMO OYJ
Article 1
Business Name and Domicile
The business name of the Company is Eimo Oyj. The Company is domiciled in
Lahti.
Article 2
Field of Business
The Company manufactures, processes and trades in plastic and metal products
and their means of production.
As a parent Company, the Company is also entitled to manage the
organization, financing, purchases and corresponding joint operations of its
group, to own real estate, shares and securities, to trade in securities and to
engage in other financial investment activities.
Article 3
Minimum and Maximum Share Capital
The company's minimum share capital is (Euro)10,000,000 (ten million) and
the maximum share capital is (Euro)40,000,000 (forty million). Share capital
can be raised or lowered within these limits without amendments to the Articles
of association.
Article 4
Shares
The company's shares are divided into K-shares and A-shares, with a minimum
of 0 and a maximum of 25,000,000 K-shares and a minimum of 25,000,000 and a
maximum of 160,000,000 A-shares.
Each K-share entitles its holder to cast twenty (20) votes at the General
Meeting and each A-share entitles its holder to one (1) vote.
Upon a demand of a shareholder, or, in the case of nominee registered
shares, upon a demand of the asset manager duly entered into the share
register, a K-share can be converted into an A-share, provided such conversion
can be effected within the stipulated minimum and maximum numbers of the share
categories. No monetary compensation is due for conversion.
The demand for share conversion shall be presented to the Company in
November of each year only and in addition during a maximum period of one (1)
month as separately ruled by the board of the Company. The board shall inform
all K-shareholders in writing of the separately ruled conversion period, or
should this be deemed impossible in a sufficiently certain and reliable manner,
through procedures for calling meetings.
The written demand for share conversion which is to be addressed to the
Company shall list the number of shares to be converted and the book-entry
securities account in which the corresponding shares are recorded. Should it so
desire, the Company may request the marking of a restriction of the
shareholder's dispositive power in the said shareholder's book-entry securities
account for the duration of the conversion process. The Company shall notify
the Trade Register without delay of changes resulting from conversion to the
respective numbers of shares in each series.
C-1
A demand for share conversion may be cancelled until notification of
conversion has been made to the Trade Register. Upon cancellation, the Company
shall request the deletion of a possible marking of restricted dispositive
power from the shareholder's book-entry securities account. A K-share shall be
converted into an A-share upon this being duly recorded in the Trade Register.
The party demanding conversion and the keeper of the book-entry securities
register shall be notified of the registration of conversion.
Should the board of the Company decide to call a general meeting during the
share conversion period, share conversion demands presented during the said
period shall be deemed received and shall be processed after the meeting. In
this case the conversion period shall be prolonged should this be necessary.
If necessary, the board shall issue further instructions on conversion of
shares.
Article 5
The Book-entry Securities System
The shares of the Company belong to the book-entry securities system.
The following parties only are entitled to funds distributed by the Company
and to right of subscription upon raising of share capital:
1. those who have been entered as shareholders in the list of shareholders
on the matching day,
2. those whose right to payment has been recorded on the matching day in
the respective book-entry securities account of the shareholder recorded
in the list of shareholders and duly marked in the list of shareholders,
or
3. if the share is nominee registered, being recorded in the book-entry
securities account on the matching day and the nominee of the shares is
entered as nominee in the shareholder register.
Article 6
Board of Directors and President
The Company shall have a Board of Directors and a President.
The Board of Directors shall have a minimum of four (4) and a maximum of
eight (8) members. The term of office of a member of the Board of Directors
expires at the closing of the first Annual General Meeting following the
election.
The Chairman and other members of the Board of Directors are elected by the
Annual General Meeting.
The Board of Directors appoints the President of the Company and the Vice
Chairman of the Board of Directors.
The Board of Directors constitute a quorum when more than half of its
members are present, one of these being the chairman or vice-chairman.
A carried ruling or decision of the Board of Directors shall be a motion
receiving the support of more than half of those present, or should the vote
be even, the motion supported by the chairperson of the meeting.
Article 7
Signing of Business Name
The business name may be signed by the Chairman and the President, either
one acting alone, and jointly by two members of the Board of Directors.
The Board of Directors shall decide on authorizations to sign for the
Company and procuration rights.
C-2
Article 8
The Fiscal Year
The company's fiscal year shall be the calendar year.
Article 9
Auditors
The Company shall have one (1) primary auditor, which shall be a firm of
auditors approved by the Central Chamber of commerce.
The auditors' term of office expires at the closing of the Annual General
Meeting following the one at which they were elected.
Article 10
Notice of Meeting
Notice for convening a general meeting of shareholders shall be given to the
shareholders by publishing the said notice in at least one (1) national
newspaper designated by the Board of Directors and in at least one (1)
newspaper published in the Lahti region designated by the Board of Directors,
or in other demonstrable form no earlier than six (6) weeks and no later than
seventeen (17) days before the date of the meeting.
In order to attend the meeting, the shareholder must report to the Company
no later than the date given in the notice of the meeting, which shall not be
earlier than ten (10) days before the meeting.
Article 11
The Annual General Meeting
The Annual General Meeting of shareholders shall be held annually by the end
of June.
The following items must be on the agenda:
For information:
1. Financial statements, including the income statement, the balance
sheet and notes to the financial statements, annual review and the
consolidated financial statement;
2. The auditors' report;
For decision:
3. Approval of the income statement, balance sheet, and consolidated
income statement and balance sheet;
4. Action to be taken arising from the profit or loss shown by the
adopted balance sheet and consolidated balance sheet;
5. Release from personal liability for the members of the Board of
Directors and the President;
6. Emoluments to be paid to the members of the Board of Directors and
the auditor;
7. Number of the members of the Board of Directors;
For election:
8. The Chairman and members of the Board of Directors;
9. The auditor, and
To be handled at the meeting:
10. Other business mentioned in the notice of the Annual General
Meeting.
C-3
Should voting be carried out at a meeting of shareholders, the form of
voting shall be ruled by the chairperson of the meeting.
Article 12
Redemption Obligation of Shares
A shareholder, whose proportion of all Company shares or votes entitled by
said shares either alone or jointly with other shareholders as specified below
reaches or exceeds 33 1/3 percent or 50 percent (hereinafter: shareholder under
redemption obligation), is obligated upon the demand of the other shareholders
(hereinafter: shareholders entitled to redemption) to redeem the latter's
shares and the securities providing entitlement thereto as stipulated in the
Finnish Companies Act in the manner ruled in this article. The rulings of this
article on shares and securities similarly apply to book-entry securities. This
article concerns title obtained following the entering of this article in the
Trade Register, and does not concern title via inheritance or bequest, or title
of direct descendants.
Calculations of the shareholder's proportion of the company's shares and
votes concerning the application of this article shall include the following
shares:
. shares belonging to an institution belonging to the same group of
companies as the shareholder, as defined in the Finnish Companies Act,
. shares belonging to a Company, which in terms of its consolidated
financial statement as defined in the Accounting Act is deemed a member
of the same group of companies as the owner,
. shares belonging to pension foundations or funds of the above
institutions or companies, and
. shares belonging to a non-Finnish institution or Company, which, if it
were Finnish, would belong in the same manner as above to the same group
of companies as the shareholder.
Where obligation to redeem arises on the basis of total holdings or votes,
the shareholders under redemption obligation shall be jointly responsible for
redemption with regard to shareholders entitled to redemption. In this
situation the demand for redemption shall be deemed to concern all shareholders
under redemption obligation without separate demand.
Should two shareholders reach or exceed the ownership or vote limit leading
to a redemption obligation with both under said obligation simultaneously, the
shareholder entitled redemption may demand redemption from both separately.
The redemption obligation does not concern shares or securities entitling
the holder thereto, which the shareholder demanding redemption has acquired
after the redemption obligation has arisen.
If the redemption obligation has arisen on the basis of a 33 1/3 percent
excess and the implementation of the redemption obligation will raise the
proportion of shares or votes of the party thus obligated to over 50 percent,
the latter exceeding of the limit shall not lead to a new redemption obligation
as defined in this article.
The Redemption Price
The redemption price of shares shall be the higher of the following:
a) the average of the share prices weighted with the number of shares over
the past ten (10) trading days at the Helsinki Stock Exchange up to and
including the day when the Company received notification from the
shareholder under redemption obligation of reaching or exceeding the
above-mentioned proportion of ownership or votes, or, should the said
notification be lacking or late, the time when the company's Board of
Directors was otherwise informed of this matter;
C-4
b) the average share price weighted by the number of shares which the
shareholder under redemption obligation has paid for shares acquired or
otherwise obtained over the past 12 months prior to the date specified
in section a) above, including the said date given in section a).
If any acquisition influencing the average price is in foreign currency its
equivalent value shall be calculated in euros according to the confirmed euro
rate for the said currency that was in force seven (7) days before the Board of
Directors informs the shareholders of the possibility of redemption.
The above regulations on the redemption price of shares shall apply to other
securities liable to redemption.
Redemption Procedure
A shareholder under redemption obligation shall inform the company's Board
of Directors thereof in writing to the Company address within seven (7) days of
the said obligation having arisen. This notification shall contain information
on the numbers of shares owned by the shareholder under redemption obligation
and the numbers and prices of shares acquired or otherwise obtained by the
shareholder under redemption obligation over the past twelve (12) months. The
notification shall include an address where the shareholder under redemption
obligation can be reached.
The Board of Directors shall inform the shareholders that redemption
obligation has arisen within 45 days of having received the above notification,
or if such notification is lacking or delayed, after having been otherwise
informed of redemption obligation having arisen.
The notification shall contain information on the time when the redemption
obligation arose and the grounds for the redemption price, insofar as they are
known to the Board of Directors, and the date by which the redemption demand
must be presented. Notification to shareholders must be given in accordance
with the regulations of Article 10 on the notice of the Annual General Meeting.
A shareholder entitled to redemption shall demand redemption in writing
within 30 days of publication of the notification of the redemption obligation
by the Board of Directors. The demand for redemption, which shall be presented
to the Company, shall give the number of shares and other securities to which
the demand applies. A shareholder demanding redemption shall also deliver to
the Company any share certificates or other documents of title to shares to be
forwarded to the party under redemption obligation against payment of the
redemption price.
If no demand has been presented within the set period as specified above,
the shareholder's right to demand redemption in the redemption situation at
hand shall expire. A shareholder entitled to redemption is not entitled to
cancel the demand for redemption.
On expiry of the period reserved for the shareholders entitled to
redemption, the Board of Directors shall inform the shareholder under
redemption obligation of the demands for redemption that have been presented.
The shareholder under redemption obligation shall within 14 days of being
notified of the redemption demands, pay the redemption price as specified by
the Company against transfer of the shares or securities entitling the holder
thereto, or against a receipt from the Company if the shares to be redeemed
have been recorded in the book-entry securities accounts of the shareholders
concerned. In this case the Company shall ensure that the redeeming party is
immediately recorded as the owner of the redeemed shares in the book-entry
securities account.
Interest on arrears at 16 percent per annum shall be calculated for a
redemption price that has not been paid within the period due counting from the
date when it should have been made at the latest. If the shareholder under
obligation of redemption has also neglected to follow the above regulations on
notification, interest on arrears shall be calculated from the date when
notification should have been given at the latest.
C-5
Other Stipulations
A General Meeting decision for amending or removing any regulations of this
article shall be valid only if it has received the vote of the shareholders
with at least three-quarters of cast votes and shares represented at the
meeting.
Any disagreements and discords concerning the above redemption obligation,
the related right to demand redemption and the redemption price shall be
resolved through arbitration in the company's locality of domicile in
accordance with the provisions of the Arbitration Act (967/62). Arbitration
shall be carried out according to Finnish law.
C-6
FORM OF PROXY CARD OF TRIPLE S PLASTICS, INC.
TRIPLE S PLASTICS, INC.
Proxy Solicited by the Board of Directors
for Special Meeting of Shareholders to be held August 14, 2001
The undersigned hereby appoints A. Christian Schauer and Daniel B. Canavan,
and each of them individually, as proxies, with the powers the undersigned
would possess if personally present, and with full power of substitution, to
vote at the Special Meeting of Shareholders of TRIPLE S PLASTICS, INC. to be
held on August 14, 2001, and at any adjournments thereof, on the following
proposal:
(1) To approve the Amended and Restated Agreement and Plan of Merger, dated
as of May 25, 2001, by and among Triple S Plastics, Inc., Eimo Oyj, and
a subsidiary of Eimo under which Eimo's subsidiary will be merged with
and into Triple S, with Triple S surviving as a wholly owned subsidiary
of Eimo.
The proxies named above are authorized to vote in their discretion with
respect to other matters that properly come before the Special Meeting or any
adjournment of the Special Meeting. As of July 13, 2001 Triple S does not know
of any such other matters to be presented at the Special Meeting.
You are encouraged to specify your choices by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote in
accordance with the Board of Directors' recommendations. Your shares cannot be
voted unless you sign, date and return this card, or vote your shares in person
at the Special Meeting.
SEE REVERSE SIDE
Please mark
[X] your vote as in
this example.
When this proxy is properly executed, the shares to which it
relates will be voted in the manner directed herein. If no
direction is made, the shares will be voted FOR the proposal
presented below.
The Board of Directors recommends a vote FOR the proposal
listed below.
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FOR AGAINST ABSTAIN
--- ------- -------
1. To approve the Amended and Restated Agreement [_] [_] [_]
and Plan of Merger, dated as of May 25, 2001, by
and among Triple S Plastics, Inc., Eimo Oyj, and
a subsidiary of Eimo under which Eimo's
subsidiary will be merged with and into Triple
S, with Triple S surviving as a wholly owned
subsidiary of Eimo.
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Signature(s) _______________ Date ________________
NOTE: Please sign exactly as name The signer hereby revokes all
appears hereon. Joint owners should proxies heretofore given by the
each sign. When signing as attorney, signer to vote at said meeting or
executor, administrator, or guardian, any adjournments thereof. The
please give full title as such. signer also hereby acknowledges
receipt of a notice of Special
Meeting and the proxy
statement/prospectus dated
July 13, 2001, relating to
the Special Meeting.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.