1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 2001
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOLECTRON CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
DELAWARE 3670 94-2447045
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
777 GIBRALTAR DRIVE
MILPITAS, CALIFORNIA 95035
(408) 957-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SUSAN S. WANG
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND CORPORATE SECRETARY
SOLECTRON CORPORATION
777 GIBRALTAR DRIVE
MILPITAS, CALIFORNIA 95035
(408) 957-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
STEVEN E. BOCHNER, ESQ. RAYMOND C. ZEMLIN, P.C.
MICHAEL J. KENNEDY, ESQ. MATTHEW L. DANIEL, ESQ.
MICHAEL S. RINGLER, ESQ. GOODWIN PROCTER LLP
TORREY J. MILLER, ESQ. EXCHANGE PLACE
WILSON SONSINI GOODRICH & ROSATI BOSTON, MASSACHUSETTS 02109
PROFESSIONAL CORPORATION (617) 570-1000
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94303
(650) 493-9300
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ] ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, par value $0.001
per share................... 2,960,000 $15.78 $85,550,986 $21,388
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(1) Based upon the estimated maximum number of shares of common stock, par value
$0.001 per share, of the registrant that may be issued pursuant to the
merger.
(2) Estimated solely for purposes of calculating the registration fee required
by the Securities Act of 1933, as amended, and computed pursuant to Rules
457(f) and (c) under the Securities Act based on (i) $15.78, the average of
the high and low per share prices of common stock, par value $0.01 per
share, of Centennial Technologies, Inc. ("Centennial common stock") as
reported on the Nasdaq National Market on February 23, 2001 and (ii) the
maximum number of shares of Centennial common stock to be received by the
registrant or canceled pursuant to the merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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2
CENTENNIAL TECHNOLOGIES, INC.
7 LOPEZ ROAD
WILMINGTON, MASSACHUSETTS 01887
-, 2001
Dear Stockholders:
You are cordially invited to attend the special meeting of stockholders of
Centennial Technologies, Inc. to be held at -, local time, on - at the offices
of Goodwin Procter LLP, located at Exchange Place, Boston, Massachusetts
02109-2881. At the special meeting you will be asked to consider and vote upon a
proposal to adopt and approve an Agreement and Plan of Merger and
Reorganization, dated as of January 22, 2001, pursuant to which Centers
Acquisition Corporation, a wholly owned subsidiary of Solectron Corporation,
will be merged with and into Centennial and Centennial will become a
wholly-owned subsidiary of Solectron.
If the merger agreement is adopted and approved, and the merger is
subsequently completed, each outstanding share of Centennial common stock will
be converted into the right to receive Solectron common stock and each
outstanding share of Centennial series B convertible preferred stock will be
converted into the right to receive $80.00 in cash. The per share exchange ratio
for Centennial common stock will be determined at the completion of the merger.
The manner in which this exchange ratio will be calculated is described in this
document. Based on the number of outstanding shares of Centennial common stock
and options to purchase Centennial common stock on the date of this document,
and assuming that all outstanding shares of Centennial series B convertible
preferred stock are converted into Centennial common stock prior to the merger,
each share of Centennial common stock would be exchanged for approximately 0.536
of a share of Solectron common stock. In the event that none of the outstanding
shares of Centennial series B convertible preferred stock are converted into
Centennial common stock prior to the completion of the merger, and assuming that
the average closing price of Solectron common stock during the five trading day
period ending on the trading day prior to the completion of the merger is $29.50
(i.e., the market price of Solectron common stock on the day prior to the date
of this document), each share of Centennial common stock would be exchanged for
approximately 0.569 of a share of Solectron common stock. These exchange ratios
are estimates, however, and may change at the completion of the merger. You will
receive cash, without interest, rather than a fractional share of Solectron
common stock that you otherwise would be entitled to receive in the merger.
Solectron common stock is traded on the New York Stock Exchange under the
trading symbol "SLR," and on February 23, 2001, the closing price of Solectron
common stock was $29.50 per share.
Before we can complete the merger, at the special meeting of Centennial
stockholders at which the merger agreement is considered and voted upon, the
holders of a majority of the voting shares of Centennial, which consists of the
Centennial common stock and series B convertible preferred stock voting together
as a single class, must vote in favor of the adoption and approval of the merger
agreement and approval of the merger. Each share of Centennial common stock is
entitled to one vote on all matters to come before the special meeting and
holders of Centennial's series B convertible preferred stock are entitled to one
vote for each share of common stock which would be issuable upon conversion of
the series B convertible preferred stock (currently 10 votes per share). Only
stockholders who hold shares of Centennial common stock or series B convertible
preferred stock at the close of business on -, 2001 will be entitled to vote at
the special meeting.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS OF
THE MERGER AND HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS ADVISABLE, IN THE
BEST INTERESTS OF OUR STOCKHOLDERS AND ON TERMS THAT ARE FAIR TO OUR
STOCKHOLDERS. ACCORDINGLY, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER AND RECOMMENDS THAT YOU VOTE FOR ADOPTION AND
APPROVAL OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. H.C. Wainwright &
Co., Inc. provided your board of directors a written opinion dated January 18,
2001 to the effect that, as of that date, and based upon and subject to the
matters stated in the opinion, the exchange ratio set forth in the merger
agreement was fair, from a financial point of view, to the holders of Centennial
common stock. H.C. Wainwright & Co., Inc.'s written opinion is attached to this
document as Annex C, and you should read it carefully in its entirety.
Following this letter you will find a formal notice of the special meeting
and a document providing you with detailed information concerning the merger
agreement, the merger, Centennial and Solectron. IN PARTICULAR, YOU SHOULD
CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS"
BEGINNING ON PAGE 17 OF THIS DOCUMENT, INCLUDING THOSE RISK FACTORS THAT ARE
INCORPORATED BY REFERENCE INTO THIS DOCUMENT. You may also obtain more
information about Solectron and us from documents that each of us has filed with
the Securities and Exchange Commission.
To vote your shares, you may use the enclosed proxy card or attend the
special meeting that will be held for this important vote.
Thank you for your cooperation.
Sincerely,
/s/ L. MICHAEL HONE
L. Michael Hone
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE MERGER OR THE SHARES OF SOLECTRON
COMMON STOCK TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS DOCUMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This document is dated -, 2001 and was first mailed to Centennial
stockholders on or about -, 2001.
3
CENTENNIAL TECHNOLOGIES, INC.
7 LOPEZ ROAD
WILMINGTON, MASSACHUSETTS 01887
(978) 988-8848
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON -, 2001
-------------------------
To the Stockholders of Centennial Technologies, Inc.:
A special meeting of stockholders of Centennial Technologies, Inc. will be
held on -, 2001, at -, local time, at the offices of Goodwin Procter LLP,
located at Exchange Place, Boston, Massachusetts 02109-2881, for the following
purposes:
1. To consider and vote on a proposal to adopt and approve the Agreement
and Plan of Merger and Reorganization, dated as of January 22, 2001, by
and among Solectron Corporation, a Delaware corporation, Centers
Acquisition Corporation, a Delaware corporation and a wholly owned
subsidiary of Solectron and Centennial Technologies, Inc., a Delaware
corporation, a copy of which is attached as Annex A to this document,
and to approve the merger contemplated by the merger agreement.
2. To transact other business that may properly come before the special
meeting and any adjournment or postponement of the special meeting.
All stockholders are invited to attend the special meeting. Stockholders of
record at the close of business on -, 2001, the record date fixed by the Board
of Directors, are entitled to notice of and to vote at the special meeting or
any adjournment or postponement thereof. Holders of common stock and series B
convertible preferred stock (on the basis of one vote for each share of common
stock which would be issuable upon conversion of the series B convertible
preferred stock) as of the record date will have the right to vote on the above
proposals. Currently, each share of series B convertible preferred stock is
entitled to 10 votes. Adoption and approval of the merger agreement and approval
of the merger require the affirmative vote of the holders of a majority of the
issued and outstanding voting shares, consisting of Centennial common stock and
series B convertible preferred stock, voting together as a single class.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN
THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL GREATLY FACILITATE
ARRANGEMENTS FOR THE SPECIAL MEETING AND YOUR COOPERATION WILL BE APPRECIATED.
YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THIS DOCUMENT BEFORE IT HAS
BEEN VOTED AT THE SPECIAL MEETING. STOCKHOLDERS WHO ATTEND THE SPECIAL MEETING
MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE SENT THEIR PROXIES.
BY ORDER OF THE BOARD OF DIRECTORS
LOGO
Richard J. Pulsifer
Vice President, Chief Financial
Officer and Secretary
Wilmington, Massachusetts
- -, 2001
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME. IF THE MERGER IS
COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR STOCK
CERTIFICATES.
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ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Solectron and Centennial from other documents that are not included in or
delivered with this document. This information is available to you without
charge upon your written or oral request. You can obtain those documents by
requesting them in writing or by telephone from the appropriate company at the
following addresses and telephone numbers:
Solectron Corporation Centennial Technologies, Inc.
777 Gibraltar Drive 7 Lopez Road
Milpitas, California 95035 Wilmington, Massachusetts 01887
(408) 957-8500 (978) 988-8848
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, YOU MUST DO SO BY -, 2001 IN ORDER
TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
For additional information regarding where you can find information about
Solectron and Centennial, please see the section entitled "Where You Can Find
Additional Information" beginning on page 98 of this document.
5
TABLE OF CONTENTS
PAGE
----
Questions and Answers About the Merger...................... 1
Summary..................................................... 4
Solectron Summary Selected Consolidated Financial Data...... 10
Centennial Summary Selected Consolidated Financial Data..... 11
Comparative Historical and Pro Forma Per Share Data......... 12
Comparative Per Share Market Price Data..................... 13
Cautionary Statements Regarding Forward-Looking Statements
in this Document.......................................... 15
Risk Factors................................................ 17
Risks Related to the Merger............................... 17
Risks Related to Solectron................................ 20
Risks Related to Centennial............................... 27
The Special Meeting of Centennial Stockholders.............. 33
General................................................... 33
Date, Time and Place...................................... 33
Purpose of the Special Meeting............................ 33
Record Date for the Special Meeting....................... 33
Votes Required for Adoption and Approval of the Merger
Agreement and Approval
of the Merger.......................................... 33
Quorum, Abstentions and Broker Non-Votes.................. 34
Solicitation of Proxies and Expenses...................... 35
Voting of Proxies at the Special Meeting and Revocation of
Proxies................................................ 35
Dissenter's Rights of Appraisal........................... 35
Other Matters............................................. 36
Recommendation of Centennial Board of Directors........... 36
The Merger and Related Transactions......................... 37
Background of the Merger.................................. 37
Consideration of the Merger By Centennial's Board of
Directors.............................................. 42
Centennial's Reasons for the Merger.................... 42
Recommendation of Centennial's Board of Directors...... 44
Opinion of Centennial's Financial Advisor.............. 44
Interests of Centennial's Directors and Officers in the
Merger................................................ 50
Consideration of the Merger By Solectron's Board of
Directors.............................................. 52
The Merger Agreement...................................... 53
Structure of the Merger................................ 53
Completion and Effectiveness of the Merger............. 53
Conversion of Centennial Series B Convertible Preferred
Stock in the Merger................................... 53
Conversion of Centennial Common Stock in the Merger.... 54
Fractional Shares...................................... 55
Exchange of Centennial Stock Certificates for Solectron
Stock Certificates.................................... 55
Centennial's Representations and Warranties............ 55
Solectron's Representations and Warranties............. 56
Centennial's Conduct of Business Before Completion of
the Merger............................................ 57
Solectron's Conduct of Business Before Completion of
the Merger............................................ 58
Material Covenants..................................... 58
Treatment of Centennial Stock Options.................. 61
Treatment of Rights under Centennial Employee Stock
Purchase Plan......................................... 62
Conditions to Completion of the Merger................. 62
Termination of the Merger Agreement.................... 63
Payment of Termination Fee............................. 64
(i)
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PAGE
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Extension, Waiver and Amendment of the Merger
Agreement............................................. 65
Definition of Material Adverse Effect.................. 65
Expenses............................................... 65
Material United States Federal Income Tax Consequences of
the Merger............................................. 66
Accounting Treatment of the Merger........................ 67
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 67
Restrictions on Sales of Solectron Common Stock by
Affiliates of Centennial............................... 68
Listing on the New York Stock Exchange of Solectron Common
Stock to be Issued in the Merger....................... 68
Delisting and Deregistration of Centennial Common Stock
After the Merger....................................... 68
Dissenters' Rights of Appraisal........................... 68
Other Material Agreements Relating to the Merger.......... 68
Operations After the Merger............................... 69
Information About Centennial................................ 70
Industry Overview......................................... 70
Business Strategy......................................... 71
Centennial Products, Technology and Developments.......... 72
Sales and Marketing....................................... 73
Engineering and Product Development....................... 74
Competition............................................... 74
Raw Materials and Product Components...................... 75
Employees................................................. 75
Properties................................................ 75
Legal Proceedings......................................... 75
Quantitative and Qualitative Disclosure About Market
Risk................................................... 77
Centennial Selected Consolidated Financial Data............. 78
Centennial Management's Discussion and Analysis of Financial
Condition and Results of Operations of Centennial......... 79
Overview.................................................. 79
General................................................ 79
Acquisition of the Flash Memory Card Business of Intel
Corporation........................................... 79
Results of Operations..................................... 80
Nine Months Ended December 23, 2000 and December 25,
1999................................................... 80
Twelve Months Ended March 25, 2000 and March 31, 1999..... 82
Twelve Months Ended March 31, 1999 and March 31, 1998..... 84
Quarterly Results of Operations........................... 86
Liquidity and Capital Resources........................... 86
Comparison of Rights of Holders of Centennial Common Stock
and Series B Convertible Preferred Stock and Solectron
Common Stock.............................................. 90
Legal Matters............................................... 97
Experts..................................................... 97
Stockholder Proposals....................................... 97
Where You Can Find Additional Information................... 98
Financial Statements of Centennial Technologies, Inc........ F-1
Annexes:
A -- Agreement and Plan of Merger and Reorganization........ A-1
B -- Form of Voting Agreement............................... B-1
C -- Opinion of H.C. Wainwright & Co., Inc.................. C-1
(ii)
7
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE SOLECTRON AND CENTENNIAL PROPOSING TO MERGE? (SEE PAGES 42 AND 52)
A: Solectron is accelerating its move into the PC card industry, including
flash memory products, and Centennial focuses on the design, manufacture and
marketing of PC cards using flash memory technology. Centennial and
Solectron each believe that the combination of the two companies will enable
the combined company to realize a stronger position in the growing PC card
and flash memory products market for data storage. Centennial and Solectron
each believe that greater stockholder value can be achieved through a
combined company with additional resources, products, services, customer and
supplier relationships and technology. Centennial also believes that, given
Solectron's historical revenue growth and greater stock liquidity,
Centennial stockholders may achieve greater possible returns through
participation in the potential future growth in value of the combined
company. Finally, Centennial believes that the significant premium provided
by the exchange ratio set forth in the merger agreement over the existing
market price of Centennial common stock at the time the merger agreement was
approved by the Centennial board of directors will permit greater returns to
Centennial stockholders.
Q: WHAT WILL I RECEIVE IN THE MERGER? (SEE PAGE 53)
A: Each outstanding share of Centennial common stock will be converted into the
right to receive Solectron common stock and each outstanding share of
Centennial series B convertible preferred stock will be converted into the
right to receive $80.00 in cash. The per share exchange ratio for Centennial
common stock will be determined at the completion of the merger. The manner
in which this exchange ratio will be calculated is described in this
document. Based on the number of outstanding shares of Centennial common
stock and options to purchase Centennial common stock on the date of this
document, and assuming that all outstanding shares of Centennial series B
convertible preferred stock are converted into Centennial common stock prior
to the merger, each share of Centennial common stock would be exchanged for
approximately 0.536 of a share of Solectron common stock. In the event that
none of the outstanding shares of Centennial series B convertible preferred
stock are converted into Centennial common stock prior to the completion of
the merger, and assuming that the average closing price of Solectron common
stock during the five trading day period ending on the trading day prior to
the completion of the merger is $29.50 (i.e., the market price of Solectron
common stock on the day prior to the date of this document), each share of
Centennial common stock would be exchanged for approximately 0.569 of a
share of Solectron common stock. These exchange ratios are estimates,
however, and may change at the completion of the merger. Solectron will not
issue fractional shares in connection with the merger. You will receive
cash, without interest, rather than a fractional share of Solectron common
stock that you would otherwise be entitled to receive in the merger.
Q: HOW WILL THE MERGER AFFECT OPTIONS TO ACQUIRE CENTENNIAL COMMON STOCK? (SEE
PAGE 61)
A: Options to purchase shares of Centennial common stock will be assumed by
Solectron and become exercisable to purchase shares of Solectron common
stock after completion of the merger. The number of shares issuable upon the
exercise of these options, and their applicable exercise prices, will be
adjusted using the exchange ratio applicable to shares of Centennial common
stock in connection with the merger.
Q: WILL CENTENNIAL STOCKHOLDERS BE ABLE TO TRADE THE SOLECTRON COMMON STOCK
THAT THEY RECEIVE IN THE MERGER? (SEE PAGE 68)
A: Yes. The Solectron common stock will be listed on the New York Stock
Exchange under the symbol "SLR." Persons who are deemed to be an affiliate
of Centennial prior to the completion of the merger, however, must comply
with Rule 145 under the Securities Act of 1933 if they wish to sell or
1
8
otherwise transfer the shares of Solectron common stock they receive in the
merger.
Q: WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A: We will complete the merger when all of the conditions to completion of the
merger contained in the merger agreement have been satisfied or waived. We
are working toward satisfying these conditions and completing the merger as
quickly as possible. We currently plan to complete the merger during the
second calendar quarter of 2001. However, because the merger is subject to
governmental and regulatory approvals and other conditions, some of which
are beyond our control, we cannot predict the exact timing.
Q: WHAT HAPPENS IF THE MERGER IS NOT COMPLETED? (SEE PAGE 64)
A: If the merger is not completed, each of Centennial and Solectron will
continue as independent companies. In addition, under the terms of the
merger agreement Centennial may be required to pay a termination fee of
$4,825,000 to Solectron if the merger is not completed for the reasons
discussed in more detail in this document.
Q: HOW DO I VOTE ON THE MERGER? (SEE PAGE 35)
A: First, please review the information contained or incorporated by reference
in this document, including the annexes. It contains important information
about Centennial and Solectron. It also contains important information about
what the boards of directors of Centennial and Solectron considered in
evaluating the merger. Next, complete and sign the enclosed proxy card, and
then mail it in the enclosed return envelope as soon as possible so that
your shares can be voted at the special meeting of Centennial stockholders
at which the merger agreement and the merger will be presented and voted
upon. You may also attend the special meeting in person and vote at the
special meeting instead of submitting a proxy.
Q: WHAT HAPPENS IF I DON'T INDICATE HOW TO VOTE MY PROXY? (SEE PAGE 35)
A: If you sign and send in your proxy, but do not include instructions on how
to vote your properly signed proxy card, your shares will be voted FOR
adoption and approval of the merger agreement and approval of the merger.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD? (SEE PAGE 34)
A: Not returning your proxy card will have the same effect as voting against
adoption and approval of the merger agreement and against approval of the
merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD? (SEE PAGE 35)
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting of Centennial stockholders at which the merger agreement and
merger will be presented and voted upon. You can do this in one of three
ways:
- first, you can send a written notice to the Secretary of Centennial
stating that you would like to revoke your proxy;
- second, you can complete and submit a later-dated proxy card; or
- third, you can attend the special meeting and vote in person. Your
attendance at the special meeting alone will not revoke your proxy. You
must also vote at the special meeting in order to revoke your previously
submitted proxy.
You should send any notice of revocation or your completed new proxy card,
as the case may be, to Centennial at the following address:
Centennial Technologies, Inc.
c/o ADP
51 Mercedes Way
Edgewood, NY 11717
Attn: Proxy Services
Q: CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
A: If you are a registered stockholder (that is, if you hold your stock in
certificate form), you may vote by telephone, or electronically through the
internet, by following the instructions included with your proxy card.
2
9
If your shares are held in "street name," please check your proxy card or
contact your broker or nominee to determine whether you will be able to vote
by telephone or electronically.
The deadline for voting by telephone or electronically is - on -.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES
FOR ME? (SEE PAGE 35)
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with voting instructions, your
shares may be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in favor
of adoption and approval of the merger agreement or approval of the merger
and therefore will have the effect of a vote against the merger agreement
and the merger. If you have instructed a broker to vote your shares and wish
to change your vote, you must follow directions received from your broker to
change those instructions.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW? (SEE PAGE 55)
A: No. If the merger is completed, we will send you written instructions for
exchanging your Centennial stock certificates for Solectron stock
certificates. In the meantime, you should retain your certificates as the
Centennial stock certificates are still valid. Please do not send in your
stock certificates with your proxy.
Q: AM I ENTITLED TO APPRAISAL RIGHTS? (SEE PAGE 35)
A: No. Under applicable law, you are not entitled to dissenters or appraisal
rights in connection with the merger.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: Yes. In the section entitled "Risk Factors" beginning on page 17 of this
document, we have described a number of risk factors that you should
consider in connection with the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS ABOUT THE MERGER?
A: You may call Richard J. Pulsifer, the Secretary of Centennial, at (978)
988-8848, with any questions you may have about the merger.
3
10
SUMMARY
The following is a summary of the information contained in this document.
This summary may not contain all of the information that is important to you.
You should carefully read this entire document and the other documents referred
to for a more complete understanding of the merger and related transactions. In
particular, you should read the annexes attached to this document, including the
merger agreement and the form of voting agreement, which are attached to this
document as Annexes A and B, respectively. In addition, Solectron and Centennial
incorporate by reference into this document important business and financial
information. You may obtain the information incorporated by reference into this
document without charge by following the instructions in the section entitled
"Where You Can Find Additional Information" beginning on page 98 of this
document.
PARTIES TO THE MERGER
SOLECTRON CORPORATION
777 Gibraltar Drive
Milpitas, California 95035
(408) 957-8500
www.solectron.com
Solectron provides electronics manufacturing services to original equipment
manufacturers (OEMs) who design and sell networking equipment, mobile and
land-based telecommunications equipment, computing equipment, including
workstations, notebooks, desktops and peripherals, and other electronic
equipment. These companies contract with Solectron to build their products for
them or to obtain other related services from Solectron. Solectron furnishes
integrated supply-chain solutions that span the entire product life-cycle from
technology solutions, to manufacturing and operations, to global services.
Solectron's range of services includes advanced building block design solutions,
product design and manufacturing, new product introduction management, materials
purchasing and management, prototyping, printed circuit board assembly (the
process of placing components on an electrical printed circuit board that
controls the processing functions of a personal computer or other electronic
equipment), system assembly (for example, building complete systems such as
mobile telephones and testing them to ensure functionality), distribution,
product repair and warranty services.
Solectron has manufacturing facilities in the Americas, Europe and
Asia/Pacific. Solectron was originally incorporated in California in August
1977. In February 1997, Solectron was reincorporated in Delaware.
Centers Acquisition Corporation is a newly formed Delaware corporation and
a wholly-owned subsidiary of Solectron. Centers was formed solely to effect the
merger and has not conducted any business during any period of its existence.
CENTENNIAL TECHNOLOGIES, INC.
7 Lopez Road
Wilmington, Massachusetts 01887
(978) 988-8848
www.cent-tech.com
Centennial and its subsidiaries focus on the design, manufacture and
marketing of PC cards for industrial and commercial purposes. Centennial's main
customers typically are OEMs and value added resellers. A wide range of markets
for Centennial's products exists, including the following:
- Communications -- network routers, base stations for wireless telephones
and code and data storage for local area networks;
- Transportation -- navigation/global positioning systems and vehicle
diagnostic tests;
- Mobile Computing and Office Automation -- hand-held data collection
terminals, notebook computers and personal digital assistants;
- Medical -- blood gas analysis systems, defibrillators, hand-held
glucometers and holter devices; and
- Consumer OEM -- sewing machines and digital cameras.
A sample of the more than 250 OEMs that use Centennial's products are
Compaq Computer; Nortel Networks; Lucent Technologies; 3Com; Cisco Systems;
Solectron; Jabil Circuit; Symbol Technologies; Intermec Technologies; and United
Parcel Service.
In 1987, Centennial began operations and focused on developing and
commercializing font cartridges for laser printers. In 1992, Centennial began to
design, manufacture and market cards that met the specifications agreed upon by
the Personal Computer Memory Card International
4
11
Association. These cards have become universally known as PC cards. Thereafter,
Centennial gradually de-emphasized and ceased the marketing and sales of font
cartridges and began to focus on the growing PC card market for data storage. In
1994, Centennial re-incorporated in Delaware.
For purposes of this document, all references to Centennial's "fiscal
2000," "fiscal 1999" and "fiscal 1998" relate to the fiscal years of Centennial
ending March 25, 2000, March 31, 1999 and March 31, 1998, respectively.
Centennial's fiscal year was changed in the year ended March 25, 2000 to a 52/53
week and now ends on the last Saturday of March. For ease of presentation, March
31 has been utilized for all financial statement captions for the fiscal year
ended March 25, 2000. Also, for ease of presentation, December 23 has been
utilized for all financial statement captions for the nine months ended December
25, 1999. All references to "fiscal 1997" relate to the fiscal year ended March
31, 1997 following Centennial's change of fiscal year from June 30 to March 31
and all references to "fiscal 1996" relate to the fiscal year ended June 30,
1996.
On July 20, 1999, Centennial's stockholders approved a one-for-eight
reverse stock split of Centennial common stock. This reverse stock split became
effective on July 23, 1999. In this document, all per share amounts and numbers
of shares have been restated to reflect this reverse stock split.
VOTING REQUIREMENTS FOR THE MERGER (SEE PAGE 33)
In order to complete the merger, the holders of a majority of the
outstanding shares of Centennial common stock and series B convertible preferred
stock as of the record date, voting together as a single class, must vote to
adopt and approve the merger agreement and approve the merger. Each share of
Centennial common stock will be entitled to one vote per share and each share of
series B convertible preferred stock will be entitled to 10 votes per share. As
a result, you will be entitled to cast one vote per share of Centennial common
stock and 10 votes per share of Centennial series B convertible preferred stock
you owned as of -, 2001, the record date for the Centennial special meeting at
which the merger agreement and the merger will be presented and voted upon.
Solectron stockholders are not required to vote on the merger agreement or
the merger.
SHARE OWNERSHIP OF MANAGEMENT (SEE PAGE 33)
As of the close of business on the record date for the special meeting of
Centennial stockholders at which the merger agreement and the merger will be
presented and voted upon, directors and executive officers of Centennial (and
their respective affiliates) collectively owned approximately 2.3% of the
outstanding shares of Centennial common stock entitled to vote at the special
meeting on the merger agreement and the merger, or approximately 1.9% of the
voting shares of Centennial entitled to vote at the special meeting on the
merger agreement and the merger. This does not include 1,173,962 shares of
Centennial common stock issuable upon the exercise of presently exercisable
options which these directors and officers beneficially own. If all of these
stock options had been exercised prior to the record date for the special
meeting, the directors and executive officers of Centennial (and their
respective affiliates) would collectively own approximately 27.5% of the
outstanding shares of Centennial common stock entitled to vote at the special
meeting, or approximately 24.3% of the voting shares of Centennial. All of these
directors and executive officers have entered into voting agreements with
Solectron under which they have agreed, among other things, to vote their shares
of Centennial common stock in favor of adoption and approval of the merger
agreement and approval of the merger.
CENTENNIAL'S REASONS FOR THE MERGER (SEE PAGE 42)
Centennial's board of directors consulted with senior management and
Centennial's financial and legal advisors and considered a number of factors,
including those set forth below, in reaching its decision to approve the merger
agreement and the transactions contemplated by the merger agreement, and to
recommend that Centennial's stockholders vote FOR adoption and approval of the
merger agreement and approval of the merger.
- the relative value of the consideration to be received by Centennial
stockholders compared to the historical and recent market prices of
Centennial common stock;
- the fairness opinion of Centennial's financial advisor, H.C. Wainwright &
Co., Inc.;
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12
- Centennial's prospects of remaining independent;
- the possible effect of the merger on its employees, customers and current
facility;
- the ability of Centennial to respond to a superior acquisition proposal
from a third party, in some circumstances, subject to the possible
payment of a termination fee;
- the limited nature of the closing conditions included in the merger
agreement; and
- the relative liquidity of Solectron common stock compared to Centennial
common stock.
The foregoing discussion of the information and factors considered by
Centennial's board of directors, while not exhaustive, includes the material
factors considered by the Centennial board of directors. In view of the variety
of factors considered in connection with its evaluation of the merger,
Centennial's board of directors did not find it practicable to, and did not,
quantify or otherwise assign relative or specific weight or values to any of
these factors, and individual directors may have given different weights to
different factors.
RECOMMENDATION OF CENTENNIAL'S BOARD OF DIRECTORS (SEE PAGE 44)
After careful consideration, Centennial's board of directors unanimously
determined that the merger is advisable, in the best interests of Centennial
stockholders and on terms that are fair to the stockholders of Centennial.
Accordingly, Centennial's board of directors unanimously approved the merger
agreement and the merger and recommends that you vote FOR adoption and approval
of the merger agreement and approval of the merger.
OPINION OF CENTENNIAL'S FINANCIAL ADVISOR (SEE PAGE 44)
In deciding to approve the merger, the Centennial board of directors
considered an opinion from its financial advisor, H.C. Wainwright & Co., Inc. On
January 18, 2001, H.C. Wainwright & Co., Inc. delivered its oral opinion,
subsequently confirmed in writing, to the board of directors of Centennial that,
as of the date of such opinion, the exchange ratio set forth in the merger
agreement was fair, from a financial point of view, to the holders of Centennial
common stock.
The full text of the H.C. Wainwright written opinion is attached to this
document as Annex C. We encourage you to read the opinion carefully. The opinion
of H.C. Wainwright does not constitute a recommendation as to how any holder of
Centennial common stock or preferred stock should vote with respect to the
merger agreement and the merger.
INTERESTS OF CENTENNIAL DIRECTORS AND EXECUTIVE OFFICERS IN THE MERGER (SEE PAGE
50)
Some of Centennial's directors and executive officers have interests in the
merger that are different from, or in addition to, those of Centennial
stockholders generally. Those interests include interests in Centennial stock
options, employment, severance, benefits and retention agreements. Furthermore,
the merger agreement provides directors and executive officers of Centennial
with continuing indemnification rights. Centennial's board of directors was
aware of these interests and considered them, among other matters, when it
approved the merger agreement and the merger.
STRUCTURE AND EFFECTS OF THE MERGER (SEE PAGE 53)
At the completion of the merger, Centers will merge with and into
Centennial and Centennial will survive as a wholly-owned subsidiary of
Solectron.
As a result of the merger, each outstanding share of Centennial common
stock will be converted into the right to receive Solectron common stock and
each outstanding share of Centennial series B convertible preferred stock will
be converted into the right to receive $80.00 in cash (or $4.8 million in the
aggregate in exchange for all series B convertible preferred stock outstanding
on the date of this document). The per share exchange ratio for Centennial
common stock will be determined at the completion of the merger. For a more
detailed description of how the actual exchange ratio for Centennial common
stock will be calculated at completion of the merger, see the section entitled
"The Merger and Related Transactions -- The Merger Agreement -- Conversion of
Centennial Common Stock in the Merger" beginning on page 54 of this document.
Based on the number of outstanding shares of Centennial common stock and options
to
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purchase Centennial common stock on the date of this document, and assuming that
all outstanding shares of Centennial series B convertible preferred stock are
converted into Centennial common stock prior to the merger, each share of
Centennial common stock would be exchanged for approximately 0.536 of a share of
Solectron common stock. In the event that none of the outstanding shares of
Centennial series B convertible preferred stock are converted into Centennial
common stock prior to the completion of the merger, and assuming that the
average closing price of Solectron common stock during the five trading day
period ending on the trading day prior to the completion of the merger is $29.50
(i.e., the market price of Solectron common stock on the day prior to the date
of this document), each share of Centennial common stock would be exchanged for
approximately 0.569 of a share of Solectron common stock. These exchange ratios
are estimates, however, and may change at the completion of the merger.
At the completion of the merger, former holders of Centennial common stock
will hold shares of Solectron common stock. As a result, the rights of these
holders following the merger will be governed by Solectron's certificate of
incorporation and bylaws, rather than Centennial's certificate of incorporation
and bylaws.
Each option to purchase shares of Centennial stock outstanding immediately
prior to the merger, whether vested or unvested, will be converted into an
option to purchase Solectron common stock. Solectron will adjust the number of
shares issuable upon the exercise of all assumed Centennial options, and the
exercise prices of all assumed Centennial options, based upon the exchange ratio
for Centennial common stock used in the merger.
COMPLETION AND EFFECTIVENESS OF THE MERGER (SEE PAGE 53)
We will complete the merger when all of the conditions to completion of the
merger contained in the merger agreement have been satisfied or waived. The
merger will become effective upon the filing of a certificate of merger with the
State of Delaware. Centennial and Solectron expect to file the certificate of
merger shortly following the special meeting of Centennial stockholders at which
the merger agreement and the merger will be presented and voted upon.
We are working toward satisfying these conditions and completing the merger
as quickly as possible. We currently plan to complete the merger during the
second calendar quarter of 2001. However, because the merger is subject to
governmental and regulatory approvals and other conditions, some of which are
beyond our control, we cannot predict the exact timing.
CENTENNIAL PROHIBITED FROM SOLICITING OTHER OFFERS (SEE PAGE 58)
Centennial has agreed that, while the merger is pending, it will not
initiate or, subject to some limited exceptions, engage in discussions with any
third parties regarding some types of extraordinary transactions, such as a
merger, business combination or sale of a material amount of assets or capital
stock.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 62)
Completion of the merger is subject to the satisfaction of a number of
conditions, including:
- adoption and approval of the merger agreement and approval of the merger
by the holders of a majority of the outstanding Centennial common stock
and series B convertible preferred stock, voting together as a single
class;
- expiration or termination of applicable waiting periods under applicable
antitrust laws;
- the absence of any law, injunction or order preventing the completion of
the merger;
- the continuing accuracy of the representations and warranties of
Solectron and Centennial contained in the merger agreement (except to the
extent that any inaccuracies would not constitute a material adverse
effect on the applicable company);
- the absence of any material adverse effect on the respective businesses
of Solectron and Centennial; and
- receipt of opinions of tax counsel that the merger will qualify as a
tax-free reorganization.
Some of the conditions to completion of the merger may be waived by the
company entitled to assert the condition.
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TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 63)
Centennial and Solectron may mutually agree to terminate the merger
agreement without completing the merger. In addition, either Centennial or
Solectron may terminate the merger agreement under any of the following
circumstances:
- if Solectron and Centennial do not complete the merger by April 30, 2001
(or June 30, 2001 if the registration statement of which this document
forms a part has been reviewed by the Securities and Exchange
Commission);
- if a court or other governmental authority issues a final order
prohibiting the merger and such order is not appealable;
- if the Centennial stockholders do not adopt and approve the merger
agreement and approve the merger;
- if the conditions to completion of the merger would not be satisfied
because of a material breach by the other company of any of its covenants
or other agreements contained in the merger agreement; or
- if the conditions to completion of the merger would not be satisfied
because a representation or warranty of the other company contained in
the merger agreement becomes untrue in a way that constitutes a material
adverse effect on that company.
Solectron may also terminate the merger agreement under any of the
following circumstances:
- if Centennial breaches the provisions of the merger agreement that
prohibit Centennial from initiating or, subject to some limited
exceptions, engaging in discussions with third parties regarding some
types of extraordinary transactions, such as a merger, business
combination or sale of a material amount of assets or capital stock;
- if Centennial's board of directors withdraws or changes in a manner
adverse to Solectron its unanimous recommendation in favor of the
adoption and approval of the merger agreement and approval of the merger;
- if Centennial's board of directors approves or recommends some types of
extraordinary transactions with a third party, such as a merger, business
combination or sale of a material amount of assets or capital stock;
- if Centennial enters into any letter of intent or other agreement with a
third party regarding some types of extraordinary transactions, such as a
merger, business combination or sale of a material amount of assets or
capital stock; or
- if a third party unaffiliated with Solectron undertakes a tender or
exchange offer relating to the securities of Centennial, and Centennial
does not recommend that its stockholders reject the offer within 10
business days after the offer is first made.
PAYMENT OF TERMINATION FEE (SEE PAGE 64)
Centennial must pay Solectron a fee of $4,825,000 in cash if the merger
agreement is terminated under some circumstances.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE
66)
In general, Centennial common stockholders will not recognize gain or loss
for United States federal income tax purposes in connection with the merger,
except for taxes payable in respect of cash received instead of fractional
shares. It is a condition to the merger that Solectron and Centennial receive
legal opinions from their respective legal counsel stating that the merger will
be treated as a tax-free reorganization under the Internal Revenue Code.
If a holder of Centennial's series B convertible preferred stock does not
convert its Centennial preferred stock into Centennial common stock prior to the
completion of the merger, that holder will recognize taxable gain or loss with
respect to each share of Centennial series B convertible preferred stock
surrendered in connection with the merger equal to the difference between its
basis in those shares and the $80.00 in cash paid to the holder with respect to
each share.
You should carefully read the discussion under "The Merger and Related
Transactions -- Material United States Federal Income Tax Consequences of the
Merger" beginning on page 66 of this document for a more detailed description of
the tax consequences of the merger.
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IN ADDITION, YOU ARE ENCOURAGED TO CONSULT YOUR OWN TAX ADVISOR BECAUSE TAX
MATTERS CAN BE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL
DEPEND UPON YOUR OWN SITUATION.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 67)
Solectron intends to account for the merger as a purchase.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE MERGER (SEE PAGE 67)
The merger is subject to United States and some foreign antitrust laws.
Centennial and Solectron have made required filings under applicable United
States antitrust laws with the Department of Justice and the Federal Trade
Commission, and received early termination of the applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act on February 13, 2001.
Each of Centennial and Solectron also intend to make some additional required
filings under applicable foreign antitrust laws. Centennial and Solectron are
not permitted to complete the merger until all material foreign antitrust
approvals that may be required in connection with the merger have been obtained.
A governmental authority or any private person may challenge the merger on
antitrust grounds at any time before the merger is completed.
RESTRICTIONS ON THE ABILITY TO SELL SOLECTRON COMMON STOCK RECEIVED IN THE
MERGER (SEE PAGE 68)
All shares of Solectron common stock that you receive in connection with
the merger will be freely transferable unless you are deemed to be an affiliate
of Centennial prior to the completion of the merger under the Securities Act of
1933. Shares of Solectron common stock received by Centennial's affiliates in
the merger may only be sold in compliance with Rule 145 under the Securities Act
of 1933.
LISTING OF SOLECTRON COMMON STOCK (SEE PAGE 68)
The shares of Solectron common stock issued in connection with the merger
will be listed on the New York Stock Exchange.
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SOLECTRON SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated statement of income data for each of the three
fiscal years ended August 31, 2000 and the consolidated balance sheet data as of
August 31, 2000 and 1999 set forth below, are derived from the audited
consolidated financial statements included in Solectron's Form 10-K for the year
ended August 31, 2000. The consolidated statement of income data for each of the
two fiscal years ended August 31, 1997 and the consolidated balance sheet data
as of August 31, 1998, 1997 and 1996 are derived from the unaudited selected
financial data included in Solectron's Form 10-K for the year ended August 31,
2000. The following information should be read in conjunction with Solectron's
historical consolidated financial statements, and the related notes thereto,
included in Solectron's Form 10-K for the year ended August 31, 2000 and
incorporated by reference herein.
When you read the following summary historical data, it is important that
you read it along with the historical consolidated financial statements and
related notes in Solectron's Annual Report to Stockholders and Annual Report on
Form 10-K for the fiscal year ended August 31, 2000 filed with the Securities
and Exchange Commission and incorporated by reference into this document, as
well as the section of Solectron's Annual Report entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
THREE MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------------- -------------------
2000 1999 1998 1997 1996 2000 1999
--------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net Sales................... $14,137.5 $9,669.2 $6,102.2 $4,408.5 $3,231.8 $5,695.5 $2,834.6
Operating Income............ 704.2 516.1 368.6 303.2 213.6 276.4 155.3
Income before income taxes
and cumulative effect of
change in accounting
principle................. 739.5 514.5 375.5 307.5 213.2 280.3 166.7
Net income.................. 497.2 350.3 251.3 203.7 139.6 190.6 109.8
Basic net income per
share(1).................. 0.83 0.65 0.49 0.42 0.31 0.31 0.18
Diluted net income per
share(1).................. 0.80 0.61 0.47 0.40 0.30 0.29 0.17
AS OF AUGUST 31, AS OF NOVEMBER 30,
----------------------------------------------------- --------------------
2000 1999 1998 1997 1996 2000 1999
--------- -------- -------- -------- -------- --------- --------
(IN MILLIONS)
Working capital............ $ 5,411.4 $3,162.7 $1,278.1 $1,137.5 $ 860.9 $ 8,125.6 $3,236.8
Total assets............... 10,375.6 5,420.5 2,843.7 2,209.9 1,627.9 14,026.5 5,827.3
Long-term debt............. 3,319.5 922.7 386.8 386.2 388.3 4,893.9 943.9
Stockholders' equity....... 3,802.1 3,166.9 1,475.4 1,150.2 787.8 5,151.3 3,265.6
- -------------------------
(1) All net income per share amounts have been adjusted to reflect stock splits
to date.
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CENTENNIAL SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The table below presents summary selected historical consolidated financial
data of Centennial. When you read this summary historical financial data, it is
important that you read it along with the historical consolidated financial
statements and related notes included in this document beginning on page F-1, as
well as the section entitled "Centennial Management's Discussion and Analysis of
Financial Condition and Results of Operations of Centennial" beginning on page
79 of this document. The summary selected historical consolidated financial data
of Centennial as of December 23, 1999, March 31, 1998 and 1997 and June 30,
1996, and the years ended March 31, 1997 and June 30, 1996 and for the nine
months ended March 31, 1997 and 1996 have been derived from consolidated
financial statements not included herein. Operating results for the nine months
ended December 23, 2000, are not necessarily indicative of the results that may
be expected for the entire fiscal year ending March 31, 2001.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA (IN MILLIONS, EXCEPT PER SHARE
AMOUNTS):
NINE MONTHS NINE MONTHS
ENDED YEAR ENDED
YEARS ENDED MARCH 31, MARCH 31, ENDED DECEMBER 23,
------------------------------- ---------------- JUNE 30, -------------
2000 1999 1998 1997 1997 1996 1996 2000 1999
----- ----- ------ ------ ------- ------ -------- ----- -----
Net sales.................. $35.6 $27.6 $ 28.3 $ 39.9 $ 28.3 $ 21.8 $ 33.4 $58.4 $22.9
Operating income (loss).... 2.0 1.8 (6.2) (3.1) (4.6) (3.1) (1.6) 14.0 1.6
Income (loss) before income
taxes.................... 2.8 2.9 (22.6) (42.7) (41.8) (3.3) (4.3) 12.3 2.4
Net income (loss).......... 2.7 2.8 (22.6) (42.7) (41.8) (3.3) (4.3) 11.5 2.4
Basic net income (loss) per
share.................... 0.83 0.97 (9.80) (19.90) (19.24) (2.10) (2.51) 3.55 0.76
Diluted net income (loss)
per share................ 0.76 0.96 (9.80) (19.90) (19.24) (2.10) (2.51) 2.52 0.75
CONSOLIDATED BALANCE SHEET DATA (IN MILLIONS):
AS OF
AS OF MARCH 31, AS OF JUNE 30, DECEMBER 23,
-------------------------------- -------------- --------------
2000 1999 1998 1997 1996 2000 1999
----- ----- ----- ----- -------------- ----- ------
Working capital................... $11.3 $ 7.4 $ 3.4 $ 4.6 $28.2 $24.8 $ 9.4
Total assets...................... 30.4 19.0 17.1 52.1 41.1 39.4 22.0
Stockholders' equity.............. 15.9 11.7 8.9 29.4 31.9 27.8 13.5
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COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following tables set forth certain historical per share data of
Solectron and Centennial and combined per share data on an unaudited pro forma
basis after giving effect to the merger using the purchase method of accounting,
and assuming that all of the Centennial series B convertible preferred stock is
converted into Centennial common stock and that 0.536 shares of Solectron common
stock are issued in exchange for each share of Centennial common stock in
connection with the merger. The actual exchange ratio for Centennial common
stock in the merger may be different than this assumed exchange ratio. The
following data should be read in conjunction with the separate historical
consolidated financial statements of Solectron incorporated by reference into
this document and the historical consolidated financial statements of Centennial
included in this document. The unaudited pro forma combined per share data do
not necessarily indicate the operating results that would have been achieved had
the merger been completed as of the beginning of the earliest period presented
and should not be taken as representative of future operations. The results may
have been different if the companies had always been consolidated. All per share
information has been restated, as applicable, for stock splits, as discussed in
each entity's respective consolidated financial statements and notes thereto. In
addition, Solectron's per share information represents diluted earnings per
share computed in accordance with SFAS No. 128, "Earnings Per Share", for all
periods presented. No cash dividends have ever been declared or paid on
Solectron or Centennial common stock.
SOLECTRON
---------
NET INCOME PER SHARE (DILUTED):
Year ended August 31, 2000................................ $0.80
Three months ended November 30, 2000...................... $0.29
BOOK VALUE PER SHARE(1):
August 31, 2000........................................... $6.28
November 30, 2000......................................... $8.03
CENTENNIAL
----------
NET INCOME PER SHARE (DILUTED):
Year ended March 31, 2000................................. $0.76
Nine months ended December 23, 2000....................... $2.52
BOOK VALUE PER SHARE(1):
March 31, 2000............................................ $4.99
December 23, 2000......................................... $8.51
SOLECTRON CENTENNIAL EQUIVALENT
PRO FORMA COMBINED PRO FORMA COMBINED(2)
------------------ ---------------------
NET INCOME PER SHARE (DILUTED)(3):
Year ended August 31, 2000......................... $0.80 $0.43
Three months ended November 30, 2000............... $0.29 $0.16
BOOK VALUE PER SHARE(1):
August 31, 2000.................................... $6.40 $3.43
November 30, 2000.................................. $8.14 $4.36
- -------------------------
(1) Historical book value per share is computed by dividing stockholders' equity
by the number of shares of Solectron or Centennial common stock outstanding
at the end of each period. Pro forma book value per share is computed by
dividing pro forma stockholders' equity by the pro forma number of shares of
Solectron common stock outstanding at the end of each period. Pro forma
stockholders' equity is computed using the estimated purchase price of $84
million which is based on the average closing price of Solectron's common
stock during the five trading day period ended February 22, 2001, or $31.97
per share.
(2) The Centennial equivalent pro forma combined per share amounts are
calculated by multiplying Solectron combined pro forma share amounts by the
assumed exchange ratio for Centennial common stock in the merger (i.e.,
0.536).
(3) Solectron's pro forma combined net income per share for the year ended
August 31, 2000 combines Solectron's net income for the fiscal year ended
August 31, 2000 and Centennial's net income for the twelve months ended
September 23, 2000. Solectron's pro forma combined net income per share for
the three months ended November 30, 2000 combines Solectron's net income for
the three month period ended November 30, 2000 and Centennial's net income
for the three months ended December 23, 2000.
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COMPARATIVE PER SHARE MARKET PRICE DATA
Centennial common stock is traded on the Nasdaq National Market under the
symbol "CENL." Solectron common stock is traded on the New York Stock Exchange
under the symbol "SLR."
The following table shows the high and low sale prices per share of
Centennial common stock for each of its two most recent fiscal years and the
fiscal quarters during its current fiscal year. From March 1997 until May 1998,
Centennial common stock was traded on the "pink sheets," and from May 1998 until
November 29, 2000, was traded on the Over-the-Counter Electronic Bulletin Board.
Centennial common stock has been listed on the Nasdaq National Market since
November 30, 2000. For the periods prior to being listed on the Nasdaq National
Market, the information provided in the chart was based on information reported
by certain internet-based bulletin board services purporting to monitor trading
activities. Centennial is not able to verify the accuracy or completeness of the
internet-based bulletin board information.
CENTENNIAL COMMON
STOCK PER SHARE
SALES PRICES
------------------
FISCAL QUARTERS HIGH LOW
--------------- ------- -------
1999:
First Quarter............................................. $21.00 $10.50
Second Quarter............................................ 13.50 3.50
Third Quarter............................................. 11.00 3.00
Fourth Quarter............................................ 12.00 4.50
2000:
First Quarter............................................. $ 9.36 $ 5.36
Second Quarter............................................ 9.05 4.50
Third Quarter............................................. 5.06 3.50
Fourth Quarter............................................ 12.00 4.38
2001:
First Quarter............................................. $12.00 $ 6.63
Second Quarter............................................ 19.47 7.63
Third Quarter............................................. 22.00 10.25
Fourth Quarter (through -, 2001).......................... - -
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The following table shows the closing prices per share of Centennial common
stock and Solectron common stock as reported on the Nasdaq National Market and
the New York Stock Exchange, respectively, on (1) January 22, 2001, the business
day preceding the public announcement that Solectron and Centennial had entered
into the merger agreement and (2) -, 2001, the last full trading day for which
closing prices were available at the time of the printing of this document.
The following table also includes the equivalent price per share of
Centennial common stock on those dates. This equivalent per share price reflects
the value of the Solectron common stock you would receive for each share of your
Centennial common stock if the merger was completed on any of these dates,
applying the assumed exchange ratio of 0.536 of a share of Solectron common
stock for each share of Centennial common stock.
As of -, 2001, there were approximately - stockholders of record of
Centennial who held an aggregate of - shares of Centennial common stock, and
there was one stockholder of record of Centennial who held an aggregate of
60,000 shares of Centennial series B convertible preferred stock, which were
convertible into 600,000 shares of Centennial common stock.
CENTENNIAL SOLECTRON EQUIVALENT
COMMON COMMON PRICE PER
STOCK STOCK SHARE
---------- --------- ----------
January 22, 2001............................................ $18.38 $40.74 $21.84
- -, 2001..................................................... $ - $ - $ -
BECAUSE THE MARKET PRICE OF CENTENNIAL COMMON STOCK AND SOLECTRON COMMON
STOCK MAY INCREASE OR DECREASE BEFORE THE COMPLETION OF THE MERGER, YOU ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS.
CENTENNIAL DIVIDEND POLICY
Centennial's policy has been to not pay dividends on its common stock or
its series B convertible preferred stock in order to retain earnings for
investment in Centennial's business. No cash dividends have ever been paid or
declared on the shares of Centennial common stock or its series B convertible
preferred stock. Centennial does not intend to pay cash dividends on its common
stock or series B convertible preferred stock in the foreseeable future.
Centennial's present intention is to retain its earnings to finance the growth
and development of its business. Any future payments of dividends on
Centennial's stock will be at the Centennial board's discretion and will depend
upon, among other things, Centennial's earnings, financial condition, capital
requirements, level of indebtedness and other factors that the Centennial board
of directors deems relevant.
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CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
IN THIS DOCUMENT
This document and the documents incorporated by reference into this
document contain forward-looking statements about Solectron within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and are subject to the Safe Harbor provisions created by
that statute. Statements about Solectron containing the words "believes,"
"anticipates," "estimates," "expects" and words of similar import, constitute
forward-looking statements that involve risks and uncertainties. Such statements
are based on current expectations and are subject to risk, uncertainties and
changes in condition, significance, value and effect, including those discussed
in the section entitled "Risk Factors" beginning on page 17 of this document,
and reports filed by Solectron with the Securities and Exchange Commission,
specifically forms 8-K, 10-K, 10-Q, S-3, S-4 and S-8. Such risks, uncertainties
and changes in condition, significance, value and effect could cause Solectron's
actual results to differ materially from those anticipated events. In evaluating
the merger agreement and the merger, you should carefully consider the
discussion of risks and uncertainties discussed in the section entitled "Risk
Factors" beginning on page 17 of this document.
This document and the documents incorporated by reference into this
document also contain forward-looking statements about Centennial, Centennial's
financial condition, plans, objectives, future performance, results of
operations and business which are subject to the Safe Harbor provisions created
by the Securities Exchange Act of 1934. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," "will," "may," "should,"
"would," "projects," "predicts," "continues" and similar expressions or the
negative of these terms identify these forward-looking statements. This document
also includes forward-looking statements about the consummation and anticipated
timing of the merger, the actual exchange ratio for Centennial common stock in
the merger and the tax-free nature of the merger.
Although Centennial believes that its plans, intentions and expectations as
reflected in or suggested by these forward-looking statements are reasonable, it
can give no assurance that the plans, intentions or expectations will be
achieved. Centennial stockholders are cautioned that all forward-looking
statements involve risks and uncertainties and actual results may differ
materially from those discussed as a result of various risk factors described in
the section entitled "Risk Factors -- Risks Related to Centennial" beginning on
page 27 of this document. Listed below and discussed elsewhere in this document
are some important risks, uncertainties and contingencies which could cause
Centennial's actual results, performances or achievements to be materially
different from the forward-looking statements made in this document,
particularly if the merger with Solectron is not completed. These risks,
uncertainties and contingencies include, but are not limited to, the following:
- anticipated revenues and expenses;
- possible price competition and erosion;
- expansion into new markets;
- future sales mix;
- future supply of raw materials;
- gross margins;
- raw material inventory procurement practices;
- customers;
- future developments involving certain investments;
- future availability of financings; and
- the receipt of stockholder and other approvals of the merger with
Solectron.
In addition, events may occur in the future that Centennial is not able to
accurately predict or control and that may cause actual results to differ
materially from the expectations described in these forward-looking statements.
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Readers should not place undue reliance on Centennial's forward-looking
statements contained in this document. These forward-looking statements speak
only as of the date on which the statements were made. In evaluating
forward-looking statements, you should consider these risks and uncertainties,
together with the other risks described from time to time in Centennial's
reports and documents filed with the Securities and Exchange Commission.
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RISK FACTORS
By voting in favor of the adoption and approval of the merger agreement and
the approval of the merger, you will be choosing to invest in Solectron common
stock. An investment in Solectron common stock involves a high degree of risk.
In addition to the other information contained in or incorporated by reference
into this document, you should carefully consider the following risk factors in
deciding whether to vote in favor of adoption and approval of the merger
agreement and approval of the merger. In addition, you should keep the following
risk factors in mind when you read forward-looking statements in this document.
Please refer to the section entitled "Cautionary Statements Regarding
Forward-Looking Statements in this Document" beginning on page 15 of this
document.
RISKS RELATED TO THE MERGER
SOLECTRON MAY NOT REALIZE THE EXPECTED BENEFITS OF THE MERGER DUE TO
DIFFICULTIES INTEGRATING THE BUSINESSES, OPERATIONS AND PRODUCT LINES OF
SOLECTRON AND CENTENNIAL.
Solectron's ability to achieve the benefits of the merger will depend in
part on the integration of technology, operations and personnel of Solectron and
Centennial. The integration process will be a complex, time-consuming and
expensive process and may disrupt Solectron's business if not completed in a
timely and efficient manner. The challenges involved in this integration include
the following:
- demonstrating to the combined company's customers and suppliers that the
merger will not result in adverse changes in client service standards or
business focus;
- persuading Solectron's employees that Solectron's and Centennial's
business cultures are compatible; and
- addressing any perceived adverse changes in business focus.
Solectron may have difficulty successfully integrating the businesses,
operations or product lines of Solectron and Centennial, and as a result,
Solectron may not realize any of the anticipated benefits of the merger.
Additionally, neither Solectron nor Centennial can assure that the growth rate
of the combined company will equal the growth rate that has been experienced by
Solectron and Centennial in the past.
IF YOU ARE A HOLDER OF CENTENNIAL COMMON STOCK, YOU WILL RECEIVE A FIXED
NUMBER OF SHARES OF SOLECTRON COMMON STOCK IN EXCHANGE FOR EACH OF YOUR SHARES
OF CENTENNIAL COMMON STOCK, REGARDLESS OF ANY CHANGES IN MARKET VALUE OF
SOLECTRON COMMON STOCK OR CENTENNIAL COMMON STOCK.
Upon completion of the merger, each share of Centennial common stock will
be converted into the right to receive shares of Solectron common stock based
upon an exchange ratio to be determined at the completion of the merger. Based
on the number of outstanding shares of Centennial common stock and options to
purchase Centennial common stock on the date of this document, and assuming that
all outstanding shares of Centennial series B convertible preferred stock are
converted into Centennial common stock prior to the merger, each outstanding
share of Centennial common stock would be converted into the right to receive
approximately 0.536 shares of Solectron common stock pursuant to the merger
agreement. There will be no adjustment to the exchange ratio for Centennial
common stock in the merger as a result of changes in the market price of either
Solectron common stock or Centennial common stock, and Centennial is not
permitted to withdraw from the merger solely because of changes in the market
price of Solectron common stock or Centennial common stock. Accordingly, the
dollar value of Solectron common stock you will receive upon completion of the
merger will depend on the market value of Solectron common stock at the time of
the merger, which may be different than the market value of Solectron common
stock on January 22, 2001 (the business day preceding the public announcement
that Solectron and Centennial had entered into the merger agreement), or -, 2001
(the last full trading day for which closing prices were available at the time
of the printing of this document). In addition, the merger may not be completed
immediately following the Centennial special meeting at which the merger
agreement and the merger are presented and voted upon, if all regulatory
approvals have not yet been obtained or if other conditions to the merger have
not been satisfied or waived. We cannot assure you that the value of the
Solectron common stock you will receive in the merger will not decline prior to
the
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merger. Because the market price of Solectron common stock and Centennial common
stock may increase or decrease before the completion of the merger, you are
urged to obtain current market quotations.
CUSTOMER AND EMPLOYEE UNCERTAINTY ABOUT THE MERGER COULD HARM THE COMBINED
COMPANY.
Solectron's and Centennial's customers may, in response to the announcement
or consummation of the merger, delay or defer purchasing decisions. Any delay or
deferral in purchasing decisions by our customers could adversely affect the
business of the combined company. Similarly, Centennial's employees may
experience uncertainty about their future role with the combined company until
or after Solectron announces and executes its strategies with regard to
Centennial employees. This may adversely affect the combined company's ability
to attract and retain key Centennial management, marketing and technical
personnel.
PURCHASE ACCOUNTING TREATMENT AND THE IMPACT OF AMORTIZATION OF GOODWILL AND
OTHER INTANGIBLES RELATING TO THE MERGER COULD ADVERSELY AFFECT SOLECTRON'S
OPERATING RESULTS.
Under United States generally accepted accounting principles that apply to
Solectron, Solectron will account for the merger using the purchase method of
accounting. Under purchase accounting, Solectron will record the following as
the cost of acquiring the business of Centennial:
(1) the market value of Solectron common stock issued in connection with
the merger;
(2) the fair value of the options reserved, using the Black-Scholes model,
to purchase Centennial common stock that will be converted into options
to purchase Solectron common stock in connection with the merger; and
(3) the amount of direct transaction costs.
Solectron will allocate the cost of the items described in (1) and (2)
above to the individual assets acquired and liabilities assumed, including
intangible assets such as acquired technology, based on their respective fair
values. Intangible assets, including goodwill, generally will be amortized over
a ten-year period. Solectron will capitalize and amortize the direct transaction
costs over a five-year period. The amount of purchase cost allocated to goodwill
and other intangibles is estimated to be approximately $60 million computed
using the estimated purchase price of $84 million which is based on the average
closing price of Solectron's common stock during the five trading day period
ended February 22, 2001, or $31.97 per share. If goodwill and other intangible
assets were amortized in equal quarterly amounts over a ten-year period
following the completion of the merger, the accounting charge attributable to
these items would be approximately $1.5 million per quarter and $6 million per
fiscal year. As a result, purchase accounting treatment of the merger will
decrease the net income of Solectron in the foreseeable future, which could have
a material and adverse effect on the market value of Solectron common stock
following the completion of the merger. These amounts are only estimates,
however, and actual amounts may differ from these estimates.
SOLECTRON AND CENTENNIAL EXPECT TO INCUR SIGNIFICANT COSTS ASSOCIATED WITH THE
MERGER.
Solectron estimates that it will incur direct transaction costs of
approximately $450,000 associated with the merger, which will be included as a
part of the total purchase cost for accounting purposes. In addition, Centennial
estimates that it will incur direct transaction costs of approximately $1
million (plus fees and other expenses payable to H.C. Wainwright & Co., Inc. in
connection with the merger as described in the section entitled "The Merger and
Related Transactions -- Consideration of the Merger by Centennial's Board of
Directors -- Opinion of Centennial's Financial Advisor" beginning on page 44 of
this document). Solectron intends to capitalize and amortize its costs over a
five-year period. Solectron believes the combined company may incur charges to
operations, which are not currently reasonably estimable, in the quarter in
which the merger is completed or the following quarters, to reflect costs
associated with integrating the businesses and operations of Solectron and
Centennial. There can be no assurance that the combined company will not incur
additional material charges in subsequent quarters to reflect additional costs
associated with the merger.
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THE PRICE OF SOLECTRON COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM
THOSE AFFECTING THE PRICE OF CENTENNIAL COMMON STOCK.
When the merger is completed, holders of Centennial common stock will
become holders of Solectron common stock. Solectron's business differs from that
of Centennial, and Solectron's results of operations, as well as the price of
Solectron common stock, may be affected by factors that are different from those
affecting Centennial's results of operations and the price of Centennial common
stock.
SOLECTRON AND CENTENNIAL MAY BE UNABLE TO OBTAIN THE REQUIRED REGULATORY
APPROVALS THAT ARE NECESSARY TO COMPLETE THE MERGER.
The merger is subject to United Stated antitrust laws. Solectron and
Centennial have made required filings under the Hart-Scott-Rodino Antitrust
Improvements Act with the Department of Justice and the Federal Trade
Commission, and received early termination of the mandatory waiting period under
that statute on February 13, 2001. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act was terminated without materially
adverse restrictions or conditions that would have an adverse effect on the
combined company. The merger is also subject to some foreign antitrust laws, and
it is a condition to the completion of the merger that Solectron and Centennial
obtain all requisite approvals under material foreign antitrust laws. Solectron
and Centennial intend to make required filings under these foreign antitrust
laws. The combined company may be required to agree to various operating
restrictions, before or after receipt of stockholder approval, in order to
obtain the necessary approvals of the merger under foreign antitrust laws, or to
assure that foreign governmental authorities do not seek to block the merger. No
additional stockholder approval is expected to be required or sought for any
decision by Solectron or Centennial, after the special meeting of Centennial's
stockholders, to agree to any terms and conditions necessary to resolve any
foreign regulatory objections to the merger, and stockholder approval will not
be sought unless such stockholder approval is required to approve such terms and
conditions under applicable foreign law. Notwithstanding any agreements
regarding operating restrictions that may be required under applicable foreign
law or by foreign authorities, under the terms of the merger agreement,
Solectron is not required to agree to any divestiture of capital stock or of any
business, assets or property of Solectron or its subsidiaries or affiliates
(including Centennial and its affiliates), or the imposition of any material
limitation on the ability of any of these parties to conduct their businesses or
to own or exercise control of capital stock, business, assets or property. Even
if foreign regulatory approvals are obtained, any federal, state or foreign
governmental entity or any private person may challenge the merger at any time
before or after its completion.
IF THE MERGER IS NOT COMPLETED, CENTENNIAL'S STOCK PRICES AND FUTURE BUSINESS
AND OPERATIONS COULD BE ADVERSELY AFFECTED.
If the merger is not completed, Centennial may be subject to the following
material risks, among others:
- Centennial may be required to pay Solectron a termination fee of
$4,825,000;
- the price of Centennial common stock may decline to the extent that the
current market prices of Centennial common stock reflects a market
assumption that the merger will be completed; and
- Centennial's costs related to the merger, such as legal, accounting and
some of the fees of Centennial's financial advisor, must be paid even if
the merger is not completed.
Further, if the merger agreement is terminated and the Centennial board of
directors determines to seek another merger or business combination, Centennial
may not be able to find a partner willing to pay an equivalent or more
attractive price than that which would be paid in the merger.
THE TERMINATION FEE AND THE RESTRICTIONS ON SOLICITATION CONTAINED IN THE
MERGER AGREEMENT MAY DISCOURAGE OTHER COMPANIES FROM TRYING TO ACQUIRE
CENTENNIAL.
Until the completion of the merger, and with some exceptions, Centennial is
prohibited from initiating or engaging in discussions with a third party
regarding some types of extraordinary transactions, such as a merger, business
combination or sale of a material amount of assets or capital stock. In
addition,
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26
Centennial agreed to pay a termination fee to Solectron in specified
circumstances. These provisions could discourage other companies from trying to
acquire Centennial even though those other companies might be willing to offer
greater value to Centennial stockholders than Solectron has offered in the
merger. The payment of the termination fee could also have a material adverse
effect on Centennial's financial condition.
CENTENNIAL DIRECTORS AND EXECUTIVE OFFICERS HAVE SPECIAL INTERESTS IN THE
MERGER THAT MAY INFLUENCE THEM TO SUPPORT AND APPROVE THE MERGER.
The directors and executive officers of Centennial have interests in the
merger that are in addition to, or different than, their interests as Centennial
stockholders. These interests include the following:
- the accelerated vesting of stock options upon completion of the merger
and the ability of certain officers of Centennial to receive compensation
for any excise taxes payable as a result of this acceleration;
- the receipt of severance benefits under employment, severance and
retention agreements in the event that the employment of any of
Centennial's officers with Solectron is terminated following the
completion of the merger; and
- the receipt of indemnification and insurance coverage with respect to
acts taken and omissions to take action in their capacities as directors
and officers of Centennial.
The Centennial board of directors was aware of these interests when it
approved the merger agreement and the merger. For a more detailed description of
these interests, see "The Merger and Related Transactions -- Consideration of
the Merger by Centennial's Board of Directors -- Interests of Centennial's
Directors and Officers in the Merger" beginning on page 50 of this document.
RISKS RELATED TO SOLECTRON
MOST OF SOLECTRON'S NET SALES COMES FROM A SMALL NUMBER OF CUSTOMERS; IF
SOLECTRON LOSES ANY OF THESE CUSTOMERS, ITS NET SALES COULD DECLINE
SIGNIFICANTLY.
Most of Solectron's annual net sales come from a small number of its
customers. Solectron's 10 largest customers accounted for approximately 78% of
net sales in the first quarter of fiscal 2001 and approximately 69% of net sales
in the same period of fiscal 2000. Since Solectron depends on continued net
sales from its 10 largest customers, any material delay, cancellation or
reduction of orders from these or other major customers could cause its net
sales to decline significantly. Some of these customers individually account for
more than 10 percent of Solectron's annual net sales. Solectron cannot guarantee
that it will be able to retain any of its 10 largest customers or any other
accounts. In addition, Solectron's customers may materially reduce the level of
services ordered from it at any time. This could cause a significant decline in
Solectron's net sales and it may not be able to reduce the accompanying expenses
at the same time. Moreover, Solectron's business, financial condition and
results of operations will continue to depend significantly on its ability to
obtain orders from new customers, as well as on the financial condition and
success of its customers. Therefore, any adverse factors affecting any of
Solectron's customers or their customers could have a material adverse effect on
its business, financial condition and results of operations.
SOLECTRON'S LONG-TERM CONTRACTS DO NOT INCLUDE MINIMUM PURCHASE REQUIREMENTS.
Although Solectron has long-term contracts with a few of its top 10
customers, including Ericsson, IBM and Nortel, under which these customers are
obligated to obtain services from Solectron, not all of them are obligated to
purchase any minimum amount of services. As a result, Solectron cannot guarantee
that it will receive any net sales from these contracts. In addition, customers
with whom Solectron has long-term contracts may materially reduce the level of
services ordered at any time. This could cause a significant decline in
Solectron's net sales, and it may not be able to reduce its accompanying
expenses at the same time.
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POSSIBLE FLUCTUATION OF OPERATING RESULTS FROM QUARTER TO QUARTER COULD AFFECT
THE MARKET PRICE OF SOLECTRON'S COMMON STOCK.
Solectron's quarterly earnings may fluctuate in the future due to a number
of factors including the following:
- differences in the profitability of the types of manufacturing services
Solectron provides. For example, high-volume and low-complexity systems
assembly services have lower gross margins than low-volume,
high-complexity PCB assembly services;
- Solectron's ability to maximize the use of its equipment and facilities
depends on the duration of the production run time for each job and
customer;
- the amount of automation Solectron can use in the manufacturing process
for cost reduction varies, depending upon the complexity of the product
being made;
- Solectron's ability to optimize the ordering of inventory as to timing
and amount to avoid holding inventory in excess of immediate production
needs;
- fluctuations in demand for Solectron's services or the products being
manufactured;
- fluctuations in the availability and pricing of components;
- timing of expenditures in anticipation of increased sales;
- cyclicality in Solectron's target markets; and
- expenses associated with acquisitions.
Therefore, Solectron's operating results in the future could be below the
expectations of securities analysts and investors. If this occurs, the market
price of Solectron's common stock could be harmed.
SOLECTRON DEPENDS UPON THE ELECTRONICS INDUSTRY, WHICH CONTINUALLY PRODUCES
TECHNOLOGICALLY ADVANCED PRODUCTS WITH SHORT LIFE CYCLES. SOLECTRON'S INABILITY
TO CONTINUALLY MANUFACTURE SUCH PRODUCTS COST EFFECTIVELY WOULD HARM ITS
BUSINESS.
Most of Solectron's net sales are to companies in the electronics industry,
which is subject to rapid technological change and product obsolescence. If
Solectron's customers are unable to create products that keep pace with the
changing technological environment, its customers' products could become
obsolete and the demand for its services could decline significantly. If
Solectron is unable to offer technologically advanced, cost-effective,
quick-response manufacturing services to customers, demand for its services
would also decline. In addition, a substantial portion of Solectron's net sales
are derived from its ability to offer complete service solutions for its
customers. For example, if Solectron fails to maintain high-quality design and
engineering services, its net sales would significantly decline.
For Solectron's technology solutions business, Solectron has experienced,
and may in the future experience, delays from time to time in the development
and introduction of new products. Moreover, Solectron cannot ensure that it will
be successful in selecting, developing, manufacturing and marketing new products
or enhancements. Solectron cannot ensure that defects or errors will not be
found in its products after commencement of commercial shipments, which could
delay the market acceptance of those products. The inability to introduce new
products or enhancements could harm Solectron's business, financial condition
and results of operations.
SOLECTRON DEPENDS ON A LIMITED OR SOLE SOURCE OF SUPPLIERS FOR CRITICAL
COMPONENTS. THE INABILITY TO OBTAIN SUFFICIENT COMPONENTS AS REQUIRED WOULD
CAUSE SALES REDUCTIONS.
Solectron is dependent on certain suppliers, including limited and sole
source suppliers, to provide key components used in its products. Solectron has
experienced and may continue to experience delays in component deliveries, which
could cause delays in product shipments and require the redesign of certain
products. Also, for Solectron's technology solutions business, Solectron depends
on certain limited or sole source suppliers for critical components used for its
memory module, communications card and embedded computer products. The
electronics industry has experienced in the past, and may experience in the
future, shortages in semiconductor devices, including DRAM, SRAM, flash memory,
tantalum capacitors and
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other commodities that may be caused by such conditions as overall market demand
surges or supplier production capacity constraints. Except for certain commodity
parts, Solectron generally has no written agreements with its suppliers.
Solectron cannot ensure that it will receive adequate component supplies on a
timely basis in the future. The inability to continue to obtain sufficient
components as required, or to develop alternative sources as required, could
cause delays, disruptions or reductions in product shipments or require product
redesigns, which could damage relationships with current or prospective
customers, thereby causing sales reductions.
SOLECTRON POTENTIALLY BEARS THE RISK OF PRICE INCREASES ASSOCIATED WITH
POTENTIAL SHORTAGES IN THE AVAILABILITY OF ELECTRONICS COMPONENTS.
At various times, there have been shortages of components in the
electronics industry. One of the services that Solectron performs for many
customers is purchasing electronics components used in the manufacturing of the
customers' products. As a result of this service, Solectron potentially bears
the risk of price increases for these components if Solectron is unable to
purchase components at the pricing level anticipated to support the margins
assumed in its agreements with its customers.
SOLECTRON'S NET SALES COULD DECLINE IF ITS COMPETITORS PROVIDE COMPARABLE
MANUFACTURING SERVICES AND IMPROVED PRODUCTS AT A LOWER COST.
Solectron competes with different contract manufacturers, depending on the
type of service it provides or the location of its operations. The memory
module, communications card and embedded computer subsystem industries are
intensely competitive. Competitors may have greater manufacturing, financial,
R&D and/or marketing resources than Solectron has. In addition, Solectron may
not be able to offer prices as low as some of its competitors because those
competitors may have lower cost structures as a result of their geographic
location or the services they provide. Solectron's inability to provide
comparable or better manufacturing services at a lower cost than its competitors
could cause its net sales to decline. Solectron also expects its competitors to
continue to improve the performance of their current products or services, to
reduce their current products or service sales prices and to introduce new
products or services that may offer greater performance and improved pricing.
Any of these could cause a decline in sales, loss of market acceptance of our
products or services, or profit margin erosion.
SOLECTRON DEPENDS ON THE MEMORY MODULE PRODUCT MARKET.
Most of Solectron's technology solutions net sales are derived from memory
products. The market for these products is characterized by frequent transitions
in which products rapidly incorporate new features and performance standards. A
failure to develop products with required feature sets or performance standards
or a delay as short as a few months in bringing a new product to market could
reduce Solectron's net sales which may have a material adverse effect on its
business, financial condition and results of operations. In addition, the market
for semiconductor memory devices has been cyclical. The industry has experienced
significant economic downturns at various times, characterized by diminished
product demand, excess production, and accelerated erosion of average selling
prices. In the past, there have been significant declines in the prices for
DRAM, SRAM and flash memory. Similar occurrences in the future would reduce
Solectron's revenue and resulting profits.
SOLECTRON DEPENDS ON THE CONTINUING TREND OF OEMS TO OUTSOURCE.
A substantial factor in Solectron's revenue growth is attributable to the
transfer of manufacturing and supply base management activities from its OEM
customers. Future growth depends partially on new outsourcing opportunities. To
the extent that these opportunities are not available, Solectron's future growth
could be unfavorably impacted. These outsourcing opportunities may include the
transfer of assets such as facilities, equipment and inventory.
IF SOLECTRON IS UNABLE TO MANAGE ITS RAPID GROWTH AND ASSIMILATE NEW
OPERATIONS COST EFFECTIVELY, ITS PROFITABILITY COULD DECLINE.
Solectron has experienced rapid growth over many years. Solectron's
historical growth may not continue. In recent years Solectron has established
operations throughout the world. For example, in fiscal
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1998, Solectron opened offices in Taipei, Taiwan; Norrkoping and Stockholm,
Sweden; and commenced manufacturing operations in Guadalajara, Mexico; Suzhou,
China; and Timisoara, Romania. Also in fiscal 1998, Solectron acquired
facilities in Sao Paulo, Brazil and Dublin, Ireland. Furthermore, through
acquisitions in fiscal 1998 and 1999, Solectron added facilities in Columbia,
South Carolina; Memphis, Tennessee; and enhanced its capabilities in Charlotte,
North Carolina; Austin, Texas; and Milpitas, California.
In fiscal 2000, Solectron completed acquisitions of AMERICOM, SMART and
Bluegum Group, each of which was accounted for as a pooling of interests.
Through these and additional acquisitions, Solectron also acquired facilities in
Aguadilla, Puerto Rico; Monterrey, Mexico; Calgary, Canada; Longuenesse, France;
Ostersund, Sweden; Cwmcarn, Wales; Pont de Buis and Douarnenez, France;
Monkstown, Northern Ireland; and Liverpool, Wangaratta, Melbourne, Sydney and
North Melbourne, Australia.
On October 18, 2000 Solectron signed a definitive agreement to acquire
certain assets associated with two Sony manufacturing facilities, Sony Nakaniida
Corporation in Miyagi, Japan and Sony Industries Taiwan in Kaohsiung, Taiwan. As
of February 2, 2001, Solectron completed the acquisition of Sony Corporation's
facilities in Miyagi, Japan and Kaohsiung, Taiwan. On October 31, 2000,
Solectron signed a definitive agreement to commence an offer to purchase all
outstanding shares of NatSteel Electronics Limited or NEL. Solectron's tender
offer to acquire all of NEL's shares and bonds closed on January 5, 2001, with
tendered shares of 99 percent of the issued share capital of NEL and tendered
bonds of 99 percent of outstanding principal amount of bonds. Solectron acquired
the remaining shares of NEL through a compulsory acquisition under Singapore
law. As a result, NEL became a wholly owned subsidiary of Solectron.
Solectron's expansion and growth places a heavy strain on its personnel and
management, manufacturing and other resources. Solectron's ability to manage the
expansion to date, as well as any future expansion, will require progressive
increases in manufacturing capacity, enhancements or upgrades of accounting and
other internal management systems, and implementation of various procedures and
controls. Solectron cannot ensure that significant problems in these areas will
not occur. Any failure to enhance or expand these systems and implement such
procedures and controls in an efficient manner and at a pace consistent with its
business activities could harm its financial condition and results of
operations. Also, in order to achieve anticipated revenue and other financial
performance targets, Solectron will continue to be required to manage its assets
and operations efficiently. In addition, should Solectron continue to expand
geographically, it may experience certain inefficiencies from the management of
geographically dispersed facilities.
As Solectron manages and continues to expand new operations, it may incur
substantial infrastructure and working capital costs. If Solectron does not
achieve sufficient growth to offset increased expenses associated with rapid
expansion, its profitability would decline.
SOLECTRON NEEDS TO SUCCESSFULLY INTEGRATE ITS ACQUISITIONS TO MAINTAIN
PROFITABILITY.
Solectron expands its operations through acquisitions and continues to
evaluate acquisition opportunities. These acquisitions involve risks, including:
- integration and management of the operations;
- retention of key personnel;
- integration of purchasing operations and information systems;
- retention of the customer base of acquired businesses;
- management of an increasingly larger and more geographically diverse
business; and
- diversion of management's attention from other ongoing business concerns.
Solectron's profitability will suffer if it is unable to successfully
integrate and manage recent acquisitions and pending acquisitions including, in
particular, the NEL transaction, as well as any future acquisitions that it
might pursue, or if it does not achieve sufficient revenue to offset the
increased expenses associated with these acquisitions.
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SOLECTRON'S NON-U.S. LOCATIONS REPRESENT A SIGNIFICANT AND GROWING PORTION OF
ITS NET SALES. SOLECTRON IS INCREASINGLY EXPOSED TO RISKS ASSOCIATED WITH
OPERATING INTERNATIONALLY.
In the first quarter of fiscal 2001, approximately 45% of Solectron's net
sales came from sites outside the United States, while approximately 37% of its
net sales came from sites outside the United States in the same period of fiscal
2000. As a result of Solectron's foreign sales and facilities, its operations
are subject to a variety of risks unique to international operations, including
the following:
- adverse movement of foreign currencies against the U.S. dollar in which
Solectron's results are reported;
- import and export duties, and value added taxes;
- import and export regulation changes that could erode its profit margins
or restrict exports;
- potential restrictions on the transfer of funds;
- inflexible employee contracts in the event of business downturns; and
- the burden and cost of complying with foreign laws.
In addition, Solectron has operations in several emerging or developing
economies that have a potential for higher risk. The risks associated with these
economies include but are not limited to currency volatility and other economic
or political risks. In the future, these factors may harm Solectron's results of
operations. Solectron's locations in emerging or developing economies include
Mexico, Brazil, China, Malaysia and Romania. As of November 30, 2000, Solectron
recorded $163.9 million in cumulative foreign exchange translation losses on its
balance sheet, primarily due to the devaluation of the Brazilian real. While, to
date, these factors have not had a significant adverse impact on Solectron's
results of operations, Solectron cannot ensure that there will not be such an
impact. Furthermore, while Solectron may adopt measures to reduce the impact of
losses resulting from volatile currencies and other risks of doing business
abroad, it cannot ensure that such measures will be adequate.
The Malaysian government adopted currency exchange controls, including
controls on its currency, the ringgit, held outside Malaysia, and established a
fixed exchange rate for the ringgit against the U.S. dollar. The fixed exchange
rate provides a stable rate environment when applied to local expenses
denominated in ringgit. The long-term impact of such controls is not predictable
due to dynamic economic conditions that also affect or are affected by other
regional or global economies.
NEL currently benefits from tax holidays in Singapore and Indonesia. It is
possible that these tax holidays will be terminated or modified or that future
tax holidays will not be granted, in each case as a result of the acquisition
transaction or otherwise, and that the effective income tax rate for NEL's
business would likely increase as a result thereof.
Solectron has been granted a tax holiday effective through January 31,
2002, subject to some conditions, for its Malaysian sites. Solectron has also
been granted various tax holidays in China. These tax holidays are effective for
various terms and are subject to some conditions. It is possible that the
current tax holidays will be terminated or modified or that future tax holidays
that Solectron may seek will not be granted. If the current tax holidays are
terminated or modified, or if additional tax holidays are not granted in the
future, Solectron's effective income tax rate would likely increase.
SOLECTRON IS EXPOSED TO FLUCTUATIONS IN FOREIGN CURRENCY EXCHANGE RATES.
Solectron does not use derivative financial instruments for speculative
purposes. Solectron's policy is to hedge its foreign currency denominated
transactions in a manner that substantially offsets the effects of changes in
foreign currency exchange rates. Presently, Solectron uses foreign currency
borrowings and foreign currency forward contracts to hedge only those currency
exposures associated with certain assets and liabilities denominated in
non-functional currencies. Corresponding gains and losses on the underlying
transaction generally offset the gains and losses on these foreign currency
hedges.
As of November 30, 2000, the majority of Solectron's foreign currency
hedging contracts were scheduled to mature in less than three months and there
were no material deferred gains or losses. In addition, Solectron's
international operations in some instances act as a natural hedge because both
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operating expenses and a portion of sales are denominated in local currency. In
these instances, including Solectron's current experience involving the
devaluation of the Brazilian real, although an unfavorable change in the
exchange rate of a foreign currency against the U.S. dollar would result in
lower sales when translated to U.S. dollars, operating expenses would also be
lower in these circumstances. Also, since less than 14% of Solectron's net sales
are denominated in currencies other than U.S. dollar, Solectron does not believe
its total exposure is significant.
Solectron has currency exposures arising from both sales and purchases
denominated in currencies other than the functional currency of our sites.
Fluctuations in the rate of exchange between the currency of the exposure and
the functional currency of Solectron's site could seriously harm Solectron's
business, operating results and financial condition. For example, an increase in
the rate at which a foreign currency is exchanged for U.S. dollars would require
more of the foreign currency to equal a specified amount of U.S. dollars than
before the rate increase. In such cases, and if Solectron prices its products
and services in the foreign currency, Solectron would receive less in U.S.
dollars than it did before the rate increase went into effect. If Solectron
prices its products and services in U.S. dollars and competitors price their
products in local currency, an increase in the relative strength of the U.S.
dollar could result in Solectron's prices being uncompetitive in markets where
business is transacted in the local currency.
SOLECTRON IS EXPOSED TO INTEREST RATE FLUCTUATIONS.
The primary objective of Solectron's investment activities is to preserve
principal and at the same time, maximize yields without significantly increasing
risk. To achieve this objective, Solectron maintains its portfolio of cash
equivalents and short-term investments in a variety of securities, including
both government and corporate obligations, certificates of deposit and money
market funds. As of November 30, 2000, approximately 97% of Solectron's total
portfolio was scheduled to mature in less than six months. In addition,
Solectron's investments are diversified and of relatively short maturity.
The following table presents the amounts of Solectron's cash equivalents
and short-term investments that are subject to interest rate risk by calendar
year of expected maturity and weighted average interest rates as of November 30,
2000:
EXPECTED MATURITY
----------------------------------------
FAIR
2001 2002 TOTAL VALUE
-------- ---- -------- --------
(AMOUNTS IN MILLIONS)
Cash equivalents and short-term investments.......... $3,876.4 $9.7 $3,886.1 $3,886.1
Average interest rate................................ 6.48% 6.64%
Solectron has entered into an interest rate swap transaction under which it
pays a fixed rate of interest hedging against the variable interest rates
implicit in the rent charged by the lessor for the facility lease at Milpitas,
California. The interest rate swap expires in the year 2002, which coincides
with the maturity date of the lease term. As Solectron intends to hold the
interest rate swap until the maturity date, Solectron is not subject to market
risk. In fact, such interest rate swap has fixed the interest rate for the
facility lease, thus reducing interest rate risk.
Solectron's long-term debt instruments are subject to fixed interest rates.
In addition, the amount of principal to be repaid at maturity is also fixed. In
the case of the convertible notes, such notes are based on fixed conversion
ratios into common stock. Therefore, Solectron is not exposed to variable
interest rates related to its long-term debt instruments.
SOLECTRON MAY NOT BE ABLE TO ADEQUATELY PROTECT OR ENFORCE ITS INTELLECTUAL
PROPERTY RIGHTS, AND SOLECTRON COULD BECOME INVOLVED IN INTELLECTUAL PROPERTY
DISPUTES.
Solectron's ability to effectively compete may be affected by its ability
to protect its proprietary information. Solectron holds a number of patents and
other license rights. These patent and license rights may not provide meaningful
protection for its manufacturing processes and equipment innovations. On June
23, 1999, Solectron was served, along with 87 other companies including SMART
Modular Technologies, Inc., now a wholly owned subsidiary of Solectron, as a
defendant in a lawsuit brought by the
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Lemelson Medical, Education & Research Foundation. The lawsuit alleges that
Solectron and/or SMART has infringed certain of the plaintiff's patents relating
to LOCOS, beam processing, machine vision and bar-code technology. Solectron and
SMART believe they have meritorious defenses to these allegations and do not
expect this litigation to materially impact Solectron's financial condition or
results of operations. In the semiconductor, computer, telecommunications and
networking industries, companies receive notices from time to time alleging
infringement of patents, copyrights or other intellectual property rights, and
litigation sometimes arises out of such notices. For example, in January 2000,
SMART filed a lawsuit seeking to have declared invalid, and/or not infringed,
three patents purportedly applicable to industry standard memory products,
including those manufactured by SMART and the other manufacturers of these
industry standard memory products. The owner of these patents brought a
cross-complaint alleging patent infringement against SMART, and has also brought
suit against several other memory product manufacturers alleging infringement of
the three patents. Solectron and SMART believe that SMART's memory products do
not infringe any valid claims of any of the three patents at issue. Moreover,
Solectron has been and may from time to time continue to be notified of claims
that it may be infringing patents, copyrights or other intellectual property
rights owned by other third parties. The current litigation or any other
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on Solectron's business financial condition
and results of operations.
In the future, third parties may assert infringement claims against
Solectron or its customers. In the event of an infringement claim, Solectron may
be required to spend a significant amount of money to develop a non-infringing
alternative or to obtain licenses. Solectron may not be successful in developing
such an alternative or obtaining a license on reasonable terms, if at all. In
addition, defending against any such litigation could be lengthy and costly and
could harm Solectron's business, financial condition and results of operations.
FAILURE TO COMPLY WITH ENVIRONMENTAL REGULATIONS COULD HARM SOLECTRON'S
BUSINESS.
As a company in the electronics manufacturing services industry, Solectron
is subject to a variety of environmental regulations relating to the use,
storage, discharge and disposal of hazardous chemicals used during its
manufacturing processes. Although Solectron has never sustained any significant
loss as a result of non-compliance with such regulations, any failure by
Solectron to comply with environmental laws and regulations could result in
liabilities or the suspension of production. In addition, these laws and
regulations could restrict Solectron's ability to expand its facilities or
require Solectron to acquire costly equipment or incur other significant costs
to comply with such laws and regulations.
SOLECTRON'S ADMINISTRATIVE FACILITIES AND PRINCIPAL BUSINESS OPERATIONS ARE
LOCATED IN CALIFORNIA, AND ANY DISRUPTION IN THE AVAILABLE POWER SUPPLY IN
CALIFORNIA COULD DISRUPT ITS OPERATIONS, REDUCE ITS REVENUES, AND INCREASE ITS
EXPENSES.
The State of California is in the midst of an energy crisis that could
interrupt Solectron's power supply or that of its third-party service providers
and thereby disrupt Solectron's operations, reduce its revenues, and increase
its expenses. A substantial portion of Solectron's operating activities and
facilities, including its headquarters and principal administrative facilities,
are located in California. During acute power shortages, California has
implemented, and may in the future continue to implement, rolling blackouts
throughout the state. The rolling blackouts that have occurred to date have not
materially disrupted the operations of Solectron's facilities. Should these
blackouts continue or increase in severity, however, they could materially
disrupt the operations of one or more of Solectron's facilities. Although
Solectron currently does not have backup generators or long-term alternate
sources of power in the event of a blackout, Solectron does have some
flexibility to shift some manufacturing volume to other manufacturing sites
around the world. If blackouts interrupt Solectron's power supply, it would be
temporarily unable to continue operations at its facilities. Solectron's current
insurance does not provide coverage for any damages Solectron or its customers
may suffer as a result of any interruption in its power supply. Consequently,
any interruption in Solectron's ability to continue operations at its facilities
could damage its reputation, harm its ability to retain existing customers and
to obtain new customers, and could result in lost revenue, any of which could
substantially harm Solectron's business and results of operations.
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In addition, the utility deregulation program instituted in 1996 by the
California government deregulated wholesale prices while continuing to regulate
the retail prices charged by the electrical utilities. While wholesale prices
have increased dramatically, retail prices have, until recently, not increased
at comparable rates. Solectron's business is substantially dependent on the
availability and price of electricity. If retail electricity prices rise
dramatically, Solectron would expect its expenses to increase, its operating
results to be harmed, and the possible decline of its stock price.
SOLECTRON'S STOCK PRICE MAY BE VOLATILE DUE TO FACTORS OUTSIDE OF ITS CONTROL.
Solectron's stock price could fluctuate due to the following factors, among
others:
- announcements of operating results and business conditions by its
customers and suppliers;
- announcements by its competitors relating to new customers, technological
innovation or new services;
- economic developments in the electronics industry as a whole;
- political and economic developments in countries where it has operations;
and
- general market conditions.
FAILURE TO RETAIN KEY PERSONNEL AND SKILLED ASSOCIATES COULD HURT SOLECTRON'S
OPERATIONS.
Solectron's continued success depends to a large extent upon the efforts
and abilities of key managerial and technical associates. Losing the services of
key personnel could harm Solectron. Solectron's business also depends upon its
ability to continue to attract and retain senior managers and skilled
associates. Failure to do so could harm Solectron's operations.
SOLECTRON'S ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND
MAY DEPRESS ITS STOCK PRICE.
Solectron's certificate of incorporation and bylaws contain provisions that
could make it more difficult for a third party to acquire, or may discourage a
third party from attempting to acquire, control of Solectron. These provisions
allow Solectron to issue preferred stock with rights senior to those of its
common stock and impose various procedural and other requirements that could
make it more difficult for Solectron's stockholders to effect certain corporate
actions.
RISKS RELATED TO CENTENNIAL
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of Centennial, particularly if the
stockholders of Centennial do not vote to approve the merger agreement at the
special meeting.
From time to time, information Centennial provides or statements made by
Centennial employees may contain forward-looking information. Centennial's
actual results may differ materially from those projections or suggestions made
in such forward-looking information as a result of various potential risks and
uncertainties including, but not limited to, the factors discussed below.
Centennial assumes no obligation to update these forward-looking statements to
reflect events or changes in circumstances after the date hereof.
CHANGES IN CENTENNIAL'S ASSUMPTIONS CONCERNING ITS GROWTH, MIX OF SALES AND
AVAILABILITY AND PRICING OF RAW MATERIALS COULD ADVERSELY AFFECT CENTENNIAL'S
ESTIMATES OF INVENTORY VALUATION.
Centennial maintains levels of inventories that Centennial believes is
appropriate based upon assumptions concerning its:
- growth;
- mix of sales; and
- availability and pricing of raw materials.
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Changes in those underlying assumptions could cause Centennial to have too much,
too little or an improper mix of inventory. This could increase Centennial's
costs, decrease its revenues and have a material adverse effect on Centennial's
business, financial condition and results of operations.
Centennial purchases some key components from single source vendors for
which alternative sources are not currently available. Further, Centennial does
not maintain long-term supply agreements with its vendors. The inability to
develop alternative sources for these single source components or to obtain
sufficient quantities of components could result in:
- delays or reductions in product shipments;
- higher prices for these components; or
- both.
Any of the above could materially and adversely affect Centennial's business,
financial condition and results of operations. Centennial cannot assure you that
one or more of its vendors will not reduce supplies to it.
CENTENNIAL DEPENDS ON A SMALL NUMBER OF LARGE CUSTOMERS TO PURCHASE ITS
PRODUCTS, THE LOSS OF ONE OR MORE OF WHICH COULD ADVERSELY IMPACT ITS RESULTS.
For the three months ended December 23, 2000, Solectron and Cisco Systems
represented 17% and 11%, respectively, of Centennial's sales of PC cards and
related products. For the nine months ended December 23, 2000, Solectron
represented 12% of Centennial's sales of PC cards and related products. For the
three months ended December 25, 1999, Solectron represented 13% of Centennial's
sales of PC cards and related products. For the nine months ended December 25,
1999, Solectron and Lucent Technologies each accounted for 10% of Centennial's
sales of PC cards and related products. Nortel Networks engages several contract
manufacturers to complete the final assembly of a majority of its products for
which Centennial has historically supplied PC cards. Centennial's combined sales
of PC cards and related products to Nortel Networks and these contract
manufacturers for the three and nine months ended December 23, 2000 were 27% and
22%, respectively. For the three and nine months ended December 25, 1999, sales
of PC cards and related products to Nortel Networks and these contract
manufacturers were 22% and 20%, respectively. No other customers represented
more than 10% of Centennial's sales of PC cards and related products for the
three and nine-month periods ended December 23, 2000 and December 25, 1999.
Centennial had accounts receivable from Solectron of approximately $1,555,000 as
of December 23, 2000. A relatively small number of customers account for a
significant percentage of Centennial's sales. If any of these customers were to
reduce significantly the amount of business they conduct with us, Centennial's
revenue could decrease. This could have a material adverse effect on
Centennial's business, financial condition and results of operations. In late
1999, Solectron merged with one of Centennial's competitors, SMART, which could
result in a decrease of sales by Centennial, although to date Centennial has not
experienced a materially adverse decrease in sales to Solectron.
Centennial generally enters into individual purchase orders with its
customers and has no firm long-term volume commitments from any of its major
customers. Centennial has experienced fluctuations in order levels from period
to period. Centennial expects that it will continue to experience such
fluctuations in the future. Centennial's business, financial condition and
results of operations depend in a significant part on its ability to obtain
orders from existing and new customers, as well as on the financial condition
and success of these customers. Therefore, any adverse factors affecting any of
Centennial's customers or their customers could have a material adverse effect
on Centennial's business, financial condition and results of operations.
Frequent mergers, consolidations, acquisitions, corporate restructurings and
changes in management characterize the industries served by Centennial. From
time to time, Centennial has experienced reductions in purchase orders from
customers as a result of such events. Centennial cannot assure you that such
events involving its customers will not result in a significant reduction in the
level of Centennial's sales to such customers or the termination of its
relationship with such customers. In addition, the percentage of Centennial's
sales to individual customers can and does fluctuate from period to period.
Customer orders can be canceled and volume levels can be changed or delayed.
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A majority of Centennial's sales are to customers in the electronics
industry, which is subject to rapid technological change and product
obsolescence. The electronics industry is also subject to economic cycles and
has experienced, and is likely to experience, fluctuations in demand. Economic
reports suggest that a weakening of the economy in general and of the
electronics and telecommunications industries in particular is occurring. As a
result, Centennial has experienced an increase in the cancellation of actual and
proposed orders. This may negatively impact Centennial's revenue levels. In
addition, an industry-wide decline in sales is likely to result in more
aggressive pricing pressures, which may reduce Centennial's gross margin rates.
Centennial anticipates that a significant portion of its sales for the
foreseeable future will continue to be concentrated in a small number of
customers in the electronics industry.
INTENSE COMPETITION COULD REDUCE CENTENNIAL'S MARKET SHARE AND HARM
CENTENNIAL'S FINANCIAL PERFORMANCE.
The market in which Centennial competes is intensely competitive.
Centennial competes with manufacturers of PC cards and related products,
including:
- M-Systems Flash Disk Pioneers Ltd.;
- SanDisk Corporation;
- Simple Technologies;
- SMART;
- Viking Components, Inc.; and
- White Electronic Designs Corporation.
Centennial also competes with electronic component manufacturers who also
manufacture PC cards, including:
- Hitachi Semiconductor, Inc.;
- Mitsubishi Electric Corporation; and
- Sharp Electronics Corporation.
Some of these competitors supply Centennial with raw materials, including
electronic components. These components are occasionally subject to
industry-wide allocation and were during the nine months ended December 23,
2000. These competitors may have the ability to obtain or manufacture products
at lower costs than Centennial. In addition, many of Centennial's competitors or
potential competitors have greater name recognition, larger installed bases of
customers, more extensive engineering, manufacturing, marketing, distribution
and support capabilities, and greater financial, technological and personnel
resources than Centennial does.
Centennial expects competition to increase in the future from existing
competitors. Furthermore, Centennial expects increased competition from other
companies that may enter Centennial's existing or future markets with similar or
alternative products that may be less costly or provide additional features.
Centennial believes that its ability to compete successfully depends on a
number of factors, including the following:
- product quality and performance;
- order turnaround;
- provision of competitive design capabilities;
- timely response to advances in technology;
- timing of new product introductions by Centennial, its customers and
competitors;
- production efficiency;
- number and nature of Centennial's competitors in a given market;
- price;
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- ability to obtain raw materials; and
- general market and economic conditions.
Over the past few quarters, Centennial believes some of its competitors
have had difficulty obtaining certain components and Centennial's success in
obtaining such components has given Centennial a competitive advantage.
Centennial now believes these competitors are able to more readily purchase such
components. This may increase competitive pressures and may have an adverse
effect on Centennial's revenues and gross margins, which could have a material
adverse effect on Centennial's business, financial condition and results of
operations.
In addition, market conditions may lead to intensified price competition
for Centennial's products and services, which could materially and adversely
affect Centennial's business, financial condition and results of operations.
There can be no assurance that Centennial will compete successfully in the
future.
CENTENNIAL HAS HISTORICALLY RELIED ON ONE PRODUCT LINE AND REDUCED DEMAND FOR
THIS PRODUCT LINE WOULD HARM ITS FINANCIAL PERFORMANCE AND FINANCIAL CONDITION.
PC cards and related services constituted the vast majority of Centennial's
sales over the past few years. The market for PC cards is continually evolving
and Centennial cannot assure you that computing and electronic equipment that
utilizes PC cards will not be modified to render Centennial's PC cards obsolete
or otherwise have the effect of reducing demand for Centennial's PC cards. In
addition, Centennial faces intense competition from competitors that have
greater financial, marketing and technological resources than Centennial. This
competition may reduce demand for Centennial's PC cards. Decreased demand for
Centennial's PC cards as a result of technological change, competition or other
factors would have a material adverse effect on Centennial's business, financial
condition and results of operations.
REDUCTIONS IN CENTENNIAL'S AVERAGE SALES PRICE AS A RESULT OF PRICING
COMPETITION OR CHANGES IN ITS PRODUCT MIX MAY REDUCE OUR GROSS MARGIN AND HARM
CENTENNIAL'S OVERALL FINANCIAL PERFORMANCE.
Although Centennial has recently experienced an increase in its average
sales prices, Centennial has in the past experienced, and may in the future
experience, declining average sales prices for its products. The markets in
which Centennial competes are characterized by intense competition. Therefore,
Centennial expects to experience increasing pricing pressures from its customers
in future periods, which may result in declines in average sales prices for its
products. Centennial believes that it must:
- continue to achieve manufacturing cost reductions;
- develop new products that incorporate customized features; and
- increase Centennial's volume of PC card sales in order to offset the
effect of possible declining average sales prices.
If Centennial is not able to achieve such cost reductions, develop new
customized products or increase its unit sales volumes, Centennial's business,
financial condition and results of operations could be materially adversely
impacted. In addition, a relative increase in the mix of Centennial's business
towards lower margin, non-custom PC cards or other products could have a
material adverse effect on its business.
CENTENNIAL'S QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY AS A RESULT OF A
VARIETY OF FACTORS WHICH MAY NEGATIVELY IMPACT THE MARKET PRICE OF ITS COMMON
STOCK.
Centennial's quarterly and annual operating results have fluctuated
significantly in the past and Centennial expects that they will continue to
fluctuate in the future. This fluctuation is a result of a variety of factors,
including the following:
- timing of receipt and delivery of significant orders for Centennial's
products;
- competitive pricing pressures;
- changes in raw material costs;
- changes in customer and product mix;
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- production difficulties;
- raw material shortages;
- quality of Centennial's products;
- write-downs of investments in other companies;
- exchange rate fluctuations;
- market acceptance of new or enhanced products; and
- litigation settlements and revisions of estimates in connection with
legal matters.
Other factors, some of which are beyond Centennial's control, may also
cause fluctuations in its results of operations. Centennial has short lead times
from customers, and accordingly does not have a significant backlog.
Additionally, as is the case with many high technology companies, a significant
portion of Centennial's orders and shipments often occur towards the end of a
quarter. As a result, revenues for a quarter are not predictable, and
Centennial's revenues may shift from one quarter to the next, having a
significant effect on reported results.
CENTENNIAL'S MARKET PRICE MAY BE NEGATIVELY IMPACTED IF THE MERGER WITH
SOLECTRON IS NOT CONCLUDED.
On January 22, 2001, Centennial entered into the merger agreement with
Solectron. Consequently, Centennial believes its stock price has begun to take
into account the likelihood of the merger being concluded. Failure to consummate
this merger may have a significant negative impact on the trading price of
Centennial's common stock. While Centennial is working to complete the merger
during the second quarter of calendar year 2001, the consummation of the merger
is subject to governmental approval, approval of the transaction by Centennial's
stockholders and other customary closing conditions, many of which are beyond
Centennial's control.
CENTENNIAL'S TRADING PRICE MAY FLUCTUATE SIGNIFICANTLY, WHICH MAY NEGATIVELY
IMPACT ITS STOCKHOLDERS' ABILITY TO OBTAIN LIQUIDITY AT ACCEPTABLE LEVELS, IF AT
ALL.
The trading price of Centennial's common stock may fluctuate widely in
response to, among other things, the following:
- quarter-to-quarter operating results;
- industry conditions;
- awards of orders to Centennial or its competitors;
- changes in earnings estimates by analysts;
- new product or product development line-up announcements by Centennial or
its competitors; and
- perceived likelihood of consummating the merger with Solectron.
Centennial cannot assure you that its future performance will meet the
expectations of analysts or investors. In addition, the volatility of the stock
markets may cause wide fluctuations in trading prices of securities of high
technology companies.
The trading volumes of Centennial's stock has historically been low. The
exercise and sale of stock options or the conversion and sale of the preferred
stock may have a negative impact on Centennial's trading price.
THE LOSS OF CENTENNIAL'S SENIOR MANAGEMENT OR OTHER KEY PERSONNEL COULD
ADVERSELY AFFECT CENTENNIAL'S BUSINESS.
Centennial's success depends to a significant degree upon the efforts and
abilities of members of its senior management and other key personnel, including
technical personnel. The loss of any of these individuals could have a material
adverse effect on Centennial's business, financial condition and results of
operations. Centennial's business also depends upon its ability to continue to
attract and retain senior managers and skilled technical employees. Failure to
attract and retain such personnel could materially and adversely affect
Centennial's business, financial condition and results of operations.
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FAILURE TO DEVELOP ENHANCEMENTS TO CENTENNIAL'S PRODUCTS, NEW APPLICATIONS AND
FEATURES THAT RESPOND TO THE CHANGING NEEDS OF ITS CUSTOMERS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY ITS COMPETITORS WILL IMPAIR ITS
ABILITY TO INCREASE ITS MARKET SHARE AND EXPAND ITS BUSINESS.
Rapid technological change, evolving industry standards and rapid product
obsolescence characterize the markets for Centennial's products. Rapid
technological development substantially shortens product life cycles.
Centennial's growth and future success will depend upon Centennial's ability, on
a timely basis, to:
- develop and introduce new products;
- enhance existing products; and
- adapt products for various industrial applications and equipment
platforms.
In addition, even after customer acceptance of these products, Centennial
will need to be able to promptly implement enhancements and adaptations in
response to these forces. Centennial has limited resources compared to its
competitors and focuses its development efforts at any given time to a
relatively narrow scope of development projects. Centennial cannot assure you
that it will select the correct projects for development or that its development
efforts will be successful. In addition, no assurance can be given that:
- Centennial will not experience difficulties that could delay or prevent
the successful development introduction or marketing of new products;
- that new products and product enhancements will meet the requirements of
the marketplace and achieve market acceptance; or
- that Centennial's current or future products will conform to applicable
industry standards.
If Centennial is unable to introduce new products or enhancements on a
timely basis, Centennial's business, financial condition and results of
operations could be adversely affected.
CENTENNIAL MAY BE UNABLE TO ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS, WHICH
COULD SIGNIFICANTLY HARM CENTENNIAL'S ABILITY TO GAIN MARKET SHARE AND INCREASE
ITS REVENUES.
Centennial's products require technical know-how to engineer and
manufacture. To the extent proprietary technology is involved, Centennial relies
upon trade secrets that it seeks to protect, in part, through confidentiality
agreements with certain employees, consultants and other parties. Centennial
historically has not sought to protect its proprietary information through
patents or registered trademarks. There can be no assurance that Centennial's
products will not infringe on patents held by others. Centennial may be involved
from time-to-time in litigation to determine the enforceability, scope and
validity of its rights. Litigation could result in substantial cost to
Centennial and could divert the attention and time of its management and
technical personnel from its operations.
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THE SPECIAL MEETING OF CENTENNIAL STOCKHOLDERS
GENERAL
Centennial is furnishing this document to all stockholders of record of
Centennial common stock and Centennial series B convertible preferred stock in
connection with the solicitation of proxies by the Centennial board of directors
for use at the special meeting of Centennial stockholders to be held on -, 2001,
and at any adjournment or postponement of the special meeting. This document
also is being furnished by Solectron to Centennial stockholders as a prospectus
for Solectron common stock to be issued in connection with the merger.
DATE, TIME AND PLACE
The special meeting of stockholders of Centennial will be held on -, 2001
at -, local time, at the offices of Goodwin Procter LLP, located at Exchange
Place, Boston, Massachusetts 02109-2881.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, and any adjournment or postponement thereof,
Centennial stockholders will be asked:
1. to consider and vote upon a proposal to adopt and approve the
merger agreement and approve the merger; and
2. to transact other business that may properly come before the
special meeting and any adjournment or postponement of the special meeting.
A copy of the merger agreement is attached to this document as Annex A.
Centennial stockholders are encouraged to read the merger agreement in its
entirety and the other information contained in this document carefully before
deciding how to vote.
RECORD DATE FOR THE SPECIAL MEETING
The Centennial board of directors has fixed the close of business on -,
2001 as the record date for determination of Centennial stockholders entitled to
notice of and to vote at the special meeting.
VOTES REQUIRED FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND APPROVAL OF
THE MERGER
As a condition to completion of the merger, the Delaware General
Corporation Law and the merger agreement require that the holders of a majority
of the outstanding voting shares of Centennial as of the record date must vote
to adopt and approve the merger agreement and approve the merger. Each share of
Centennial common stock entitles the holder to one vote per share with respect
to the merger agreement and the merger, and each share of Centennial series B
convertible preferred stock entitles the holder to one vote per share of common
stock issuable upon the conversion of such share of series B convertible
preferred stock. Presently, 10 shares of common stock are issuable upon the
conversion of each outstanding share of Centennial series B convertible
preferred stock. There are no other voting securities of Centennial. In this
document, we occasionally refer to the number of outstanding shares of
Centennial common stock and shares of Centennial common stock issuable upon the
conversion of Centennial series B convertible preferred stock as Centennial
voting shares.
As of the close of business on the record date for the special meeting,
approximately - shares of Centennial common stock were outstanding, and held by
approximately - stockholders of record. In addition, 60,000 shares of Centennial
series B convertible preferred stock were outstanding, all of which were held by
one stockholder.
As of the close of business on the record date for the special meeting of
Centennial stockholders at which the merger agreement and the merger will be
presented and voted upon, directors and executive officers of Centennial (and
their respective affiliates) collectively owned approximately 2.3% of the
outstanding shares of Centennial common stock entitled to vote at the special
meeting on the merger agreement and the merger, or approximately 1.9% of the
voting shares of Centennial entitled to vote at the special meeting on the
merger agreement and the merger. This does not include 1,173,962 shares of
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Centennial common stock issuable upon the exercise of presently exercisable
options which these directors and officers beneficially own. If all of these
stock options had been exercised prior to the record date for the special
meeting, the directors and executive officers of Centennial (and their
respective affiliates) would collectively own approximately 27.5% of the
outstanding shares of Centennial common stock entitled to vote at the special
meeting, or approximately 24.3% of the voting shares of Centennial.
All of Centennial's directors and executive officers have entered into
voting agreements and delivered irrevocable proxies, pursuant to which they have
agreed to vote their Centennial shares in favor of adoption and approval of the
merger agreement and approval of the merger, in favor of any matter that could
reasonably be expected to facilitate the merger, and against any matter which
could reasonably be expected to result in a breach by Centennial of the merger
agreement or which could reasonably be expected to result in Centennial's
obligations under the merger agreement to fail to be satisfied. As of the close
of business on the record date for the special meeting, no director or executive
officer of Solectron owned any shares of Centennial common stock. As of the
close of business on the record date for the special meeting, no director or
executive officer of Centennial owned any shares of Solectron common stock. See
the section entitled "The Merger and Related Transactions -- Consideration of
the Merger by Centennial's Board of Directors -- Interests of Centennial's
Directors and Officers in the Merger" beginning on page 50 of this document.
QUORUM, ABSTENTIONS AND BROKER NON-VOTES
A majority of all voting shares of Centennial issued and outstanding as of
the record date, represented in person or by proxy, constitutes a quorum for the
transaction of business at the special meeting. Centennial has appointed Richard
J. Pulsifer, Centennial's Vice President, Chief Financial Officer and Secretary,
to function as the inspector of elections of the special meeting. The inspector
of elections will ascertain whether a quorum is present, tabulate votes and
determine the voting results on all matters presented to Centennial stockholders
at the special meeting. If a quorum is not obtained, or fewer voting shares of
Centennial are voted for the adoption and approval of the merger agreement and
the approval of the merger than a majority of the voting shares eligible to vote
at the special meeting in person or by proxy, the special meeting may be
postponed or adjourned for the purpose of allowing additional time for obtaining
additional proxies or votes. At any subsequent reconvening of the special
meeting, all proxies will be voted in the same manner as the proxies would have
been voted at the original convening of the special meeting, except for any
proxies that have been effectively revoked or withdrawn prior to the subsequent
special meeting.
If you submit a proxy that indicates an abstention from voting on all
matters presented at the special meeting, your shares will be counted as present
for the purpose of determining the existence of a quorum at the special meeting,
but will not be voted on any matter presented at the special meeting.
Consequently, your abstention will have the same effect as a vote against the
proposal to adopt and approve the merger agreement and to approve the merger. In
addition, the failure of a Centennial stockholder to return a proxy will have
the effect of a vote against the proposal to adopt and approve the merger
agreement and to approve the merger.
Under the rules that govern brokers who have record ownership of shares
that are held in "street name" for their clients, who are the beneficial owners
of the shares, brokers have discretion to vote these shares on routine matters
but not on non-routine matters. The adoption and approval of the merger
agreement and the approval of the merger at the special meeting are not
considered routine matters. Accordingly, brokers will not have discretionary
voting authority to vote your shares at the special meeting. A "broker non-vote"
occurs when brokers do not have discretionary voting authority and have not
received instructions from the beneficial owners of the shares. At the special
meeting, broker non-votes will be counted for the purpose of determining the
presence of a quorum but will not be counted for the purpose of determining the
number of votes cast on the merger agreement and the merger. Accordingly, at the
special meeting, broker non-votes will have the same effect as a vote against
the proposal to adopt and approve the merger agreement and to approve the
merger. Consequently, CENTENNIAL STOCKHOLDERS ARE URGED TO RETURN THE ENCLOSED
PROXY CARD MARKED TO INDICATE THEIR VOTE.
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SOLICITATION OF PROXIES AND EXPENSES
Centennial will bear its own expenses in connection with the solicitation
of proxies for the special meeting, except that Centennial will pay all costs
and expenses, other than fees and expenses of Solectron's attorneys and
accountants, incurred in connection with the printing and mailing of this
document, and Solectron will pay all costs and expenses, other than fees and
expenses Centennial's attorneys and accountants, incurred in connection with the
preparation and filing of the registration statement of which this document
forms a part.
In addition to solicitation by mail, directors, officers and employees of
Centennial may solicit proxies from stockholders by telephone, facsimile, e-mail
or in person. No additional compensation will be paid to these individuals for
any such services. Some of these individuals may have interests in the merger
that are different from, or in addition to, the interests of Centennial
stockholders generally. For more information regarding these interests, see the
section entitled "The Merger and Related Transactions -- Consideration of the
Merger by Centennial's Board of Directors -- Interests of Centennial's Directors
and Officers in the Merger" beginning on page 50 of this document. Centennial
may retain outside agencies for the purpose of soliciting proxies. Record
holders such as brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward soliciting materials to beneficial owners and to
request authority for the exercise of proxies, and, upon the request of such
record holders, they will be reimbursed for their reasonable expenses incurred
in sending proxy materials to beneficial owners.
VOTING OF PROXIES AT THE SPECIAL MEETING AND REVOCATION OF PROXIES
Centennial requests that all holders of Centennial common stock and series
B convertible preferred stock on the record date complete, date and sign the
accompanying proxy and promptly return it in the accompanying envelope or
otherwise mail it to Centennial. Brokers holding voting shares in "street name"
may vote the shares only if the stockholder provides instructions on how to
vote. Brokers will provide directions to stockholders on how to instruct your
broker to vote the shares. Please note, however, that if the holder of record of
your shares is your broker, bank or other nominee and you wish to vote at the
special meeting, you must bring a letter from the broker, bank or other nominee
confirming that you are the beneficial owner of the shares. All properly
executed proxies that Centennial receives prior to the vote at the special
meeting, and that are not revoked, will be voted in accordance with the
instructions indicated on the proxy card. If no direction is indicated on such
proxies, such proxies will be voted in favor of adoption and approval of the
merger agreement and approval of the merger (except for broker non-votes, which
are discussed above).
A Centennial stockholder may revoke a previously submitted proxy at any
time prior to its use:
- by delivering to the Secretary of Centennial a later-dated signed notice
of revocation;
- by delivering to the Secretary of Centennial a later-dated, signed proxy
(which will automatically replace any earlier dated proxy card that you
returned); or
- by attending the special meeting and voting in person.
Attendance at the special meeting does not in itself constitute the
revocation of a previously submitted proxy.
In addition to voting by the enclosed proxy card, you may vote by
telephone, or electronically through the internet, if you are a registered
stockholder of Centennial. If you wish to vote by either of these methods,
please follow the instructions included with your proxy card.
If your shares are held in "street name," your broker or nominee may permit
you to vote by telephone or electronically. Please check your proxy card or
contact your broker or nominee to determine whether either of these methods
method of voting is available to you.
DISSENTER'S RIGHTS OF APPRAISAL
Under Delaware corporate law, holders of Centennial common stock and
holders of Solectron common stock are not entitled to dissenters' rights of
appraisal in connection with the merger because, on the record date, Centennial
common stock was designated and quoted for trading on the Nasdaq National
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Market and will be converted into shares of Solectron common stock which at the
effective time of the merger will be listed on the New York Stock Exchange.
OTHER MATTERS
Centennial is not aware of any business or matter other than those
indicated above that may be properly presented at the special meeting. If,
however, any other matter properly comes before the special meeting, the proxy
holders will, in their discretion, vote on it in accordance with their best
judgment.
RECOMMENDATION OF CENTENNIAL BOARD OF DIRECTORS
The Centennial board of directors has unanimously determined that the
merger is advisable, in the best interests of Centennial stockholders and on
terms that are fair to the stockholders of Centennial. Accordingly, the
Centennial board of directors has unanimously approved the merger agreement and
the merger and recommends that stockholders vote FOR adoption and approval of
the merger agreement and approval of the merger. In considering such
recommendation, Centennial stockholders should be aware that some Centennial
directors and officers have interests in the merger that are different from, or
in addition to, those of Centennial stockholders, and that Solectron has agreed
to provide indemnification arrangements to directors and officers of Centennial.
For more information about these interests, see the section entitled "The Merger
and Related Transactions -- Consideration of the Merger by Centennial's Board of
Directors -- Interests of Centennial's Directors and Officers in the Merger"
beginning on page 50 of this document.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF CENTENNIAL. ACCORDINGLY, YOU ARE URGED TO READ AND
CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS DOCUMENT, AND TO COMPLETE,
DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF CENTENNIAL COMMON
STOCK CERTIFICATES AND SERIES B CONVERTIBLE PREFERRED STOCK CERTIFICATES, AS THE
CASE MAY BE, WILL BE MAILED TO YOU PROMPTLY FOLLOWING COMPLETION OF THE MERGER.
FOR MORE INFORMATION REGARDING THE PROCEDURES FOR EXCHANGING CENTENNIAL STOCK
CERTIFICATES FOR SOLECTRON STOCK CERTIFICATES (OR CASH, IN THE CASE OF SERIES B
CONVERTIBLE PREFERRED STOCK), SEE THE SECTION ENTITLED "THE MERGER AND RELATED
TRANSACTIONS -- THE MERGER AGREEMENT -- EXCHANGE OF CENTENNIAL STOCK
CERTIFICATES FOR SOLECTRON STOCK CERTIFICATES" BEGINNING ON PAGE 55 OF THIS
DOCUMENT.
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THE MERGER AND RELATED TRANSACTIONS
The following is a description of the material aspects of the merger and
related transactions, including the merger agreement and certain other
agreements entered into in connection therewith. While we believe that the
following description covers the material terms of the merger, the merger
agreement and the related transactions and agreements, the description may not
contain all of the information that is important to you. You should read this
entire document and the other documents we refer to carefully for a more
complete understanding of the merger and the related transactions. In
particular, the following summary of the merger agreement is not complete and is
qualified in its entirety by reference to the copy of the merger agreement
attached to this document as Annex A and incorporated by reference herein. You
should read the merger agreement carefully and in its entirety for a complete
understanding of the terms of the merger and related transactions.
BACKGROUND OF THE MERGER
Historically, Solectron has been one of Centennial's more significant
customers. For Centennial's fiscal years ended March 31, 2000 and March 31,
1999, Centennial's sales to Solectron represented 8% and 10% of Centennial's
overall sales of PC cards and related products, respectively. Centennial's sales
to Solectron increased to 17% and 12% of Centennial's sales of these products
for the three and nine months ended December 23, 2000, respectively.
Furthermore, as of December 23, 2000, accounts payable from Solectron to
Centennial amounted to approximately $1,555,000. In December 1999, Solectron
merged with SMART, one of Centennial's competitors. To date, Centennial has not
experienced a materially adverse reduction in sales to Solectron as a result of
the Solectron merger with SMART, although Centennial cannot be sure of any
future impact on its sales.
During the Spring of 2000, Centennial had preliminary discussions with a
variety of third parties with respect to potential strategic alternatives with
these parties. None of these overtures advanced materially past preliminary
discussions and thus were not pursued by any of the relevant parties.
On June 7, 2000, the executive committee of the board of directors of
Centennial met and L. Michael Hone, the President and Chief Executive Officer of
Centennial, informed the executive committee of the existence of these overtures
and that all related discussions had been terminated, including one with a
particular third party, Company A.
On June 30, 2000, a number of representatives of Company A, including the
Chief Executive Officer of Company A, met with Mr. Hone and Richard J. Pulsifer,
Vice President, Chief Financial Officer and Secretary of Centennial, in Boston
to reinitiate preliminary discussions regarding the potential of engaging in a
business combination transaction. At this meeting, the companies exchanged
business plans and limited financial forecasts and discussed the potential
synergies that could be achieved if the companies engaged in a business
combination. At the conclusion of the meeting, representatives of Company A
indicated their need to review internally the materials exchanged and determine
if they would have further interest in a business combination.
Between July 1, 2000 and August 30, 2000, Mr. Hone and the CEO of Company A
periodically discussed a potential business combination between the two
companies. In general, no specific terms were mentioned, although occasionally
they discussed financial information with respect to both companies and the
ability to consummate a business combination that could be accounted for as a
pooling of interests for accounting purposes. It was generally understood that
Company A would indicate more clearly to Centennial if and when they developed a
serious interest in pursuing a business combination transaction.
In light of the discussions with Company A, the overtures in the Spring of
2000 and a determination by Centennial's management that the future success of
Centennial depended on either being acquired by another company or growing
through acquisitions of other businesses, with the input and approval of the
members of the Centennial board of directors, who were consulted individually,
Centennial engaged H.C. Wainwright & Co., Inc. on August 23, 2000 to serve as
financial advisor to the Company in
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connection with the exploration of strategic alternatives, including a possible
sale of Centennial. H.C. Wainwright's specific responsibilities included advice
and assistance with respect to:
- evaluating the business, operations and financial position of Centennial;
- identifying, qualifying and facilitating discussions with potential
parties to a significant corporate transaction;
- structuring, planning and negotiating a significant corporate
transaction; and
- evaluating proposals received from potential parties to such a
transaction.
Subsequent to this engagement and through the Fall of 2000, H.C.
Wainwright, on behalf of Centennial, contacted several other potential strategic
partners to determine whether such parties might have an interest in pursuing a
significant corporate transaction with Centennial. During this period, H.C.
Wainwright contacted seven potential partners, including Company A and
Solectron. Discussions with four of these partners, including Company A and
Solectron, advanced to the point of executing confidentiality agreements and
delivering and/or exchanging non-public information. However, except for
developments with Company A and Solectron, no other negotiations advanced to a
material level, including the undertaking of due diligence or delivering of a
proposal for a transaction. Throughout this period, the members of Centennial's
board of directors spoke frequently with Centennial's management and with
representatives of H.C. Wainwright as to the status of the various negotiations,
their input on the attractiveness of proposals and the progress of the processes
generally. The board members approved of management's decisions and actions
during this period.
On August 30, 2000, Centennial received a term sheet from Company A,
subject to additional due diligence and negotiation, outlining tentative terms
of a proposed transaction to acquire Centennial in a stock for stock merger
valued, in the opinion of Centennial's management and members of Centennial's
board of directors, inadequately. The proposal in the term sheet also
contemplated some members of Centennial's management entering into retention and
employment contracts.
On September 1, 2000, representatives of H.C. Wainwright discussed the
terms of the Company A proposal with the financial advisor representing Company
A and conveyed the opinion of Centennial's management that the offer was
inadequate to Centennial's stockholders. At the conclusion of the meeting,
Company A's financial advisor indicated they would discuss the possibility of
increasing the offer with Company A utilizing additional updated financial
projections. Centennial provided these projections to Company A approximately
one week after the meeting.
Between September 14, 2000 and September 19, 2000, several conversations
took place between H.C. Wainwright and the financial advisor to Company A. These
conversations primarily focused on the inability of Company A to increase its
offer price to a level deemed to be adequate by Centennial.
In mid-September 2000, H.C. Wainwright, at the request of Mr. Hone,
contacted representatives of Solectron to determine if they had interest in
pursuing a business combination transaction. Management of Centennial and
Solectron were generally familiar with each other as a result of business
relationships between Centennial and Solectron discussed above. Following a
preliminary indication of interest from Solectron, on September 22, 2000
Centennial and Solectron entered into a confidentiality agreement to permit the
exchange of confidential information from Centennial to Solectron for the
purpose of evaluating the merits of a potential acquisition of Centennial by
Solectron. Pursuant to the confidentiality agreement, Centennial thereafter
provided Solectron and its financial advisors, legal counsel and accountants
with confidential information concerning Centennial's business, operations and
financial condition.
On September 27, 2000, Mr. Hone, Mr. Pulsifer and representatives of H.C.
Wainwright met with representatives from Company A and their financial advisors
in Chicago to discuss the feasibility of a possible strategic transaction
between the companies. At the meeting, the attendees discussed the business
operations of Centennial and Company A, potential synergies and their relative
customer bases. At the conclusion of the meeting, Company A indicated a strong
interest in pursuing a business combination transaction with Centennial and
would be in contact with Centennial again in the near future.
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At the end of September 2000, Mr. Hone spoke again with the CEO of Company
A, during which mutual interest in a business combination between Centennial and
Company A was reconfirmed, although no additional specific terms were proposed
or agreed upon.
On October 4, 2000, Centennial received a revised term sheet, subject to
additional due diligence, from Company A, outlining improved terms of their
proposal for a business combination transaction with Centennial. Although the
revised proposal increased the number of shares of Company A stock that would be
issued in exchange for the acquisition of Centennial, the total consideration
was still deemed to be inadequate by Centennial. The revised Company A proposal
also required that any transaction be accounted for as a pooling of interests.
At the request of representatives of Solectron, on October 9, 2000, Mr.
Pulsifer and a representative of H.C. Wainwright participated in a conference
call with Ajay Shah, Chief Executive Officer of the Technology Solutions
Business Unit (TSBU) of Solectron, Ann Nguyen, in-house legal counsel to TSBU,
Jack Pacheco, Chief Financial Officer of TSBU, Alan Marten, Vice President and
Business Unit Manager of the Memory Products Division of SMART, and Stephen
Coghlan, Director of Corporate Development for Solectron. During the call,
Centennial's business and financial prospects and business models, and the
potential benefits of a business combination with Solectron, were discussed in
detail in order to provide Solectron with more information to facilitate their
determination of whether to move forward with the consideration of a business
combination transaction with Centennial.
On October 12, 2000, Ms. Nguyen and Mr. Coghlan met telephonically with
representatives of H.C. Wainwright to discuss potential valuation and
consideration amounts in connection with a possible offer to acquire Centennial.
Between October 13, 2000 through October 18, 2000, Ms. Nguyen and a
representative of H.C. Wainwright had several telephone conversations, during
which valuation ranges of $115 to $130 million were discussed and, based on
these discussions and the seriousness with which Solectron presented its
analysis, Centennial agreed to permit Solectron to perform limited, focused due
diligence in order to refine its range of valuations and consideration for
Centennial.
Between October 24 and October 26, 2000, representatives of Solectron met
with the management of Centennial and continued performing due diligence at
Centennial's headquarters outside of Boston and at the offices of Goodwin
Procter LLP, Centennial's legal counsel, in Boston. At the conclusion of these
meetings, management of Solectron expressed a desire to continue to explore a
potential stock-for-stock acquisition of Centennial, but noted that it was
concerned about a perceived inability to retain key Centennial senior
management, a perceived lack of interest by other companies in Centennial and
that Centennial's growth had plateaued.
On November 1, 2000, Ms. Nguyen and Mr. Coghlan spoke by phone with
representatives of H.C. Wainwright. They explained that based on their due
diligence review to date, Solectron was interested in pursuing a possible
acquisition of Centennial and had placed an overall value of Centennial in the
range of $105 million (assuming the transaction could be consummated using
pooling of interests accounting). However, they indicated that Solectron's
interest was contingent upon the satisfactory completion of further business and
legal due diligence. The parties did not reach any agreement at this time and
did not immediately continue discussions following the meeting.
Between November 1, 2000 and November 17, 2000, representatives of H.C.
Wainwright and Ms. Nguyen had several additional discussions regarding potential
terms of a business combination transaction and an appropriate valuation for
Centennial. Also, during this period, representatives of Centennial and H.C.
Wainwright engaged in informal conversations with one of the two other companies
who had signed confidentiality agreements with Centennial. No material
discussions or negotiations occurred with this third company, and no further
contact was made with them after the end of November 2000.
On November 17, 2000, Solectron indicated to H.C. Wainwright that Solectron
was prepared to negotiate the acquisition of Centennial assuming a valuation of
Centennial of $100 million, to be paid in Solectron common stock, with the
number of shares to be fixed at the closing of a transaction.
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Separately, and also on November 17, 2000, the financial advisor for
Company A indicated to H.C. Wainwright that Company A was prepared to
significantly increase the consideration for Centennial's stockholders in their
proposal. However, the amount of the increase could not be determined until
Company A's management had discussed the matter with its board of directors,
which was expected to occur shortly.
On November 21, 2000, pursuant to a series of telephone calls between Mr.
Hone and the CEO of Company A, Company A offered additional shares of Company A
common stock as consideration for the acquisition of Centennial.
On November 27, 2000, Mr. Hone and a representative of Company A had
additional conversations concerning obtaining a possible written proposal from
Company A. On November 28, 2000, Company A sent Centennial a term sheet
outlining their latest proposal, which was substantially the same as their prior
proposals, except that it included the increased amount of consideration
contemplated by the foregoing discussions.
At a meeting of the executive committee of Centennial's board of directors
held on November 30, 2000, a representative of H.C. Wainwright updated the
executive committee on the status of Centennial's investigation of strategic
alternatives, including the discussions with Solectron and Company A. At the
meeting, the executive committee and H.C. Wainwright concluded that based on the
relative valuations of the two proposals, the then-existing offer from Company A
was superior to the latest proposal received from Solectron. It was also
discussed among the committee that Centennial's management believed that the
failure to progress further with Solectron was due in large part on the
inability to reach agreement on specific terms and provisions of an exclusivity
agreement between Solectron and Centennial, pursuant to which Centennial would
agree to negotiate exclusively with Solectron for a period of time. The
Centennial executive committee also discussed generally the continuing process
to generate additional and higher offers, and the differences in the structure
of the two proposals. Following these discussions, the Centennial executive
committee authorized Centennial's advisors to continue to negotiate with each of
Solectron and Company A, with a goal of eliciting the most attractive offer
possible.
On December 2, 2000, H.C. Wainwright received a revised proposal from
Solectron which indicated a reduced valuation from the November 17, 2000
proposal and which was also less attractive than the existing proposal from
Company A.
On December 6, 2000, at the authorization of Mr. Hone, who had individually
conferred with the members of the executive committee, due to the inadequacy of
Solectron's offer and their inability to reach agreement on the terms of an
exclusivity agreement, H.C. Wainwright notified Ms. Nguyen that Centennial was
terminating discussions with Solectron.
On December 7, 2000, Mr. Shah telephoned Mr. Hone, reiterating Solectron's
continuing interest in pursuing a transaction with Centennial and that
representatives of the parties should meet. Later on December 7, 2000, at a
meeting of Centennial's board of directors, Centennial's board discussed the
proposals from Company A and Solectron during which the board authorized
representatives of H.C. Wainwright and Mr. Pulsifer to continue to negotiate
with Solectron. At this meeting, the board also discussed the apparent lack of
progress by Company A in moving forward with a potential acquisition of
Centennial. Specifically, the board was concerned that the perceived absence of
commitment to a transaction by Company A's board of directors and Company A's
failure to conduct significant due diligence raised concerns as to whether
Company A was in fact intent on moving forward with an acquisition of
Centennial. Following these discussions, the Centennial board of directors
authorized management to meet in person with Solectron concerning a potential
transaction, with the objective of obtaining a higher price and other favorable
terms.
On December 11, 2000, Mr. Pulsifer and a representative of H.C. Wainwright
met in Fremont, California, the headquarters of TSBU, with Mr. Shah, Mr.
Pacheco, Ms. Nguyen and Mr. Coghlan. At this meeting, Solectron proposed
entering into a merger pursuant to which all the outstanding shares and
outstanding stock options of Centennial would be acquired or assumed in exchange
for 2.96 million shares of Solectron common stock. Solectron also proposed that
the terms of any merger agreement would
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otherwise be customary and typical for similar public companies, including the
provisions of indemnification for Centennial's directors and officers and the
continued viability of existing employment, severance and retention agreements.
This proposal, in the view of Centennial representatives, was more attractive
than the proposal received from Company A. Solectron indicated that continued
negotiation was contingent on the entering into of an exclusivity agreement by
the parties. Centennial representatives indicated that entering into an
exclusivity agreement was dependent on Solectron providing a sample model of the
definitive merger agreement Solectron intended the companies to use and a list
of remaining due diligence issues. The model agreement and diligence list were
delivered to Centennial prior to December 13, 2000.
On December 13, 2000, Centennial entered into an exclusivity agreement with
Solectron. Pursuant to this agreement, Centennial agreed to cease all
acquisition negotiations with all other parties and to negotiate exclusively
with Solectron until January 19, 2001.
Later on December 13, 2000, H.C. Wainwright telephoned Company A's
financial advisor and informed it that Centennial had received a more attractive
offer and was ceasing all discussions with Company A.
From December 14, 2000 through the middle of January 2001, members of
Solectron's management team and representatives of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Solectron's legal counsel, and KPMG LLP,
Solectron's independent auditors, conducted business, financial, accounting, tax
and legal due diligence and participated in discussions with Centennial, its
legal counsel and its independent auditors on various issues. Also during this
period, representatives of Solectron and Centennial met together with some of
Centennial's customers and facilitated the exchange of business, financial,
accounting and legal due diligence.
On December 19, 2000, Solectron's legal counsel forwarded an initial draft
of a merger agreement to Centennial, its legal counsel and H.C. Wainwright.
Centennial returned a revised merger agreement on December 22, 2000 and from
then until the middle of January 2001, numerous drafts of the merger agreement
were negotiated and exchanged.
On December 26, 2000, Centennial and H.C. Wainwright entered into a
separate engagement letter for H.C. Wainwright to serve as financial advisor
with respect to the acquisition of Centennial by Solectron. In addition, H.C.
Wainwright agreed to assist the Centennial board of directors in analyzing the
terms of the proposed transaction between Centennial and Solectron to determine
whether the transaction would be fair, from a financial point of view, to
Centennial and its common stockholders, and, if requested, to render an
appropriate fairness opinion to Centennial's board of directors.
At various times during the final calendar quarter of 2000, members of
Solectron's board of directors, who also serve on an ad hoc mergers and
acquisitions committee, met telephonically with Susan S. Wang, Senior Vice
President, Chief Financial Officer and Corporate Secretary of Solectron, and
other individuals representing Solectron in this matter, to discuss the merger,
due diligence findings and, ultimately, to authorize and approve the merger.
On January 11, 2001, Centennial's board of directors met to discuss the
progress of the due diligence and negotiations on the definitive agreement with
Solectron. At this meeting, Messrs. Hone and Pulsifer, together with
Centennial's legal counsel, updated the board on the status of negotiations with
Solectron, including the key issues under discussion and the relative positions
of the parties with respect to such issues. Centennial's legal counsel reviewed
for the board the terms of the merger agreement and the terms of the voting
agreements and indemnification agreements to be entered into by Centennial's
directors and executive officers. In addition, H.C. Wainwright gave a
presentation of its financial analyses of the transaction terms, as currently
proposed, including a preliminary assessment of the fairness, from a financial
point of view, of the range of exchange ratios then being discussed by
management of Centennial and Solectron, including the exchange ratio contained
in the then current draft of the merger agreement. H.C. Wainwright's analyses,
however, included a number of assumptions due to the various open issues
remaining. These issues included the method for calculating the exchange ratio
for the Centennial common stock (and particularly the treatment of outstanding
Centennial stock options), the ability to treat
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the merger as a pooling of interests, indemnification provisions, provisions
concerning treatment of existing Centennial employees and restrictive covenants
concerning Centennial's business during the period between signing of the merger
agreement and the completion or termination of the merger. The Centennial board
of directors, after considering the terms of the merger agreement as discussed
at the meeting and the potential advantages and risks associated with the
merger, and after discussing and considering the analyses and presentation of
H.C. Wainwright, discussed with management acceptable parameters within which
the open issues under the merger agreement could be resolved to the board's
satisfaction. On the condition that these open issues could be resolved within
the parameters deemed acceptable to the Centennial board of directors, the board
unanimously determined that the merger was advisable, in the best interests of
Centennial stockholders, and on terms that are fair to the stockholders of
Centennial. Accordingly, the Centennial board of directors unanimously approved
the merger agreement and the merger and recommended that stockholders vote their
shares in favor of adopting and approving the merger agreement and approving the
merger, and further authorized management to complete negotiations of, and
execute, the merger agreement and other related agreements, assuming and on the
condition that the unresolved issues would be resolved within the parameters
established by the board.
Following the Centennial board meeting, members of Centennial and Solectron
management, together with their respective legal and financial advisors,
continued to negotiate the terms of the proposed merger, including the method
for calculating the exchange ratio for Centennial common stock, the
indemnification provisions, provisions concerning treatment of existing
Centennial employees, and the restrictive covenants concerning Centennial's
business during the period between the signing of the merger agreement and the
completion or termination of the merger. The parties also further investigated
whether the merger could be accounted for as a pooling of interests, and
ultimately determined it could not. Such negotiations continued throughout the
week, during which period Centennial continued to exchange certain non-public
due diligence information with Solectron.
On January 18, 2001, Centennial's board of directors met again to discuss
the final terms of the merger with Solectron. At this meeting, Messrs. Hone and
Pulsifer, together with Centennial's legal counsel, updated the board on the
status of the final negotiations. Centennial's legal counsel reviewed for the
board the changes to the terms of the merger agreement since the last board
meeting. In addition, H.C. Wainwright updated its presentation to the board
concerning the fairness, from a financial point of view, of the exchange ratio
set forth in the merger agreement to Centennial's common stockholders, which was
later confirmed in writing, and delivered its opinion that, as of that date, the
exchange ratio, as set forth in the merger agreement was fair, from a financial
point of view, to the holders of Centennial common stock. The Centennial board
of directors considered the terms of the merger agreement, and the potential
advantages and risks associated with the merger, and after discussing and
considering the analyses and opinion of H.C. Wainwright, re-affirmed its
previous unanimous determination that the merger was advisable, in the best
interests of Centennial stockholders and on terms that are fair to the
stockholders of Centennial. Accordingly, the Centennial board of directors
reaffirmed its previous approval of the merger agreement and its prior
recommendation that stockholders vote their shares in favor of adopting and
approving the merger agreement and approving the merger, and its prior
authorization to management to enter into the merger agreement and the other
related agreements. These negotiations and preparation of final definitive
versions of the merger agreement and related agreements continued through the
evening of January 22, 2001 and the agreement was signed on the evening of
January 22, 2001. Early in the morning of January 23, 2001, Centennial and
Solectron issued a joint press release publicly announcing the merger.
CONSIDERATION OF THE MERGER BY CENTENNIAL'S BOARD OF DIRECTORS
CENTENNIAL'S REASONS FOR THE MERGER
Centennial's board of directors consulted with senior management and
Centennial's financial and legal advisors and considered a number of factors,
including those set forth below, in reaching its decision to approve the merger
agreement and the transactions contemplated by the merger agreement, and to
recommend that Centennial's stockholders vote FOR adoption and approval of the
merger agreement and approval of the merger.
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49
The following discussion of Centennial's reasons for the merger contains a
number of forward-looking statements that reflect the current views of
Centennial with respect to future events that may have an effect on its future
financial performance. Forward-looking statements are subject to risks and
uncertainties. Actual results and outcomes may differ materially from the
results and outcomes discussed in the forward-looking statements. Cautionary
statements that identify important factors that could cause or contribute to
differences in results and outcomes include those discussed or incorporated by
reference in the section entitled "Cautionary Statements Regarding
Forward-Looking Statements in this Document" beginning on page 15 of this
document, and the section entitled "Risk Factors" beginning on page 17 of this
document.
Merger Consideration. In addition to the analyses and presentations by
Centennial's financial advisor summarized in the section entitled "Opinion of
Centennial's Financial Advisor" beginning on page 44 of this document, the
Centennial board of directors looked at the premium represented by the
consideration to be offered to the holders of Centennial common stock in the
merger, based upon the same-day price of Solectron common stock compared to the
price of Centennial common stock of $16.75 on January 18, 2001 (a 30.9%
premium), $14.25 on January 11, 2001 (a 45.3% premium), and $12.94 on December
19, 2000 (a 31.5% premium). Centennial's board of directors also considered the
ability of Centennial's stockholders to continue to participate in the growth of
the combined company since the consideration to be received by Centennial's
stockholders consists of shares of Solectron common stock.
Advice from Centennial's Financial Advisor. Centennial's board of directors
considered the detailed presentations made by H.C. Wainwright & Co., Inc.,
Centennial's financial advisor, with respect to the proposed consideration to be
offered to the holders of Centennial's common stock in the merger. The
Centennial board also considered H.C. Wainwright & Co. Inc.'s oral opinion,
which was subsequently confirmed in writing, that, as of the date of its
opinion, the exchange ratio set forth in the merger agreement was fair, from a
financial point of view, to the holders of Centennial common stock. The full
text of this opinion is attached to this document as Annex C.
Review of Prospects in Remaining Independent. Centennial's board of
directors considered Centennial's financial condition, results of operations and
business and earnings prospects if it were to remain an independent entity.
Effect on Employees and Facility. The board of directors of Centennial
considered the possible effect of the merger on the current facility and
employees of Centennial.
Certain Terms of the Merger Agreement Relating to Alternative
Transactions. In evaluating the adequacy of the consideration to be received,
the Centennial board of directors determined that the merger agreement did not
preclude a third party offer for Centennial. In particular, in connection with
an acquisition proposal more favorable from a financial point of view than the
merger, subject to restrictions discussed more fully in the section entitled
"The Merger Agreement and Related Transactions -- The Merger Agreement"
beginning on page 53 of this document, the merger agreement permits the
Centennial board of directors, if required by its fiduciary duties, to:
- provide information to, and engage in discussion or negotiations with, a
third party that makes an unsolicited proposal; and
- withdraw its recommendation that the stockholders vote in favor of
adopting and approving the merger agreement and approving the merger.
Centennial's board of directors also considered that the merger agreement:
- permits Solectron to terminate the merger agreement if the board of
directors withdraws its recommendation in favor of the merger with
Solectron or recommends another proposal; and
- requires Centennial to pay a termination fee to Solectron if the merger
agreement is terminated under some circumstances.
The Centennial board of directors noted that the termination payment
provisions of the merger agreement could have the effect of discouraging
alternative proposals for a business combination between Centennial and a third
party. However, the board of directors concluded that the amount of the fee that
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Centennial may be obligated to pay, and the circumstances under which it may be
payable, are typical for transactions of this size and type, are not likely to
discourage any such proposals and were necessary to induce Solectron to enter
into the merger agreement.
Limited Closing Conditions. The Centennial board of directors considered
the limited nature of the closing conditions included in the merger agreement,
including regulatory consents, and the likelihood that the merger agreement
would be approved by Centennial's stockholders.
Realization of Liquidity. The Centennial board of directors considered the
historical and continued relative illiquidity of Centennial's common stock. The
Centennial board believes that some of this lack of liquidity is due to the
absence of listing of Centennial common stock on a major stock exchange or the
Nasdaq National Market until November 30, 2000. In addition, in the board's
opinion, the absence of material market analyst coverage and relatively small
market capitalization of Centennial have also been factors contributing to the
relative illiquidity of Centennial's common stock. By providing for the exchange
of Centennial common stock for Solectron common stock, the merger may enable
existing Centennial stockholders to experience the advantages of a more liquid
investment, as Solectron common stock has historically experienced much higher
trading volumes than Centennial common stock and is listed on the New York Stock
Exchange.
The foregoing discussion of the information and factors considered by
Centennial's board of directors, while not exhaustive, includes the material
factors considered by the board of directors. In view of the variety of factors
considered in connection with its evaluation of the merger, Centennial's board
of directors did not find it practicable to, and did not, quantify or otherwise
assign relative or specific weight or values to any of these factors, and
individual directors may have given different weights to different factors.
RECOMMENDATION OF CENTENNIAL'S BOARD OF DIRECTORS
After careful consideration, Centennial's board of directors has
unanimously determined that the merger agreement is advisable, in the best
interests of Centennial stockholders, and on terms that are fair to the
stockholders of Centennial. Accordingly, the Centennial board of directors has
unanimously approved the merger agreement and the merger, and RECOMMENDS THAT
CENTENNIAL STOCKHOLDERS VOTE FOR THE ADOPTION AND APPROVAL OF THE MERGER
AGREEMENT AND APPROVAL OF THE MERGER.
OPINION OF CENTENNIAL'S FINANCIAL ADVISOR
H.C. Wainwright & Co., Inc. has acted as financial advisor to Centennial in
connection with the merger. As part of its engagement, H.C. Wainwright delivered
its oral opinion to Centennial's board of directors at that board's January 18,
2001 meeting that, as of that date, and based upon and subject to various
considerations set forth in its opinion, the exchange ratio set forth in the
merger agreement was fair, from a financial point of view, to the holders of
Centennial common stock. H.C. Wainwright subsequently confirmed its opinion in
writing.
THE FULL TEXT OF H.C. WAINWRIGHT'S WRITTEN OPINION, DATED JANUARY 18, 2001,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND REVIEW UNDERTAKEN BY H.C. WAINWRIGHT, IS ATTACHED TO THIS DOCUMENT AS ANNEX
C AND IS INCORPORATED INTO THIS DOCUMENT BY REFERENCE. CENTENNIAL STOCKHOLDERS
ARE URGED TO CAREFULLY READ THIS OPINION IN ITS ENTIRETY. THE SUMMARY OF H.C.
WAINWRIGHT'S OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
In arriving at its opinion, H.C. Wainwright, among other things:
- reviewed and analyzed publicly available financial statements for
Centennial and Solectron and financial information made available to it
by Centennial's management;
- analyzed internal financial statements, including financial projections
and other financial and operating data prepared by Centennial's
management;
- discussed with Centennial's management, Centennial's past, current and
future prospects;
- compared selected financial and stock market information for Centennial
and Solectron with similar information for selected companies whose
securities are publicly traded;
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- reviewed the financial terms of selected recent business combinations
which it deemed comparable in whole or in part;
- reviewed the merger agreement; and
- performed those other studies and analyses and considered those other
factors as it deemed appropriate.
In arriving at its opinion, H.C. Wainwright assumed and relied upon,
without independent verification, the accuracy and completeness of all of the
financial and other information reviewed by it for the purposes of providing its
opinion, and did not assume any responsibility for independent verification of
that information. H.C. Wainwright did not assume any responsibility for the
independent valuation and appraisal of any of Centennial's assets and
liabilities. With respect to financial projections, H.C. Wainwright assumed that
they were reasonably prepared by Centennial's management on a basis reflecting
the best currently available estimates and judgments of Centennial's future
financial performance. H.C. Wainwright expresses no view as to those projections
or the assumptions on which they were based. H.C. Wainwright's opinion was
necessarily based upon financial, economic, market and other conditions as they
existed on the date of its opinion.
The projections furnished to H.C. Wainwright were prepared by Centennial's
management. Centennial does not publicly disclose internal management
projections of the type provided to H.C. Wainwright in connection with H.C.
Wainwright's analysis of the merger, and those projections were not prepared
with a view toward public disclosure. These projections were based on numerous
variables and assumptions that are inherently uncertain and may be beyond the
control of management, including, without limitation, factors related to general
economic and competitive conditions. Accordingly, actual results could vary
significantly from those set forth in those projections.
Set forth below is a brief summary of the material financial analyses
performed by H.C. Wainwright in connection with its opinion and reviewed with
Centennial's board of directors on January 18, 2001.
Analysis of Selected Publicly Traded Companies
H.C. Wainwright compared selected financial information and commonly used
valuation measurements for Centennial to corresponding information and
measurements for a group of five publicly traded companies who met specified
selection criteria (the SELECTED COMPANIES). Each of the Selected Companies was:
- a manufacturer of memory and storage products;
- whose products are manufactured primarily for the computer and
communications industries; and
- whose major customers include original equipment manufacturers (OEMs).
Based on these criteria, the Selected Companies were:
- Dataram Corporation
- Integrated Silicon Solution
- M-Systems Flash Disk
- Simple Technology, Inc.
- White Electronic Designs
H.C. Wainwright analyzed the relative performance and value of Centennial
by comparing selected publicly available financial data of Centennial with the
Selected Companies, including multiples of:
- market price to fully diluted earnings per share for the preceding twelve
months;
- market price to book value as of the latest available financial data;
- adjusted market value (defined as common equity market valuation plus
total debt and preferred stock less cash and cash equivalents) as a
multiple of the preceding twelve months revenue;
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- adjusted market value as a multiple of the preceding twelve months EBITDA
(defined as pretax income plus interest expense, less interest income,
plus depreciation and amortization, excluding non-operating income and
expense); and
- adjusted market value as a multiple of the preceding twelve months EBIT
(defined as pretax income plus interest expense, less interest income,
excluding non-operating income and expense).
To calculate the trading multiples, H.C. Wainwright used, for the Selected
Companies, publicly available historical financial information concerning
historical financial performance and earnings estimates reported by FactSet and
Bloomberg, and for Centennial, historical financial information and projections
provided by Centennial's management. H.C. Wainwright calculated the ratio of
price per share to earnings for the preceding twelve months and book value as of
the latest available financial data, and the ratio of adjusted market value to
revenue, EBITDA and EBIT for the preceding twelve months, as set forth below:
- ---------------------------------------------------------------------------------------------------------------
MULTIPLES FOR CENTENNIAL MULTIPLES FOR SELECTED
IMPLIED BY MERGER COMPANIES
--------------------------------------------------------------
AS REPORTED AS ADJUSTED* MEAN MEDIAN
- ---------------------------------------------------------------------------------------------------------------
Adjusted Market Value to Revenue 1.5x 1.8x 1.6x 1.5x
- ---------------------------------------------------------------------------------------------------------------
Adjusted Market Value to EBITDA 7.1x 10.7x 13.8x 10.3x
- ---------------------------------------------------------------------------------------------------------------
Adjusted Market Value to EBIT 7.7x 10.7x 17.1x 12.1x
- ---------------------------------------------------------------------------------------------------------------
Price to earnings per share 10.0x 14.8x 17.3x 17.8x
- ---------------------------------------------------------------------------------------------------------------
Price to book value per share 4.3x 4.3x 3.7x 3.5x
- ---------------------------------------------------------------------------------------------------------------
* Excludes revenues from sales of electronic components, which Centennial
considers non-recurring.
Based on the multiples for the Selected Companies set forth in the table
above, and other customary valuation methodologies utilized by H.C. Wainwright,
H.C. Wainwright developed relevant multiple ranges for each of these valuation
methods described in the table. Based on this information, H.C. Wainwright
estimated that the implied enterprise value for Centennial in the merger based
on this analysis was approximately between $102 million and $113 million. This
compares to the transaction value of $110 million based on the closing price of
Solectron common stock on January 18, 2001.
None of the Selected Companies are identical to Centennial. Accordingly,
H.C. Wainwright believes the analysis of publicly traded comparable companies is
not simply mathematical in nature. Rather, this analysis involves complex
considerations and qualitative judgments, reflected in H.C. Wainwright's
opinion, concerning differences in financial and operating characteristics of
the Selected Companies and other factors that could affect the public trading
value of the Selected Companies.
Analysis of Selected Precedent Transactions
H.C. Wainwright reviewed the financial terms, to the extent publicly
available, of seventeen proposed, pending or completed merger and acquisition
transactions since January 1, 1998, involving targets who were manufacturers of
storage and/or memory products for the computer and communications industries
(the STORAGE AND MEMORY PRODUCTS TRANSACTIONS) or manufacturers of printed
circuit board and other electronic connector products for the computer and
communication industries (the PRINTED CIRCUIT BOARD TRANSACTIONS).
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The Storage and Memory Products Transactions reviewed were:
- ------------------------------------------------------------------------------------------------
DATE TARGET ACQUIROR
- ------------------------------------------------------------------------------------------------
04/03/00 Real World Electronics VerticalNet
- ------------------------------------------------------------------------------------------------
03/07/00 VST Technologies SmartDisk
- ------------------------------------------------------------------------------------------------
12/30/99 INTC Flash Memory Division Centennial Technologies
- ------------------------------------------------------------------------------------------------
09/13/99 SMART Modular Technologies Solectron Corporation
- ------------------------------------------------------------------------------------------------
05/04/98 Electronic Designs Bowmar Instrument
- ------------------------------------------------------------------------------------------------
10/01/98 TI Memory Chip Division Micron Technology
- ------------------------------------------------------------------------------------------------
The Printed Circuit Board Transactions reviewed were:
- ------------------------------------------------------------------------------------------------
DATE TARGET ACQUIROR
- ------------------------------------------------------------------------------------------------
10/26/99 Praegitzer Industries Tyco International
- ------------------------------------------------------------------------------------------------
10/03/00 Robinson Nugent 3M
- ------------------------------------------------------------------------------------------------
03/16/00 GSS Array Technology ACT Manufacturing
- ------------------------------------------------------------------------------------------------
07/03/00 TNB -- Electronic OEM Unit Tyco International
- ------------------------------------------------------------------------------------------------
07/01/99 ADFlex Solutions Innovex
- ------------------------------------------------------------------------------------------------
08/05/99 Termbray -- PCB Unit Viasystems
- ------------------------------------------------------------------------------------------------
11/02/98 IMS Inc. Celestica
- ------------------------------------------------------------------------------------------------
09/02/98 Altron, Inc. Sanmina
- ------------------------------------------------------------------------------------------------
06/02/98 Sigma Circuits Tyco International
- ------------------------------------------------------------------------------------------------
02/17/98 Continental Circuits Hadco Corporation
- ------------------------------------------------------------------------------------------------
02/23/98 LMT -- Commercial Electronics Benchmark Electronics
- ------------------------------------------------------------------------------------------------
H.C. Wainwright calculated for each of the Storage and Memory Products
Transactions and the Printed Circuit Board Transactions, the ratio of
transaction value (defined as equity value plus debt and preferred stock, less
cash and cash equivalents) to revenue, EBITDA, EBIT and net income for the
twelve month period prior to the announcement of the transaction and compared
them to the corresponding transaction value ratios for Centennial implied by the
merger (except in the case of net income, where H.C. Wainwright compared equity
value, which H.C. Wainwright considers to be the industry practice). The
following tables summarize the results of these analyses:
- ---------------------------------------------------------------------------------------------------------------
MULTIPLES FOR CENTENNIAL MULTIPLES FOR SELECTED
IMPLIED BY MERGER TRANSACTIONS
STORAGE AND MEMORY PRODUCTS --------------------------------------------------------------
TRANSACTIONS AS REPORTED AS ADJUSTED* MEAN MEDIAN
- ---------------------------------------------------------------------------------------------------------------
Transaction value to revenue 1.5x 1.8x 0.7x 0.6x
- ---------------------------------------------------------------------------------------------------------------
Transaction value to EBITDA 7.1x 10.7x 11.7x 11.0x
- ---------------------------------------------------------------------------------------------------------------
Transaction value to EBIT 7.7x 10.7x 13.8x 12.1x
- ---------------------------------------------------------------------------------------------------------------
Equity Value to net income 10.0x 14.8x 14.0x 11.9x
- ---------------------------------------------------------------------------------------------------------------
* Excludes revenues from sales of electronic components, which Centennial
considers non-recurring.
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Based on the multiples for the Storage and Memory Products Transactions set
forth in the table above, and other customary valuation methodologies utilized
by H.C. Wainwright, H.C. Wainwright estimated that the implied enterprise value
for Centennial in the merger based on this analysis was approximately between
$91 million and $104 million. This compares to the transaction value of $110.2
million based on the closing price of Solectron common stock on January 18,
2001.
- ---------------------------------------------------------------------------------------------------------------
MULTIPLES FOR CENTENNIAL MULTIPLES FOR SELECTED
IMPLIED BY MERGER TRANSACTIONS
PRINTED CIRCUIT BOARD --------------------------------------------------------------
TRANSACTIONS AS REPORTED AS ADJUSTED* MEAN MEDIAN
- ---------------------------------------------------------------------------------------------------------------
Transaction value to revenue 1.5x 1.8x 0.9x 0.8x
- ---------------------------------------------------------------------------------------------------------------
Transaction value to EBITDA 7.1x 10.7x 7.6x 7.0x
- ---------------------------------------------------------------------------------------------------------------
Transaction value to EBIT 7.7x 10.7x 12.7x 11.6x
- ---------------------------------------------------------------------------------------------------------------
Equity Value to net income 10.0x 14.8x 20.7x 18.7x
- ---------------------------------------------------------------------------------------------------------------
* Excludes revenues from sales of electronic components, which Centennial
considers non-recurring.
Based on the multiples for the Printed Circuit Board Transactions set forth
in the table above, and other customary valuation methodologies utilized by H.C.
Wainwright, H.C. Wainwright estimated that the implied enterprise value for
Centennial in the merger based on this analysis was approximately between $97
million and $108 million. This compares to the transaction value of $110 million
based on the closing price of Solectron common stock on January 18, 2001.
Transaction Premium Analysis
H.C. Wainwright also calculated for selected Storage and Memory Products
Transactions and Printed Circuit Board Transactions, the premiums or discounts
to the acquired companies' per share market price one day prior to the
announcement of the transaction, one week prior to the announcement of the
transaction and four weeks prior to the announcement of the transaction. H.C.
Wainwright excluded from this analysis any transaction which involved the sale
of a division or unit or any transaction for which information was not
available. The following table summarizes the results of this analysis:
- ----------------------------------------------------------------------------------------------------------
PREMIUM TO PRE-ANNOUNCEMENT STOCK PRICES
----------------------------------------------
SELECTED TRANSACTIONS 1 DAY 1 WEEK 4 WEEKS
- ----------------------------------------------------------------------------------------------------------
Mean 26.0 % 47.5 % 32.0 %
- ----------------------------------------------------------------------------------------------------------
Median 16.2 % 26.0 % 20.0 %
- ----------------------------------------------------------------------------------------------------------
Centennial* 30.9 % 45.3 % 31.5 %
- ----------------------------------------------------------------------------------------------------------
* Based on the per share market price on and one week and four weeks,
respectively, prior to January 18, 2001.
All multiples for these Storage and Memory Products Transactions and
Printed Circuit Board Transactions were based on public information available at
the time of announcement of that transaction, without taking into account
differing market and other conditions during the two-year period during which
these Storage and Memory Products Transactions and Printed Circuit Board
Transactions occurred.
Because the reasons for, and circumstances surrounding, each of the
precedent transactions analyzed were so diverse, and due to the inherent
differences between Centennial's operations and financial condition and those of
the companies involved in these Storage and Memory Products Transactions and the
Printed Circuit Board Transactions, H.C. Wainwright believes that a comparable
transaction analysis is not simply mathematical in nature. Rather, this analysis
involves complex considerations and qualitative judgments, reflected in H.C.
Wainwright's opinion, concerning differences between the characteristics of
these prior transactions and the merger that could affect the value of the these
companies and businesses and Centennial.
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Exchange Ratio Analysis
H.C. Wainwright also reviewed the ratios of the closing prices of
Centennial common stock divided by the corresponding closing prices of Solectron
common stock over various periods during the twelve month period ending January
18, 2001. H.C. Wainwright examined the premia represented by the exchange ratio
over the averages of these daily ratios over various periods. The following
table summarizes the results of this analysis.
PERIOD ENDING PERIOD AVERAGE TRANSACTION PREMIUM TO
JANUARY 18, 2001 EXCHANGE RATIO PERIOD AVERAGE EXCHANGE RATIO(1)
---------------- -------------- --------------------------------
Last Twelve Months................. 0.3138x 70.81%
Last 120 Days...................... 0.3951x 35.65%
Last 90 Days....................... 0.4190x 27.93%
Last 60 Days....................... 0.4311x 24.33%
Last 30 Days....................... 0.4003x 33.91%
Last 20 Days....................... 0.3777x 41.90%
Last 10 Days....................... 0.4026x 33.13%
Last 5 Days........................ 0.3958x 35.43%
January 18, 2001................... 0.4096x 30.85%
- -------------------------
(1) Calculations based on an exchange ratio of 0.536.
Sources: Bloomberg and FactSet.
Discounted Cash Flow Analysis
H.C. Wainwright performed a discounted cash flow analysis for Centennial.
H.C. Wainwright calculated the discounted cash flow value for Centennial as the
sum of the net present values of (i) the estimated future cash flow that
Centennial will generate for the years 2001 through 2006, plus (ii) Centennial's
value at the end of that period. The estimated future cash flows were based on
the financial projections and growth rates for Centennial for the years 2001
through 2006, both provided by Centennial's management. The following table
summarizes the results of this analysis.
- --------------------------------------------------------------------------------------------------------------
MULTIPLES IMPLIED BY
DISCOUNTED CASH FLOW ANALYSIS MULTIPLES FOR CENTENNIAL DISCOUNTED CASH FLOW
IMPLIED BY MERGER ANALYSIS
-----------------------------------------------------------------
AS REPORTED AS ADJUSTED* LOW HIGH
- --------------------------------------------------------------------------------------------------------------
Transaction value to revenue 1.5x 1.8x 1.4x 1.6x
- --------------------------------------------------------------------------------------------------------------
Transaction value to EBITDA 7.1x 10.7x 8.7x 9.8x
- --------------------------------------------------------------------------------------------------------------
Transaction value to EBIT 7.7x 10.7x 8.7x 9.8x
- --------------------------------------------------------------------------------------------------------------
Equity Value to net income 10.8x 14.8x 12.2x 13.6x
- --------------------------------------------------------------------------------------------------------------
* Excludes revenues from sales of electronic components, which Centennial
considers non-recurring.
Based on the multiples described in the table above, and other customary
valuation methodologies utilized by H.C. Wainwright, H.C. Wainwright estimated
that the implied enterprise value for Centennial in the merger based on this
analysis was approximately between $90 million and $101 million. This compares
to the transaction value of $110 million based on the closing price of Solectron
common stock on January 18, 2001.
In arriving at its opinion, H.C. Wainwright performed a variety of
financial analyses, the material portions of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by H.C. Wainwright or of H.C. Wainwright's presentation to
Centennial's board of directors. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, the opinion is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion,
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H.C. Wainwright did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, H.C.
Wainwright believes that its analyses must be considered as a whole and that
selecting portions of its analyses and the factors considered by it, without
considering all of the analyses and factors, could create an incomplete view of
the process underlying its analyses set forth in its opinion.
H.C. Wainwright's opinion does not imply any conclusion as to the likely
trading range for Solectron's common stock after the date of its opinion or when
issued to Centennial's stockholders in the merger. In performing its analyses,
H.C. Wainwright made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Centennial and Solectron. Any estimates
contained in those analyses are not necessarily indicative of actual past or
future results or values, which may be significantly more or less than those
estimates. Actual values will depend upon several factors, including changes in
interest rates, market conditions, general economic conditions and other factors
that generally influence the price of securities.
The terms of the merger were determined through negotiations between
Centennial and Solectron and were approved by Centennial's board of directors.
Although H.C. Wainwright provided advice to Centennial during the course of
these negotiations, the decision to enter into the merger was solely that of
Centennial's board of directors. As described above, the opinion and
presentation of H.C. Wainwright to Centennial's board of directors were only one
of a number of factors taken into consideration by Centennial's board of
directors in making its determination to approve the merger agreement and the
merger. H.C. Wainwright's opinion does not address the merits of the underlying
decision by Centennial to enter into the merger agreement or to consummate the
transactions contemplated by the merger agreement, and does not constitute a
recommendation to any stockholder as to how that stockholder should vote on the
merger agreement and the merger.
Centennial selected H.C. Wainwright as its financial advisor in connection
with the merger based on H.C. Wainwright's qualifications, expertise, reputation
and experience in mergers and acquisitions. Centennial originally retained H.C.
Wainwright pursuant to a letter agreement, dated August 23, 2000, as
supplemented by a separate letter agreement with respect to the merger, dated
December 26, 2000. Centennial agreed to pay H.C. Wainwright a $50,000 retainer
in connection with its original retention. Under the December 26, 2000 letter
agreement, Centennial agreed to pay H.C. Wainwright an additional financial
advisory fee of $150,000 in connection with H.C. Wainwright's rendering of its
opinion. Centennial has also agreed to pay H.C. Wainwright a transaction fee
equal to between 1% and 2.5% of the aggregate consideration in the merger upon
consummation of the merger. As of January 23, 2001, the date of the public
announcement of the merger, the transaction fee payable to H.C. Wainwright would
be approximately $2,990,000 based on the aggregate consideration. As the value
of the aggregate consideration in the merger may be different at the time of the
merger, the transaction fee payable may be higher or lower than this amount.
Regardless of whether the merger is consummated, subject to the approval by
Centennial in certain instances, Centennial has agreed to reimburse H.C.
Wainwright for fees and disbursements of H.C. Wainwright's counsel and for H.C.
Wainwright's travel and other out-of-pocket expenses incurred in connection with
the merger. Centennial has also agreed to indemnify H.C. Wainwright and certain
related persons to the full extent lawful against various liabilities, including
liabilities under the federal securities laws arising out of its engagement or
the merger.
H.C. Wainwright is an internationally recognized investment banking firm
experienced in providing advice in connection with merger and acquisitions and
related transactions. In the ordinary course of its business, H.C. Wainwright
may effect transactions, for its own account or for the account of customers,
and hold at any time a long or short position in securities of Centennial or
Solectron.
INTERESTS OF CENTENNIAL'S DIRECTORS AND OFFICERS IN THE MERGER
When you are considering the recommendation of Centennial's board of
directors with respect to approving the merger agreement and the merger, you
should be aware that some of the directors and
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executive officers of Centennial have interests in the merger and participate in
arrangements that are different from, or are in addition to, those of Centennial
stockholders generally. The Centennial board of directors was aware of these
interests and considered them, among other matters, when it approved the merger
agreement and the merger. These interests include the following:
Accelerated Vesting of Options
With limited exceptions, the vesting restrictions on all outstanding
options held by directors and executive officers to purchase Centennial stock
will accelerate, thereby causing such stock options to become fully vested and
exercisable immediately prior to the closing of the merger. The aggregate number
of shares of Centennial common stock issuable upon the exercise of unvested
options held by directors and executive officers as of January 22, 2001, the
date of the merger agreement, was 174,663 shares. Pursuant to the terms of the
merger agreement, all options to purchase Centennial common stock will be
assumed by Solectron in the merger and converted into options to purchase
Solectron common stock. For further discussion about the treatment of Centennial
options in the merger, see the section entitled "-- The Merger
Agreement -- Treatment of Centennial Stock Options" on page 61 of this document.
Executive Employment, Severance and Retention Agreements
On May 22, 2000, Centennial entered into an executive employment agreement
with L. Michael Hone, Centennial's President and Chief Executive Officer. The
executive employment agreement continues through May 22, 2003, and provides that
it is to be automatically extended each year for additional one-year periods,
unless Centennial gives prior notice of non-renewal. The executive employment
agreement provides that Mr. Hone could be entitled to severance benefits
following the merger. If, following the merger, Mr. Hone's employment is
terminated for any reason, other than for disability or for cause, or if Mr.
Hone terminates his employment for good reason (as defined in the executive
employment agreement), then Mr. Hone is entitled to a severance payment that
will be equal to the product of the sum of his current annual base salary and
most recent annual bonus from Centennial, multiplied by the remaining term of
the executive employment agreement. The severance payment generally would be
made in the form of a lump sum cash payment. In addition, Centennial would also
be obligated to provide Mr. Hone with all of the health and other insurance and
other benefits to which he was entitled under his executive employment agreement
for 36 months following his termination of employment. In the event that the
severance payment would be subjected to the excise tax imposed by Section 4999
of the Internal Revenue Code, Centennial would be required to make a "gross up"
payment to Mr. Hone to enable him to pay the excise taxes and all other taxes
imposed on this gross-up payment.
On April 11, 2000, Centennial entered into executive severance agreements
with Richard N. Stathes (Executive Vice President, Worldwide Sales and
Marketing), Jacques Assour (Senior Vice President, Operations), Richard J.
Pulsifer (Vice President, Chief Financial Officer and Secretary) and Mary A.
Gallahan (Vice President of Administration and Human Resources). Under each of
the executive severance agreements, Centennial will be obligated to pay the
covered executive officer a severance amount if Centennial, or its successor,
terminates the employment of the executive officer without cause or if such
executive officer terminates his or her employment for good reason. Under the
executive severance agreement with Mr. Stathes, the severance amount will be
equal to eighteen months of his base salary. Under the executive severance
agreement with Dr. Assour, the severance amount will be equal to fifteen months
of his base salary. Under the executive severance agreements with Mr. Pulsifer
and Ms. Gallahan, the severance amount will be equal to twelve months of his or
her base salary. The severance payments generally would be made either in the
form of a lump sum cash payment or in bi-weekly installments, at the discretion
of Centennial or its successor. If it terminated a covered executive without
cause, Centennial, or its successor, would also be obligated to provide the
covered executive with all of the health and other insurance benefits to which
the covered executive was entitled at the time of his or her termination for a
period of time equal to the number of months of salary included in the severance
amount.
During 1999, Centennial entered into retention agreements with Mr. Hone,
Mr. Stathes, Dr. Assour, Mr. Pulsifer, Ms. Gallahan and John C. Nugent, Managing
Director of Centennial Technologies
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International Limited. The retention agreements continue through March 31, 2001
and provide that they are to be automatically extended each year for additional
one-year terms unless Centennial gives prior notice of termination. The
retention agreements provide that the covered executive officer could be
entitled to certain severance benefits following the merger. If, following the
merger, the executive officer's employment is terminated for any reason, other
than for disability or for cause, or if such executive officer terminates his or
her employment for good reason, then the executive officer is entitled to a
severance payment that will be equal to the sum of the executive officer's
highest annual base salary and highest annual bonus from Centennial during the
five-year period prior to the merger, multiplied by a factor of 2.5 (or 3.0 in
the case of Mr. Hone). The severance payments generally would be made in the
form of a lump sum cash payment. In addition, Centennial would also be obligated
to provide the covered executive with all of the health and other insurance
benefits to which the covered executive was entitled at the time of his or her
termination for 30 months following his or her termination of employment. In the
event that any severance payments would be subjected to the excise tax imposed
by Section 4999 of the Internal Revenue Code, Centennial would be required to
make "gross up" payments to the affected executives to enable them to pay the
excise taxes and all other taxes imposed on this gross-up payment.
Any payments to Mr. Stathes, Dr. Assour, Mr. Pulsifer, Ms. Gallahan or Mr.
Nugent under their retention agreements are in lieu of any payments to them
under their executive severance agreements. Any payments to Mr. Hone under his
retention agreement are in addition to any payments to him under his executive
employment agreement. In the event that the employment of the executive officers
is terminated immediately after the merger, it is estimated that, based on
specific assumptions, the severance payments payable under these agreements,
plus the value of the related benefits and vesting of unvested stock options,
would be approximately $5,940,000 to Mr. Hone, $1,524,186 to Mr. Stathes,
$1,197,385 to Dr. Assour, $889,329 to Mr. Pulsifer, $798,207 to Ms. Gallahan,
and $919,615 to Mr. Nugent. Additionally, the gross-up payments are estimated to
be approximately $3,317,500 to Mr. Hone, $721,750 for Mr. Stathes, $558,807 for
Dr. Assour, $378,032 for Mr. Pulsifer, and $347,937 for Ms. Gallahan.
Indemnification and Directors and Officers Insurance
Centennial officers and directors are entitled to continuing
indemnification against some liabilities by virtue of provisions contained in
Centennial's certificate of incorporation, by-laws and the merger agreement.
Unless required by applicable law, for a period of six years following the
completion of the merger, Solectron has agreed to cause Centennial's certificate
of incorporation and bylaws to contain exculpation and indemnification
provisions that are at least as favorable to Centennial's current directors and
officers as were in effect on the date that the merger agreement was signed. The
merger agreement also provides that Centennial may purchase either a new
directors' and officers' insurance policy or a "tail" under Centennial's
existing policy to provide the currently covered directors and officers of
Centennial with liability insurance coverage for six years following the
completion of the merger for actions and omissions prior to the completion of
the merger. In addition, the merger agreement requires that Solectron honor the
existing indemnification agreements between Centennial and its directors and
officers. On January 12, 2001, Centennial entered into indemnification
agreements with each of its directors and executive officers which provide the
covered directors and officers with indemnification rights, including the right
to be advanced payments for incurred expenses in some circumstances. Centennial
believes that the terms of the indemnification agreements are generally
customary and in line with those indemnification provisions other similar public
companies provide to their directors and officers.
CONSIDERATION OF THE MERGER BY SOLECTRON'S BOARD OF DIRECTORS
The Solectron board of directors approved the merger agreement and the
merger because it determined that the combined company would have the potential
to realize a stronger competitive position and improved long-term operating and
financial results. In particular, the Solectron board of directors believes that
the merger will allow Solectron and Centennial the opportunity to:
- provide existing and new customers a more complete range of products and
services;
- capitalize on the strength of some industries served by Centennial;
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- benefit from combining established customer and supplier relationships of
both companies;
- leverage manufacturing and production resources and PC card manufacturing
technology; and
- cross-sell products into each other's installed customer base.
The Solectron board of directors also believes that the merger will
contribute to the success of the combined companies because:
- the merger offers the opportunity to better serve the demands of many
customers who order small quantities of products, which segment of the
business is often more profitable than serving few customers who order
significant quantities of such products; and
- the merger will further strengthen Solectron's pool of sales and
engineering talent.
After taking into account these and other factors, the Solectron board of
directors unanimously determined that the merger agreement and the merger were
in the best interests of Solectron and its stockholders and that Solectron
should enter into the merger agreement and complete the merger.
THE MERGER AGREEMENT
STRUCTURE OF THE MERGER
Under the terms of the merger agreement, Centers will be merged with and
into Centennial, and Centennial will survive the merger as a wholly-owned
subsidiary of Solectron.
COMPLETION AND EFFECTIVENESS OF THE MERGER
We will complete the merger when all of the conditions to completion of the
merger contained in the merger agreement have been satisfied or waived. The
merger will become effective upon the filing of a certificate of merger with the
State of Delaware. Centennial and Solectron expect to file the certificate of
merger shortly following the special meeting of Centennial stockholders at which
the merger agreement and the merger will be considered and voted upon.
We are working toward satisfying these conditions and completing the merger
as quickly as possible. We currently plan to complete the merger during the
second calendar quarter of 2001. Because the merger is subject to governmental
and regulatory approvals and other conditions, some of which are beyond our
control, we cannot predict the exact timing.
CONVERSION OF CENTENNIAL SERIES B CONVERTIBLE PREFERRED STOCK IN THE MERGER
In connection with the acquisition of a flash memory card business of Intel
Corporation, Centennial issued 60,000 shares of series B convertible preferred
stock, par value $0.01 per share. The series B convertible preferred stock
converts at a ratio of 10 to 1 and has a liquidation preference value of $80.00
per preferred share. The series B convertible preferred stock is not redeemable
and ranks senior to Centennial common stock and to all other classes or series
of equity securities of Centennial which by their terms do not rank senior to
Centennial's series A junior participating preferred stock. The preferred stock
shares are entitled to a number of votes in any matter submitted to the
stockholders of Centennial equal to the number of shares of Centennial common
stock into which they are then convertible.
The holders of Centennial series B convertible preferred stock are entitled
to receive, when and if declared by the board of directors of Centennial,
dividends in the same amount per share as would be payable on the number of
shares of Centennial common stock into which the preferred stock is then
convertible, payable in preference and in priority to any payment of any cash
dividend on common stock or any other class of stock or series thereof.
As of -, 2001 the 60,000 shares of series B convertible preferred stock
represent 600,000 shares, or approximately 15.1% of Centennial's total voting
shares.
At the effective time of the merger, each such share of Centennial series B
convertible preferred stock issued and outstanding immediately prior to the
merger will be canceled and extinguished and automatically converted into the
right to receive $80.00 in cash (payable in U.S. currency in immediately
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available funds) pursuant to the terms of the merger agreement and Centennial's
certificate of designation of rights, preferences and terms of the series B
convertible preferred stock.
If all of the shares of series B convertible preferred stock were converted
prior to the merger, they could be converted into 600,000 shares of Centennial
common stock. Alternatively, if all these shares remain outstanding at the time
of the merger, they would convert in to the right to receive an aggregate of
$4.8 million in cash from Solectron.
Neither Centennial nor Solectron can predict if the holder of the series B
convertible preferred stock will exercise the right to convert prior to the
effective time of the merger. If the shares are converted into Centennial common
stock prior to the merger, such shares of Centennial common stock will be
treated as all other Centennial common stock shares outstanding and will be
entitled to have such shares converted into the right to receive that number of
Solectron common stock shares as determined pursuant to the merger agreement.
CONVERSION OF CENTENNIAL COMMON STOCK IN THE MERGER
At the effective time of the merger, by virtue of the merger and without
any action on the part of Solectron, Centers, Centennial or any of their
respective securityholders, each outstanding share of Centennial common stock
issued and outstanding immediately prior to the effective time will be canceled
and extinguished and automatically converted into the right to receive a fixed
number of shares of Solectron common stock based on an exchange ratio to be
calculated at the completion of the merger.
Assuming that all of Centennial's series B convertible preferred stock is
converted into Centennial common stock prior to the merger, the exchange ratio
for Centennial common stock in the merger will be calculated by dividing
2,960,000 by the sum of all shares of Centennial common stock outstanding
immediately prior to the effective time of the merger (including the number of
shares of Centennial common stock issued upon the conversion of Centennial's
outstanding series B convertible preferred stock and shares of Centennial common
stock issued upon the exercise of all purchase rights outstanding under
Centennial's employee stock purchase plan and shares of Centennial common stock
issuable upon the exercise of Centennial stock options outstanding immediately
prior to the effective time of the merger). In the event that all of
Centennial's outstanding series B convertible preferred stock is not converted
into Centennial common stock prior to the merger, the exchange ratio for the
merger will be calculated in the same manner except that the numerator in the
calculation of the exchange ratio will be 2,960,000 minus a quotient, the
numerator of which is the product of $80.00 times the number of shares of
Centennial's series B convertible preferred stock outstanding immediately prior
to the effective time of the merger, and the denominator of which is the average
closing price of Solectron common stock during the five trading days prior to
the effective time of the merger, as reported on the New York Stock Exchange.
Based upon Centennial's capitalization on the date of this document and
assuming that all of Centennial's series B convertible preferred stock is
converted into Centennial common stock prior to the effective time of the
merger, the exchange ratio for the merger would be approximately 0.536. Based
upon Centennial's capitalization on the date of this document, assuming that
none of Centennial's series B convertible preferred stock is converted into
Centennial common stock prior to the effective time of the merger, and further
assuming that the average closing price of Solectron common stock during the
five trading days prior to the effective time of the merger is equal to the
closing price of Solectron common stock on the date prior to the date of this
document (i.e., $29.50), the exchange ratio for the merger would be
approximately 0.569. These examples are based upon assumptions that may or may
not be accurate at the effective time of the merger. The actual exchange ratio
for Centennial common stock in the merger may differ from these examples.
The exchange ratio for the merger will also be adjusted to reflect the
effect of any forward stock split, reverse stock split, stock dividend
(including any dividend or distribution of securities convertible into Solectron
common stock or Centennial common stock), extraordinary cash dividend,
reorganization, recapitalization, reclassification, combination, exchange of
shares or other like changes with respect to Solectron common stock or
Centennial common stock occurring prior to the effective time of the merger.
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Each share of Centennial common stock held by Centennial, Solectron,
Centers or any direct or indirect wholly-owned subsidiary of Solectron
immediately prior to the effective time of the merger will be canceled and
extinguished.
FRACTIONAL SHARES
No fractional shares of Solectron common stock will be issued in connection
with the merger. In lieu of a fraction of a share of Solectron common stock each
holder of Centennial common stock who would otherwise be entitled to receive a
fraction of a share of Solectron common stock will receive an amount of cash,
without interest, and rounded to the nearest cent, determined by multiplying
such fraction by the average closing price of a share of Solectron common stock
for the five most recent days that Solectron common stock has traded ending on
the trading day immediately prior to the effective date of the merger, as
reported on the New York Stock Exchange.
EXCHANGE OF CENTENNIAL STOCK CERTIFICATES FOR SOLECTRON STOCK CERTIFICATES
Promptly after the effective time of the merger, if you are the holder of a
Centennial stock certificate EquiServe Trust, N.A., the exchange agent for the
merger, will mail to you a letter of transmittal and instructions for
surrendering your Centennial stock certificates in exchange for Solectron stock
certificates, cash in lieu of a fractional share of Solectron common stock and
any dividends or other distributions, if any, to which you are or may be
entitled, or in the case of a holder of Centennial's series B convertible
preferred stock, the $80.00 per share cash consideration payable in respect of
Centennial preferred stock. When you deliver your Centennial stock certificates
to EquiServe Trust, N.A. along with any required documents, your Centennial
stock certificates will be canceled and, if you are a holder of Centennial
common stock, you will receive Solectron stock certificates representing the
number of full shares of Solectron common stock to which you are entitled under
the merger agreement, or if you are a holder of Centennial series B convertible
preferred stock, you will receive a check payable in the amount of the aggregate
cash consideration payable to you in connection with the merger. If you are a
holder of Centennial common stock, you will also receive payment in cash,
without interest, in lieu of any fractional shares of Solectron common stock
which would have been otherwise issuable to you as a result of the merger, and
any dividends or other distributions to which you may be entitled.
YOU SHOULD NOT SUBMIT YOUR CENTENNIAL STOCK CERTIFICATES FOR EXCHANGE UNTIL
YOU RECEIVE INSTRUCTIONS FROM THE EXCHANGE AGENT FOR THE MERGER.
You are not entitled to receive any dividends or other distributions on
Solectron common stock with a record date after the merger is completed until
you have surrendered your Centennial stock certificates in exchange for
Solectron stock certificates. Promptly after your Solectron stock certificates
are issued, you will receive payment for any dividend or other distribution on
Solectron common stock with a record date after the merger and a payment date
prior to the date you surrender your Centennial stock certificates.
Solectron will only issue a Solectron stock certificate in a name other
than the name in which a surrendered Centennial stock certificate is registered
if you present the exchange agent with all documents required to show and effect
the unrecorded transfer of ownership of the shares of Centennial common stock
formerly represented by such Centennial stock certificate, and show that you
paid any applicable stock transfer taxes.
If your Centennial stock certificate has been lost, stolen or destroyed,
you may be required to deliver an affidavit and a lost certificate bond as a
condition to receiving your Solectron stock certificate or the preferred cash
consideration, as applicable.
CENTENNIAL'S REPRESENTATIONS AND WARRANTIES
Centennial made a number of customary representations and warranties to
Solectron in the merger agreement regarding aspects of its business, financial
condition, structure and other facts pertinent to the merger. These
representations and warranties include representations as to:
- the corporate organization and qualification to do business of Centennial
and its subsidiaries;
- the certificates of incorporation and bylaws of Centennial and its
subsidiaries;
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- Centennial's capitalization;
- authorization of the merger agreement by Centennial;
- regulatory and third party approvals required to complete the merger;
- the obligations of Centennial under applicable laws in connection with
the merger;
- compliance with applicable laws by Centennial and its subsidiaries;
- permits required to conduct Centennial's business and compliance with
those permits;
- Centennial's filings and reports with the Securities and Exchange
Commission;
- Centennial's financial statements;
- Centennial's liabilities;
- changes in Centennial's business since December 23, 2000 and actions
taken by Centennial since December 23, 2000;
- litigation involving Centennial;
- Centennial's employee benefit plans;
- Centennial's labor relations;
- information supplied by Centennial in this document and the related
registration statement filed by Solectron;
- the absence of restrictions on the conduct of Centennial's business;
- title to the properties Centennial owns and leases;
- Centennial's taxes;
- environmental matters pertaining to Centennial;
- payments required to be made by Centennial to brokers and agents in
connection with the merger;
- intellectual property matters pertaining to Centennial;
- Centennial's material contracts;
- Centennial's insurance coverage;
- the fairness opinion received by Centennial from H.C. Wainwright & Co.,
Inc.;
- approvals by the Centennial board of directors in connection with the
merger;
- the vote of Centennial stockholders required to adopt and approve the
merger agreement and approve the merger;
- Centennial's ability to account for prior transactions as a "pooling of
interests,"
- Centennial's ability to treat the merger as a "reorganization" for
federal income tax purposes; and
- the inapplicability of the merger with respect to Centennial's rights
agreement.
The representations and warranties of Centennial contained in the merger
agreement expire at the completion of the merger.
SOLECTRON'S REPRESENTATIONS AND WARRANTIES
Solectron and Centers have made a number of customary representations and
warranties to Centennial in the merger agreement regarding aspects of
Solectron's business, financial condition, structure and other facts pertinent
to the merger. These representations and warranties include representations as
to:
- the corporate organization and qualification to do business of Solectron
and its subsidiaries;
- the certificate of incorporation and bylaws of Solectron and its
subsidiaries;
- Solectron's capitalization;
- authorization of the merger agreement by Solectron and Centers;
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- regulatory and third party approvals required to complete the merger;
- the obligations of Solectron under applicable laws in connection with the
merger;
- Solectron's filings and reports with the Securities and Exchange
Commission;
- Solectron's financial statements;
- changes in Solectron's business since August 31, 2000;
- information supplied by Solectron in this document and the related
registration statement filed by Solectron; and
- litigation involving Solectron.
The representations and warranties of Solectron and Centers contained in
the merger agreement expire at the completion of the merger.
The representations and warranties contained in the merger agreement are
complicated and not easily summarized. You are urged to carefully read Articles
II and III of the merger agreement entitled "Representations and Warranties of
Company" and "Representations and Warranties of Parent and Merger Sub,"
respectively.
CENTENNIAL'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Under the terms of the merger agreement, Centennial agreed that, until the
earlier of the completion of the merger or termination of the merger agreement,
or unless Solectron consents in writing, Centennial will:
- carry on its business in the usual, regular and ordinary course, in
substantially the same manner as it was conducted prior to the date of
the merger agreement and in compliance with all applicable laws;
- pay its debts and taxes when due;
- pay or perform other material obligations when due; and
- use its commercially reasonable efforts consistent with past practices
and policies to:
- preserve intact its present business organization;
- keep available the services of its present officers and employees;
- preserve its relationships with customers, suppliers, distributors,
licensors, licensees and others with which it has significant business
dealings; and
- notify Solectron in the event that any employee of Centennial or any of
its subsidiaries is terminated or resigns.
Under the terms of the merger agreement, Centennial also agreed that, until
the earlier of the completion of the merger or termination of the merger
agreement, or unless Solectron consents in writing or specific notification
procedures are followed by Centennial, Centennial will comply with certain
specific restrictions relating to the operation of its business, including
restrictions relating to the following:
- changes with respect to Centennial restricted stock and stock options;
- the granting or amendment of severance and termination payments;
- the transfer or license of intellectual property;
- the declaration or payment of dividends or other distributions on
Centennial capital stock;
- the repurchase, redemption or acquisition of Centennial capital stock;
- the split, combination or reclassification of Centennial capital stock;
- the issuance of capital stock;
- the modification of the certificate of incorporation or bylaws of
Centennial or its subsidiaries;
- the acquisition of the other business entities;
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- the entering into of joint ventures, strategic partnerships or alliances;
- the sale, lease, license and disposition of assets;
- the incurrence of indebtedness;
- the adoption or amendment of employee benefit plans;
- the entering into of employment or collective bargaining agreements,
payment of bonuses or increasing compensation rates;
- payment or settlement of liabilities;
- waivers or modifications to existing confidentiality agreements;
- expenditures outside the ordinary course of business in excess of
$25,000;
- modification of material contracts or waivers of material rights under
material contracts;
- the entry into or modification of product licenses;
- changes in accounting policies and procedures;
- the incurrence of obligations with respect to purchase or sales orders in
excess of $250,000, and other agreements in excess of $100,000;
- taking any action that could reasonably be expected to jeopardize the
treatment of the merger as a "reorganization" under Section 368(a) of the
Internal Revenue Code;
- settlement of litigation; and
- the making of certain tax elections.
The agreements related to the conduct of Centennial's business in the
merger agreement are complicated and not easily summarized. You are urged to
carefully read Article IV of the merger agreement entitled "Conduct Prior to the
Effective Time."
SOLECTRON'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Under the terms of the merger agreement, Solectron agreed that, until the
earlier of the completion of the merger or termination of the merger agreement,
or unless Centennial consents in writing, Solectron will not engage in any
action that could reasonably be expected to cause the merger to fail to qualify
as a "reorganization" under Section 368(a) Internal Revenue Code.
MATERIAL COVENANTS
Solicitations by Centennial; Withdrawal of Recommendation by Centennial
Board of Directors
Under the terms of the merger agreement, Centennial agreed to cease, as of
the date of the merger agreement, any and all existing activities, discussions
or negotiations with any parties other than Solectron conducted prior to the
date of the merger agreement with respect to any Acquisition Proposal.
Under the terms of the merger agreement, an Acquisition Proposal is any
offer or proposal relating to an Acquisition Transaction (other than an offer or
proposal from Solectron), and an Acquisition Transaction is any transaction or
series of related transactions (other than the merger) involving any of the
following:
- the acquisition or purchase from Centennial by any person or group of
more than a 15% interest in the total outstanding voting securities of
Centennial or any of its subsidiaries;
- any tender offer or exchange offer that if consummated would result in
any person or group beneficially owning 15% or more of the total
outstanding voting securities of Centennial or any of its subsidiaries;
- any merger, consolidation, business combination or similar transaction
involving Centennial in which the stockholders of Centennial immediately
preceding such transaction hold less than 85% of the equity interests in
the surviving or resulting entity of such transaction;
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- any sale, lease outside the ordinary course of business, exchange,
transfer, license outside the ordinary course of business, acquisition or
disposition of more than 15% of the assets of Centennial; or
- any liquidation or dissolution of Centennial.
Until the merger is completed or the merger agreement is terminated, under
the terms of the merger agreement Centennial further agreed that neither it nor
any of its subsidiaries will (nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any of their
investment bankers, attorneys or other advisors or representatives to):
- solicit, initiate, encourage or induce the making, submission or
announcement of any Acquisition Proposal;
- subject to certain limited exceptions applicable upon receipt of a
Superior Offer, as described below, participate in any discussions or
negotiations regarding, or furnish non-public information with respect
to, any Acquisition Proposal;
- take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal;
- subject to certain limited exceptions applicable upon receipt of a
Superior Offer, as described below, engage in discussions with any person
with respect to any Acquisition Proposal;
- subject to certain limited exceptions in the event of a Superior Offer,
as discussed below, approve, endorse or recommend any Acquisition
Proposal; or
- enter into any letter of intent or similar document or any contract,
agreement or commitment contemplating or otherwise relating to any
Acquisition Transaction.
Any violation of any of the restrictions described in the preceding
paragraph by any officer or director of Centennial or any of its subsidiaries,
or any investment banker, attorney or other advisor or representative of
Centennial or any of its subsidiaries is deemed to be a breach of the relevant
restriction by Centennial.
Under the terms of the merger agreement, Centennial has agreed to inform
Solectron, as promptly as practicable, of any request received by Centennial for
non-public information that Centennial reasonably believes would lead to an
Acquisition Proposal, or of any Acquisition Proposal, or any inquiry received by
Centennial with respect to or which Centennial reasonably should believe would
lead to any Acquisition Proposal, the material terms and conditions of such
request, Acquisition Proposal or inquiry, and the identity of the person or
group making any such request, Acquisition Proposal or inquiry. Centennial
further agreed to use reasonable efforts to keep Solectron informed in all
material respects of the status and details, including material amendments or
proposed amendments, of any such request, Acquisition Proposal or inquiry.
Centennial is expressly permitted, however, to furnish non-public
information regarding Centennial and its subsidiaries to, and to enter into a
confidentiality agreement with or discussions with, any person or group in
response to a Superior Offer submitted by the person or group, and not
withdrawn, if all of the following conditions are met:
- neither Centennial nor any of its representatives, or subsidiaries has
breached the non-solicitation provisions contained in the merger
agreement described above;
- the board of directors of Centennial concludes in good faith, after
consultation with its outside legal counsel, that such action is required
in order for the Centennial board of directors to comply with its
fiduciary duties to Centennial's stockholders under applicable law;
- at least three business days prior to furnishing any such information to,
or entering into discussions or negotiations with, the person or group,
Centennial gives Solectron written notice of the identity of such person
or group and of Centennial's intention to furnish information to, or
enter into discussion or negotiations with, such person or group, and
Centennial receives from such person or group an executed confidentiality
agreement containing customary limitations on the use and
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disclosure of all non-public written and oral information furnished to
such person or group by or on behalf of Centennial; and
- contemporaneously with furnishing any non-public information to the
person or group, Centennial furnishes the same non-public information to
Solectron, to the extent such non-public information has not been
previously furnished by Centennial to Solectron.
Under the terms of the merger agreement, a Superior Offer is an
unsolicited, bona fide, written offer from a third party to consummate any of
the following transactions on terms that the board of directors of Centennial
determines, in its reasonable judgment, based on the advice of a financial
advisor of nationally recognized reputation, to be more favorable to the
Centennial stockholders from a financial point of view than the terms of the
merger:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Centennial
pursuant to which the stockholders of Centennial immediately preceding
such transaction hold less than a majority of the equity interests in the
surviving or resulting entity of such transaction;
- the acquisition by any person or group, including by way of a tender or
exchange offer or issuance by the Company, directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing a majority of the voting power of the outstanding shares of
Centennial's capital stock; or
- a sale or other disposition by Centennial of substantially all of its
assets.
Under the terms of the merger agreement, the Centennial board of directors
is permitted to withdraw, amend or modify its unanimous recommendation in favor
of the merger only if:
- a Superior Offer is made and not withdrawn;
- neither Centennial nor any of its representatives has breached the
non-solicitation provisions of the merger agreement described above; and
- the board of directors of Centennial concludes in good faith, after
consultation with its outside counsel that, in light of the Superior
Offer, the withdrawal, amendment or modification of its recommendation is
required in order for the Centennial board of directors to comply with
its fiduciary duties to Centennial's stockholders under applicable law.
Centennial must give Solectron at least 72 hours notice of the commencement
of the change to the unanimous recommendation of the board of directors, and
provide Solectron with the opportunity to meet with Centennial and its counsel.
In addition, under the terms of the merger agreement, Centennial has agreed to
provide Solectron with at least 48 hours prior notice (or such lesser prior
notice as provided to the Centennial board of directors, but in no event less
than eight hours) of any meeting of the Centennial board of directors at which
the Centennial board of directors is reasonably expected to consider a Superior
Offer. Furthermore, Centennial has agreed to provide Solectron with at least
three business days prior written notice of a meeting of the Centennial board of
directors at which the Centennial board of directors is reasonably expected to
recommend a Superior Offer to Centennial's stockholders (together with a copy of
the definitive documentation relating to such Superior Offer).
Regardless of whether there has been a Superior Offer, and regardless of
whether the Centennial board of directors withdraws, amends or modifies its
unanimous recommendation in favor of the merger, Centennial is obligated, under
the terms of the merger agreement, to hold and convene the special meeting of
Centennial stockholders at which the merger agreement and the merger will be
considered and voted upon.
Employee Matters
Under the terms of the merger agreement, Solectron agreed that, after the
completion of the merger, it will:
- provide Centennial employees who remain after the merger with the types
and levels of benefits provided by Solectron to similarly situated
employees of Solectron;
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- honor the existing terms of those employment, retention, termination,
severance, change of control, post-employment and other compensation
agreements, arrangements and plans specified in the merger agreement; and
- not terminate any Centennial employees who have accepted employment with
Solectron or any of its subsidiaries, other than for cause, within 60
days following the completion of the merger.
Solectron further agreed that if any Centennial employee becomes a
participant in any Solectron employee benefit plan, the employee will be given
credit under the plan for all service with Centennial prior to the merger, and
prior to the time the employee becomes a participant in the plan, for purposes
of eligibility (including waiting periods), and vesting, but not for benefit
accrual (except vacation accrual), provided that such service credit will not
result in the duplication of benefits.
Other Covenants
Under the terms of the merger agreement, each of Solectron and Centennial
have also agreed, prior to the effective time of the merger, except as
specifically permitted or contemplated by the merger agreement, to:
- use its commercially reasonable efforts to obtain any consents, waivers
and approvals under any of its or its subsidiaries' respective
agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated by the
merger agreement;
- promptly notify the other of any breach in any material respect of any
representation or warranty contained in, or failure to comply in any
material respect with any covenant, condition or agreement to be complied
with or satisfied by it under, the merger agreement;
- use its commercially reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective in the most expeditious
manner practicable the merger and transactions contemplated by the merger
agreement and to assist and cooperate with each other in doing such
things, including:
- taking all reasonable acts necessary to cause the conditions to the
completion of the merger to be satisfied;
- taking all actions or nonactions necessary to obtain any necessary
waivers, consents, approvals, orders and authorizations by or from any
governmental entity or third party required and taking all reasonable
steps to avoid any suit, claim, action, investigation or proceeding by
any governmental entity;
- defending all lawsuits or other legal proceedings challenging the
merger agreement or the consummation of the merger; and
- executing or delivering any additional instruments reasonably necessary
to consummate the transactions contemplated by the merger agreement.
The agreements related to the conduct of Centennial and Solectron prior to
the closing of the merger are complicated and not easily summarized. You are
urged to carefully read Article V of the merger agreement entitled "Additional
Agreements."
TREATMENT OF CENTENNIAL STOCK OPTIONS
Upon completion of the merger, each outstanding option to purchase
Centennial common stock, whether vested or unvested, will be assumed by
Solectron and become an option to purchase that number of shares of Solectron
common stock equal to the number of shares of Centennial common stock issuable
upon the exercise of such Centennial stock option, multiplied by the exchange
ratio for the merger, rounded down to the nearest whole number of shares. The
per share exercise price of each such Centennial stock option will be adjusted
to an exercise price equal to the per share exercise price of such Centennial
stock option divided by the exchange ratio for the merger, rounded up to the
nearest whole cent. All other terms of each Centennial stock option will be
unchanged by the merger. As of -, 2001, options to purchase approximately
1,542,968 shares of Centennial common stock were outstanding in the aggregate
under the various Centennial stock option plans.
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Solectron will file a registration statement on Form S-8 to register the
shares of Solectron common stock issuable upon the exercise of Centennial stock
options assumed by Solectron within 15 business days after the effective time of
the merger.
TREATMENT OF RIGHTS UNDER CENTENNIAL EMPLOYEE STOCK PURCHASE PLAN
Under the terms of the merger agreement, Centennial's employee stock
purchase plan will be terminated as of the effective time of the merger.
Outstanding purchase rights under the Centennial employee stock purchase plan
will be exercised on the business day immediately prior to the effective time of
the merger, and each share of Centennial common stock purchased pursuant to such
exercise will be converted into the right to receive a number of shares of
Solectron common stock equal to the exchange ratio for the merger.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Solectron and Centennial to complete the merger and the
other transactions contemplated by the merger agreement are subject to the
satisfaction of each of the following conditions:
- the merger agreement must have been adopted and approved, and the merger
must have been approved, by the requisite stockholders of Centennial;
- Solectron's registration statement on Form S-4 of which this document
forms a part must have been declared effective, no stop order suspending
its effectiveness may be in effect and no proceedings for suspension of
its effectiveness may be pending before or threatened in writing by the
Securities and Exchange Commission;
- no law, regulation or order may have been enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger;
- all applicable waiting periods under applicable antitrust laws must have
expired or been terminated, and all material foreign antitrust approvals
required to be obtained prior to the merger must have been obtained;
- each of Solectron and Centennial must have received from their respective
tax counsel an opinion to the effect that the merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. However, if counsel to either Solectron or
Centennial does not render this opinion, this condition will be satisfied
if counsel to the other party renders the opinion to such party; and
- the shares of Solectron common stock to be issued in the merger must have
been authorized for listing on the New York Stock Exchange, subject to
official notice of issuance.
Centennial's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions:
- each of Solectron's and Centers' representations and warranties must have
been true and correct as of January 22, 2001, and must continue to be
true and correct on and as of the date the merger is to be completed as
if made on such date, except:
- to the extent Solectron's and Centers' representations and warranties
address matters only as of a particular date, they must be true and
correct only as of that date;
- to the extent that any inaccuracies of such representations and breaches
of such warranties do not in any case, or in the aggregate, have a
material adverse effect on Solectron and Centers; or
- for changes contemplated by the merger agreement;
- Solectron and Centers must have performed or complied in all material
respects with all of their agreements and covenants required by the
merger agreement to be performed or complied with by Solectron and
Centers; and
- no material adverse effect on Solectron may have occurred.
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Solectron's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions:
- each of Centennial's representations and warranties must have been true
and correct as of January 22, 2001, and must continue to be true and
correct on and as of the date the merger is to be completed as if made on
such date, except:
- to the extent Centennial's representations and warranties address
matters only as of a particular date, they must be true and correct only
as of that date;
- to the extent that any inaccuracies of such representations and breaches
of such warranties do not in any case, or in the aggregate, have a
material adverse effect on Centennial; or
- for changes contemplated by the merger agreement;
- Centennial must have performed or complied in all material respects with
all of its agreements and covenants required by the merger agreement to
be performed or complied with by Centennial;
- Centennial shall have obtained all consents, waivers and approvals
required by specific contracts identified in the merger agreement;
- each of the affiliate agreements contemplated by the merger agreement, as
described below, must have been delivered and must be in full force and
effect; and
- no material adverse effect on Centennial may have occurred.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated in accordance with its terms at any
time prior to completion of the merger, whether before or after the adoption and
approval of the merger agreement and approval of the merger by Centennial's
stockholders:
- by mutual written consent duly authorized by the boards of directors of
Solectron and Centennial;
- by Solectron or Centennial, if the merger is not completed before April
30, 2001 (or June 30, 2001, in the event that the registration statement
on Form S-4 is reviewed by the Securities and Exchange Commission),
except that either party's right to terminate the merger agreement under
this provision will not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the
merger to occur on or before such dates, and such action or failure to
act constitutes a breach of the merger agreement;
- by Solectron or Centennial, if any governmental authority has issued an
order, or taken any other action, having the effect of permanently
restraining, enjoining or otherwise prohibiting the merger and which is
final and nonappealable;
- by Solectron or Centennial, if Centennial's stockholders fail to adopt
and approve the merger agreement and approve the merger at the Centennial
special meeting or at any adjournment or postponement of that meeting,
except that either party's right to terminate the merger agreement under
this provision is not available to Centennial where the failure to obtain
stockholder approval was caused by Centennial's action or failure to act
which constitutes a breach by Centennial of the merger agreement;
- by Centennial, upon a breach of any representation, warranty, covenant or
agreement on the part of Solectron in the merger agreement, or if any of
Solectron's representations or warranties are or become untrue such that
the condition to Centennial's obligation to complete the merger relating
to the continued accuracy of Solectron's representations and warranties
would not be satisfied. However, if the breach or inaccuracy is curable
by Solectron through the exercise of its commercially reasonable efforts,
and Solectron continues to exercise such commercially reasonable efforts,
Centennial may not terminate the merger agreement for 30 days after
delivery of written notice to Solectron of the breach. If the breach or
inaccuracy is cured during those 30 days, or if Centennial shall
otherwise be in material breach of the merger agreement, Centennial may
not terminate the merger agreement under this provision;
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- by Solectron, upon a breach of any representation, warranty, covenant or
agreement on the part of Centennial set forth in the merger agreement, or
if any of Centennial's representations or warranties are or become untrue
such that the condition to Solectron's obligation to complete the merger
relating to the continued accuracy of Centennial's representations and
warranties would not be satisfied. However, if the breach or inaccuracy
is curable by Centennial through the exercise of its commercially
reasonable efforts, and Centennial continues to exercise such
commercially reasonable efforts, Solectron may not terminate the merger
agreement for 30 days after delivery of written notice to Centennial of
the breach. If the breach or inaccuracy is cured during those 30 days, or
if Solectron shall otherwise be in material breach of the merger
agreement, Solectron may not terminate the merger agreement under this
provision;
- by Solectron, if Centennial has breached the provisions of the merger
agreement that prohibit the solicitation of, and discussions and
negotiations with respect to, Acquisition Proposals; or
- by Solectron, if a Triggering Event shall have occurred.
Under the terms of the merger agreement, a TRIGGERING EVENT is deemed to
have occurred if:
- Centennial's board of directors withdraws, amends or modifies in a manner
adverse to Solectron, its unanimous recommendation in favor of the
adoption and approval of the merger agreement or the approval of the
merger;
- Centennial fails to include in this document the unanimous recommendation
of Centennial's board of directors in favor of the adoption and approval
of the merger agreement and the approval of the merger;
- Centennial's board of directors approves or recommends any Acquisition
Proposal;
- Centennial enters into any letter of intent or similar agreement,
contract or commitment accepting any Acquisition Proposal; or
- a tender or exchange offer relating to the securities of Centennial is
commenced by a person unaffiliated with Solectron, and Centennial does
not send to its securityholders within 10 business days after such tender
or exchange offer is first published, sent or given, a statement
disclosing that Centennial recommends rejection of such tender or
exchange offer.
PAYMENT OF TERMINATION FEE
Under the terms of the merger agreement, Centennial must pay Solectron a
termination fee of $4,825,000, within one business day after demand by
Solectron, if the merger agreement is terminated by Solectron upon the
occurrence of a Triggering Event or following a breach by Centennial of the
provisions of the merger agreement that prohibit the solicitation of, and
discussions and negotiations with respect to, an Acquisition Proposal.
Further, under the terms of the merger agreement, Centennial must pay to
Solectron a termination fee of $4,825,000 if the merger agreement is terminated
by Solectron or Centennial because the merger is not consummated by April 30,
2001 (or June 30, 2001, if the registration statement on Form S-4 of which this
document forms a part is reviewed by the Securities and Exchange Commission) or
because Centennial's stockholders do not adopt and approve the merger agreement
and approve the merger, and any of the following have occurred:
- after January 22, 2001 and prior to the termination of the merger
agreement, a third party has announced an Acquisition Proposal and within
nine months following the termination of the merger agreement a Company
Acquisition is consummated; or
- after January 22, 2001 and prior to the termination of the merger
agreement, a third party has announced an Acquisition Proposal and within
nine months following the termination of the merger agreement Centennial
enters into an agreement or letter of intent providing for a Company
Acquisition.
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The termination fee is payable within one day of demand by Solectron in the
case of the first bullet point above, or within one business day following the
consummation of the Company Acquisition referred to in the second bullet point
above.
Under the terms of the merger agreement, a COMPANY ACQUISITION consists of
any of the following:
- a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving Centennial
pursuant to which the stockholders of Centennial immediately preceding
such transaction hold less than 50% of the aggregate equity interests in
the surviving or resulting entity of the transaction;
- a sale or other disposition by Centennial of assets representing in
excess of 50% of the aggregate fair market value of Centennial's business
immediately prior to such sale; or
- the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by Centennial, directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of
the then outstanding shares of capital stock of Centennial.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
Solectron and Centennial may amend the merger agreement before completion
of the merger by mutual written consent.
Either Solectron or Centennial may extend the other party's time for the
performance of any of the obligations or other acts under the merger agreement,
waive any inaccuracies in the other's representations and warranties and waive
compliance by the other party with any of the agreements or conditions contained
in the merger agreement.
DEFINITION OF MATERIAL ADVERSE EFFECT
Under the terms of the merger agreement, a MATERIAL ADVERSE EFFECT on
either Solectron or Centennial is defined to mean any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition or
results of operations of such entity and its subsidiaries taken as a whole.
However, under the terms of the merger agreement, none of the following will be
deemed to constitute a material adverse effect on any entity:
- any change, event, violation, inaccuracy, circumstance or effect relating
to the United States economy or United States financial markets in
general;
- any change, event, violation, inaccuracy, circumstance or effect that
results from changes affecting any of the industries in which such entity
operates or conducts business and not specifically related to, or having
a materially disproportionate effect (relative to most other industry
participants) on, such entity; or
- any change, event, violation, inaccuracy, circumstance or effect
resulting from the return of specified Centennial's inventory to Hitachi,
the write-off of Hitachi controllers on Centennial's financial
statements, books and records, or the write down of Hitachi flash memory
components to its fair market value in accordance with generally accepted
accounting principles.
EXPENSES
Except with respect to the termination fee described above, each party will
pay all fees and expenses it incurs in the merger, except that Solectron will
pay all fees and expenses (other than the fees and expenses of Centennial's
attorneys and accountants) incurred in connection with the filing with the
Securities and Exchange Commission of the registration statement on Form S-4 of
which this document forms a part and any antitrust filing fees, and Centennial
will pay all fees and expenses (other than the fees and expenses of Solectron's
attorneys and accountants) incurred in connection with the printing and mailing
of this document.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel to Solectron, and Goodwin Procter LLP, counsel to
Centennial, the following is a summary of the material U.S. federal income tax
consequences of the merger generally applicable to Centennial stockholders. This
discussion is based on existing provisions of the Internal Revenue Code,
existing treasury regulations and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Solectron, Centennial or
Centennial stockholders as described herein.
We do not discuss all U.S. federal income tax considerations that may be
relevant to you in light of your particular circumstances. Factors that could
alter the tax consequences of the merger to you include:
- if you are a dealer in securities;
- if you are subject to the alternative minimum tax provisions of the
Internal Revenue Code;
- if you are a non-U.S. person or entity;
- if you are a financial institution or insurance company;
- if you acquired your shares in connection with stock option or stock
purchase plans or in other compensatory transactions;
- if you hold Centennial common stock as part of an integrated investment,
including a "straddle," comprised of shares of Centennial common stock
and one or more other positions; or
- if you hold Centennial common stock subject to the constructive sale
provisions of Section 1259 of the Internal Revenue Code.
This discussion assumes you hold your shares as capital assets within the
meaning of Section 1221 of the Internal Revenue Code.
In addition, we do not discuss the tax consequences of the merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the merger, whether or
not any such transactions are undertaken in connection with the merger,
including without limitation any transaction in which Centennial shares are
acquired or shares of Solectron common stock are disposed of, or the tax
consequences to holders of options, warrants or similar rights to acquire
Centennial common stock. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE
MERGER.
Completion of the merger is conditioned upon receipt by Solectron and
Centennial of opinions from their respective counsel, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Goodwin Procter LLP, that the merger will
constitute a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code. In the event that this opinion requirement is waived as a result
of a material change in the tax consequences of the merger from those expressed
in this tax consequences section, a revised tax consequences section will be
prepared and distributed to Centennial stockholders as part of a revised
document in connection with resoliciting stockholder approval for the merger.
The tax opinions contained herein and the tax opinions to be provided at
the completion of the merger will be rendered on the basis of facts,
representations and assumptions set forth or referred to in such opinions,
including factual representations contained in certificates of officers of
Solectron and Centennial. These tax opinions will also be based upon the
Internal Revenue Code, existing treasury regulations, and current administrative
rulings and court decisions, all of which are subject to change, possibly with
retroactive effect.
With respect to Centennial common stockholders, including a holder of
Centennial series B convertible preferred stock who converts its series B
convertible preferred stock into Centennial common stock prior to the effective
time of the merger, who hold their Centennial common stock as a capital asset,
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qualification of the merger as a reorganization within the meaning of Section
368 of the Internal Revenue Code will result in the following federal income tax
consequences:
- you will not recognize any gain or loss upon your receipt of Solectron
common stock in the merger, except on cash received for a fractional
share of Solectron common stock;
- the aggregate tax basis of the Solectron common stock received by you in
the merger, including any fractional share of Solectron common stock not
actually received, will be the same as the aggregate tax basis of the
Centennial common stock surrendered in exchange therefor;
- the holding period of the Solectron common stock received by you in the
merger will include the period for which the Centennial common stock
surrendered in exchange therefor was considered to be held;
- cash payments received by you for a fractional share of Solectron common
stock will be treated as if such fractional share had been issued in the
merger and then redeemed by Solectron. You will recognize gain or loss
with respect to such cash payment, measured by the difference, if any,
between the amount of cash received and the basis in such fractional
share; and
With respect to a holder of Centennial series B convertible preferred stock
(who does not convert to Centennial common stock prior to the effective time of
the merger), the merger will result in your recognition of taxable gain or loss
with respect to each share of Centennial series B convertible preferred stock
surrendered equal to the difference between your basis in such shares and the
$80.00 cash you receive with respect to such share.
Solectron, Centers and Centennial will not recognize gain or loss solely as
a result of the merger.
Neither Solectron nor Centennial will request a ruling from the Internal
Revenue Service in connection with the merger. The tax opinions do not bind the
Internal Revenue Service and do not prevent the Internal Revenue Service from
successfully asserting a contrary opinion.
ACCOUNTING TREATMENT OF THE MERGER
Solectron intends to account for the merger using the "purchase" method.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, under which a transaction cannot
be completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and the waiting periods expire or are terminated. In addition, the merger may be
subject to various foreign antitrust laws, some of which may require us to make
filings with foreign antitrust authorities. We have made the required filings
with the Department of Justice and the Federal Trade Commission, and received
early termination of the mandatory waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act on February 13, 2001. We intend to make required
foreign antitrust filings, and will not be permitted to complete the merger
until we have obtained all necessary approvals from foreign antitrust
authorities under all material applicable foreign antitrust laws.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds after termination
of the mandatory waiting period. Accordingly, at any time before or after the
completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest. Other persons,
including any state or private person, could also take action under applicable
antitrust laws, including seeking to enjoin the merger. There can be no
assurance that a challenge to the merger will not be made or that, if a
challenge is made, we will prevail.
Neither Solectron nor Centennial is aware of any other material
governmental or regulatory approval required for completion of the merger, other
than compliance with applicable corporate law of Delaware.
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RESTRICTIONS ON SALES OF SOLECTRON COMMON STOCK BY AFFILIATES OF CENTENNIAL
The shares of Solectron common stock to be issued in connection with the
merger have been registered under the Securities Act and will be freely
transferable under the Securities Act, except for shares of Solectron common
stock issued to any person who is deemed to be an "affiliate" of either
Solectron or Centennial. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control of either of Solectron or Centennial and may include some of our
officers and directors, as well as our principal stockholders. Affiliates may
not sell their shares of Solectron common stock acquired in connection with the
merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- any other applicable exemption under the Securities Act.
Solectron's registration statement on Form S-4, of which this document
forms a part, does not cover the resale of shares of Solectron common stock to
be received by any person in the merger.
LISTING ON THE NEW YORK STOCK EXCHANGE OF SOLECTRON COMMON STOCK TO BE ISSUED IN
THE MERGER
Solectron has agreed to cause the shares of Solectron common stock to be
issued in the merger to be approved for listing on the New York Stock Exchange
before the completion of the merger, subject to official notice of issuance.
DELISTING AND DEREGISTRATION OF CENTENNIAL COMMON STOCK AFTER THE MERGER
When the merger is completed, Centennial common stock will be delisted from
the Nasdaq National Market and will be deregistered under the Securities
Exchange Act.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware corporate law, holders of Centennial common stock and
holders of Solectron common stock are not entitled to dissenters' rights of
appraisal in connection with the merger because, on the record date, Centennial
common stock was designated and quoted for trading on the Nasdaq National Market
and will be converted into shares of Solectron common stock which at the
effective time of the merger will be listed on the New York Stock Exchange.
OTHER MATERIAL AGREEMENTS RELATING TO THE MERGER
VOTING AGREEMENT
In connection with the execution of the merger agreement, stockholders of
Centennial who together hold approximately 1.9% of the voting power of
Centennial's voting shares, each executed voting agreements with Solectron dated
as of January 22, 2001. These stockholders include all of Centennial's directors
and executive officers.
In the voting agreements, these Centennial stockholders agreed to:
- vote their shares in favor of the approval and adoption of the merger,
the merger agreement, each other transaction contemplated by the merger
agreement and in favor of any action required in furtherance of the
consummation of the merger;
- vote against any matter that could reasonably be expected to result in a
breach of any covenant, representation, warranty or other obligation of
Centennial contained in the merger agreement or could reasonably be
expected to result in any of the conditions to the obligations of
Centennial under the merger agreement not being satisfied or fulfilled;
- execute any documents necessary or desirable in order to effect the
intent of the voting agreement; and
- grant, and did grant, Solectron irrevocable proxies to vote their shares
as required by the voting agreement.
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Furthermore, each of these stockholders agreed not to:
- sell, transfer, pledge, encumber, grant an option with respect to or
otherwise dispose any interest in its shares of voting securities of
Centennial, including Centennial stock options, unless the transferee of
the voting securities agrees to be bound by the terms of the voting
agreement and delivers a proxy to Solectron;
- deposit its shares of voting securities of Centennial into a voting trust
or grant any proxy or enter into a voting agreement or arrangement with
respect to such shares;
- enter into any agreement or commitment, with respect to the sale,
transfer, pledge, encumbrance, grant of an option with respect to or
other disposition of any of the voting securities of Centennial unless
the transferee of the voting securities agrees to be bound by the terms
of the voting agreement and delivers a proxy to Solectron.
The voting agreement terminates upon the earliest to occur of:
- the closing of the transactions contemplated by the merger agreement; and
- the date the merger agreement is terminated in accordance with its terms.
The form of voting agreement is attached to this document as Annex B, and
you are urged to read it in its entirety.
AFFILIATE AGREEMENTS
As a condition to Solectron's entering into the merger agreement, each
member of the Centennial board of directors and executive officers of Centennial
are required to enter into affiliate agreements with Solectron. Under the terms
of the affiliate agreements, Solectron will be entitled to place appropriate
legends on the certificates evidencing any Solectron common stock to be received
by these persons and to issue stop transfer instructions to the transfer agent
for the Solectron common stock. Additionally, these persons have acknowledged
the resale restrictions imposed by Rule 145 under the Securities Act on shares
of Solectron common stock to be received by them in the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Centennial will continue its operations as a
wholly-owned subsidiary of Solectron for some period of time. The membership of
Solectron's board of directors will remain unchanged as a result of the merger.
The stockholders of Centennial will become stockholders of Solectron, and their
rights as stockholders will be governed by the Solectron restated certificate of
incorporation, as currently in effect, the Solectron bylaws and the laws of the
State of Delaware. See the section entitled "Comparison of Rights of Holders of
Centennial Common Stock and Series B Convertible Preferred Stock and Solectron
Common Stock" beginning on page 90 of this document.
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INFORMATION ABOUT CENTENNIAL
Centennial Technologies, Inc. and its subsidiaries focus on the design,
manufacture and marketing of PC cards for industrial and commercial purposes.
Centennial's main customers typically are original equipment manufacturers
(OEMs) and value added resellers. There exists a wide range of markets for
Centennial's products, including:
- Communications -- network routers, base stations for wireless telephones
and code and data storage for local area networks;
- Transportation -- navigation/global positioning systems and vehicle
diagnostic tests;
- Mobile Computing and Office Automation -- hand-held data collection
terminals, notebook computers and personal digital assistants;
- Medical -- blood gas analysis systems, defibrillators, hand-held
glucometers and holter devices; and
- Consumer OEM -- sewing machines and digital cameras.
A sample of the more than 250 original equipment manufacturers that use
Centennial's products are Compaq Computer; Nortel Networks; Lucent Technologies;
3 Com; Cisco Systems; Solectron; Jabil Circuit; Symbol Technologies; Intermec
Technologies; and United Parcel Service.
In 1987, Centennial began operations and focused on developing and
commercializing font cartridges for laser printers. In 1992, Centennial began to
design, manufacture and market cards that met the specifications agreed upon by
the Personal Computer Memory Card International Association (PCMCIA). These
cards have become universally known as PC cards. Thereafter, Centennial
gradually de-emphasized and later ceased the marketing and sales of font
cartridges and began to focus on the growing PC card market for data storage. In
1994, Centennial re-incorporated in Delaware.
On December 29, 1999 Centennial acquired the flash memory card business of
Intel Corporation which complimented and enhanced Centennial's current product
line. The consideration for this transaction was approximately $2.0 million in
cash, a $4.0 million promissory note and 60,000 shares of series B convertible
preferred stock. Through this transaction, Centennial acquired a variety of
Intel's PC card families, and related inventory, including the following lines:
- Series 2;
- Value Series 100 and 200; and
- Miniature Card Families (Series 100 and 200).
INDUSTRY OVERVIEW
In recent years, digital computing and processing have expanded beyond the
boundaries of desktop computer systems to include a broader array of electronic
systems. Today, digital computing and processing can be found in many diverse
types of products such as:
- mobile communication systems;
- network switches;
- medical devices;
- navigation systems;
- cellular telephones;
- portable computers;
- digital cameras; and
- portable data collection terminals.
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From a reliability and efficiency standpoint these products are better
served by PC cards than by traditional hard drive and floppy disk storage
solutions. In particular, the following characteristics make PC cards better
suited:
- high shock and vibration tolerance;
- low power consumption; and
- small size and high access speed.
PC cards are fully encapsulated to protect against environmental hazards
such as temperature variations and repetitive handling.
Centennial believes that demand for PC cards will continue to increase as a
result of:
- more uniform and expanded adoption of PCMCIA standards by electronic
equipment manufacturers;
- the inclusion of PC card slots on next generation electronic devices; and
- the development of PC cards offering new applications.
In addition, Centennial believes that the acceptance of portable computers
and the growing market surrounding hand-held computers and personal digital
assistants (PDAs), which use PC cards for storage and other applications, may
stimulate demand for Centennial's products.
BUSINESS STRATEGY
As an independent company, Centennial's goal is to become a leading
worldwide provider of PC card-based solutions to OEMs in the following
industries:
- communications;
- transportation;
- mobile computing; and
- medical and consumer OEM industries.
To reach this goal Centennial intends to:
- Offer Comprehensive PC Card-Based Solutions. Centennial offers an
extensive PC card product line, which includes the following related
value-added services:
- in-house design expertise;
- on-site technical and customer support;
- flexible manufacturing, including the ability to make small production
runs with minimum down time;
- private packaging and labeling;
- programming and testing capabilities;
- rapid order turnaround; and
- just-in-time delivery programs.
By offering comprehensive solutions for OEM PC card requirements, from
design to shipment, Centennial has attempted to carve for itself a
competitive advantage in the PC card market.
- Focus on OEM Customers. Centennial markets products and services to OEMs
and value added resellers who sell products for applications within
Centennial's target industries. Centennial's intention is to achieve
higher gross margins and customer loyalty by serving the OEM market
rather than consumer markets. Centennial believes these advantages exist
due to the requirements for value-added services, such as design
expertise, programming and prototype development. In addition, Centennial
believes that serving OEMs provides exposure to new technologies and
emerging applications. This, in turn, should enable Centennial to respond
to technological advances and anticipate changes in market conditions.
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- Provide Flexible and High Quality Manufacturing Solutions. As technology
has changed, Centennial has upgraded and automated its manufacturing
facilities to expand and enhance its in-house production capacity. By
manufacturing its own PC cards, Centennial can offer more flexible
production schedules to its customers. This is particular helpful as OEMs
often require the delivery of a number of different products within a
short time frame. Centennial's PC card manufacturing facility in
Wilmington, Massachusetts is ISO 9001 certified. ISO 9001 certification
is based on numerous aspects of Centennial's business, including
manufacturing, purchasing, human resources, engineering and research.
CENTENNIAL PRODUCTS, TECHNOLOGY AND DEVELOPMENTS
Centennial's PC cards may contain one or more of the following components:
- memory chips, such as flash memory and static random access memory, for
storage capacity;
- input/output chips for transmitting and receiving data; and
- memory chips with programmed software and other devices used in
applications such as sewing machines and telecommunications equipment.
Centennial typically works with OEMs to design application-specific PC
cards. This allows Centennial to develop and design PC cards for specific
industries or commercial application. The following are some of the applications
in which Centennial's PC cards are used:
INDUSTRY APPLICATIONS
-------- ------------
Communications.......... Centennial's products are used for storage in certain
wireless telephone base stations, network routers and
switches.
Transportation.......... Centennial's products are used in navigation systems, such
as Global Positioning Satellite equipment used in rental
cars and fleets of vehicles operated by corporations,
emergency and rescue vehicles, airplanes, ships and military
vehicles. These systems interpret signals from a dedicated
network of satellites that circle the Earth, providing data
on the position, direction, altitude and speed of an object.
Centennial also develops PC cards used to interact with
on-board information systems embedded in air, marine and
land based vehicles.
Mobile Computing and
Office Automation..... Centennial's products are used for supplemental data storage
in portable computing devices, such as laptop computers,
handheld computers, and personal digital assistance. Office
automation products, such as laser printers, fax machines
and desktop computers also employ Centennial's products for
supplemental data storage.
Medical................. Centennial's products are used to store patient data from
medical monitoring and diagnostic equipment, including:
- blood gas analysis systems;
- defibrillators; and
- hand-held glucometers.
Consumer OEM............ Centennial's products are used by OEMs who design and sell
various consumer products, such as sewing machines and
digital cameras. In these particular applications, PC cards
are used to store digital image and embroidery pattern
information.
Centennial also manufactures and provides other products that do not meet
the PCMCIA specifications, but which are based on flash memory technology. Flash
memory devices do not require power to retain data, are re-programmable and are
extremely reliable. Because of these advantages, flash memory solutions have
grown in popularity and become more prevalent in equipment requiring data
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storage. Centennial believes that other flash based products which it
manufactures provide Centennial's customers with flexible alternatives to
address data storage and processing requirements. Examples of these flash memory
products include:
- single in-line memory modules (SIMMs);
- dual in-line memory modules (DIMMs);
- small form factor flash cards;
- miniature cards;
- compact flash cards; and
- custom modules.
Single in-line flash memory modules and dual in-line flash memory modules
are types of compact circuit board assemblies consisting of flash memory devices
and related circuitry. Electronic systems increasingly employ these types of
memory modules as building blocks in system design. These allow OEMs to
configure a system with a variety of different levels of memory, which enable
OEMs to price their products progressively through a number of price-points or
develop applications with a single module that can be easily upgraded.
Small form factor flash cards are removable flash memory modules that fit
into small electronic devices. For example, these cards can be used in compact
digital cameras. These cards are similar to PC cards because they are made with
existing flash memory technology with modified mechanical packaging and
electrical connections. Specific types of small form factor flash cards that are
offered by Centennial include:
- The CompactFlash(TM) (a trademark of SanDisk Corporation) is based on the
standard endorsed by the CompactFlash Association, an industry
organization established to promote uniform standards for compact flash
cards, of which Centennial is a member. CompactFlash consists of a
smaller housing than standard PC cards and uses internal technology which
is able to save large amounts of data very quickly.
- The compact linear flash (CLF(TM)) card, is based upon a design promoted
by Centennial. The CLF(TM) card consists of the same size housing as the
CompactFlash housing but is better suited for code storage applications.
- The MiniatureCard(TM) housing is smaller than the other CompactFlash
products and uses a different form of connectors.
- Custom modules are products created at the request of the OEM that fall
within the parameters of our product line but are not part of our
standard product offering.
SALES AND MARKETING
Centennial targets industrial and commercial applications for PC cards
primarily in the communications, transportation, mobile computing, medical and
consumer OEM industries. Centennial primarily markets its products through its
direct sales force, independent manufacturer representatives and distributors.
Additionally, Centennial utilizes the internet, industry publications and trade
shows in its marketing efforts. Centennial's customer service staff operates
from its main office in Wilmington, Massachusetts. Field sales representatives
conduct business from Centennial's main office, and remote offices, including
Centennial's sales office in Cheshire, England. The sales to Centennial's OEM
customers are typically made pursuant to purchase orders. Centennial's sales
staff and engineers will often work with OEM's to design and engineer PC cards
to the customer's requirements. This often results in providing custom-designed
PC cards for specific applications. Centennial believes interaction with these
customers provides exposure to emerging technologies in applications,
facilitating a proactive approach to product design. The U.S. sales team reports
to the Executive Vice President of Worldwide Sales and Marketing. The sales
force is compensated based on both salary and commission.
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Centennial generally enters into individual purchase orders with its
customers. Presently Centennial does not have any fixed long-term volume
commitments from any of its significant customers. While in fiscal 1999, Nortel
Networks directly represented in excess of 10% of Centennial's sales, in fiscal
2000 no customer represented more than 10% of Centennial's sales. However,
during fiscal 1999, Nortel Networks engaged several contract manufacturers to
complete the final assembly of a majority of its products for which Centennial
has historically supplied PC cards. Nortel Networks, combined with these
contract manufacturers, represented 18% of Centennial's sales in fiscal 2000,
including revenues attributable to the flash memory card business acquired from
Intel. For the nine months ended December 23, 2000, Solectron represented 12% of
Centennial's sales.
ENGINEERING AND PRODUCT DEVELOPMENT
Centennial's engineering and design efforts are directed towards products
for which it believes there is a growing and profitable market. In particular,
Centennial seeks to meet the requirements of its target market OEM customers by
applying the latest available technology and the PC card design and engineering
know-how gained from Centennial's focus on its primary markets. Centennial
provides engineering and design support to many of its customers in order to
help integrate its products into OEM equipment. OEMs often require PC cards for
new applications within Centennial's target markets. Centennial has developed
and maintained a library of several hundred successful designs. The library is
routinely used to leverage Centennial's ability to address new OEM business
opportunities in a timely fashion. The extensive library of released designs
affords Centennial with a broad array of solutions for its customers including
addressing new product requirements with a preexisting design. Maintaining an
extensive line of card and module product designs allows Centennial to send
samples, including new OEM customer requirements, expeditiously.
All new designs are driven by our extensive knowledge of the OEM market,
flexibility, design for manufacture and reliability. These factors, coupled with
utilizing high engineering practices, enable Centennial to react quickly to
changing market conditions such as component allocation and obsolescence.
COMPETITION
The market for PC cards and related products is intensely competitive.
Centennial's competitors include the following companies:
- M-Systems Flash Disk Pioneers Ltd.;
- SanDisk Corporation;
- Simple Technologies, Inc.;
- SMART Modular Technologies, Inc.;
- Viking Components, Inc.; and
- White Electronic Designs Corporation.
Centennial also competes with electronic component manufacturers who
manufacture PC cards, including Hitachi Semiconductor, Inc., Mitsubishi Electric
Corporation and Sharp Electronics Corporation. These competitors may have the
ability to manufacture products at lower cost than Centennial. Centennial
believes that its ability to compete successfully depends on a number of
factors, including the following:
- product quality and performance;
- provision of competitive design capabilities;
- timing of new product introductions by Centennial, its customers and
competitors;
- order turnaround;
- timely response to advances technology;
- production efficiency;
- general market and economic conditions;
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- ability to obtain raw materials;
- number and nature of Centennial's competitors in a given market; and
- price.
RAW MATERIALS AND PRODUCT COMPONENTS
Centennial purchases some key components from sources that are the only
supplier of that component. Furthermore, a customer may require a component that
can only be produced by one vendor. Centennial does not maintain long-term
supply agreements with its vendors. The inability to develop alternative sources
for these single source components or to obtain sufficient quantities of
components could result in delays or reductions in product shipments, or higher
prices for these components, or both, any of which could materially and
adversely affect its business, financial condition and results of operations. No
assurance can be given that one or more of Centennial's vendors will not reduce
supplies to Centennial.
EMPLOYEES
As of December 23, 2000, Centennial had 150 full-time employees, of whom 8
were executive officers, 24 were involved in sales and marketing, 18 were
involved with engineering and product development, 15 were involved with
administration and 85 were involved in manufacturing. None of Centennial's
employees are represented by a labor union.
PROPERTIES
Centennial maintains its principal executive offices, research and
development and ISO 9001 certified manufacturing operations in a 34,000 square
foot leased facility in Wilmington, Massachusetts. Centennial currently pays
rent of approximately $25,000 per month pursuant to a lease that expires on
April 30, 2002. The lease contains an option to renew for an additional
five-year period. The lease provides for annual rent increases of 4% and
provides that Centennial pays to its landlord, as additional rent, its pro rata
share of certain operational and maintenance costs at the facility during the
term of the lease.
Centennial conducts business through leased sales offices in the United
States and its United Kingdom office located in Cheshire, England. Centennial
believes that its facilities are adequate for its current needs and that
adequate facilities for expansion, if required, are available at competitive
rates.
LEGAL PROCEEDINGS
From time to time, Centennial is party to legal proceedings arising out of
the normal course of business. Management of Centennial does not believe that
any such legal proceedings, either individually or in the aggregate, will have a
material adverse effect on Centennial's business, financial condition or results
of operations. In addition, Centennial has been or is party to other litigation
as summarized below.
CLASS ACTION LITIGATION
Centennial has been party to various class action lawsuits which were
commenced principally during fiscal 1997 and 1998. A substantial number of the
participants in these class action lawsuits participated in settlements with
Centennial that became effective during fiscal 1999. The following discusses the
history of these class action lawsuits, together with the settlements that were
entered into principally in fiscal 1999.
Since the announcement on February 11, 1997 that Centennial was undertaking
an inquiry into the accuracy of its prior reported financial results, and that
preliminary information had raised questions as to whether reported results
contained material misstatements, approximately 40 purported class action
lawsuits were filed in or transferred to the United States District Court for
the District of Massachusetts. These complaints asserted claims against
Centennial and its board of directors, officers and former independent
accountants, among others, under certain federal and state laws. These class
action lawsuits were purportedly brought by and on behalf of purchasers of
Centennial's common stock (1) between Centennial's initial public offering on
April 12, 1994 and February 10, 1997 or (2) on February 25, 1997.
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On February 9, 1998, these class action lawsuits were consolidated (the
CONSOLIDATED LITIGATION) and the lead counsel representing the plaintiffs in the
Consolidated Litigation filed a Stipulation of Settlement (the SETTLEMENT
AGREEMENT), whereby Centennial and certain of its officers and directors would
be released from liability arising from the allegations included in the
Consolidated Litigation. In return, Centennial paid the plaintiffs in the
Consolidated Litigation $1.475 million in cash and issued to these plaintiffs
854,300 shares or 37% of Centennial common stock. Centennial also adopted
certain corporate governance policies and procedures. The Settlement Agreement
became effective on July 20, 1998. All shares issued in connection with the
Consolidated Litigation are included in the weighted average shares outstanding
calculation from July 20, 1998 forward.
A number of class members elected not to participate in the Settlement
Agreement described above. In September 1999, Centennial reached an agreement
with a number of these parties. In return, Centennial paid $500,000 in cash to
settle these claims (the ADDITIONAL SETTLEMENT AGREEMENT). For the remaining
parties who did not participate in the Settlement Agreement or the Additional
Settlement Agreement, Centennial believes that the applicable Federal statute of
limitations has likely expired and that it does not have material exposure to
these parties. During fiscal 2000, Centennial revised its estimate of the
allocation between cash and common stock of the $20 million provision for
settlement of all such shareholder litigation recorded during fiscal 1997
related to the class action litigation. Accordingly, Centennial reclassified
certain amounts in fiscal 2000 from the original settlement reserve to accrued
liabilities, representing the Additional Settlement Agreement described above
and a remaining estimate of the probable costs to be incurred in connection with
the remaining parties not a party to the Settlement Agreement or the Additional
Settlement Agreement. In fiscal 2000, Centennial made a partial payment of
$188,000 in settlement of certain of these claims. In December 2000, Centennial
paid the remaining amount of $312,000.
In fiscal 2000, the plaintiffs in the Consolidated Litigation reached an
agreement with Centennial's former Interim Chief Executive Officer, Lawrence J.
Ramaekers, and his employer, Jay Alix & Associates (JAY ALIX), regarding the
plaintiffs' alleged claims against them. In fiscal 2000, Centennial paid Jay
Alix and Mr. Ramaekers $1.0 million for legal fees incurred and Jay Alix and Mr.
Ramaekers released any and all claims against Centennial, its directors and and
its affiliates.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In February 1997, Centennial was notified that the Boston District Office
of the Securities and Exchange Commission was conducting an investigation of it.
Centennial cooperated fully with the Securities and Exchange Commission. On
September 26, 2000, Centennial entered into an administrative proceeding fully
resolving the issues arising from the conduct of former members of Centennial's
senior management and the restatement of certain financial statements.
WEBSECURE LITIGATION
On and after March 26, 1997, several complaints were filed against
WebSecure, certain officers, directors and underwriters of WebSecure, and
Centennial in the United States District Court for the District of Massachusetts
by plaintiffs purporting to represent classes of shareholders who purchased
stock of WebSecure, Inc. between December 5, 1996 and February 27, 1997. The
claims against Centennial included alleged violations of Sections 11 and 15 of
the Securities Act of 1933 (the WEBSECURE SECURITIES LITIGATION). In fiscal
1997, Centennial established a reserve of $1.2 million in connection with the
expected settlement of this litigation.
In fiscal 2000, Centennial settled the WebSecure Securities Litigation in
return for the issuance of 43,125 shares of Centennial common stock, of which
14,375 shares had been issued as of March 31, 2000 and the payment of $50,000
for notice and administrative costs. In fiscal 2000, Centennial revised the
estimate of the expected cost to resolve this matter based on the final
settlement amounts, which resulted in income of $940,000. All shares to be
issued in connection with this settlement are included in the weighted average
shares outstanding calculation from September 17, 1999 forward. On January 8,
2001, the remaining 28,750 shares were issued.
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OTHER
On May 12, 2000, Centennial received a complaint from Mr. Dennis M.
O'Connor alleging that he is owed approximately $485,000 in connection with
legal services provided by O'Connor, Broude & Aronson prior to May 12, 1997.
Because of the early stage of this litigation, Centennial is not able to make an
assessment as to its likely outcome.
On July 13, 2000, Centennial received a complaint from Mr. Thomas L.
DePetrillo alleging that he was owed approximately $1,000,000 in connection with
securities that Mr. DePetrillo claims were not delivered on a timely basis. This
lawsuit includes allegations substantially identical to those asserted by Mr.
DePetrillo in a lawsuit filed against Centennial in July 1998. In October 2000,
Centennial settled the complaint from Mr. DePetrillo with a cash payment of
$375,000.
On February 2, 2001, Centennial was notified of a complaint filed against
it by Onyx, Inc. Onyx served as one of Centennial's exclusive sales
representatives for certain products in five New England states during the
mid-1990's. Onyx alleges that Centennial failed to provide it with an
appropriate accounting of commissions due it and failed to pay all commissions
due. Because of the early stage of this litigation, Centennial is unable to make
an assessment as to its likely outcome.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Centennial's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable and other accrued expenses.
Centennial believes that all of the carrying amounts approximate fair value.
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CENTENNIAL SELECTED CONSOLIDATED FINANCIAL DATA
The table below presents selected historical consolidated financial data of
Centennial. When you read this historical financial data, it is important that
you read along with it the historical consolidated financial statements and
related notes included in this document beginning on page F-1, as well as the
section entitled "Centennial Management's Discussion and Analysis of Financial
Condition and Results of Operations of Centennial" beginning on page 79 of this
document. The selected historical consolidated financial data of Centennial as
of March 31, 1998 and 1997 and June 30, 1996, and the years ended March 31, 1997
and June 30, 1996, and for the nine months ended March 31, 1997 and 1996 have
been derived from consolidated financial statements not included herein.
Operating results for the nine months ended December 23, 2000 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending March 31, 2001.
CONSOLIDATED STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS):
NINE MONTHS NINE MONTHS ENDED
ENDED DECEMBER 23, FISCAL YEARS ENDED MARCH 31, MARCH 31,
------------------------- --------------------------------------- ----------------------
2000 1999 2000 1999 1998 1997 1997 1996
----------- ----------- ------- ------- -------- -------- -------- -----------
Net sales:
PC cards and related products..... $49,621 $22,881 $35,580 $27,633 $ 28,263 $ 39,907 $ 28,263 $21,768
Electronic components............. 8,768 -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------
Net sales....................... 58,389 22,881 35,580 27,633 28,263 39,907 28,263 21,768
Cost of goods sold.................. 34,712 14,902 25,040 18,968 23,683 33,213 24,453 21,018
------- ------- ------- ------- -------- -------- -------- -------
Gross profit...................... 23,677 7,979 10,540 8,665 4,580 6,694 3,810 750
Operating expenses:
Research and development.......... 1,646 1,069 1,887 750 838 1,369 1,061 1,126
Selling, general and
administrative.................. 8,026 5,326 6,673 6,132 9,957 8,416 7,318 2,705
------- ------- ------- ------- -------- -------- -------- -------
Operating income (loss)........... 14,005 1,584 1,980 1,783 (6,215) (3,091) (4,569) (3,081)
Other income (expense):
Loss on investment activities..... (1,700) -- -- (733) (14,065) (16,689) (14,096) (69)
Gain (loss) on disposal of
equipment....................... 52 (345) (343) -- -- -- -- --
Special investigation costs....... -- -- -- -- (597) (3,673) (3,673) --
Provision for settlement of
shareholder litigation.......... -- -- -- -- -- (20,000) (20,000) --
Provision for loss on inventory
subject to customer dispute..... -- -- -- -- (1,841) -- -- --
Proceeds from resolution of
customer dispute................ -- -- -- 1,600 -- -- -- --
Other............................. -- 940 940 -- -- -- -- --
Other income (expense)............ -- 39 46 (132) (258) -- -- --
Net interest income (expense)..... (23) 230 185 344 (56) (234) (391) (174)
------- ------- ------- ------- -------- -------- -------- -------
Income (loss) before income taxes
and equity in earnings of
affiliate....................... 12,334 2,448 2,808 2,862 (23,032) (43,687) (42,729) (3,324)
Equity in earnings of affiliate..... -- -- -- -- 423 959 959 --
------- ------- ------- ------- -------- -------- -------- -------
Income (loss) before income
taxes........................... 12,334 2,448 2,808 2,862 (22,609) (42,728) (41,770) (3,324)
Provision for income taxes.......... 834 43 155 56 -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------
Net income (loss)................. $11,500 $ 2,405 $ 2,653 $ 2,806 $(22,609) $(42,728) $(41,770) $(3,324)
======= ======= ======= ======= ======== ======== ======== =======
Net income (loss) per
share -- basic.................... $ 3.55 $ 0.76 $ 0.83 $ 0.97 $ (9.80) $ (19.90) $ (19.24) $ (2.10)
Net income (loss) per
share -- diluted.................. $ 2.52 $ 0.75 $ 0.76 $ 0.96 $ (9.80) $ (19.90) $ (19.24) $ (2.10)
Weighted average shares
outstanding -- basic.............. 3,240 3,177 3,186 2,907 2,308 2,147 2,171 1,585
Weighted average shares
outstanding -- diluted............ 4,555 3,229 3,508 2,939 2,308 2,147 2,171 1,585
FISCAL
YEAR
ENDED
JUNE 30,
1996
--------
Net sales:
PC cards and related products..... $33,412
Electronic components............. --
-------
Net sales....................... $33,412
Cost of goods sold.................. 29,778
-------
Gross profit...................... 3,634
Operating expenses:
Research and development.......... 1,434
Selling, general and
administrative.................. 3,803
-------
Operating income (loss)........... (1,603)
Other income (expense):
Loss on investment activities..... (2,662)
Gain (loss) on disposal of
equipment....................... --
Special investigation costs....... --
Provision for settlement of
shareholder litigation.......... --
Provision for loss on inventory
subject to customer dispute..... --
Proceeds from resolution of
customer dispute................ --
Other............................. --
Other income (expense)............ --
Net interest income (expense)..... (17)
-------
Income (loss) before income taxes
and equity in earnings of
affiliate....................... (4,282)
Equity in earnings of affiliate..... --
-------
Income (loss) before income
taxes........................... (4,282)
Provision for income taxes.......... --
-------
Net income (loss)................. $(4,282)
=======
Net income (loss) per
share -- basic.................... $ (2.51)
Net income (loss) per
share -- diluted.................. $ (2.51)
Weighted average shares
outstanding -- basic.............. 1,704
Weighted average shares
outstanding -- diluted............ 1,704
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
MARCH 31,
DECEMBER 23, ------------------------------------- JUNE 30,
2000 2000 1999 1998 1997 1996
------------ ------- ------- ------- ------- --------
Current assets.............................................. $35,515 $24,912 $14,703 $11,497 $27,213 $37,017
Total assets................................................ 39,441 30,373 18,954 17,078 52,090 41,132
Current liabilities......................................... 10,723 13,651 7,258 8,140 22,644 8,856
Working capital............................................. 24,792 11,261 7,445 3,357 4,569 28,161
Stockholders' equity........................................ 27,762 15,895 11,696 8,902 29,446 31,909
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CENTENNIAL MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTENNIAL
OVERVIEW
GENERAL
Centennial's primary focus is on the design, manufacturing and marketing of
PC cards used for industrial and commercial applications. Its main customers are
original equipment manufacturers (OEMs) and value added resellers (VARs).
Centennial PC cards provide added functionality to devices containing
microprocessors by supplying increased storage capacity, communications
capabilities and programmed software for specialized applications.
On November 30, 2000, after receiving approval for listing, Centennial
commenced trading on the Nasdaq National Market under the trading symbol "CENL."
On January 22, 2001, Centennial entered into an Agreement and Plan of
Merger and Reorganization with Solectron. Under the terms of the agreement,
Solectron will issue or reserve for issuance upon the exercise of assumed stock
options approximately 2.96 million shares of Solectron common stock in exchange
for all of Centennial's fully diluted equity, including all of Centennial's
outstanding stock options to be assumed by Solectron in connection with the
transaction. The transaction will be accounted for as a purchase and is expected
to close during the second quarter of calendar year 2001. The completion of the
transaction is subject to governmental approvals, including foreign antitrust
clearance, approval of the transaction by Centennial stockholders and other
customary closing conditions.
ACQUISITION OF THE FLASH MEMORY CARD BUSINESS OF INTEL CORPORATION
On December 29, 1999, Centennial acquired the flash memory card business of
Intel Corporation. The acquired business included the PCMCIA card families
(Series 2, Value series 100 and 200) and the miniature card families (Series 100
and 200) and related inventory. This acquisition has been accounted for as a
purchase in the fourth quarter of fiscal 2000. In consideration for the
acquisition, Centennial paid cash of $2.0 million, issued a secured promissory
note for $4.0 million and issued 60,000 shares of series B convertible preferred
stock which represented 600,000 shares of common stock, on an as-converted
basis. The promissory note bore interest at the rate of 9% per annum and was
repaid in full in September 2000. The series B convertible preferred stock has a
liquidation preference of $4.8 million and Intel Corporation received certain
registration rights with respect to the shares of common stock issuable upon
conversion of the series B convertible preferred stock.
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this document.
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RESULTS OF OPERATIONS
The following table sets forth certain consolidated statements of income
data expressed as a percentage of net sales:
NINE MONTHS
ENDED FISCAL YEARS ENDED
DECEMBER 23, MARCH 31,
-------------- -----------------------
2000 1999 2000 1999 1998
----- ----- ----- ----- -----
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 59.5 65.1 70.4 68.6 83.8
----- ----- ----- ----- -----
Gross profit..................................... 40.5 34.9 29.6 31.4 16.2
Operating expenses:
Research and development......................... 2.8 4.7 5.3 2.7 3.0
Selling, general and administrative.............. 13.7 23.3 18.7 22.2 35.2
----- ----- ----- ----- -----
Operating income (loss)....................... 24.0 6.9 5.6 6.5 (22.0)
Other income expense:
Loss on investment activities.................... (2.9) (1.5) -- (2.7) (49.8)
Loss on disposal of equipment.................... -- -- (1.0) -- --
Special investigation costs...................... -- -- -- -- (2.1)
Provision for loss on inventory subject to
customer dispute.............................. -- -- -- -- (6.5)
Proceeds from resolution of customer dispute..... -- -- -- 5.8 --
Other............................................ -- 4.1 2.7 -- --
Other income (expenses).......................... -- 0.2 0.1 (0.4) (0.9)
Net interest income (expense).................... -- 1.0 0.5 1.2 (0.2)
----- ----- ----- ----- -----
Income (loss) before income taxes and equity in
earnings of affiliate......................... 21.1 10.7 7.9 10.4 (81.5)
Equity in earnings of affiliate.................... -- -- -- -- 1.5
----- ----- ----- ----- -----
Income (loss) before income taxes................ 21.1 10.7 7.9 10.4 (80.0)
Provision for income taxes......................... 1.4 0.2 0.4 0.2 --
----- ----- ----- ----- -----
Net income (loss)................................ 19.7% 10.5% 7.5% 10.2% (80.0)%
===== ===== ===== ===== =====
NINE MONTHS ENDED DECEMBER 23, 2000 AND DECEMBER 25, 1999
NET SALES
Net sales increased 155% to $58.4 million for the nine months ended
December 23, 2000 compared to $22.3 million for the same period a year ago. This
increase in sales was primarily due to a 68% increase in the average selling
price of products sold during the first nine months of fiscal 2001 as compared
to the same period of fiscal 2000, combined with a 31% increase in the volume of
PC cards sold during the same period and $8.8 million of sales of electronic
components, while there were no sales of electronic components in the prior
year. The December 1999 acquisition of the flash memory card business of Intel
Corporation combined with the addition of new customers and higher volumes with
some existing customers contributed to the increase in the volume of PC cards
sold during the nine months ended December 23, 2000. Increasing component costs,
combined with a relative increase in the product mix toward more expensive
products, contributed to the increase in the average selling price of
Centennial's products. For the nine months ended December 23, 2000, there were
also approximately $8.8 million of sales of electronic components that resulted
in a gross profit of approximately $4.4 million. There were no sales of
electronic components in the prior year. This analysis sometimes refers to sales
of PC cards and related products, which Centennial's management believes to be
more meaningful than total sales because total sales includes sales of
electronic components which is not the focus of its business and may not
reoccur.
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Over the past few quarters, Centennial's management believes some of its
competitors have had difficulty obtaining certain components and its success in
obtaining such components has given Centennial a competitive advantage.
Centennial's management believes these competitors are now able to more readily
purchase such components, which may increase competitive pressures and may have
an adverse effect on Centennial's revenues and gross margins, which could have a
material adverse effect on its business, financial condition and results of
operations.
For the nine months ended December 23, 2000, one customer, Solectron,
represented 12% of sales of PC cards and related products. For the nine months
ended December 25, 1999, Solectron and Lucent Technologies each accounted for
10% of sales of PC cards and related products. Nortel Networks engages several
contract manufacturers to complete the final assembly of a majority of its
products for which Centennial has historically supplied PC cards. Combined sales
of PC cards and related products to Nortel Networks and these contract
manufacturers for the nine months ended December 23, 2000 and 1999 were 22% and
20%, respectively. No other customers represented more than 10% of sales of PC
cards and related products for the nine month periods ended December 23, 2000
and 1999. Centennial had accounts receivable from Solectron of $1,555,000 as of
December 23, 2000. A relatively small number of customers account for a
significant percentage of sales. If any of these customers were to reduce
significantly the amount of business they conduct Centennial, its revenue could
decrease which could have a material adverse effect on the business, financial
condition and results of operations. In late 1999, Solectron merged with one of
Centennial's competitors, SMART Modular Technologies, Inc. which could result in
a decrease of sales.
Approximately 20% and 18% of sales of PC cards and related products for the
nine months ended December 23, 2000 and 1999, respectively, were outside the
United States, primarily in several Western European countries, Israel and
Canada. No one country, other than the United States, comprised more than 10% of
sales for the nine months ended December 23, 2000 and 1999.
On December 29, 1999, Centennial acquired the flash memory card business of
Intel Corporation. This acquisition was accounted for as a purchase combination
in the fourth quarter of fiscal 2000. For the quarter ended December 23, 2000, a
$0.1 million payable to Intel Corporation as additional consideration was
recorded as an intangible asset based on orders received and scheduled for
shipment during the measurement period.
GROSS PROFIT
Gross profit from the sales of PC cards and related products increased 142%
to $19.3 million or 39% of related sales for the first nine months of fiscal
2001 compared to $8.0 million or 35% of sales for the same period a year ago.
The increase in gross profit is attributable to the increase in revenues driven
by higher average selling prices and increased volume. The higher gross margin
rates are primarily due to increased efficiencies related to the higher revenue
levels combined with a relative increase in the product mix of sales toward
higher margin products and higher average selling prices for Centennial's
products. For the nine months ended December 23, 2000, there were also
approximately $8.8 million of sales of electronic components that resulted in a
gross profit on a pro forma basis of approximately $4.4 million. There were no
sales of electronic components in the prior year. Sales of electronic components
is not the focus of Centennial's business; however, there may be some sales of
electronic components in the future, although Centennial cannot be sure as to
the nature, timing or amount of sales of electronic components, if any.
RESEARCH AND DEVELOPMENT
For the first nine months of fiscal 2001, research and development costs
increased 54% to $1.6 million from $1.1 million in the same period of fiscal
2000. The higher research and development costs are generally due to higher
engineering material expenditures combined with an increased percentage of
employees (both new and existing) focused on research and development projects.
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SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $8.0 million for the nine
months of fiscal 2001, compared to $5.3 million in the same period of fiscal
2000. The increase in selling, general and administrative expenses for the nine
months ended December 23, 2000, as compared to the same period a year ago, is
primarily due to an increase in personnel-related costs and to significant
bonuses earned by senior management and approved by the board of directors.
Centennial expects to incur significant professional and advisory fees in
connection with our efforts to merge with Solectron.
OTHER INCOME
Net interest expense was $23,000 for the nine months ended December 23,
2000 and net interest income was $230,000 for the nine months ended December 25,
1999. The change to net interest expense (income) is due to interest expense on
the $4.0 million note payable to Intel Corporation combined with less interest
income due to reduced cash balances. The Intel note was repaid in full in
September 2000.
INCOME TAXES
The estimated effective tax rate for fiscal 2001 will be approximately 6%,
an increase from approximately 2% in fiscal 2000. The increase is attributable
to higher profitability and the anticipated utilization of remaining state net
operating loss carryforwards.
EARNINGS PER SHARE
In December 1999, Centennial issued preferred stock to Intel Corporation
related to the acquisition of its flash memory card business. As a result of
this transaction, diluted weighted average outstanding shares increased by
600,000 shares for the nine months ended December 23, 2000 as compared to the
same period ended December 25, 1999. Additionally, the effect of stock options
increased diluted weighted average outstanding shares by approximately 700,000
for the nine months ended December 23, 2000 as compared to the nine months ended
December 25, 1999.
TWELVE MONTHS ENDED MARCH 25, 2000 AND MARCH 31, 1999
NET SALES
Net sales increased 29% to $35.6 million for fiscal 2000 compared to $27.6
million for fiscal 1999. The increase in sales is attributable to an increase in
units shipped. In the fourth quarter of fiscal 2000, Centennial's sales to Cisco
Systems, the primary customer of the flash memory card business acquired from
Intel Corporation, were approximately $2.0 million. Following Centennial's
acquisition of the flash memory card business, Cisco Systems notified Centennial
that they would no longer purchase from Centennial and cancelled all remaining
orders. Component costs, primarily related to memory chips, increased
significantly throughout fiscal 2000.
For fiscal 2000, no customer represented more than 10% of Centennial's
sales. Nortel Networks represented 5% and 14% of Centennial's sales in fiscal
2000 and 1999, respectively. During fiscal 1999, Nortel Networks engaged several
contract manufacturers to complete the final assembly of a majority of its
products for which Centennial has historically supplied PC cards. Centennial's
sales to these contract manufacturers for both fiscal 2000 and 1999 represented
14% of Centennial's sales.
For fiscal 2000 and 1999, sales outside of the United States were
approximately 20% and 12%, respectively, of Centennial's sales. Sales outside of
the United States are primarily to customers in several Western European
countries, although sales to customers in any one country did not comprise more
than 10% of Centennial's sales for fiscal 2000 or 1999.
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GROSS PROFIT
Gross profit increased 22% to $10.5 million for fiscal 2000 compared to
$8.7 million for fiscal 1999. Gross margins were 30% for fiscal 2000 and 31% for
fiscal 1999. The fourth quarter of fiscal 2000 included approximately $4.4
million of net sales of inventory acquired with the acquisition of the flash
memory card business of Intel Corporation. This acquired inventory is carried at
its estimated fair market value. Accordingly, the sale of this inventory
resulted in a lower gross margin than sales of Centennial's other inventory.
Excluding the effect of sales of the acquired inventory and related costs of
this acquired inventory, the gross margin for fiscal 2000 would have been 34% as
compared to 30%.
Centennial has been able to achieve higher margins on Centennial products
primarily due to a significant amount of custom product sales through its direct
sales force combined with a small amount of software and service revenue.
Centennial's existing products and services tend to have higher margins than
standard products, which comprise substantially all of the acquired business'
product line.
Centennial experienced an increase in its flash memory costs throughout
fiscal 2000. Centennial increased the average selling price of Centennial
products during fiscal 2000 as a result of its increased component costs. This
increase in Centennial's average selling price enabled Centennial to maintain
its gross margin.
RESEARCH AND DEVELOPMENT
Centennial's research and development expenditures increased significantly
to $1.9 million or 5% of sales in fiscal 2000 compared to $0.8 million or 3% of
sales for fiscal 1999. The higher research and development costs were due
generally to increased spending on outside consultants, higher engineering
material expenditures and recruiting and relocation costs combined with an
increased percentage of employees focused on research and development projects.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $6.7 million or 19% of
sales in fiscal 2000 compared to $6.1 million or 22% of sales in fiscal 1999.
The $0.6 million increase in these expenses for fiscal 2000 was mainly
attributed to higher staffing costs necessary to generate and support
Centennial's increase in sales.
OTHER INCOME/EXPENSE
In fiscal 2000, Centennial incurred a loss of $343,000 on the disposal of
certain equipment that was replaced.
In fiscal 2000, Centennial settled the WebSecure Securities Litigation in
return for the issuance of 43,125 shares of Centennial's common stock, of which
14,375 shares had been issued on November 4, 1999 and 28,750 shares were issued
on January 8, 2001, and the payment of $50,000 for notice and administrative
costs. In fiscal 2000, Centennial revised its estimate of the expected cost to
resolve this matter based on the final settlement amounts, which resulted in
income of $940,000. All shares to be issued in connection with this settlement
are included in the weighted average shares outstanding calculation from
September 17, 1999 forward.
NET INTEREST INCOME/EXPENSE
Net interest income was $185,000 for fiscal 2000 compared to net interest
income of $344,000 for fiscal 1999. This decrease was primarily attributable to
decreased funds invested or on deposit in interest bearing accounts, as well as
increased borrowing under capitalized leases during fiscal 2000 combined with
interest expense on the note payable.
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NET INCOME PER SHARE
On July 20, 1999, Centennial's shareholders approved a one-for-eight
reverse stock split of the common stock, which was effective as of the opening
of the stock markets on July 23, 1999. In this report, all per share amounts and
numbers of shares have been restated to reflect the reverse stock split.
As a result of the Intel Corporation transaction described more fully
above, diluted weighted average outstanding shares increased by 600,000 shares
as of December 29, 1999.
TWELVE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
NET SALES
Sales decreased 2% to approximately $27.6 million for fiscal 1999 compared
to $28.3 million for fiscal 1998. The average selling price for Centennial's
products fell approximately 7% during fiscal 1999, which was partially offset by
an increase in the volume of PC cards sold of approximately 5%. Decreasing
component costs between periods and competitive pricing pressures contributed to
the decrease in the average selling price of Centennial's products.
Sales outside of the United States represented 12% of sales in fiscal 1999
compared to 14% of sales for fiscal 1998. At the end of fiscal 1998, Centennial
opened a new sales office in Cheshire, England.
Sales to Nortel Networks represented 14% of sales in fiscal 1999 compared
to 29% of sales in fiscal 1998. During fiscal 1999, Nortel Networks engaged a
contract manufacturer to complete the final assembly of a majority of its
products for which Centennial has historically supplied PC cards. Centennial's
sales to this contract manufacturer represented almost 10% of Centennial's sales
during fiscal 1999. No other customer accounted for more than 10% of
Centennial's sales during fiscal 1999.
GROSS PROFIT
Gross profit increased 89% to $8.7 million for fiscal 1999 compared to $4.6
million for fiscal 1998. Gross margins were 31% for fiscal 1999 compared to 16%
for fiscal 1998. During fiscal 1999, Centennial sold portions of some customized
inventory for approximately $1.2 million, the cost of which had been previously
fully reserved due to a dispute with the customer for whom the customized cards
were originally produced and who had attempted to cancel the order. The gross
margin for fiscal 1999, excluding this sale of fully reserved inventory, was
28%. Costs of goods sold include provisions for inventory obsolescence of $0 in
fiscal 1999 and $886,000 in fiscal 1998, representing 3% of sales in fiscal
1998, which reflects the strategy of prior management to build inventory in
anticipation of customer orders, a portion of which did not materialize.
Centennial's gross margins were also negatively impacted during fiscal 1998 by
declining memory chip prices, which reduced PC card selling prices in certain
situations where Centennial had already purchased memory chips at higher prices.
RESEARCH AND DEVELOPMENT
Research and development costs decreased by 11% to approximately $750,000
in fiscal 1999 compared to $838,000 for fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased by 39% to $6.1
million in fiscal 1999 compared to $10.0 million in fiscal 1998. This decrease
primarily resulted from the non-recurrence in fiscal 1999 of the following
expenses incurred in fiscal 1998: legal and consulting expenses relating to the
negotiation and finalization of the settlement of the class action litigation
against us, the settlement of several other legal claims, the filing of revised
tax returns, and the conclusion of Centennial's arrangements for interim senior
management consulting services. Bad debt expenses were also higher in fiscal
1998 than in fiscal 1999 as Centennial provided specific reserves for several of
Centennial's former customers in fiscal 1998. Centennial also paid non-recurring
retention bonuses during fiscal 1998 to several key employees following
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the announcement of the special investigation into Centennial's prior reported
financial results. Centennial also incurred non-recurring costs in fiscal 1998
in hiring a new senior management team, and paid severance benefits to certain
of the former officers and employees. Centennial also incurred non-recurring
costs during fiscal 1998 in closing its Canadian and UK offices and establishing
a new sales office in Cheshire, England. Centennial incurred increased sales
expenses related to its new UK sales office during fiscal 1999. Employee
benefits and commissions expenses increased in fiscal 1999 as Centennial
implemented a profit-sharing plan and a new commissions program.
LOSS ON INVESTMENT ACTIVITIES
Loss on investment activities consists of write-downs, valuation
adjustments and accruals for losses recorded associated with certain
investments. During fiscal 1999, Centennial reduced the carrying value of its
investment in Century Electronics Manufacturing, Inc. by $733,000 to $1.7
million, reflecting Centennial's assessment of the deterioration in the value of
this investment.
PROCEEDS FROM RESOLUTION OF CUSTOMER DISPUTE
During fiscal 1998, Centennial filed suit against a customer regarding
inventory specifically purchased and manufactured pursuant to a purchase order
from the customer. The customer attempted to cancel a portion of the purchase
order. Centennial disputed the customer's claim that the purchase order
cancellation was effective. During fiscal 1998, Centennial fully reserved the
cost of this custom inventory of approximately $1.8 million due to the legal
costs and inherent uncertainties involved in litigation.
During fiscal 1999, Centennial settled the litigation. As a result of this
settlement, Centennial received $1.6 million in cash and the customer agreed
that Centennial retain this custom inventory. During fiscal 1999, Centennial
recognized the cash payment of $1.6 million as income. Also during fiscal 1999,
after the settlement agreement was reached, Centennial sold portions of the
custom inventory for approximately $1.2 million, which was included in net
sales.
OTHER EXPENSES, NET
During fiscal 1999, Centennial incurred a loss on the disposal of certain
equipment that had a net book value of approximately $132,000. During fiscal
1998, Centennial increased its accrual for Special Investigation Costs by
$597,000 due to incremental costs. During fiscal 1998, Centennial paid in full
its line-of-credit and lease financing obligations with the bank that was
previously providing us with credit facilities. That bank required Centennial to
pay lease cancellation charges of approximately $258,000 in order to release its
lien on the equipment being financed pursuant to those leases.
NET INTEREST INCOME/EXPENSE
Net interest income was $344,000 for fiscal 1999 and net interest expense
was $56,000 in fiscal 1998, reflecting cash available for investment in fiscal
1999 and outstanding borrowings during fiscal 1998.
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QUARTERLY RESULTS OF OPERATIONS
The following table presents a summary of the unaudited quarterly operating
results of Centennial for each of the four quarters in fiscal 1999 and 2000 and
for each of the three quarters in the nine-month period ended December 23, 2000.
This information was derived from unaudited interim financial statements that,
in the opinion of Centennial's management, have been prepared on a basis
consistent with the financial statements contained elsewhere in this document
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of such information when read in conjunction with
Centennial's audited financial statements and related notes. The operating
results for any quarter are not necessarily indicative of results for any future
period.
FISCAL 2001 QUARTERS ENDED,
-----------------------------------------
JUNE 24, SEPTEMBER 23, DECEMBER 23,
2000 2000 2000
-------- ------------- ------------
Net sales.................................... $13,914 $23,447 $21,028
Gross profit................................. 5,266 10,016 8,395
Operating income............................. 2,164 7,101 4,740
Net income................................... 2,085 6,615 2,800
Net income per share -- basic................ 0.65 2.05 0.86
Net income per share -- diluted.............. 0.49 1.44 0.58
FISCAL 2000 QUARTERS ENDED,
------------------------------------------------------
JUNE 26, SEPTEMBER 25, DECEMBER 25, MARCH 25,
1999 1999 1999 2000
-------- ------------- ------------ ---------
Net sales..................................... $6,681 $7,633 $8,567 $12,699
Gross profit.................................. 2,125 2,496 3,358 2,561
Operating income.............................. 136 169 1,279 396
Net income.................................... 231 838 1,336 248
Net income per share -- basic................. 0.07 0.26 0.42 0.08
Net income per share -- diluted............... 0.07 0.26 0.42 0.06
FISCAL 1999 QUARTERS ENDED,
------------------------------------------------------
JUNE 27, SEPTEMBER 26, DECEMBER 26, MARCH 31,
1998 1998 1998 1999
-------- ------------- ------------ ---------
Net sales..................................... $6,235 $6,151 $7,568 $7,679
Gross profit.................................. 1,645 1,910 2,590 2,520
Operating income.............................. 35 253 577 918
Net income.................................... 99 1,201 573 933
Net income per share -- basic................. 0.04 0.41 0.18 0.36
Net income per share -- diluted............... 0.04 0.41 0.18 0.35
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Centennial has financed its operating activities primarily
from public and private offerings of equity securities, loans from financial
institutions and positive cash flows from operations. At December 23, 2000,
Centennial had cash and cash equivalents of approximately $9.1 million.
Centennial believes the existing cash and cash equivalents, together with cash
from operations and available financing arrangements, including the revolving
credit line, will be sufficient to meet its current anticipated working capital
and capital expenditure requirements for the foreseeable future.
OPERATING ACTIVITIES
During the first nine months of fiscal 2001, working capital increased
$13.5 million to $24.8 million at December 23, 2000, compared to working capital
of $11.3 million at March 25, 2000. This increase is due principally to the net
income of $11.5 million in the nine months ended December 23, 2000. At March 31,
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2000 and 1999, working capital was $11.3 million and $7.4 million, respectively.
This increase in working capital is primarily due to the acquisition of the
flash memory card business of Intel Corporation combined with positive operating
results, which is partially offset by higher inventory levels. The inventory
balance increased from $3.0 million at March 31, 1999 to $14.6 million at March
31, 2000. This significant increase is attributable to approximately $7.5
million in inventory at March 31, 2000 that was acquired with the acquisition of
Intel's flash memory card business. In addition, Centennial increased its raw
material levels of the flash memory component. The higher flash memory level is
due to higher planned purchases in the fourth quarter due to expected shortages.
Additionally, Centennial has had to increase its inventory levels as supplier
lead times have increased.
On June 2, 2000, Centennial entered into a credit agreement with a bank for
a revolving credit facility of $4.0 million. This arrangement contains certain
limitations and covenants; the most restrictive of which is a covenant regarding
the maintenance of liquidity, as defined in the credit agreement. Available
borrowings are based upon a percentage of accounts receivable. The credit
facility is secured by substantially all of Centennial's assets. As of December
23, 2000, Centennial had no borrowings under this credit facility. This credit
agreement expires on July 31, 2002.
INVESTING TRANSACTIONS
Net capital expenditures amounted to $533,000 for the nine months ended
December 23, 2000 compared to $307,000 for the nine months ended December 25,
1999. Net capital expenditures amounted to $473,000 during fiscal 2000 compared
to $669,000 in fiscal 1999.
In fiscal 2000, Centennial invested $248,000 for approximately a 7%
interest in Elan Digital Systems Limited. Elan was formed in the United Kingdom
during 1976 and offers application engineering and design services for
microcontroller based solutions. This investment is carried on Centennial's
balance sheet under "Investments" and its operating results are reported under
the cost method of accounting.
FINANCING TRANSACTIONS
In the third quarter of fiscal 2001, Centennial entered into a four-year
capital lease for new manufacturing equipment with a monthly payment of
approximately $10,000. In fiscal 2000, Centennial entered into two five-year
capital leases for new manufacturing equipment with monthly payments that
aggregate $22,535.
INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
Since October 1996, Centennial has held an equity interest in Century
Electronics Manufacturing, Inc., a contract manufacturer. On February 4, 1998,
Century redeemed a portion of Centennial's debt and equity holdings in Century
in exchange for $9.7 million in cash, $4.0 million of Century series B
convertible preferred stock and the forgiveness of certain interest. The series
B convertible preferred stock is equivalent upon conversion to approximately 7%,
non-diluted, of Century's outstanding shares, is non-voting, has no dividend,
and has a liquidation preference of $4.0 million senior to the common
shareholders and subordinate to the holders of Century's series A convertible
preferred stock. Centennial recorded a loss on investment activities of $5.1
million in the third quarter of fiscal 1998 to reflect the difference between
the fair value of the consideration received from Century and the carrying value
of its investment in Century. During fiscal 1999, Centennial reduced the
carrying value of its investment in Century by $733,000 to $1.7 million,
reflecting management's assessment of the deterioration in value of the
investment. On January 9, 2001, Century filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code. In the quarter ended
December 23, 2000, Centennial recorded an adjustment to its investment in
Century resulting in a $1,700,000 charge to other income since management
believes that the investment has suffered a decline, which is
other-than-temporary. This reduced the carrying value of this Century investment
to $0.
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LEGAL PROCEEDINGS
Centennial is party from time to time to legal proceedings arising out of
the normal course of business. Management of Centennial does not believe that
any such legal proceedings, either individually or in the aggregate, will have a
material adverse effect on Centennial's business, financial condition or results
of operations. In addition, Centennial has been or is party to other litigation
as summarized below.
Class Action Litigation
Centennial has been party to various class action lawsuits which were
commenced principally during fiscal 1997 and 1998. A substantial number of the
participants in these class action lawsuits participated in settlements with
Centennial that became effective during fiscal 1999. The following discusses the
history of these class action lawsuits, together with the settlements that were
entered into principally in fiscal 1999.
Since the announcement on February 11, 1997 that Centennial was undertaking
an inquiry into the accuracy of its prior reported financial results, and that
preliminary information had raised questions as to whether reported results
contained material misstatements, approximately 40 purported class action
lawsuits were filed in or transferred to the United States District Court for
the District of Massachusetts. These complaints asserted claims against
Centennial and its Board of Directors, officers and former independent
accountants, among others, under certain federal and state laws. These class
action lawsuits were purportedly brought by and on behalf of purchasers of
Centennial's common stock (1) between Centennial's initial public offering on
April 12, 1994 and February 10, 1997 or (2) on February 25, 1997.
On February 9, 1998, these class action lawsuits were consolidated (the
CONSOLIDATED LITIGATION), and the lead counsel representing the plaintiffs in
the Consolidated Litigation filed a Stipulation of Settlement (the SETTLEMENT
AGREEMENT), whereby Centennial and certain of its officers and directors would
be released from liability arising from the allegations included in the
Consolidated Litigation. In return, Centennial paid the plaintiffs in the
Consolidated Litigation $1.475 million in cash and issued to these plaintiffs
854,300 shares or 37% of Centennial common stock. Centennial also adopted
certain corporate governance policies and procedures. The Settlement Agreement
became effective on July 20, 1998. All shares issued in connection with the
Consolidated Litigation are included in the weighted average shares outstanding
calculation from July 20, 1998 forward.
A number of class members elected not to participate in the Settlement
Agreement described above. In September 1999, Centennial reached an agreement
with a number of these parties. In return, Centennial paid $500,000 in cash to
settle these claims (the ADDITIONAL SETTLEMENT AGREEMENT). For the remaining
parties who did not participate in the Settlement Agreement or the Additional
Settlement Agreement, Centennial believes that the applicable Federal statute of
limitations has likely expired and that it does not have material exposure to
these parties. During fiscal 2000, Centennial revised its estimate of the
allocation between cash and common stock of the $20 million provision for
settlement of all such shareholder litigation recorded during fiscal 1997
related to the class action litigation. Accordingly, Centennial reclassified
certain amounts in fiscal 2000 from the original settlement reserve to accrued
liabilities, representing the Additional Settlement Agreement described above
and a remaining estimate of the probable costs to be incurred in connection with
the remaining parties not a party to the Settlement Agreement or the Additional
Settlement Agreement. In fiscal 2000, Centennial made a partial payment of
$188,000 in settlement of certain of these claims. In December 2000, Centennial
paid the remaining amount of $312,000.
In fiscal 2000, the plaintiffs in the Consolidated Litigation reached an
agreement with Centennial's former Interim Chief Executive Officer, Lawrence J.
Ramaekers, and his employer, Jay Alix & Associates (JAY ALIX), regarding the
plaintiffs' alleged claims against them. In fiscal 2000, Centennial paid Jay
Alix and Mr. Ramaekers $1.0 million for legal fees incurred and Jay Alix and Mr.
Ramaekers released any and all claims against Centennial, its affiliates and its
directors.
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Securities and Exchange Commission Investigation
In February 1997, Centennial was notified that the Boston District Office
of the Securities and Exchange Commission was conducting an investigation of it.
Centennial cooperated fully with the Securities and Exchange Commission. On
September 26, 2000, Centennial entered into an administrative proceeding fully
resolving the issues arising from the conduct of former members of Centennial's
senior management and the restatement of certain financial statements.
WebSecure Litigation
On and after March 26, 1997, several complaints were filed against
WebSecure, certain officers, directors and underwriters of WebSecure, and
Centennial in the United States District Court for the District of Massachusetts
by plaintiffs purporting to represent classes of shareholders who purchased
stock of WebSecure, Inc. between December 5, 1996 and February 27, 1997. The
claims against Centennial included alleged violations of Sections 11 and 15 of
the Securities Act of 1933 (the WEBSECURE SECURITIES LITIGATION). In fiscal
1997, Centennial established a reserve of $1.2 million in connection with the
expected settlement of this litigation.
In fiscal 2000, Centennial settled the WebSecure Securities Litigation in
return for the issuance of 43,125 shares of Centennial common stock, of which
14,375 shares had been issued as of March 31, 2000 and the payment of $50,000
for notice and administrative costs. In fiscal 2000, Centennial revised the
estimate of the expected cost to resolve this matter based on the final
settlement amounts, which resulted in income of $940,000. All shares to be
issued in connection with this settlement are included in the weighted average
shares outstanding calculation from September 17, 1999 forward. On January 8,
2001, the remaining 28,750 shares were issued.
Other
On May 12, 2000, Centennial received a complaint from Mr. Dennis M.
O'Connor alleging that he is owed approximately $485,000 in connection with
legal services provided by O'Connor, Broude & Aronson prior to May 12, 1997.
Because of the early stage of this litigation, Centennial is not able to make an
assessment as to its likely outcome.
On July 13, 2000, Centennial received a complaint from Mr. Thomas L.
DePetrillo alleging that he was owed approximately $1,000,000 in connection with
securities that Mr. DePetrillo claims were not delivered on a timely basis. This
lawsuit includes allegations substantially identical to those asserted by Mr.
DePetrillo in a lawsuit filed against Centennial in July 1998. In October 2000,
Centennial settled the complaint from Mr. DePetrillo with a cash payment of
$375,000.
On February 2, 2001, Centennial was notified of a complaint filed against
it by Onyx, Inc. Onyx served as one of Centennial's exclusive sales
representatives for certain products in five New England states during the
mid-1990's. Onyx alleges that Centennial failed to provide it with an
appropriate accounting of commissions due it and failed to pay all commissions
due. Because of the early stage of this litigation, Centennial is unable to make
an assessment as to its likely outcome.
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COMPARISON OF RIGHTS OF HOLDERS OF CENTENNIAL COMMON STOCK
AND SERIES B CONVERTIBLE PREFERRED STOCK AND SOLECTRON COMMON STOCK
The following is a description of the material differences between the
rights of holders of Centennial common stock, Centennial series B convertible
preferred stock and Solectron common stock. While we believe that the
description covers the material differences between the three, this summary may
not contain all of the information that is important to you. You should
carefully read this entire document and the other documents we refer to for a
more complete understanding of the differences between being a stockholder of
Centennial and being a stockholder of Solectron.
Centennial's certificate of incorporation, including the certificate of
designation of the rights, preferences and terms for the series B convertible
preferred stock, and bylaws, each as currently in effect, govern your rights as
a stockholder of Centennial. After completion of the merger, you will become a
stockholder of Solectron. Solectron's certificate of incorporation and bylaws
will govern your rights as a stockholder of Solectron. We are each incorporated
under the laws of the State of Delaware. Accordingly, the Delaware General
Corporation Law will continue to govern your rights as a stockholder after
completion of the merger.
Except as indicated below, holders of the series B convertible preferred
stock have the similar or identical rights as Centennial's common stockholders.
COMMON STOCK
Both Solectron and Centennial have one class of common stock issued and
outstanding. Holders of Solectron common stock and holders of Centennial common
stock are each entitled to one vote for each share held.
Under Centennial's certificate of incorporation, the board is allowed to
determine from time to time additional designations and powers, preferences and
rights and qualifications, limitations, or restrictions of the shares of each
class of capital stock.
PREFERRED STOCK
The certificates of incorporation of Solectron and Centennial provide that
their boards of directors are authorized to provide for the issuance of shares
of undesignated preferred stock in one or more series, and to fix the
designations, powers, preferences and rights of the shares of each series and
any related qualifications, limitations or restrictions.
The series B convertible preferred stock ranks senior to the Centennial
common stock and to all other classes in series of equity securities of
Centennial which by their terms do not rank senior to Centennial's series A
junior participating preferred stock.
VOTING RIGHTS
Solectron common stockholders are entitled to one vote for each share of
capital stock held by the stockholder.
Centennial common stockholders are entitled to one vote for each share of
capital stock held by the stockholder.
Each share of series B convertible preferred stock entitles the holder to
one vote per share of common stock which would be issuable upon conversion of
such shares of series B convertible preferred stock. Presently, the series B
convertible preferred stock is convertible into 10 shares of Centennial common
stock.
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Holders of Centennial series B convertible preferred stock are entitled to
vote as a class with regard to:
- an increase in the authorized or issued amounts of series B convertible
preferred stock or the creation of any stock senior to the series B
convertible preferred stock;
- any amendment, alteration or repeal of any of the provisions of the
certificate of incorporation, bylaws or certificate of designation which
adversely affect any right, preference, privilege or power, or
restriction provided for the benefit of the series B convertible
preferred stockholders; and
- any corporate or stockholder action that reclassifies any outstanding
shares into shares that have a preference or priority to receive
dividends or assets senior to or on parity with the holders of series B
convertible preferred stock.
For all other matters, the holders of series B convertible preferred stock
vote together with the common stock on any matter submitted to a vote of
Centennial stockholders, whether at a meeting or by written consent.
BOARD OF DIRECTORS
Solectron's certificate of incorporation indicates that the number of
directors which will constitute the whole board of directors of Solectron shall
be as specified in Solectron's bylaws. Solectron's bylaws currently indicate
that the number of directors of the corporation shall consist of 10 members
until changed by an amendment to the bylaws, duly adopted by the board of
directors or by the stockholders, or by a duly adopted amendment to Solectron's
certificate of incorporation. An amendment to Solectron's bylaws requires the
vote or written consent of holders of a majority of the stockholders of
Solectron entitled to vote. In addition, Solectron's certificate of
incorporation allows the board of directors to amend Solectron's bylaws.
Solectron's directors are elected to hold office until the expiration of
the term for which they are elected and until their successors have been duly
elected and qualified.
Under Centennial's bylaws, the number of directors shall be determined by
the board of directors. If the board does not set the number of directors, there
will be one director. Centennial's board of directors currently consists of
seven directors. The directors are elected at the annual meeting of the
stockholders. Each director holds office until the next annual meeting and until
his or her successor is elected and qualified.
CUMULATIVE VOTING FOR DIRECTORS
Under Delaware law, unless the corporation's certificate of incorporation
provides otherwise, there can be no cumulative voting for the election of
directors. The Solectron certificate provides for cumulative voting. The
Centennial certificate does not allow for cumulative voting.
DIRECTOR VOTING
The Solectron and Centennial bylaws provide that the number of directors
constituting a quorum shall be a majority of the number of authorized directors
or the number of directors in office, respectively. The act of a majority of the
directors present at any meeting at which there is a quorum is generally valid
as a corporate act.
REMOVAL OF DIRECTORS
Under Solectron's bylaws, (unless otherwise restricted by statute, by
Solectron's certificate of incorporation or bylaws) any director or the entire
board of directors may be removed with or without cause by the holders of a
majority of the shares then entitled to vote at an election of directors.
However, as long as stockholders of the corporation are entitled to cumulative
voting, no individual director may be removed without cause (unless the entire
board is removed) if the number of votes cast against such
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removal would be sufficient to elect the director if the votes were then
cumulatively voted at an election of the class of directors of which the
director is a part. Whenever the holders of any class or series are entitled to
elect one or more directors by the certificate of incorporation, such director
or directors may be removed without cause only if there are sufficient votes by
the holders of the outstanding shares of that class or series. A vacancy created
by the removal of a director may be filled only by the approval of the
stockholders.
Furthermore, no reduction of the authorized number of directors would have
the effect of removing any director prior to the expiration of that director's
term of office.
Under Centennial's bylaws, except as otherwise provided by law or
Centennial's certificate of incorporation, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under Solectron's bylaws, any vacancy arising from the resignation or death
of a director may be filled by a majority of the remaining members of the board
of directors. This is true even if the majority is less than a quorum, or there
is a sole remaining director. Each director elected in this manner shall hold
office until his or her successor is elected at the next succeeding annual
meeting of stockholders at which the class to which the directorship belongs is
to be elected or at a special meeting called for that purpose. Other vacancies
on Solectron's board of directors will be similarly treated, except that in all
cases vacancies and newly created directorships specific to a class or classes
or series of classes entitled to elect one or more directors may be filled by a
majority of the directors elected by the class or classes or series still in
office, or by the sole remaining director.
Under Centennial's bylaws, if any vacancies occur in the board of directors
or if any new directorships are created, they may be filled by a majority of the
directors then in office. This is true even if the majority is less than a
quorum, or it may be filled by a sole remaining director. Each director elected
this way will hold office until the next annual meeting of stockholders and
until his successor is duly elected and shall qualify. If there are no directors
in office, any officer or stockholder may call a special meeting of stockholders
in accordance with the provisions of Centennial's certificate of incorporation
or bylaws to fill the vacancies.
INTERESTED DIRECTORS
Solectron does not have any provisions in its certificate of incorporation
or bylaws that pertain to transactions by interested directors.
Centennial's bylaws provide that a transaction between Centennial and an
interested director or officer will not be void or voidable if:
- the material facts of the interested director or officer's relationship
or interest in the transaction are disclosed or known by the board of
directors or committee and the board of directors or committee, in good
faith, authorizes the transaction by an affirmative vote of a majority of
the disinterested directors; or
- the material facts of the interested director or officer's relationship
or interest in the transaction are disclosed or are known to the
stockholders entitled to vote on the matter and the transaction is
specifically approved by the stockholders' vote; or
- the transaction is fair to Centennial at the time it is authorized,
approved or ratified by the board of directors, committee or
stockholders.
RECORD DATE
Solectron and Centennial each give its board of directors the power to fix,
in advance, a record date for receiving notice of or voting at a stockholders
meeting or receiving dividends or other similar
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distributions or allotments of rights that is not more than 60 days or less than
10 days before the date of a meeting of stockholders or more than 60 days prior
to any other action.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Solectron's certificate of incorporation states that stockholders may not
take action by written consent in lieu of a meeting.
Under Centennial's bylaws, any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting and without prior
notice. To qualify, the written consent must be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote were present in person or by proxy and voted. Any written
consents must be filed with the minutes of the meetings of stockholders.
ABILITY TO CALL SPECIAL MEETINGS
Under Delaware law, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws.
Solectron's board of directors, chairman of the board, the president, the
secretary, or holders of shares entitled to cast not less than 10% of the votes
at the meeting may call special meetings of Solectron stockholders.
Centennial's chairman of the board, if any, or the president may call a
special meeting of the stockholders for any purpose. Centennial's president or
secretary must call a special meeting at the request, in writing, of a majority
of either the board of directors or of the stockholders owning a majority of the
shares of capital stock of the corporation issued and outstanding and entitled
to vote.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The Solectron bylaws allow stockholders to nominate candidates for election
to Solectron's board of directors or propose other business at any annual or any
special stockholder meeting. To be properly brought before an annual or special
meeting, nominations for the election of directors or other business proposals
must be:
- specified in the notice of meeting, or any supplemental material, given
by or at the direction of the board of directors;
- otherwise properly brought before the meeting by or at the direction of
the board of directors; or
- otherwise properly brought before the meeting by a stockholder.
However, nominations and proposals may only be made by a stockholder who
has given timely written notice to the Secretary of Solectron before the annual
or special stockholder meeting.
Under Solectron's bylaws, to be timely, notice of stockholder nominations
or proposals to be made at a stockholder meeting must be received by the
secretary of Solectron no less than 90 days prior to the meeting. If, however,
there is less then 100 days notice or prior public disclosure of the date of the
meeting given to the stockholders, there is a different notice requirement.
Under these circumstances, the stockholder will be considered timely if the
proposal is received by close of business on the 10th day following the notice
of the meeting.
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Under Centennial's bylaws, nomination for election to the board of
directors of the corporation at a meeting of stockholders may be made:
- by or at the direction of the board of directors; or
- by any stockholder of Centennial entitled to vote for the election of
directors at such meeting. The stockholder must have made timely notice,
in writing, to the secretary in accordance with the procedures
established in the bylaws.
To be timely, a stockholder's notice must be received by the secretary at
the principal executive offices of Centennial as follows:
- in the case of an election of directors at an annual meeting of
stockholders in general, not less than 70 days nor more than 90 days
prior to the first anniversary of the preceding year's annual meeting;
- in the case of an election of directors at a special meeting of
stockholders, not earlier than the 90th day prior to such special meeting
and not later than the 10th day following the day on which public
announcement of the date of the special meeting is first made.
Under Centennial's bylaws, at any annual meeting of the stockholders, the
only business to be conducted is the business that is properly brought before
the meeting. To be properly brought before an annual meeting, business must be:
- specified in the notice of meeting, or in any supplemental material,
given by or at the direction of the board of directors;
- otherwise brought before the meeting by or at the direction of the board
of directors; or
- otherwise properly brought before the meeting by or at the direction of a
stockholder.
To be timely, a stockholder's notice generally must be received by the
secretary at the principal executive offices of Centennial not less than 70 nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting.
DIVIDENDS
Under Solectron's bylaws, the board of directors may declare and pay
dividends on shares of Solectron's capital stock in accordance with Delaware
law. Dividends may be paid in cash, property or shares of Solectron capital
stock. In addition, the board of directors may set apart out of any of
Solectron's funds available for dividends, a reserve or reserves for any proper
purpose. The board of directors may also abolish any such reserve.
Centennial's bylaws allow the board of directors to declare dividends upon
Centennial's outstanding capital stock. These dividends may be declared at any
regular or special meeting and may be paid in cash, property or shares of
Centennial capital stock. Centennial's certificate of incorporation allows the
board of directors to set apart out of any of Centennial's funds available for
dividends a reserve or reserves for any proper purpose. The board of directors
may also abolish any such reserve in the manner in which the reserve was
created.
Holders of series B convertible preferred stock are entitled to receive
dividends in the same amount per share as would be payable on the number of
shares of Centennial common stock into which the preferred stock is then
convertible. The dividend is payable in preference and in priority to any
payment of cash dividends on common stock or any other class of stock or series.
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LIQUIDATION
Neither Solectron nor Centennial provide for specific liquidation rights or
preferences for their common stock. However, under the certificate of
designation, the Centennial series B convertible preferred stock is entitled to
a liquidation preference of $80.00 per share upon:
- a consolidation or merger of Centennial with or into any other
corporation or corporations, or a transaction or series of transactions
in which 50% or more of the voting shares of Centennial is disposed of or
conveyed to a single person or group; and
- a sale, lease, exchange or other disposition of all or substantially all
of the assets of Centennial.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, a certificate of incorporation of a Delaware
corporation may be amended by approval of the board of directors of the
corporation and the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote for the amendment, unless a higher vote is
required by the corporation's certificate of incorporation.
Solectron's certificate of incorporation reserves Solectron's right to
amend, alter, change or repeal any provision contained in the certificate, in
the manner prescribed by Delaware law.
Centennial's certificate of incorporation reserves Centennial's right to
amend, alter, change or repeal any provision contained in the certificate of
incorporation. However, any amendment must be made by the holders of at least
two-thirds of the outstanding shares of common stock of Centennial. As discussed
above, the holders of Centennial series B convertible preferred stock are
entitled to vote separately as a class to authorize certain amendments to
Centennial's certificate of incorporation.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its certificate of
incorporation, confer such power upon the board of directors. The stockholders
have the power to adopt, amend or repeal bylaws, even though the board may also
be delegated such power.
Solectron's bylaws provide that its bylaws may be adopted, amended or
repealed by a majority of the stockholders entitled to vote. Solectron has, in
its certificate of incorporation, conferred the power to adopt, amend or repeal
bylaws upon its directors. The fact that this power has been conferred upon the
directors does not divest the stockholders of the power, or limit their power to
adopt, amend or repeal the bylaws.
Centennial's board of directors is expressly authorized to make, alter,
amend or repeal Centennial's bylaws. Furthermore, the board of directors is
authorized to adopt new bylaws by an affirmative vote of a majority of the whole
board. For the board to act, notice of the proposal to alter or repeal these
bylaws or to adopt new bylaws must be included in the notice of the meeting of
the board of directors at which such action takes place.
STATE ANTI-TAKEOVER STATUTES
In the last several years, a number of states have adopted special laws
designed to make some kinds of "unfriendly" corporate takeovers, or other
transactions involving a corporation and one or more of its significant
stockholders, more difficult. Under Section 203 of the Delaware General
Corporation Law, some "business combinations" by Delaware corporations with
"interested stockholders" are subject to a three-year moratorium unless
specified conditions are met. Section 203 prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for three
years following the date that such person becomes an interested stockholder.
With some exceptions, an interested stockholder is generally a person or group
who or which owns 15% or more of the corporation's outstanding voting stock.
This includes any rights to acquire stock pursuant to an option, warrant,
agreement, arrangement or understanding, or upon the exercise of conversion or
exchange rights, and stock with respect to which the
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person has voting rights only. An interested stockholder is also defined as an
affiliate or associate of the corporation and was the owner of 15% or more of
such voting stock at any time within the previous three years.
Solectron and Centennial are both subject to Section 203 of the Delaware
General Corporation Law, which, under certain circumstances, may make it more
difficult for a person who would be an "Interested Stockholder," as defined in
Section 203, in our respective companies, to effect various business
combinations with either of us for a three-year period. Under Delaware law, a
corporation's certificate of incorporation or bylaws may exclude a corporation
from the restrictions imposed by Section 203. The certificates of incorporation
and bylaws of both Solectron and Centennial do not exclude them from the
restrictions imposed under Section 203.
LIMITATION OF LIABILITY OF DIRECTORS
Delaware law permits a corporation to include a provision in its
certificate of incorporation eliminating or limiting the personal liability of a
director or officer to the corporation or its stockholders for damages for a
breach of the director's fiduciary duty. However, no such provision can
eliminate or limit director liability for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock; and
- any transaction from which the director derived an improper personal
benefit.
Solectron's and Centennial's certificates of incorporation include such a
provision to limit directors' personal liability to the corporation to the
maximum extent permitted by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate that
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law permits a corporation to indemnify officers and directors for
actions taken in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation, and with respect to
any criminal action, which they had no reasonable cause to believe was unlawful.
Under Solectron's bylaws, Solectron commits itself to indemnify each of its
directors and officers to the maximum extent and in the manner permitted by
Delaware law against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of Solectron. Furthermore, Solectron's bylaws authorize it to provide
insurance for its directors, officers and/or agents, against any expense,
liability or loss, whether or not Solectron would have the power to indemnify
such person against such expense, liability or loss under Delaware law.
Under Centennial's bylaws, Centennial is to indemnify its officers and
directors in each and every situation where Centennial is permitted or empowered
to make indemnification under Delaware law. It is further stated that before
making such indemnification, it must be determined by Centennial whether the
indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of Centennial, and, in the case of any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful.
96
103
LEGAL MATTERS
The validity of the shares of Solectron common stock offered by this
document will be passed upon for Solectron by Wilson Sonsini Goodrich & Rosati,
Professional Corporation. Centennial is represented in connection with the
merger by Goodwin Procter LLP. It is a condition to the completion of the merger
that Centennial receive an opinion of Goodwin Procter LLP and that Solectron
receive an opinion from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in each case to the effect that, among other things, the merger
will qualify as a reorganization within the meaning of Section 368(a) under the
Internal Revenue Code. See the section entitled "The Merger and Related
Transactions -- Material United States Federal Income Tax Consequences of the
Merger" beginning on page 66 of this document.
EXPERTS
The consolidated financial statements and schedule of Solectron Corporation
and subsidiaries as of August 31, 2000 and 1999, and for each of the years in
the three-year period ended August 31, 2000 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, incorporated by reference herein,
and upon authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Centennial Technologies, Inc. at
March 25, 2000 and March 31, 1999, and for each of the two years in the period
ended March 25, 2000, included in the proxy statement of Centennial
Technologies, Inc., which is referred to and made a part of this prospectus and
registration statement of Solectron Corporation, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity and cash
flows of Centennial Technologies, Inc. for the twelve months ended March 31,
1998, included in this registration statement, have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS
If the merger is not completed before the 2001 annual meeting of Centennial
stockholders, Centennial stockholders may present proper proposals for inclusion
in the document mailed by Centennial for such meeting and for consideration at
the next annual meeting of its stockholders by submitting their proposals to
Centennial in a timely manner complying with all the requirements of the proxy
rules established by the Securities and Exchange Commission and Centennial's
bylaws. Proposals of stockholders of Centennial that are intended to be
presented by such stockholders at Centennial's 2001 annual meeting must be
received by Centennial no later than February 20, 2001 in order that they may be
considered for inclusion in the document and form of proxy relating to that
meeting.
97
104
WHERE YOU CAN FIND ADDITIONAL INFORMATION
THIS DOCUMENT INCORPORATES OTHER REPORTS BY REFERENCE WHICH ARE NOT
PRESENTED IN OR DELIVERED WITH THIS DOCUMENT.
All reports, proxy and information statements and other information filed
by Solectron pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, after the date of this document and before the
date of the special meeting described herein are incorporated by reference into
this document from the date of filing of those reports, proxy and information
statements and other information.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH SOLECTRON HAS REFERRED YOU HEREIN. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
The following documents, which have been filed by Solectron with the
Securities and Exchange Commission, are incorporated by reference into this
document:
- Annual Report on Form 10-K for the fiscal year ended August 25, 2000;
- Quarterly Report on Form 10-Q for the quarter ended December 1, 2000;
- Current Report on Form 8-K filed on January 10, 2001;
- Current Report on Form 8-K filed on January 3, 2001;
- Current Report on Form 8-K filed on December 22, 2000;
- Current Report on Form 8-K filed on November 21, 2000; and
- The description of Solectron's common stock contained in Solectron's
registration statement filed on Form 8A on July 18, 1988, and any
amendment or report filed for the purpose of updating such description.
The reports incorporated by reference into this document are available from
Solectron upon request. Solectron will provide a copy of any and all of the
information that is incorporated by reference in this document (not including
exhibits to the information unless those exhibits are specifically incorporated
by reference into this document) to any person, without charge, upon written or
oral request to the following address and telephone number. ANY REQUEST FOR
DOCUMENTS SHOULD BE MADE BY -, 2001 TO ENSURE TIMELY DELIVERY PRIOR TO THE
SPECIAL MEETING OF CENTENNIAL STOCKHOLDERS AT WHICH THE MERGER AGREEMENT AND THE
MERGER WILL BE CONSIDERED AND VOTED UPON.
Solectron Corporation
777 Gibraltar Drive
Milpitas, California 95035
(408) 957-8500
Centennial incorporates by reference its Annual Report on Form 10-K for the
fiscal year ended March 25, 2000 with respect to information contained in the
Annual Report which pertains to Centennial's voting securities and the principal
holders thereof, information as to Centennial's directors and executive
officers, Centennial's executive compensation and related matters, transactions
with Centennial's management, certain business relationships, and indebtedness
of Centennial's management. You may request a copy of this filing, at no cost,
by writing or telephoning Centennial at the following address and telephone
number:
Centennial Technologies, Inc.
7 Lopez Road
Wilmington, Massachusetts 01887
(978) 988-8848.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference into this document will be deemed to be modified or
superseded for purposes of this document
98
105
to the extent that a statement contained in this document or any other
subsequently filed document that is deemed to be incorporated by reference into
this document modifies or supersedes the statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this document.
Solectron and Centennial file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of our reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at the
following locations:
Public Reference Room Chicago Regional Office Seven World Trade Center
Judiciary Plaza Citicorp Center 13th Floor
Room 1024 500 West Madison Street New York, New York 10048
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials also can be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. In addition, the Securities and Exchange
Commission maintains a website that contains reports, proxy and information
statements and other information regarding each of us. The address of the
Securities and Exchange Commission Website is http://www.sec.gov.
Reports, proxy and information statements and other information concerning
Centennial also can be inspected at the offices of The National Association of
Securities Dealers, Inc.:
The National Association of Securities Dealers, Inc.
1735 K Street, N.W.
Washington, D.C. 20006
Reports, proxy and information statement and other information concerning
Solectron also can be inspected at the offices of the New York Stock Exchange
located at:
New York Stock Exchange
20 Broad Street
New York, New York 10005
Solectron has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
Solectron's common stock to be issued to Centennial stockholders in the merger.
This document constitutes the prospectus of Solectron filed as part of the
registration statement. This document does not contain all of the information
set forth in the registration statement because certain parts of the
registration statement are omitted in accordance with the rules and regulations
of the Securities and Exchange Commission. Statements made in this document as
to the content of any contract, agreement or other document referred to are not
necessarily complete. With respect to each of those contract, agreements or
other documents to be filed or incorporated by reference as an exhibit to the
registration statement, you should refer to the corresponding exhibit, when it
is filed, for a more complete description of the matter involved and read all
statements in this document in light of that exhibit. The registration statement
and its exhibits are available for inspection and copying as set forth above.
Centennial stockholders should call Richard J. Pulsifer at Centennial at
(978) 998-8848 with any request for any documentation referred to in this
document.
99
106
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS DOCUMENT, OR THE SOLICITATION
OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT TO THIS DOCUMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR
INCORPORATED INTO THIS DOCUMENT BY REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF
THIS DOCUMENT. THE INFORMATION CONTAINED IN THIS DOCUMENT WITH RESPECT TO
CENTENNIAL AND ITS SUBSIDIARIES WAS PROVIDED BY CENTENNIAL AND THE INFORMATION
CONTAINED IN THIS DOCUMENT WITH RESPECT TO SOLECTRON WAS PROVIDED BY SOLECTRON.
100
107
CENTENNIAL TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Auditors............................. F-2
Consolidated Balance Sheets as of December 23, 2000
(unaudited), March 25, 2000 and March 31, 1999............ F-3
Consolidated Statements of Operations for the nine months
ended December 23, 2000 (unaudited) and December 25, 1999
(unaudited), and for the years ended March 25, 2000, March
31, 1999 and March 31, 1998............................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended March 25, 2000, March 31, 1999 and March 31,
1998...................................................... F-5
Consolidated Statements of Cash Flows for the nine months
ended December 23, 2000 (unaudited) and December 25, 1999
(unaudited), and for the years ended March 25, 2000, March
31, 1999 and March 31, 1998............................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
108
REPORTS OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of Centennial Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Centennial
Technologies, Inc. (the "Company") as of March 25, 2000 and March 31, 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of
Centennial Technologies, Inc. at March 25, 2000 and March 31, 1999, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended March 25, 2000, in conformity with accounting
principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 1, 2000, except for the last paragraph
of Note 15, as to which the
date is May 12, 2000
-------------------------
To the Board of Directors and Stockholders of Centennial Technologies, Inc.:
In our opinion, the consolidated statements of operations, stockholders'
equity and cash flows present fairly, in all material respects, the results of
operations and cash flows of Centennial Technologies, Inc. and Subsidiaries for
the twelve months ended March 31, 1998 in conformity with generally accepted
accounting principles in the United States of America. 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 audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards in the United States of America which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinions expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
May 15, 1998
F-2
109
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31,
DECEMBER 23, -------------------
2000 2000 1999
------------ -------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,102 $ 5,780 $ 4,922
Short-term investments.................................... -- -- 2,500
Trade accounts receivable, less allowances of $200, $200
and $645, respectively................................. 7,768 3,838 3,876
Inventories............................................... 18,147 14,574 3,049
Other current assets...................................... 498 720 356
-------- -------- --------
Total current assets................................... 35,515 24,912 14,703
Equipment and leasehold improvements........................ 5,396 4,821 3,967
Less accumulated depreciation and amortization.............. (2,580) (2,131) (1,508)
-------- -------- --------
2,816 2,690 2,459
Investments................................................. 248 1,948 1,700
Intangibles, net............................................ 403 469 --
Other assets................................................ 459 354 92
-------- -------- --------
Total assets........................................... $ 39,441 $ 30,373 $ 18,954
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10,412 $ 9,436 $ 7,222
Note payable to related party............................. -- 4,000 --
Obligations under capital leases, current portion......... 311 215 36
-------- -------- --------
Total current liabilities.............................. 10,723 13,651 7,258
Long-term obligations under capital leases.................. 956 827 --
Commitments and contingencies (Notes 8, 15 and 17)
Stockholders' equity:
Preferred Stock, $0.01 par value; 1,000 shares authorized,
60 shares issued and outstanding at December 23, 2000
and March 31, 2000 and none at March 31, 1999
(liquidation preference value $4,800).................. 1 1 --
Common Stock, $0.01 par value; 50,000 shares authorized,
3,264, 3,186 and 2,569 issued and outstanding at
December 23, 2000 and March 31, 2000 and 1999,
respectively........................................... 33 32 26
Additional paid-in capital................................ 86,304 85,937 84,379
Accumulated deficit....................................... (58,544) (70,044) (72,697)
Accumulated other comprehensive loss...................... (32) (31) (12)
-------- -------- --------
Total stockholders' equity............................. 27,762 15,895 11,696
-------- -------- --------
Total liabilities and stockholders' equity............. $ 39,441 $ 30,373 $ 18,954
======== ======== ========
SEE ACCOMPANYING NOTES.
F-3
110
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
DECEMBER 23, YEARS ENDED MARCH 31,
------------------------- ----------------------------
2000 1999 2000 1999 1998
----------- ----------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
Net sales:
PC cards and related products.............. $49,621 $22,881 $35,580 $27,633 $ 28,263
Electronic components...................... 8,768 -- -- -- --
------- ------- ------- ------- --------
Net sales............................... 58,389 22,881 35,580 27,633 28,263
Cost of goods sold........................... 34,712 14,902 25,040 18,968 23,683
------- ------- ------- ------- --------
Gross profit............................ 23,677 7,979 10,540 8,665 4,580
Operating expenses:
Research and development................... 1,646 1,069 1,887 750 838
Selling, general and administrative........ 8,026 5,326 6,673 6,132 9,957
------- ------- ------- ------- --------
Operating income (loss)................. 14,005 1,584 1,980 1,783 (6,215)
Other income (expense):
Gain (loss) on disposal of equipment....... 52 (345) (343) -- --
Loss on investment activities.............. (1,700) -- -- (733) (14,065)
Special investigation costs................ -- -- -- -- (597)
Provision for loss on inventory subject to
customer dispute........................ -- -- -- -- (1,841)
Proceeds from resolution of customer
dispute................................. -- -- -- 1,600 --
Other...................................... -- 940 940 -- --
Other income (expense)..................... -- 39 46 (132) (258)
Net interest income (expense).............. (23) 230 185 344 (56)
------- ------- ------- ------- --------
Income (loss) before income taxes and
equity in earnings of affiliate......... 12,334 2,448 2,808 2,862 (23,032)
Equity in earnings of affiliate.............. -- -- -- -- 423
------- ------- ------- ------- --------
Income (loss) before income taxes.......... 12,334 2,448 2,808 2,862 (22,609)
Provision for income taxes................... 834 43 155 56 --
------- ------- ------- ------- --------
Net income (loss)....................... $11,500 $ 2,405 $ 2,653 $ 2,806 $(22,609)
======= ======= ======= ======= ========
Net income (loss) per share -- basic......... $ 3.55 $ 0.76 $ 0.83 $ 0.97 $ (9.80)
Net income (loss) per share -- diluted....... $ 2.52 $ 0.75 $ 0.76 $ 0.96 $ (9.80)
Weighted average shares outstanding
-- basic................................... 3,240 3,177 3,186 2,907 2,308
Weighted average shares outstanding --
diluted.................................... 4,555 3,229 3,508 2,939 2,308
SEE ACCOMPANYING NOTES.
F-4
111
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED MARCH 31, 2000
(IN THOUSANDS)
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER TOTAL
--------------- --------------- PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT LOSS EQUITY
------ ------ ------ ------ ---------- ----------- ------------- -------------
Balance at March 31, 1997........ 2,218 $22 $82,395 $(52,738) $(233) $ 29,446
Comprehensive income (loss):
Net loss......................... (22,609) (22,609)
Other comprehensive income
--foreign currency translation
adjustment..................... (156) 233 77
--------
Total comprehensive loss..... (22,532)
--------
Exercise of options.............. 15 1 206 207
Issuance of Common Stock in
connection with acquisition of
affiliates..................... 99 1 2,180 2,181
Retirement of shares
repurchased.................... (20) (1) 1 --
Settlement of claims related to
ViA investment................. (400) (400)
--- ---- ----- --- ------- -------- ----- --------
Balance at March 31, 1998........ 2,312 23 84,382 (75,503) -- 8,902
--- ---- ----- --- ------- -------- ----- --------
Comprehensive income:
Net income....................... 2,806 2,806
Other comprehensive
loss -- foreign currency
translation adjustment......... (12) (12)
--------
Total comprehensive income... 2,794
--------
Partial distribution of shares in
settlement of class action
litigation..................... 257 3 (3) _--
--- ---- ----- --- ------- -------- ----- --------
Balance at March 31, 1999........ 2,569 26 84,379 (72,697) (12) 11,696
--- ---- ----- --- ------- -------- ----- --------
Comprehensive income:
Net income....................... 2,653 2,653
Other comprehensive
loss -- foreign currency
translation adjustment......... (19) (19)
--------
Total comprehensive income... 2,634
--------
Purchase of fractional shares in
connection with 1 for 8 reverse
stock split.................... (6) (35) (35)
Exercise of options.............. 8 41 41
Issuance of Common Stock under
employee stock option plan..... 3 23 23
Issuance of Preferred Stock in
connection with business
acquisition.................... 60 $ 1 2,075 2,076
Adjustment related to settlement
of litigation matters.......... (540) (540)
Final distribution of shares in
settlement of class action
litigation..................... 612 6 (6) --
--- ---- ----- --- ------- -------- ----- --------
Balance at March 31, 2000........ 60 $ 1 3,186 $32 $85,937 $(70,044) $ (31) $ 15,895
=== ==== ===== === ======= ======== ===== ========
SEE ACCOMPANYING NOTES.
F-5
112
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
DECEMBER 23, YEARS ENDED MARCH 31,
------------------------- ----------------------------
2000 1999 2000 1999 1998
----------- ----------- ------- ------- --------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net income (loss)......................................... $11,500 $ 2,405 $ 2,653 $ 2,806 $(22,609)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 946 827 1,079 1,057 1,035
Equity in earnings of affiliate........................... -- -- -- -- (423)
Provision for loss on (recovery of) accounts receivable... 5 75 (39) 170 177
Provision for losses (gains) on sale of equipment......... -- -- 343 -- (480)
Revision of an estimate of a litigation settlement........ -- (940) (940) -- --
Provision for loss on investments......................... 1,700 -- -- -- 7,019
Provision for loss on investment in affiliates............ -- -- -- 733 5,142
Provision for loss on (recovery of) inventory............. 575 (145) -- (2,114) --
Gain (loss) on disposal of capital equipment.............. (54) 345 -- 128 1,315
Other non-cash items...................................... -- -- -- 41 --
Changes in operating assets and liabilities:
Accounts receivable..................................... (3,935) (734) 77 (1,237) 2,631
Accounts receivable from affiliate...................... -- -- -- -- 676
Inventories............................................. (4,148) (1,614) (4,141) 1,374 5,485
Notes receivable from affiliate......................... -- -- -- -- 4,129
Recoverable income taxes................................ -- -- -- 171 7,019
Other assets............................................ 117 (172) (238) 494 695
Accounts payable and accrued expenses................... 976 709 2,449 (904) (3,884)
Income taxes payable.................................... -- -- -- 56 27
------- ------- ------- ------- --------
Net cash provided by operating activities............. 7,682 756 1,243 2,775 7,954
Cash flows from investing activities:
Cash paid for acquired business........................... (72) -- (2,000) -- --
Capital expenditures...................................... (533) (307) (473) (669) (1,265)
Disposal of capital equipment............................. 76 -- -- 40 --
Purchase of held-to-maturity and available-for-sale
securities.............................................. -- -- -- (2,500) --
Maturities from sale of available-for-sale securities..... -- 3,144 2,500 -- --
Investment................................................ -- (248) (248) -- --
(Purchase of) proceeds from sale of investment in
affiliates.............................................. -- (2,898) -- -- 8,983
------- ------- ------- ------- --------
Net cash (used in) provided by investing activities... (529) (309) (221) (3,129) 7,718
Cash flows from financing activities:
Net repayments under line-of-credit....................... -- -- -- -- (10,090)
Borrowings from term loans................................ -- -- -- -- 938
Repayments on term loans and leases....................... (4,000) -- (174) (70) (938)
Payments for fractional shares resulting from split....... -- (40) (35) -- --
Proceeds from employee stock purchase plan................ 52 7 23 -- --
Payments on equipment lease financing..................... (198) (128) -- -- (566)
Proceeds from exercise of stock options................... 316 -- 41 -- 208
Proceeds from exercise of warrants........................ -- -- -- -- --
Foreign currency translation of equity investment......... -- -- -- -- 77
------- ------- ------- ------- --------
Net cash used in financing activities................. (3,830) (161) (145) (70) (10,371)
------- ------- ------- ------- --------
Effect of exchange rate changes on cash..................... (1) (15) (19) (12) --
------- ------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,322 271 858 (436) 5,301
Cash and cash equivalents at beginning of period............ 5,780 4,922 4,922 5,358 57
------- ------- ------- ------- --------
Cash and cash equivalents at end of period.................. $ 9,102 $ 5,193 $ 5,780 $ 4,922 $ 5,358
======= ======= ======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................ $ 309 $ 21 $ 35 $ 4 $ 452
======= ======= ======= ======= ========
Income taxes............................................ $ 414 $ 93 $ 138 $ -- $ 18
======= ======= ======= ======= ========
Non-cash transactions:
Preferred Stock issued in connection with the acquired
business............................................... $ -- $ -- $ 2,076 $ -- $ --
======= ======= ======= ======= ========
Note payable issued in connection with the acquired
business............................................... $ -- $ -- $ 4,000 $ -- $ --
======= ======= ======= ======= ========
Other assets received in connection with the acquired
business, net of transaction
costs of $165......................................... $ -- $ -- $ 223 $ -- $ --
======= ======= ======= ======= ========
Equipment acquired under capital leases................. $ 423 $ 1,180 $ 1,180 $ -- $ --
======= ======= ======= ======= ========
Issuance of Common Stock in connection with purchase of
investments............................................ $ -- $ -- $ -- $ -- $ 2,181
======= ======= ======= ======= ========
Settlement of claim related to ViA investment........... $ -- $ -- $ -- $ -- $ 400
======= ======= ======= ======= ========
SEE ACCOMPANYING NOTES.
F-6
113
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
BASIS OF PRESENTATION
The consolidated financial statements of Centennial Technologies, Inc.
("Centennial"; also at times referred to as "we," "our" or "us") include the
accounts of Centennial and all wholly owned subsidiaries. Investments in
companies in which ownership interests range from 20 to 50 percent and
Centennial exercises significant influence over operating and financial policies
are accounted for using the equity method. Centennial's investment in Century
Electronics Manufacturing, Inc. ("Century"), of which we had a 67% equity
ownership position at March 31, 1997, has been accounted for using the equity
method for fiscal 1997 because Centennial had a plan of disposition of a portion
of the investment in place prior to March 31, 1997 and the transaction closed on
July 1, 1997. During fiscal 1998, Centennial further reduced its equity
ownership position in Century, and thereafter has accounted for its remaining
investment using the cost method. See Note 6 and Note 17. Other investments are
accounted for using the cost method. See Note 7. All significant intercompany
balances and transactions have been eliminated.
FISCAL YEAR
In the year ended March 25, 2000, we changed our fiscal year to a 52/53
week ending on the last Saturday of March. All references to "fiscal 2000,"
"fiscal 1999" and "fiscal 1998" in the financial statements and accompanying
notes relate to the years ended March 25, 2000, March 31, 1999 and March 31,
1998, respectively. For ease of presentation, March 31 has been utilized for all
financial statement captions for the fiscal year ended March 25, 2000.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements as of December 23, 2000,
and for the nine months ended December 23, 2000 and December 25, 1999 have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, these
financial statements include all adjustments (consisting only of normal
recurring accruals) considered necessary for a fair presentation of the results
of operations for the interim periods reported and of our financial condition as
of the date of the interim balance sheet. The results of operations for interim
periods are not necessarily indicative of the results to be expected for the
full year.
All interim financial information as of December 23, 2000, and for the nine
months ended December 23, 2000 and December 25, 1999 is unaudited. For ease of
presentation, December 23 has been utilized for all financial statement captions
for the nine months ended December 25, 1999.
2. SUMMARY OF OTHER SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from product sales is recognized at time of shipment and when title
passes.
WARRANTY COSTS
We offer a limited warranty, normally for one year, on materials and
workmanship for our products. Costs relating to product warranty are generally
accrued at time of shipment. We have not experienced material costs associated
with our warranty policy.
F-7
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products are
expensed as incurred.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents include highly liquid temporary cash investments having
maturities of three months or less at date of acquisition. Short-term
investments include commercial paper having a maturity longer than three months
but less than one year at date of acquisition.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject us to concentration of
credit risk, consist principally of cash and cash equivalents, short-term
investments and trade receivables. At March 31, 2000, substantially all of our
cash, cash equivalents and short-term investments were held by one financial
institution. We primarily sell and grant credit to domestic and foreign original
equipment manufacturers and distributors. We extend credit based on an
evaluation of the customer's financial condition and generally do not require
collateral. We monitor our exposure for credit losses and maintain allowances
for anticipated losses. At March 31, 2000 and 1999, the allowance for doubtful
accounts was $200,000 and $645,000, respectively.
For fiscal 2000 no customer represented more than 10% of our sales. Nortel
Networks represented 5%, 14% and 29% of our sales of PC cards and related
products for fiscal 2000, 1999 and 1998, respectively. During fiscal 1999,
Nortel Networks engaged several contract manufacturers, including Solectron
Corporation, to complete the final assembly of a majority of its products for
which we have historically supplied PC cards. Our sales to these contract
manufacturers for both fiscal 2000 and 1999 represented 14% of our sales. One of
these contract manufacturers, Solectron Corporation, merged with one of our
competitors, SMART Modular Technologies, Inc., which could result in a decrease
of sales to this contract manufacturer. A relatively small number of customers
account for a significant percentage of our sales. If any of these customers
were to reduce significantly the amount of business they conduct with us, it
could have a material adverse effect on our business, financial condition and
results of operations. At March 31, 1999 and 1998, Nortel Networks accounted for
approximately $0.1 million or 2% and $1.1 million or 40%, respectively, of our
accounts receivable balance.
Approximately 20%, 12% and 14% of our sales of PC cards and related
products for fiscal 2000, 1999 and 1998, respectively, were outside the United
States, primarily in several Western European countries, Israel and Canada. No
one country, other than the United States, comprised more than 10% of our sales.
For additional information, see Note 17.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist principally of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable, accrued expenses
and a note payable. We believe all of the carrying amounts approximate fair
value.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(estimated net realizable value).
F-8
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment is stated at cost. Major renewals and improvements are
capitalized while repair and maintenance charges are expensed when incurred.
Depreciation is provided over the estimated useful life of the respective
assets, ranging from three to seven years, on a straight-line basis. Leasehold
improvements are amortized over the lesser of the term of the lease or the
estimated useful life of the related assets. When assets are sold or retired,
their cost and related accumulated depreciation are removed from the accounts.
Any gain or loss is included in the determination of net income. Amortization of
equipment under capital leases is included with depreciation and amortization in
the accompanying financial statements.
INCOME TAXES
We account for income taxes by the liability method as set forth in
Statement of Financial Accounting Standards (SFAS) Statement No. 109, Accounting
for Income Taxes. Under the liability method, deferred taxes are determined
based on the difference between the financial statement and tax basis of assets
and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
STOCK-BASED COMPENSATION
We account for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25) and have adopted the disclosure-only alternative to FASB
Statement No. 123, Accounting for Stock-Based Compensation.
INCOME (LOSS) PER SHARE
We compute net income (loss) per share in accordance with Statement of
Financial Accounting Standards ("SFAS") 128, "Earnings Per Share." Basic net
income per share excludes any dilutive effect of options, warrants and
convertible securities (which in our case are primarily stock options and the
series B convertible preferred stock). Diluted net income per share includes all
potentially dilutive securities using the treasury stock method unless the
effect of such potentially dilutive securities is anti-dilutive.
On July 20, 1999, our stockholders approved a one-for-eight reverse stock
split of our common stock, which was effective on July 23, 1999. In the
accompanying financial statements, all per share amounts and numbers of shares
have been restated to reflect this reverse stock split of Centennial's common
stock.
All shares issuable in connection with the settlement of the Consolidated
Litigation described in Note 15 are included in the weighted average shares
outstanding calculation as of July 20, 1998, the date on which our settlement of
the Consolidated Litigation became effective. All shares issuable in connection
with the settlement of the WebSecure litigation described in Note 15 are
included in the weighted average share outstanding calculation as of September
17, 1999, the date the settlement was effective.
F-9
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the computation of net income (loss) per
share (in thousands, except per share amounts):
NINE MONTHS ENDED
DECEMBER 23, YEARS ENDED MARCH 31,
-------------------------- ----------------------------
2000 1999 2000 1999 1998
----------- ----------- ------ ------ --------
(UNAUDITED) (UNAUDITED)
BASIC INCOME (LOSS) PER SHARE
Numerator
Net income (loss).................... $11,500 $2,405 $2,653 $2,806 $(22,609)
Denominator
Common shares outstanding............ 3,240 3,177 3,186 2,907 2,308
------- ------ ------ ------ --------
Basic income (loss) per share.......... $ 3.55 $ 0.76 $ 0.83 $ 0.97 $ (9.80)
======= ====== ====== ====== ========
DILUTED INCOME (LOSS) PER SHARE
Numerator
Net income (loss).................... $11,500 $2,405 $2,653 $2,806 $(22,609)
Denominator
Common shares outstanding............ 3,240 3,177 3,186 2,907 2,308
Stock options and convertible
securities........................ 1,315 52 322 32 --
------- ------ ------ ------ --------
Shares used in computing diluted income
(loss) per share..................... 4,555 3,229 3,508 2,939 2,308
------- ------ ------ ------ --------
Diluted income (loss) per share........ $ 2.52 $ 0.75 $ 0.76 $ 0.96 $ (9.80)
======= ====== ====== ====== ========
Options to purchase 53,435 (unaudited), 112,658 (unaudited), 39,875,
107,912 and 366,500 shares of common stock for the nine months ended December
23, 2000 and 1999 and for the years ended on March 31, 2000, 1999 and 1998,
respectively, were excluded from the calculations of diluted net income (loss)
per share above as the effect of their inclusion would have been anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) is comprised of cumulative
translation adjustments.
SEGMENTS OF BUSINESS ENTERPRISE
We operate in a single industry segment: the design and manufacture of high
technology memory chip based products used in industrial and commercial
applications.
ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements"
("SAB 101") which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 is
F-10
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
effective the second quarter of fiscal 2001 and requires companies to report any
changes in revenue recognition as a cumulative change in accounting principle at
the time of implementation in accordance with APB Opinion No. 20, "Accounting
Changes." We do not expect the adoption of SAB 101 to have a material impact on
our financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in the fiscal 1999 and 1998 consolidated financial
statements have been reclassified to conform to the current year presentation.
3. INVENTORIES
Inventories consisted of the following (in thousands):
MARCH 31,
DECEMBER 23, -----------------
2000 2000 1999
------------ ------- ------
(UNAUDITED)
Raw materials, primarily electronic components...... $13,963 $ 7,989 $1,709
Work in process..................................... 3,202 454 399
Finished goods...................................... 982 6,131 941
------- ------- ------
$18,147 $14,574 $3,049
======= ======= ======
We maintain levels of inventories that we believe are necessary based upon
assumptions concerning our growth, mix of sales and availability of raw
materials. Changes in those underlying assumptions could affect our estimates of
inventory valuation.
In fiscal 1998, we reserved fully $1.8 million of costs related to
inventory specifically purchased and manufactured pursuant to a customer
purchase order (the "Custom Inventory"). The customer later attempted to cancel
the purchase order. We disputed the customer's claim that the purchase order
cancellation was effective, and sought legal remedies related thereto. During
fiscal 1999, we agreed to settle our claim against the customer, in return for a
$1.6 million cash payment, which was included in other income in fiscal 1999,
and the right to retain and sell the Custom Inventory at issue. We sold portions
of the Custom Inventory during fiscal 2000 and fiscal 1999 for approximately
$1.0 million and $1.2 million, respectively, which have been included in net
sales for each respective fiscal year.
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consisted of the following (in
thousands):
MARCH 31,
------------------
2000 1999
------- -------
Equipment.............................................. $ 3,442 $ 3,702
Equipment under capital leases......................... 1,180 106
Leasehold improvements................................. 199 159
------- -------
4,821 3,967
Accumulated depreciation and amortization.............. (2,131) (1,508)
------- -------
$ 2,690 $ 2,459
======= =======
During fiscal 2000, we incurred a $343,000 loss on the disposal of certain
equipment that was replaced. During fiscal 1999, we wrote off equipment with an
original cost of $885,000 and accumulated depreciation of $757,000 in connection
with the upgrading of our manufacturing processes and the
F-11
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
remodeling of our office space. We also disposed of equipment with an original
cost of $73,000 and accumulated depreciation of $33,000 in connection with these
activities. During fiscal 1998, we paid in full our lease obligations to the
bank that had been providing us with our line-of-credit (See Note 8), and
disposed of equipment having an original cost and accumulated depreciation of
approximately $691,000.
Depreciation expense (including amortization of equipment under capital
leases) for fiscal 2000, 1999 and 1998 was $1,079,000, $1,057,000 and
$1,035,000, respectively.
5. ACQUISITION OF THE FLASH MEMORY CARD BUSINESS OF INTEL CORPORATION
On December 29, 1999, we acquired the flash memory card business of Intel
Corporation ("Flash Card Business") for a cash payment of $2.0 million, a
secured promissory note for $4.0 million, and 60,000 shares of Centennial series
B convertible preferred stock. The transaction has been recorded as a purchase
for accounting purposes and the consolidated financial statements include the
operating results of this business from the date of the acquisition.
The promissory note, secured by all of the assets of Centennial, bears
interest at the rate of 9% and the principal and interest are due and payable on
December 29, 2000. The convertible preferred stock is convertible into shares
our common stock at a ratio of ten shares of common stock for one share of
preferred stock. The preferred stock has certain registration rights and a
liquidation preference value of $4.8 million.
A summary of the assets acquired is shown below (in thousands).
Inventory.................................................. $ 7,384
Intangible assets.......................................... 469
Other...................................................... 388
-------
8,241
Less:
Preferred stock issued................................... (2,076)
Note payable............................................. (4,000)
Acquisition costs........................................ (165)
-------
Cash used to acquire the business assets................... $ 2,000
=======
Intangible assets are being amortized on a straight-line basis over a
period of three years. There were no material liabilities assumed by us as a
result of this transaction. We review the value of intangible assets whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of the acquired business had occurred at the
beginning of the respective fiscal period.
YEARS ENDED MARCH 31,
----------------------
2000 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues................................................. $58,635 $57,002
Net income............................................... $ 830 $ 1,776
Net income per share -- diluted.......................... $ 0.21 $ 0.50
The unaudited pro forma financial statements do not purport to represent
what our results of operations would actually have been if the acquisition had
in fact occurred on such dates or to project our results of operations as of any
future date or for any future period. The unaudited pro forma data is not
F-12
119
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
indicative of the operating results that would have been achieved had the
acquisition been consummated at the dates indicated, nor is it indicative of
future operating results. The flash memory component used in the Flash Card
Business is reflected in the historical financial statements of the Flash Card
Business at Intel's actual manufacturing cost.
For additional information, see Note 17.
6. INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
Since October 1996, we have held an interest in Century Electronics
Manufacturing, Inc. ("Century"), a contract manufacturer. On February 4, 1998,
Century redeemed a portion of our debt and equity holdings in exchange for $9.7
million in cash, $4.0 million of Century series B convertible preferred stock
and the forgiveness of interest. The series B convertible preferred stock is
equivalent upon conversion to approximately 7%, non-diluted, of Century's
outstanding shares, is non-voting, has no dividend, and has a liquidation
preference of $4.0 million senior to the common stockholders and subordinate to
the holders of Century series A convertible preferred stock. We recorded a loss
on investment activities of $5.1 million during fiscal 1998 to reflect the
difference between the fair value of the consideration received from Century and
the carrying value of our investment in Century. During fiscal 1999, Centennial
reduced the carrying value of its investment in Century by $733,000 to $1.7
million, reflecting our assessment of the decline of the value of this
investment.
For additional information see Note 17.
7. OTHER INVESTMENTS
VIA, INC.
In December 1996, we issued 156,000 unregistered shares of our Common Stock
in exchange for a 12% interest in ViA, Inc., a development stage privately held
technology company that designs, develops, and markets miniature communication
and computing products. We accounted for this investment during fiscal 1997
using the equity method, and amortized the purchase price in excess of its
interest in the investee's underlying net assets, which excess amounted to $5.0
million, over 60 months. During fiscal 1998, we reserved the carrying value of
this investment, and recorded a loss on investment activities during fiscal 1998
related thereto of approximately $4.4 million.
INTELLIGENT TRUCK PROJECT, INC., FLEET.NET, INC. AND SMART TRAVELER PLAZAS,
INC.
On December 13, 1996, we entered into merger agreements with Intelligent
Truck Project, Inc., Fleet.Net, Inc. and Smart Traveler Plazas, Inc.
(collectively, "ITP/Fleet.Net") agreeing to exchange an aggregate of 792,960
shares of our Common Stock for all of the outstanding common stock of the
acquired businesses. On May 15, 1997, we and the principal stockholder of
ITP/Fleet.Net agreed to complete a merger. The merger has been recorded using
purchase accounting, and the excess (approximately $3.0 million) of the purchase
price over the fair value of assets acquired was written off in fiscal 1998
because of the uncertainties related to the future operations of ITP/Fleet.Net.
INFOS INTERNATIONAL, INC.
During fiscal 1997, we acquired an interest in Infos International, Inc.
("Infos"), a supplier of intelligent hand held data collection equipment for
route and shop floor accounting. The purchase price amounted to approximately
$3.0 million in cash and 230,000 shares of our Common Stock having a fair market
value of $3.9 million at date of acquisition. On February 6, 1998, we, Infos and
stockholders of Infos entered into a transaction whereby we agreed to return our
shares of Infos capital stock in exchange for an agreement to sell Infos
inventory and equipment arising from the contract manufacturing
F-13
120
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
relationship between Infos and Century, which relationship was terminated.
Accordingly, the full amount of the investment cost ($7.0 million) has been
written off.
INDUSTRIAL IMAGING, INC.
We purchased for $730,000 in cash and conversion of $200,000 of notes a
minority interest in Industrial Imaging, Inc. which designs, manufactures and
markets automated optical vision and individual imaging systems for inspection
and identification of defects in printed circuit boards. In addition, effective
April 1, 1996 and expiring June 30, 1997, we agreed to provide procurement
services and buy material using our credit arrangements for a service fee of
$200,000. Purchases aggregating $1.4 million were made during the aforementioned
period on behalf of the investee. During fiscal 1997, we determined that the
investee was unable to repay us for the material purchased, and also determined
that the value of the equity investment was permanently impaired. We agreed to
convert our accounts receivable into common stock of the investee and have
recorded a valuation reserve equal to the carrying value of the investment.
During fiscal 1998, we sold our investment in Industrial Imaging, Inc. for
$550,000.
WEBSECURE, INC.
During fiscal 1996 we purchased for $569,000 a minority interest in
WebSecure, Inc. ("WebSecure"), a corporation that provided Internet services.
The former president, a stockholder of WebSecure, was a Director of Centennial
from February 1994 through November 1995. In connection with WebSecure's initial
public offering, we realized a gain of $1.2 million from the sale of a portion
of our investment; however, based upon the WebSecure stockholder complaints and
related litigation described in Note 15, we provided a reserve in an amount
equal to this gain. As described in Note 15, the WebSecure litigation was
settled during fiscal 2000 and the amount of the reserve in excess of the
settlement was recognized in income, as a revision of an estimate. This is
included as other income in the accompanying financial statements. The remaining
investment cost ($560,000) was fully reserved as of March 31, 1997 on the basis
that its value appeared to have been permanently impaired. During fiscal 1998,
we sold this remaining investment for $125,000.
ELAN DIGITAL SYSTEMS LIMITED
On November 11, 1999 we invested $248,000 for approximately a 7% interest
in Elan Digital Systems Limited ("Elan") which is included in Investments. Elan
was formed in the UK during 1976 and offers application engineering and design
services for microcontroller based solutions. Elan is accounted for under the
cost method.
8. DEBT
On August 14, 1997, we entered into a credit agreement with Congress
Financial Corporation ("Congress Financial") for a revolving credit facility and
term loan facility of up to $4.1 million and $0.9 million, respectively, and a
$2.0 million capital equipment acquisition facility. On August 15, 1997,
Centennial paid in full its line-of-credit and lease financing obligations with
the bank that was previously providing Centennial with its credit facilities.
On November 24, 1998, Centennial terminated its credit agreement with
Congress Financial and entered into a new credit agreement with Fleet National
Bank ("Fleet") for a revolving credit facility, equipment term loan facility and
foreign exchange facility of $3.5 million, $1.5 million and $2.0 million,
respectively. At March 31, 2000, 1999 and 1998, Centennial had no outstanding
borrowings under any of the above credit arrangements.
For additional information, see Note 17.
F-14
121
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEASES
In fiscal 2000, we entered into two five-year capital leases for new
manufacturing equipment. Monthly payments under these two leases total $22,535.
The subject equipment is recorded as an asset for financial statement purposes,
and is being amortized accordingly.
We lease our facilities under operating leases with renewal options, which
expire at various dates through fiscal 2003. The lease on our headquarters and
manufacturing facility contains an option to renew for an additional five-year
period, provides for annual rent increases of 4% and provides that we will pay
to our landlord as additional rent our pro-rata share of certain operational and
maintenance costs at the facility during the term of the lease.
At March 31, 2000, the minimum annual rental commitments under
non-cancelable operating lease and capital lease obligations were as follows (in
thousands):
OPERATING CAPITAL
YEARS ENDING MARCH 31, LEASES LEASES
---------------------- --------- -------
2001..................................................... $261 $ 270
2002..................................................... 254 270
2003..................................................... 20 270
2004 and thereafter...................................... -- 384
---- ------
Total minimum lease payments............................. $535 1,194
====
Lease amounts representing imputed interest.............. 152
------
Present value of minimum lease payments.................. 1,042
Less current portion..................................... 215
------
Capital lease obligations, less current portion.......... $ 827
======
Rental expense under operating leases totaled $267,000, $250,000 and
$427,000 in fiscal 2000, 1999 and 1998, respectively. Interest expense totaled
$124,000, $4,000 and $452,000 in fiscal 2000, 1999 and 1998, respectively.
For additional information, see Note 17.
9. INCOME TAXES
The income (loss) before income taxes consisted of the following for the
years ended March 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
------ ------ --------
U.S.................................................... $2,791 $2,842 $(22,609)
Foreign................................................ 17 20 --
------ ------ --------
$2,808 $2,862 $(22,609)
====== ====== ========
F-15
122
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes consisted of the following for the years
ended March 31, 2000, 1999 and 1998 (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal..................................................... $ 85 $40 $--
State....................................................... 64 9 --
Foreign..................................................... 6 7 --
---- --- ---
Total current............................................. $155 $56 $--
==== === ===
Provision for income taxes.................................. $155 $56 $--
==== === ===
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income (loss) before income taxes as
follows for the years ended March 31, 2000, 1999 and 1998:
2000 1999 1998
----- ----- -----
Tax provision (benefit) at U.S. statutory rates............. 34.0% 34.0% (34.0)%
State taxes, net of federal benefit......................... 7.0 6.4 (3.4)
Utilization of net operating losses and change in valuation
allowance................................................. (38.1) (40.0) 37.5
Alternative minimum tax..................................... 2.0 1.6 --
Other....................................................... 0.6 -- (0.1)
----- ----- -----
5.5% 2.0% --%
===== ===== =====
The components of deferred income taxes were as follows at March 31, 2000,
1999 and 1998 (in thousands):
2000 1999 1998
-------- -------- --------
Allowance for doubtful accounts.................... $ 140 $ 406 $ 230
Notes receivable reserve........................... -- 349 349
Inventory reserve and capitalization............... 609 581 1,557
Investment reserve................................. 5,517 5,648 5,355
Accrued expenses................................... 1,556 1,410 1,378
Equipment, net..................................... 339 371 211
Net operating losses............................... 13,610 19,970 20,633
Capital loss carryforward.......................... 1,473 1,473 1,473
-------- -------- --------
23,244 30,208 31,186
Less valuation allowance........................... (23,244) (30,208) (31,186)
-------- -------- --------
Net deferred taxes................................. $ -- $ -- $ --
======== ======== ========
We have evaluated the positive and negative evidence bearing upon the
realizability of our deferred tax assets, which are comprised principally of net
operating losses and reserves. We have considered our history of losses and
concluded that there is insufficient evidence that it is more likely than not
that we will generate future taxable income prior to the expiration of these net
operating losses in 2013. Accordingly, the deferred tax assets have been fully
reserved.
At March 31, 2000, we had federal net operating loss carryforwards of
approximately $25.9 million available to offset future taxable income expiring
in 2009 through 2013, and federal capital loss carryforwards of approximately
$8.3 million, which expire in 2013. At March 31, 2000, approximately
F-16
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$3.7 million of our net operating loss is attributable to the exercise of stock
options which, when utilized, will be credited as additional paid-in capital.
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following (in
thousands):
MARCH 31,
----------------
2000 1999
------ ------
Trade accounts payable..................................... $4,823 $1,720
Accrued compensation....................................... 1,356 1,144
Accrual related to WebSecure litigation.................... -- 1,200
Accrued special investigation costs........................ 727 1,197
Other accrued expenses, principally accrued legal.......... 2,530 1,961
------ ------
Total accounts payable and accrued expenses.............. $9,436 $7,222
====== ======
Accrued special investigation costs represent professional and legal fees
and settlement costs in connection with Centennial's special investigation and
stockholder litigation. See Note 15.
11. STOCKHOLDERS' EQUITY
We are authorized to issue up to 890,000 additional shares of $0.01 par
value preferred stock without further stockholder approval with such additional
designations, powers, preferences, rights, qualifications, limitations and
restrictions as may be designated by Centennial's Board of Directors from time
to time.
In connection with the acquisition of the flash memory card business of
Intel Corporation, we issued 60,000 shares of series B convertible preferred
stock, par value $0.01 per share. The series B convertible preferred stock
converts at a ratio of 10 for 1 and has a liquidation preference value of $80.00
per preferred share. The series B convertible preferred stock is not redeemable.
The series B convertible preferred stock ranks senior to the common stock and to
all other classes and series of equity securities of Centennial which by their
terms do not rank senior to the series A junior participating preferred stock.
Preferred shares are entitled to a number of votes on any matter submitted to
the stockholders of Centennial equal to the number of shares of common stock
into which they are then convertible.
The holders of convertible preferred stock shall be entitled to receive,
when and if declared by the Board of Directors of Centennial, dividends in the
same amount per share as would be payable on the number of shares of common
stock into which the preferred stock is then convertible, payable in preference
and priority to any payment of any cash dividend on common stock or any other
class of stock or series thereof.
In March 1999, the Board of Directors adopted a stockholder rights plan and
declared a dividend of one right to purchase series A junior participating
preferred stock for each outstanding share of Common Stock. The rights become
exercisable based upon the occurrence of certain events including certain
acquisitions of Centennial's capital stock, tender or exchange offers and
certain business combination transactions involving Centennial. In the event one
of the events occurs, each right entitles the registered holder to purchase a
number of shares of preferred stock of Centennial or, under limited
circumstances, of the acquirer. The rights are redeemable at our option under
certain conditions, for $0.01 per right and expire on March 16, 2009.
F-17
124
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLANS
Under our 1999 Stock Incentive Plan and 1994 Stock Option Plan, incentive
and non-qualified stock options may be granted to employees, officers, directors
and consultants of Centennial. The amounts reserved for issuances under these
two plans at March 31, 2000 are 1,000,000 and 750,000 shares, respectively.
Under the plans, the Compensation Committee of the Board of Directors
establishes the terms and conditions of grants.
On November 11, 1999, our Board of Directors adopted the 1999 Stock
Incentive Plan under which incentive and non-qualified stock options may be
granted to our employees, officers, directors and consultants. In fiscal 2000,
we granted options to acquire 585,500 shares of our common stock, exercisable at
$3.50 per share under this plan. These options vest ratably on each of the
first, second and third anniversaries of the date of grant, although for certain
options vesting is accelerated in the event certain stock price targets are
achieved. Substantially all of these options became fully vested in fiscal 2000.
Under our Formula Stock Option Plan (the "Formula Plan"), non-qualified
options may be granted to non-employee directors. Under the Formula Plan,
options will be granted pursuant to a formula that determines the timing,
pricing and amount of the option awards using objective criteria. We have
reserved 37,500 shares of Common Stock for issuance under the Formula Plan. The
exercise prices of the options granted to a non-employee director are granted at
fair market value. These options vest and are exercisable on the date of grant
and expire after 5 years. All other options granted under the Formula Plan vest
and are exercisable one year from the date of the grant. During fiscal 1998, a
non-employee director was granted options to purchase 1,875 shares at $28.00 per
share. During fiscal 2000 and 1999, non-employee directors were granted options
to purchase 2,250 shares at $7.28 per share and 6,375 shares at $6.00 per share,
respectively.
In addition, during fiscal 1998, Centennial granted options to acquire
130,625 shares outside of Centennial's stock option plans, exercisable at prices
ranging from $13.00 to $28.00 per share, of which 25,000 options were granted to
four non-employee directors and the balance to employees; the vesting period for
these options range from immediately upon grant to three years, and the options
expire in ten years.
FASB Statement No. 123, Accounting for Stock-Based Compensation, requires
that companies either recognize compensation expense for grants of stock, stock
options, and other equity instruments based on fair value, or provide pro forma
disclosure of net income and earnings per share in the notes to the financial
statements. There was no compensation costs recognized for fiscal 2000 and 1999.
In fiscal 1998 there was $34,000 of compensation costs recognized. Had
compensation cost for our stock-based compensation plans been determined based
on the fair value at the grant dates as calculated in accordance with Statement
No. 123, our net income (loss) and net income (loss) per share for years ended
March 31, 2000, 1999 and 1998, would have been as indicated in the pro forma
amounts shown below:
2000 1999 1998
---------------------------- ---------------------------- ---------------------------
NET INCOME NET INCOME
NET INCOME (LOSS) NET INCOME (LOSS) NET LOSS
(LOSS) PER SHARE (LOSS) PER SHARE NET LOSS PER SHARE
-------------- ---------- -------------- ---------- -------------- ---------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
As Reported.......... $ 2,653 $ 0.76 $ 2,806 $ 0.96 $(22,609) $ (9.80)
Pro forma............ $(3,163) $(0.99) $(1,966) $(0.68) $(29,869) $(12.94)
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: an expected life of 5 years for grants prior to April 1, 1998, and
3 years for fiscal 2000 and 1999, expected volatility of 100% for fiscal 1998,
141% for
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CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fiscal 1999 and 321% for fiscal 2000, no dividends and a risk-free interest rate
of 7.0%, 6.0% and 6.0% for the years ended March 31, 2000, 1999 and 1998,
respectively.
The effects on fiscal 2000, 1999, and 1998 pro forma net income (loss) and
net income (loss) per share of expensing the estimated fair value of stock
options are not necessarily representative of the effects on reported net income
(loss) for future years due to such things as the vesting period of the stock
options and the potential for issuance of additional stock options and stock in
future years.
A summary of the status of Centennial's stock option plans as of March 31,
2000, 1999 and 1998 changes during the years ending on those dates is presented
below:
2000 1999 1998
--------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE
--------- --------- -------- --------- -------- ---------
Options outstanding at beginning
of period..................... 503,238 366,500 222,450
Granted......................... 840,875 $ 4.26 534,194 $ 6.40 322,625 $16.64
Exercised....................... (7,847) 5.17 -- -- (14,050) 14.00
Canceled........................ (61,845) 33.97 (397,456) 14.56 (164,525) 131.36
--------- ------ -------- ------ -------- ------
Outstanding at end of period.... 1,274,421 $ 6.32 503,238 $13.12 366,500 $24.32
Options exercisable at end of
period........................ 924,433 105,440 44,002
Weighted average fair value of
options granted during the
year.......................... $ 4.18 $ 4.72 $12.88
The following table summarizes information about stock options outstanding
at March 31, 2000:
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED-AVERAGE OPTIONS EXERCISABLE
REMAINING ------------------------------
RANGE OF NUMBER CONTRACTUAL WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ---------------- ----------- ---------------- ---------------- ----------- ----------------
$ 3.44 - $ 3.50 586,125 9.7 $ 3.50 585,709 $ 3.50
3.94 - 4.88 53,459 8.9 4.62 11,461 4.69
5.20 - 5.20 341,401 7.5 5.20 253,910 5.20
5.68 - 5.84 198,500 9.2 5.84 9,125 5.83
5.88 - 9.88 55,061 6.8 8.13 24,353 8.08
28.00 - 235.04 39,875 2.8 59.63 39,875 59.63
- ---------------- --------- --- ------ ------- ------
$ 3.44 - $235.04.. 1,274,421 8.7 $ 6.32 924,433 $ 6.55
- ---------------- --------- --- ------ ------- ------
During fiscal 1999, we established a 1999 Employee Stock Purchase Plan (the
"ESPP") that provides for the grant of rights to eligible employees to purchase
up to 25,000 shares of Centennial's Common Stock at 85% of the fair market value
of the Common Stock at the end of the established offering period. There were
2,864 shares issued under the ESPP in fiscal 2000 and no shares issued under the
ESPP in fiscal 1999.
For additional information, see Note 17.
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126
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. RELATED PARTY TRANSACTIONS
Included in other current assets at March 31, 2000 is $493,000 due from
Intel Corporation ("Intel") concerning the acquired business. Beginning in the
fourth quarter of fiscal 2000, we began regularly purchasing a significant
portion of our raw materials, mostly memory chips, directly from Intel.
Excluding activity related to a transition period with Intel and its contract
manufacturer, we had purchases from Intel of $443,000 for fiscal 2000, which is
included in accounts payable as of March 31, 2000.
Included in Other Assets at March 31, 2000 is a $144,845 loan to our
President and Chief Executive Officer. The loan is due and payable on July 25,
2001 and bears interest at the rate of 5.8%. In April 2000, we loaned this
individual an additional $204,500, which is also due and payable on July 25,
2001 and bears interest at the rate of 6.45%
For additional information, see Note 17.
14. SAVINGS PLAN
We have a 401(k) Savings Plan under which substantially all U.S. employees
may voluntarily defer a portion of their compensation and we may elect to match
a portion of the employee deferral. We made contributions of $57,000 and,
$29,000 respectively, to the plan related to contributions by employees during
fiscal 2000 and 1999. For fiscal 1998 there were no contributions to this plan.
15. CONTINGENCIES
LEGAL PROCEEDINGS
We are party from time to time to legal proceedings arising out of the
normal course of our business. We do not believe that any such legal
proceedings, either individually or in the aggregate, will have a material
adverse effect on our business, financial condition or results of operations. In
addition, we have been or are parties to other litigation as summarized below.
CLASS ACTION LITIGATION
We have been party to various class action lawsuits which were commenced
principally during fiscal 1997 and 1998. A substantial number of the
participants in these class action lawsuits participated in settlements with us
that became effective during fiscal 1999. The following discusses the history of
these class action lawsuits, together with the settlements that were entered
into principally in fiscal 1999.
Since our announcement on February 11, 1997 that we were undertaking an
inquiry into the accuracy of our prior reported financial results, and that
preliminary information had raised questions as to whether reported results
contained material misstatements, approximately 40 purported class action
lawsuits were filed in or transferred to the United States District Court for
the District of Massachusetts. These complaints asserted claims against us and
our Board of Directors, officers and former independent accountants, among
others, under certain federal and state laws. These class action lawsuits were
purportedly brought by and on behalf of purchasers of our Common Stock (i)
between our initial public offering on April 12, 1994 and February 10, 1997 or
(ii) on February 25, 1997.
On February 9, 1998, these class action lawsuits were consolidated (the
"Consolidated Litigation"), and the lead counsel representing the plaintiffs in
the Consolidated Litigation filed a Stipulation of Settlement (the "Settlement
Agreement"), whereby we and certain of our officers and directors would be
released from liability arising from the allegations included in the
Consolidated Litigation. In return, we paid the plaintiffs in the Consolidated
Litigation $1.475 million in cash and issued to these plaintiffs 854,300 shares
or 37% of our Common Stock. We also adopted certain corporate governance
policies and procedures. The Settlement Agreement became effective on July 20,
1998. All shares issued in connection
F-20
127
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with the Consolidated Litigation are included in the weighted average shares
outstanding calculation from July 20, 1998 forward.
A number of class members elected not to participate in the Settlement
Agreement described above. In September 1999, we reached an agreement with a
number of these parties. In return, we paid $500,000 in cash to settle these
claims (the "Additional Settlement Agreement"). For the remaining parties who
did not participate in the Settlement Agreement or the Additional Settlement
Agreement, we believe that the applicable Federal statue of limitations has
likely expired and that we do not have material exposure to these parties.
During fiscal 2000, we revised our estimate of the allocation between cash and
common stock of the $20 million provision for settlement of all such stockholder
litigation recorded during fiscal 1997 related to the class action litigation.
Accordingly, we reclassified certain amounts in fiscal 2000 from the original
settlement reserve to accrued liabilities, representing the Additional
Settlement Agreement described above and a remaining estimate of the probable
costs to be incurred in connection with the remaining parties not a party to the
Settlement Agreement or the Additional Settlement Agreement. In fiscal 2000, we
made a partial payment of $188,000 in settlement of certain of these claims. In
December 2000 (unaudited), we paid the remaining amount of $312,000.
In fiscal 2000, the plaintiffs in the Consolidated Litigation reached an
agreement with our former Interim Chief Executive Officer, Lawrence J.
Ramaekers, and his employer, Jay Alix & Associates ("Jay Alix"), regarding the
plaintiffs' alleged claims against them. In fiscal 2000, we paid Jay Alix and
Mr. Ramaekers $1.0 million for legal fees incurred and Jay Alix and Mr.
Ramaekers released any and all claims against our affiliates, our directors and
us.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
In February 1997, we were notified that the Boston District Office of the
Securities and Exchange Commission ("SEC") was conducting an investigation of
us. We cooperated fully with the SEC. On September 26, 2000 (unaudited), we
entered into an administrative proceeding fully resolving the issues arising
from the conduct of former members of our senior management and the restatement
of certain financial statements.
WEBSECURE LITIGATION
On and after March 26, 1997, several complaints were filed against
WebSecure, certain officers, directors and underwriters of WebSecure, and us in
the United States District Court for the District of Massachusetts by plaintiffs
purporting to represent classes of stockholders who purchased stock of
WebSecure, Inc. ("WebSecure") between December 5, 1996 and February 27, 1997.
The claims against us included alleged violations of Sections 11 and 15 of the
Securities Act of 1933 (the "WebSecure Securities Litigation"). In fiscal 1997,
we established a reserve of $1.2 million in connection with the expected
settlement of this litigation.
In fiscal 2000, we settled the WebSecure Securities Litigation in return
for the issuance of 43,125 shares of our Common Stock, of which 14,375 shares
had been issued as of March 31, 2000 and the payment of $50,000 for notice and
administrative costs. In fiscal 2000, we revised our estimate of the expected
cost to resolve this matter based on the final settlement amounts, which
resulted in income of $940,000. All shares to be issued in connection with this
settlement are included in the weighted average shares outstanding calculation
from September 17, 1999 forward. On January 8, 2001 (unaudited), the remaining
28,750 shares were issued.
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128
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER
On May 12, 2000, we received a complaint from Mr. Dennis M. O'Connor
alleging that he is owed approximately $485,000 in connection with legal
services provided by O'Connor, Broude & Aronson prior to May 12, 1997. Because
of the early stage of this litigation, we are not able to make an assessment as
to its likely outcome.
For additional information, see Note 17.
16. FINANCIAL INFORMATION BY QUARTER (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FISCAL 2001 QUARTERS ENDED,
-----------------------------------------
JUNE 24, SEPTEMBER 23, DECEMBER 23,
2000 2000 2000
-------- ------------- ------------
Net sales.................................... $13,914 $23,447 $21,028
Gross profit................................. 5,266 10,016 8,395
Operating income............................. 2,164 7,101 4,740
Net income................................... 2,085 6,615 2,800
Net income per share -- basic................ 0.65 2.05 0.86
Net income per share -- diluted.............. 0.49 1.44 0.58
FISCAL 2000 QUARTERS ENDED,
------------------------------------------------------
JUNE 26, SEPTEMBER 25, DECEMBER 25, MARCH 25,
1999 1999 1999 2000
-------- ------------- ------------ ---------
Net sales..................................... $6,681 $7,633 $8,567 $12,699
Gross profit.................................. 2,125 2,496 3,358 2,561
Operating income.............................. 136 169 1,279 396
Net income.................................... 231 838 1,336 248
Net income per share -- basic................. 0.07 0.26 0.42 0.08
Net income per share -- diluted............... 0.07 0.26 0.42 0.06
FISCAL 1999 QUARTERS ENDED,
------------------------------------------------------
JUNE 27, SEPTEMBER 26, DECEMBER 26, MARCH 31,
1998 1998 1998 1999
-------- ------------- ------------ ---------
Net sales..................................... $6,235 $6,151 $7,568 $7,679
Gross profit.................................. 1,645 1,910 2,590 2,520
Operating income.............................. 35 253 577 918
Net income.................................... 99 1,201 573 933
Net income per share -- basic................. 0.04 0.41 0.18 0.36
Net income per share -- diluted............... 0.04 0.41 0.18 0.35
17. SUBSEQUENT EVENTS (UNAUDITED)
MERGER AGREEMENT
On January 22, 2001, Centennial entered into an Agreement and Plan of
Merger and Reorganization with Solectron Corporation ("Solectron"). Under the
terms of the agreement, Solectron will issue or reserve for issuance upon the
exercise of assumed stock options approximately 2.96 million shares of Solectron
common stock in exchange for all of our fully diluted equity, including all of
our outstanding stock options to be assumed by Solectron in connection with the
transaction. Using our capitalization at January 22, 2001 and assuming
conversion of our outstanding series B convertible preferred stock, the exchange
ratio for the transaction is expected to be approximately 0.536 shares of common
stock for each
F-22
129
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
share of our common stock. The transaction will be accounted for as a purchase
and is expected to close during the second quarter of calendar year 2001. The
completion of the transaction is subject to governmental approvals, including
antitrust clearance, approval of the transaction by our stockholders and other
customary closing conditions.
ACQUISITION OF FLASH MEMORY CARD BUSINESS OF INTEL CORPORATION
In September 2000, we repaid in full the $4.0 million note payable to Intel
Corporation and related accrued interest, which was not due and payable until
December 29, 2000. In January 2001, we also made a final payment of $131,000 due
to Intel Corporation based upon units shipped to Cisco Systems.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject us to concentration of
credit risk, consist principally of cash and cash equivalents, short-term
investments and trade receivables. At December 23, 2000, substantially all of
our cash, cash equivalents and short-term investments were held by one financial
institution. We primarily sell and grant credit to domestic and foreign original
equipment manufacturers and distributors. We extend credit based on an
evaluation of the customer's financial condition and generally do not require
collateral. We monitor our exposure for credit losses and maintain allowances
for anticipated losses. At December 23, 2000, the allowance for doubtful
accounts was $200,000.
For the nine months ended December 23, 2000, Solectron Corporation
represented 12% of our sales of PC cards and related products. For the nine
months ended December 23, 1999, Solectron Corporation and Lucent Technologies
each represented 10% of our sales. Nortel Networks represented 6% and 4% of our
sales of PC cards and related products for the nine months ended December 23,
2000 and 1999, respectively. During fiscal 1999, Nortel Networks engaged several
contract manufacturers, including Solectron Corporation, to complete the final
assembly of a majority of its products for which we have historically supplied
PC cards. Our combined sales to Nortel Networks and to these contract
manufacturers for the nine months ended December 23, 2000 and 1999 were 22% and
20%, respectively, of sales of PC cards and related products. Sales to Solectron
Corporation represented 12% and 10% our sales of PC cards and related products
for the nine months ended December 23, 2000 and 1999. At December 23, 2000,
Solectron Corporation accounted for approximately $1.6 million or 20% of our
accounts receivable balance. A relatively small number of customers account for
a significant percentage of our sales. If any of these customers were to reduce
significantly the amount of business they conduct with us, it could have a
material adverse effect on our business, financial condition and results of
operations. In late 1999, Solectron Corporation merged with one of our
competitors, SMART Modular Technologies, Inc., which could result in a decrease
of sales.
Approximately 20% and 18% of our sales of PC cards and related products for
the nine months ended December 23, 2000 and 1999, respectively, were outside the
United States, primarily in several Western European countries, Israel and
Canada. No one country, other than the United States, comprised more than 10% of
our sales.
INVESTMENT IN CENTURY ELECTRONICS MANUFACTURING, INC.
On January 9, 2001, Century Electronics Manufacturing filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code. In
December 2000, Centennial reduced the carrying value of this investment from
$1,700,000 to zero, since management believes the investment has suffered a
decline, which is other-than-temporary.
F-23
130
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEBT
On June 2, 2000, Centennial entered into a credit agreement with Citizens
Bank for a revolving credit facility of $4.0 million. This arrangement contains
certain limitations and covenants, the most restrictive of which is a covenant
regarding the maintenance of our liquidity, as defined in the credit agreement.
Available borrowings are based upon a percentage of our accounts receivable.
This credit facility is secured by substantially all of our assets. This credit
agreement expires on July 31, 2002. Centennial has had no borrowing under this
credit arrangement.
LEASES
In the nine months ended December 23, 2000, Centennial entered into a
four-year capital lease for new manufacturing equipment with a monthly payment
of approximately $10,000. The subject equipment is recorded as an asset for
financial purposes, and is being amortized accordingly.
STOCK OPTIONS PLANS
On July 21, 2000, our Board of Directors adopted the 2000 Stock Incentive
Plan under which incentive and non-qualified stock options may be granted to our
employees, officers, directors and consultants. As of December 23, 2000, no
options have been granted under this plan. For the nine months ended December
23, 2000, we granted options to acquire 442,474 shares of our common stock,
exercisable at an average price of $7.50 per share. These options vest ratably
on each of the first, second and third anniversaries of the date of grant,
although for certain options vesting is accelerated in the event certain stock
price targets are achieved. Substantially all of these options are fully vested
as of December 23, 2000.
RELATED PARTY TRANSACTIONS
Purchases directly from Intel Corporation for the nine months ended
December 23, 2000 were $18.0 million. Accounts payable to Intel at December 23,
200 were $2.2 million.
In the nine months ended December 23, 2000, we made two loans of $17,000
and $15,000 to our President and Chief Executive Officer. These loans bear
interest at the rate of 6.45%. Also in the nine months ended December 23, 2000,
our President and Chief Executive Officer repaid in full the other two loans for
$144,845 and $204,500.
During the nine months ended December 23, 2000, Centennial had sales of
$276,000 to Elan Digital Systems Limited ("Elan") in the normal course of
business, all of which is in accounts receivable at December 23, 2000.
Furthermore, Centennial made purchases directly from Elan during the nine months
ended December 23, 2000 of $217,000 of which $38,000 is included in accounts
payable at December 23, 2000.
CONTINGENCIES
On July 13, 2000, we received a complaint from Mr. Thomas L. DePetrillo
alleging that he was owed approximately $1,000,000 in connection with securities
that Mr. DePetrillo claims were not delivered on a timely basis. This lawsuit
includes allegations substantially identical to those asserted by Mr. DePetrillo
in a lawsuit filed against us in July 1998. In October 2000, we settled the
complaint from Mr. DePetrillo with a cash payment of $375,000.
On February 2, 2001, we were notified of a complaint filed against us by
Onyx, Inc. ("Onyx"). Onyx served as one of our exclusive sales representatives
for certain products in five New England states during the mid-1990's. Onyx
alleges that we failed to provide it with an appropriate accounting of
commissions due it and failed to pay all commissions due. Because of the early
stage of this litigation, we are unable to make an assessment as to its likely
outcome.
F-24
131
ANNEX A
[EXECUTION COPY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
SOLECTRON CORPORATION
CENTERS ACQUISITION CORPORATION
AND
CENTENNIAL TECHNOLOGIES, INC.
DATED AS OF JANUARY 22, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
132
INDEX OF EXHIBITS
Exhibit A Form of Voting Agreement
Exhibit B Form of Affiliate Agreement
i
133
[EXECUTION COPY]
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION is made and entered
into as of January 22, 2001, by and among Solectron Corporation, a Delaware
corporation ("Parent"), Centers Acquisition Corporation, a Delaware corporation
and a wholly-owned subsidiary of Parent ("Merger Sub"), and Centennial
Technologies, Inc., a Delaware corporation (the "Company").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 hereof) and in accordance with the Delaware General
Corporation Law ("Delaware Law"), Parent and the Company intend to enter into a
business combination transaction.
B. The Board of Directors of the Company (i) has determined that the Merger
(as defined in Section 1.1 hereof) is advisable, and consistent with and in
furtherance of the long-term business strategy of the Company and fair to, and
in the best interests of, the Company and its stockholders, (ii) has approved
this Agreement, the Merger and the other transactions contemplated by this
Agreement and (iii) has determined, subject to the terms of this Agreement, to
recommend that the stockholders of the Company adopt and approve this Agreement
and approve the Merger.
C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's willingness to enter into this Agreement, the
directors and executive officers of the Company are entering into Voting
Agreements with Parent, in the form attached hereto as Exhibit A (the "Voting
Agreements").
D. As a condition and inducement to Parent's willingness to enter into this
Agreement, certain affiliates of the Company are entering into Affiliate
Agreements with Parent, in the form attached hereto as Exhibit B (the "Affiliate
Agreements"), at or prior to the consummation of the Merger.
E. The parties hereto intend, by executing this Agreement, to adopt a "plan
of reorganization" within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code").
F. It is also intended by the parties hereto that the Merger will be
accounted for as a purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged and accepted, the
parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof)
and upon the terms and subject to the conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
the Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company,
as the surviving corporation of the Merger, is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time; Closing. Upon the terms and subject to the conditions
of this Agreement, the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware in accordance with the relevant
provisions of Delaware Law (the time of such filing (or such later time as may
be agreed in writing by the Company and Parent and specified in the Certificate
of Merger) being the "Effective Time") as soon as practicable on or after the
Closing Date (as herein defined). Unless the context otherwise requires, the
term "Agreement" as used herein refers collectively to this Agreement and Plan
of Merger and
A-1
134
Reorganization (as the same may be amended from time to time) and the
Certificate of Merger. The closing of the Merger (the "Closing") shall take
place at the offices of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, One Market, Spear Street Tower, Suite 3300, San Francisco,
California 94105, at a time and date to be specified by the parties hereto,
which shall be no later than the second (2nd) business day after the
satisfaction or waiver of the conditions set forth in Article VI hereof, or at
such other time, date and location as the parties hereto agree in writing (the
"Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) Certificate of Incorporation. As of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub or the Company, the
Certificate of Incorporation of the Surviving Corporation shall be amended and
restated to read the same as the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, until thereafter amended in
accordance with Delaware Law and such Certificate of Incorporation; provided,
however, that as of the Effective Time the Certificate of Incorporation shall
provide that the name of the Surviving Corporation is "Centennial Technologies,
Inc."
(b) Bylaws. As of the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub and the Company, the Bylaws of the
Surviving Corporation shall be amended and restated to read the same as the
Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
until thereafter amended in accordance with Delaware Law, the Certificate of
Incorporation of the Surviving Corporation and such Bylaws; provided, however,
that all references in such Bylaws to Merger Sub shall be amended to refer to
"Centennial Technologies, Inc."
1.5 Directors and Officers of Surviving Corporation.
(a) Directors. The initial directors of the Surviving Corporation shall be
the directors of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly elected or appointed and qualified.
(b) Officers. The initial officers of the Surviving Corporation shall be
the officers of Merger Sub immediately prior to the Effective Time.
1.6 Effect on Capital Stock. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, the Company or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of common stock,
par value $0.01 per share, of the Company (the "Company Common Stock")
issued and outstanding immediately prior to the Effective Time, other than
any shares of Company Common Stock to be canceled pursuant to Section
1.6(c) hereof, will be canceled and extinguished and automatically
converted (subject to Section 1.6(f) and Section 1.6(g) hereof) into the
right to receive, upon surrender of the certificate representing such share
of Company Common Stock in the manner provided in Section 1.7 hereof (or in
the case of a lost, stolen or destroyed certificate, upon delivery of an
affidavit (and bond, if required) in the manner provided in Section 1.9
hereof), that number (the "Exchange Ratio") of
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fully paid and nonassessable shares of Common Stock, par value $0.001 per
share, of Parent ("Parent Common Stock"), equal to
A / (B + C)
Where: A = 2,960,000; provided, however, in the event all of the
outstanding shares of Series B Preferred Stock (as defined in
Section 1.6(b)) are not converted into shares of Company Common
Stock at or prior to the Effective Time, and the holders of any
shares of Series B Preferred Stock elect to receive the Preferred
Cash Consideration (as defined in Section 1.6(b) hereof) in
exchange for each shares of Series B Preferred Stock in
accordance with the Company's Certificate of Designation of
Series B Preferred Stock and pursuant to Section 1.6(b) hereof,
then A above shall equal: (x) 2,960,000 minus (y) (A) $80.00,
multiplied by (B) the number of shares of Series B Preferred
Stock outstanding immediately prior to the Effective Time,
divided by (C) the average closing price of one share of Parent
Common Stock for the five (5) most recent days that Parent Common
Stock has traded ending on the trading day immediately prior to
the Effective Time, as reported on the New York Stock Exchange
("NYSE") Composite Transaction Tape (the "Average Trading
Price").
B = the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time (including (i) the number
of shares of Company Common Stock issued upon the conversion of
any shares of Series B Preferred Stock converted at or prior to
the Effective Time, and (ii) any shares of Company Common Stock
issued upon the exercise of all purchase rights outstanding under
the ESPP pursuant to Section 5.8(b) hereof) other than those
shares of Company Common Stock to be canceled pursuant to Section
1.6(c) hereof; and
C = the number of shares of Company Common Stock issuable upon
the exercise of Company Stock Options (as defined in Section
1.6(d) hereof) outstanding immediately prior to the Effective
Time (whether vested or unvested) (including those options to
purchase shares of Company Common Stock which are granted after
the date hereof and prior to the Effective Time).
For purposes of clarity, assuming (i) that as of the date hereof,
there are 1,626,277 shares of Company Common Stock issuable upon the
exercise of Company Stock Options outstanding on the date hereof (whether
vested or unvested), (ii) that no additional Company Stock Options are
granted after the date hereof and prior to the Effective Time, and (iii)
that the Average Trading Price equals $40.74 (i.e., the closing price of
Parent Common Stock on the date hereof), (A) in the event that the all of
the outstanding shares of Series B Preferred Stock were converted into
shares of Company Common Stock at or prior to the Effective Time, the
Exchange Ratio derived from the foregoing formula set forth in this Section
1.6(a) will be 0.536, and (B) in the event that the none of the outstanding
shares of Series B Preferred Stock were converted into shares of Company
Common Stock at or prior to the Effective Time, the Exchange Ratio derived
from the foregoing formula set forth in this Section 1.6(a) will be 0.578.
If any shares of Company Common Stock outstanding immediately prior to
the Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock
purchase agreement or other agreement with the Company, then the shares of
Parent Common Stock issued in exchange for such shares of Company Common
Stock shall also be unvested and subject to the same repurchase option,
risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with
appropriate legends. The Company shall take all action that may be
necessary to ensure that, from and after the Effective Time, Parent is
entitled to exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other agreement.
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(b) Conversion of Series B Preferred Stock. Each share of Series B
Convertible Preferred Stock, par value $0.01 per share, of the Company (the
"Series B Preferred Stock") issued and outstanding immediately prior to the
Effective Time shall be canceled and extinguished and automatically
converted (subject to Section 1.6(f) and Section 1.6(g) hereof) into the
right to receive, upon surrender of the certificate representing such share
of Series B Preferred Stock in the manner provided in Section 1.7 hereof
(or in the case of a lost, stolen or destroyed certificate, upon delivery
of an affidavit (and bond, if required) in the manner provided in Section
1.9 hereof) $80.00 (the "Preferred Cash Consideration") payable (without
interest) in U.S. currency in immediately available funds to the holders of
such shares of Series B Preferred Stock.
(c) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by the Company or owned by Merger Sub, Parent or any direct or
indirect wholly-owned subsidiary of the Company or Parent immediately prior
to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(d) Stock Options; Employee Stock Purchase Plans. At the Effective
Time, all options to purchase Company Common Stock (each, a "Company Stock
Option" and collectively, the "Company Stock Options") then outstanding
under the Company's 2000 Stock Incentive Plan, 1999 Stock Incentive Plan,
1994 Stock Option Plan and 1994 Formula Stock Option Plan (each, a "Company
Option Plan" and collectively, the "Company Option Plans") shall be assumed
by Parent in accordance with Section 5.8 hereof. Purchase rights
outstanding under the Company's Employee Stock Purchase Plan (the "ESPP")
shall be treated as set forth in Section 5.8 hereof.
(e) Capital Stock of Merger Sub. Each share of Common Stock, par value
$0.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock, par
value $0.001 per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock immediately prior
to the Effective Time shall evidence ownership of such shares of capital
stock of the Surviving Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
extraordinary cash dividends, reorganization, recapitalization,
reclassification, combination, exchange of shares or other like change with
respect to Parent Common Stock or Company Common Stock occurring on or
after the date hereof and prior to the Effective Time.
(g) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock that otherwise would be received
by such holder) shall, upon surrender of such holder's Certificates(s) (as
defined in Section 1.7(c) hereof) receive from Parent an amount of cash
(rounded to the nearest whole cent), without interest, equal to the product
of (i) such fraction, multiplied by (ii) the Average Trading Price.
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent shall select a bank or trust company reasonably
acceptable to the Company to act as the exchange agent (the "Exchange Agent") in
the Merger.
(b) Parent to Provide Common Stock. At the Effective Time, Parent shall
make available to the Exchange Agent, for exchange in accordance with this
Article I, the shares of Parent Common Stock issuable pursuant to Section 1.6
hereof in exchange for outstanding shares of Company Common Stock, and cash in
an amount sufficient for (i) payment in lieu of fractional shares pursuant to
Section 1.6(g) hereof, (ii) payment of any dividends or distributions to which
holders of shares of Company Common Stock may be entitled pursuant to Section
1.7(d) hereof, and (iii) if applicable, for payment in exchange for the
outstanding shares of Series B Preferred Stock in accordance with Section 1.6(b)
hereof.
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(c) Exchange Procedures. Promptly after the Effective Time, (and in no
event more than ten (10) business days following the Effective Time) Parent
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "Certificates"), which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock or Series B Preferred Stock which were converted into the
right to receive shares of Parent Common Stock pursuant to Section 1.6 hereof,
cash in lieu of any fractional shares pursuant to Section 1.6(g) hereof and any
dividends or other distributions pursuant to Section 1.7(d) hereof or Preferred
Cash Consideration, as applicable, (i) a letter of transmittal in customary form
(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 contain such other provisions as Parent may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock, cash in lieu of any fractional shares pursuant to Section 1.6(g) hereof
and any dividends or other distributions pursuant to Section 1.7(d) or Preferred
Cash Consideration, as applicable. Upon surrender of Certificates for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, (i) the
holders of such Certificates formerly representing shares of Company Common
Stock shall be entitled to receive in exchange therefor certificates
representing the number of whole shares of Parent Common Stock into which their
shares of Company Common Stock were converted at the Effective Time (as adjusted
for any stock splits, reverse stock splits, stock dividends or the like with
respect to the shares of Parent Common Stock with a record date after the
Effective Time), payment in lieu of fractional shares which such holders have
the right to receive pursuant to Section 1.6(g) hereof and any dividends or
distributions payable pursuant to Section 1.7(d) hereof, and (ii) the holders of
such Certificates formerly representing shares of Series B Preferred Stock shall
be entitled to receive in exchange therefor the Preferred Cash Consideration for
each share of Series B Preferred Stock, and the Certificates so surrendered
shall forthwith be canceled. Until so surrendered, outstanding Certificates
shall be deemed from and after the Effective Time, for all corporate purposes,
subject to Section 1.7(d) hereof as to dividends and other distributions, to
evidence only the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6(g) hereof and any dividends or
distributions payable pursuant to Section 1.7(d) hereof or the right to receive
Preferred Cash Consideration, as applicable.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered Certificates with respect to the shares of
Parent Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
promptly following surrender of any such Certificates, the Exchange Agent shall
deliver to the record holders thereof, without interest, certificates
representing whole shares of Parent Common Stock issued in exchange therefor
along with payment in lieu of fractional shares pursuant to Section 1.6(g)
hereof and the amount of any such dividends or other distributions with a record
date after the Effective Time payable with respect to such whole shares of
Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
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(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
(as advised by tax counsel for Parent) to be deducted or withheld therefrom
under the Code or under any provision of state, local or foreign tax law or
under any other applicable legal requirement. To the extent such amounts are so
deducted or withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the person to whom such amounts would otherwise
have been paid.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any other
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock or Series B
Preferred Stock. All shares of Parent Common Stock issued in accordance with the
terms hereof (including any cash paid in respect thereof pursuant to Section
1.6(g) and Section 1.7(d) hereof) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and the Preferred Cash Consideration issued in accordance with Section 1.6(b)
hereof shall be deemed to have been issued in full satisfaction of all rights
pertaining to shares of Series B Preferred Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of shares
of Company Common Stock or Series B Preferred Stock 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 Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to Section
1.6 hereof, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(g) hereof and any dividends or distributions payable pursuant to
Section 1.7(d) hereof or Preferred Cash Consideration, as applicable; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance of such certificates representing shares of Parent Common Stock, cash
and other distributions, or Preferred Stock Consideration, as applicable,
require the owner of such lost, stolen or destroyed Certificates to deliver a
bond in such reasonable and customary amount as it may direct as indemnity
against any claim that may be made against Parent, the Surviving Corporation or
the Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.10 Tax and Accounting Consequences.
(a) Tax. It is intended by the parties hereto that the Merger will
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) Accounting. It is intended by the parties hereto that the Merger will
be accounted for as a purchase.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
As of the date hereof and as of the Closing Date, the Company hereby
represents and warrants to Parent and Merger Sub, subject to such exceptions as
are specifically disclosed in writing in the disclosure letter supplied by the
Company to Parent dated as of the date hereof and certified by a duly authorized
officer of the Company (the "Company Schedule"), which disclosure shall provide
an exception to or otherwise qualify the representations or warranties of the
Company specifically referred to in the Company Schedule and such other
representations and warranties to the extent such disclosure shall reasonably
appear to be applicable to such other representations or warranties, as follows:
2.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted, except where the failure to do so
would not, individually or in the aggregate, have a Material Adverse Effect (as
defined in Section 8.3 hereof) on the Company. Each of the Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("Approvals") necessary to own, lease and operate the properties it purports to
own, operate or lease and to carry on its business as it is now being conducted,
except where the failure to have such Approvals would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.
(b) The Company has no subsidiaries except for the corporations identified
in Section 2.1(b) of the Company Schedule. Neither the Company nor any of its
subsidiaries has agreed nor is obligated to make nor is bound by any written,
oral or other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or as may hereafter be in effect (a "Contract") under which it
may become obligated to make, any future investment in or capital contribution
to any other entity. Except as set forth in Section 2.1(b) of the Company
Schedule, neither the Company nor any of its subsidiaries directly or indirectly
owns any equity or similar interest in or any interest convertible into, or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business, association or
entity.
(c) The Company and each of its subsidiaries is qualified to do business as
a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of their business requires such qualification and
where the failure to be so qualified or in good standing would have a Material
Adverse Effect on the Company.
2.2 Certificate of Incorporation and Bylaws. The Company has previously
furnished to Parent a complete and correct copy of its Certificate of
Incorporation and Bylaws as amended to date (together, the "Company Charter
Documents"). The Company Charter Documents and equivalent organizational
documents of each subsidiary of the Company are in full force and effect. The
Company is not in violation of any of the provisions of the Company Charter
Documents, and no subsidiary of the Company is in violation of its equivalent
organizational documents.
2.3 Capitalization.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of Company Common Stock and 1,000,000 shares of Preferred Stock ("Company
Preferred Stock" and together with the Company Common Stock, the "Company
Capital Stock"), each having a par value of $0.01 per share. At the close of
business on the date of this Agreement (i) 3,295,173 shares of Company Common
Stock were issued and outstanding, all of which are validly issued, fully paid
and nonassessable, (ii) no shares of Company Common Stock were held by
subsidiaries of the Company, (iii) no shares of Company Common Stock were
reserved for issuance upon the exercise of outstanding options to purchase
Company Common
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Stock under the 2000 Stock Incentive Plan, (iv) 913,996 shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding options to
purchase Company Common Stock under the 1999 Stock Incentive Plan, (v) 695,406
shares of Company Common Stock were available for future grant under the 1994
Stock Option Plan, and (vi) 16,875 shares of Company Common Stock were available
for future grant under the 1994 Formula Stock Option Plan. As of the close of
business on the date of this Agreement, 60,000 shares of Company Preferred Stock
were designated as Series B Preferred Stock and were issued or outstanding and
50,000 shares of Company Preferred Stock were designated as Series A Junior
Participating Preferred Stock, none of which were issued and outstanding and
50,000 of which were reserved for issuance under the Company Rights Plan (as
defined in Section 2.26 hereof). Section 2.3(a) of the Company Schedule sets
forth the following information with respect to each Company Stock Option
outstanding as of the date of this Agreement: (i) the name and address of the
optionee; (ii) the particular plan pursuant to which such Company Stock Option
was granted; (iii) the number of shares of Company Common Stock subject to such
Company Stock Option; (iv) the exercise price of such Company Stock Option; (v)
the date on which such Company Stock Option was granted; (vi) the applicable
vesting schedule; (vii) the date on which such Company Stock Option expires; and
(viii) whether the exercisability of such option will be accelerated in any way
by the transactions contemplated by this Agreement, and indicates the extent of
acceleration. The Company has made available to Parent accurate and complete
copies of all stock option plans pursuant to which the Company has granted such
Company Stock Options that are currently outstanding and the form of all stock
option agreements evidencing such Company Stock Options. All shares of Company
Common Stock subject to issuance upon exercise of such Company Stock Options as
aforesaid, upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, would be duly authorized, validly issued,
fully paid and nonassessable. Except as set forth in Section 2.3(a) of the
Company Schedule, there are no commitments or agreements of any character to
which the Company is bound obligating the Company to accelerate the vesting of
any Company Stock Option as a result of the Merger. All outstanding shares of
Company Common Stock, all outstanding Company Stock Options, and all outstanding
shares of capital stock of each subsidiary of the Company have been issued and
granted in compliance with (i) all applicable securities laws and other
applicable Legal Requirements (as defined below) and (ii) all requirements set
forth in applicable Contracts. For the purposes of this Agreement, "Legal
Requirements" means any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation, ruling or requirement issues, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined in Section 2.5(b) hereof).
(b) Except for shares of capital stock or other similar ownership interests
of subsidiaries of the Company that are owned by certain nominee equity holders
as required by the applicable law of the jurisdiction of organization of such
subsidiaries (which shares or other interests do not materially affect the
Company's control of such subsidiaries), the Company owns free and clear of all
liens, pledges, hypothecations, charges, mortgages, security interests,
encumbrances, claims, infringements, interferences, options, right of first
refusals, preemptive rights, community property interests or restriction of any
nature (including any restriction on the voting of any security, any restriction
on the transfer of any security or other asset, any restriction on the
possession, exercise or transfer of any other attribute of ownership of any
asset) directly or indirectly through one or more subsidiaries, all equity
securities, partnership interests or similar ownership interests of any
subsidiary of the Company, and all securities convertible into, or exercisable
or exchangeable for, such equity securities, partnership interests or similar
ownership interests, that are issued, reserved for issuance or outstanding.
Except as set forth in Section 2.3(b) of the Company Schedule or Section 2.3(a)
hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries is bound obligating the Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition
of, any shares of capital stock, partnership interests or similar ownership
interests of the Company or any of its subsidiaries or obligating the Company or
any of
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its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. Except as set forth in Section 2.3(b) of the Company Schedule and as
contemplated by this Agreement, there are no registration rights in respect of
Company Capital Stock and, except for the Company Rights Plan and the Voting
Agreements, there are no voting trusts, proxies, rights plans, antitakeover
plans or other agreements or understandings to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries are
bound with respect to any equity security of the Company or with respect to any
equity security, partnership interest or similar ownership interest of any of
its subsidiaries. Stockholders of the Company will not be entitled to
dissenters' rights under applicable state law in connection with the Merger.
2.4 Authority Relative to this Agreement. The Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, subject to obtaining the approval of the
stockholders of the Company of the Merger, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action on the part
of the Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than the approval and adoption of this Agreement and
the Merger by holders of a majority of the outstanding shares of Company Capital
Stock in accordance with Delaware Law and the Company Charter Documents). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Merger Sub,
constitutes a legal and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
2.5 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 2.5(a) of the Company Schedule, the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Company Charter Documents or the equivalent organizational documents
of any of the Company's subsidiaries, (ii) subject to obtaining the approval of
the Company's stockholders of this Agreement and the Merger and compliance with
the requirements set forth in Section 2.5(b) hereof, conflict with or violate in
any material respect any law, rule, regulation, order, judgment or decree
applicable to the Company or any of its subsidiaries or by which its or any of
their respective properties is bound or affected, or (iii) result in any breach
of or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or materially impair the Company's or any of
its subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected.
(b) The execution and delivery of this Agreement by the Company do not, and
the performance of this Agreement by the Company will not, require any consent,
approval, authorization or permit of, or registration or filing with or
notification to, any court, administrative agency, commission, governmental or
regulatory authority, domestic or foreign (a "Governmental Entity"), except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities laws ("Blue Sky Laws"), the pre-merger
notification requirements (the "HSR Approval") of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") and of foreign
Governmental Entities and the rules and regulations thereunder, the rules and
regulations of the National Market System ("Nasdaq"), and the filing and
recordation of the Certificate of Merger as required by Delaware Law, and (ii)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, could not, individually or in the
aggregate, reasonably be expected to have a Material
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Adverse Effect on the Company or, after the Effective Time, Parent, or prevent
consummation of the Merger or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
2.6 Compliance; Permits.
(a) Neither the Company nor any of its subsidiaries is in conflict with, or
in default or violation of, (i) any law, rule (including environmental laws),
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which its or any of their respective properties is bound or
affected, or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
is bound or affected, except for any conflicts, defaults or violations that
(individually or in the aggregate) would not cause the Company to lose any
material benefit or incur any material liability. No investigation or review by
any governmental or regulatory body or authority is pending or, to the knowledge
of the Company, threatened against the Company or its subsidiaries, nor has any
governmental or regulatory body or authority indicated to the Company an
intention to conduct the same, other than, in each such case, those the outcome
of which could not, individually or in the aggregate, reasonably be expected to
have the effect of prohibiting or materially any material business practice of
the Company or any of its subsidiaries, any acquisition of material property by
the Company or any of its subsidiaries or the conduct of business by the Company
or any of its subsidiaries in substantially the same manner as currently
conducted.
(b) The Company and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to operation of the business of the Company and its subsidiaries taken
as a whole (each, a "Company Permit" and collectively, the "Company Permits").
The Company and its subsidiaries are in compliance in all material respects with
the terms of each of the Company Permits.
2.7 SEC Filings; Financial Statements.
(a) The Company has made available to Parent a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by the Company with the Securities and Exchange Commission ("SEC") since
March 31, 1998 (the "Company SEC Reports"), which are all the forms, reports and
documents required to be filed by the Company with the SEC since March 31, 1998.
The Company SEC Reports (A) were prepared in accordance with the requirements of
the Securities Act or the Exchange Act, as the case may be, and (B) did not at
the time they were filed (and if amended or superseded by a filing prior to the
date of this Agreement then on the date of such filing) 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 therein, in light of
the circumstances under which they were made, not misleading. None of the
Company's subsidiaries is required to file any reports or other documents with
the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports and the set of
financial statements set forth on Section 2.7 of the Company Schedule for the
period ended December 23, 2000, was prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents in all material respects the
consolidated financial position of the Company and its subsidiaries at the
respective dates thereof and the consolidated results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are not
expected to be material in amount.
(c) The Company has previously furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.
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2.8 No Undisclosed Liabilities.
(a) Except as set forth in Section 2.8(a) of the Company Schedule, neither
the Company nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the consolidated financial statements prepared in
accordance with GAAP which are, individually or in the aggregate, material to
the business, results of operations, assets or financial condition of the
Company and its subsidiaries taken as a whole, except (i) liabilities provided
for in the Company's balance sheet as of December 23, 2000 (the "Base Balance
Sheet") or (ii) liabilities incurred since December 23, 2000 (the "Base Balance
Sheet Date") in the ordinary course of business, none of which is material to
the business, results of operations or financial condition of the Company and
its subsidiaries, taken as a whole.
(b) Except as provided for in the Base Balance Sheet, neither the Company
nor any of its subsidiaries has any liabilities (absolute, accrued, contingent
or otherwise) of any kind or nature to Intel Corporation arising out of the
acquisition by the Company of certain assets of Intel Corporation pursuant to
that certain Asset Purchase Agreement, dated as of December 29, 1999, by and
between the Company and Intel Corporation.
2.9 Absence of Certain Changes or Events. Except as set forth in Section
2.9 of the Company Schedule, since the Base Balance Sheet Date there has not
been: (i) any Material Adverse Effect on the Company, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of the Company's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
the Company of any of the Company's capital stock or any other securities of the
Company or its subsidiaries or any options, warrants, calls or rights to acquire
any such shares or other securities except for repurchases from employees
following their termination pursuant to the terms of their pre-existing stock
option or purchase agreements, (iii) any split, combination or reclassification
of any of the Company's or any of its subsidiaries' capital stock, (iv) any
granting by the Company or any of its subsidiaries of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by the Company or any of its subsidiaries of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, or any granting by the Company or any of its subsidiaries of any
increase in severance or termination pay or any entry by the Company or any of
its subsidiaries into any currently effective employment, severance, termination
or indemnification agreement or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence of a
transaction involving the Company of the nature contemplated hereby, (v) entry
by the Company or any of its subsidiaries into any licensing or other agreement
with regard to the acquisition or disposition of any Intellectual Property (as
defined in Section 2.19 hereof) other than licenses in the ordinary course of
business consistent with past practice or any amendment or consent with respect
to any licensing agreement filed or required to be filed by the Company with the
SEC, (vi) any material change by the Company in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, or
(vii) any revaluation by the Company of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off notes
or accounts receivable or any sale of assets of the Company other than in the
ordinary course of business.
2.10 Absence of Litigation. Except as set forth in Section 2.10 of the
Company Schedule, there are no claims, actions, suits or proceedings pending or,
to the knowledge of the Company, threatened (or, to the knowledge of the
Company, any governmental or regulatory investigation pending or threatened)
against the Company or any of its subsidiaries or any properties or rights of
the Company or any of its subsidiaries, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document and including, without limitation, all "employee benefit
plans" within the meaning of Section 3(3) of the Employee Retirement Income
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Security Act of 1974, as amended ("ERISA")) covering any active, former
employee, director or consultant of the Company, any subsidiary of the Company
or any trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with the Company within the
meaning of Section 414 of the Code (an "Affiliate"), or with respect to which
the Company has liability, are listed in Section 2.11(a) of the Company Schedule
(the "Plans"). The Company has provided to Parent: (i) correct and complete
copies of all documents embodying each Plan including (without limitation) all
amendments thereto, all related trust documents, and all material written
agreements and contracts relating to each such Plan; (ii) the three (3) most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Plan; (iv) all Internal Revenue
Service ("IRS") or Department of Labor (the "DOL") determination, opinion,
notification and advisory letters; (v) all material correspondence to or from
any governmental agency relating to any Plan; (vi) all forms and related notices
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"); (vii) all discrimination tests for each Plan for the most recent
three (3) plan years; (viii) the most recent annual actuarial valuations, if
any, prepared for each Plan; (xi) if the Plan is funded, the most recent annual
and periodic accounting of Plan assets; (x) all material written agreements and
contracts relating to each Plan, including, but not limited to, administrative
service agreements, group annuity contracts and group insurance contracts; (xi)
all material communications to employees or former employees regarding in each
case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any material liability under any Plan or proposed
Plan; (xii) all policies pertaining to fiduciary liability insurance covering
the fiduciaries for each Plan; and (xiii) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with any Plan.
(b) Each Plan has been maintained and administered in all material respects
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, which are applicable to such Plans. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought, or to the knowledge of the Company is
threatened, against or with respect to any such Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of the Company, threatened
by the IRS or DOL with respect to any Plans. All contributions, reserves or
premium payments required to be made or accrued as of the date hereof to the
Plans have been timely made or accrued. Any Plan intended to be qualified under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code (i) has either obtained a favorable determination,
notification, advisory and/or opinion letter, as applicable, as to its qualified
status from the IRS or still has a remaining period of time under applicable
Treasury Regulations or IRS pronouncements in which to apply for such letter and
to make any amendments necessary to obtain a favorable determination, and (ii)
incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986 and subsequent legislation to the extent
such amendment or incorporation is required as of the Closing Date. The Company
does not have any plan or commitment to establish any new Plan, to modify any
Plan (except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Parent in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent, the
Company or any of its Affiliates (other than ordinary administration expenses
and expenses for benefits accrued but not yet paid).
(c) Neither the Company, any of its subsidiaries, nor any of their
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has the Company or any of its subsidiaries contributed
to or been requested to contribute to any "multiemployer plan," as such term is
defined in ERISA or to any plan described in Section 413(c) of the Code. Neither
the Company, any of its subsidiaries, nor any officer or director of the Company
or any of its subsidiaries is subject to any material liability or penalty
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under Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred
with respect to any Plan which could subject the Company or its subsidiaries to
material liabilities.
(d) Neither the Company, any of its subsidiaries, nor any of their
Affiliates has, prior to the Effective Time and in any material respect,
violated any of the health continuation requirements of COBRA, the requirements
of the Family Medical Leave Act of 1993, as amended, the requirements of the
Women's Health and Cancer Rights Act, as amended, the requirements of the
Newborns' and Mothers' Health Protection Act of 1996, as amended, or any similar
provisions of state law applicable to employees of the Company or any of its
subsidiaries. None of the Plans promises or provides retiree medical or other
retiree welfare benefits to any person except as required by applicable law, and
neither the Company nor any of its subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any employee, former employee, director, consultant or other person, except to
the extent required by statute.
(e) Neither the Company nor any of its subsidiaries is bound by or subject
to (and none of its respective assets or properties is bound by or subject to)
any arrangement with any labor union. No employee of the Company or any of its
subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of the Company, no campaign to
establish such representation is in progress. There is no pending or, to the
knowledge of the Company, threatened labor dispute involving the Company or any
of its subsidiaries and any group of its employees nor has the Company or any of
its subsidiaries experienced any labor interruptions over the past three (3)
years, and the Company and its subsidiaries consider their relationships with
their employees to be good. The Company and its subsidiaries are in compliance
in all material respects with all applicable material foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours.
(f) Except as set forth in Section 2.11(f) of the Company Schedule, neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of the Company or any of
its subsidiaries under any Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Plan, or (iii) result in the acceleration
of the time of payment or vesting of any such benefits.
(g) Each International Employee Plan (as defined below) has been
established, maintained and administered in all material respects in compliance
with its terms and conditions and with the requirements prescribed by any and
all statutory or regulatory laws that are applicable to such International
Employee Plan. Furthermore, no International Employee Plan has material unfunded
liabilities that, as of the Effective Time, will not be offset by insurance or
fully accrued. Except as required by law, no condition exists that would prevent
the Company or Parent from terminating or amending any International Employee
Plan at any time for any reason. For purposes of this Agreement, "International
Employee Plan" shall mean each Plan that has been adopted or maintained by the
Company or any of its subsidiaries, whether informally or formally, for the
benefit of current or former employees of the Company or any of its subsidiaries
outside the United States.
2.12 Labor Matters. (i) There are no material controversies pending or
threatened between the Company or any of its subsidiaries and any of their
respective employees; (ii) as of the date of this Agreement, neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries nor does the Company or its subsidiaries know of any activities or
proceedings of any labor union to organize any such employees; and (iii) as of
the date of this Agreement, neither the Company nor any of its subsidiaries has
any knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
subsidiaries.
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2.13 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of the Parent Common Stock in or as a
result of the Merger (the "S-4") will, at the time the S-4 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 in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; and (ii) the proxy statement/prospectus to be
filed with the SEC by the Company pursuant to Section 5.1(a) hereof (the "Proxy
Statement/Prospectus") will, at the dates mailed to the stockholders of the
Company, at the times of the stockholders meeting of the Company (the "Company
Stockholders' Meeting") in connection with the transactions contemplated hereby
and as of the Effective Time, 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/Prospectus will comply as to
form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated by the SEC thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Parent or Merger Sub which is contained in any of the
foregoing documents.
2.14 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon the Company or
its subsidiaries or to which the Company or any of its subsidiaries is a party
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of property by the Company or any of its
subsidiaries or the conduct of business by the Company or any of its
subsidiaries as currently conducted.
2.15 Title to Property. Neither the Company nor any of its subsidiaries
owns any material real property. Except as set forth in Section 2.15 of the
Company Schedule, the Company and each of its subsidiaries have good and
defensible title to all of their material properties and assets, free and clear
of all liens, charges and encumbrances except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby; and all leases pursuant to which the
Company or any of its subsidiaries lease from others material real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of default of the Company or any of its subsidiaries
or, to the Company's knowledge, any other party (or any event which with notice
or lapse of time, or both, would constitute a material default and in respect of
which the Company or subsidiary has not taken adequate steps to prevent such
default from occurring). All the plants, structures and material equipment of
the Company and its subsidiaries, except such as may be under construction, are
in good operating condition and repair, in all material respects.
2.16 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or
"Taxes" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor or transferor entity.
(b) Tax Returns and Audits.
(i) Except as set forth in Section 2.16(b) of the Company Schedule,
the Company and each of its subsidiaries have timely filed all federal,
state, local and foreign returns, forms, estimates, information statements
and reports ("Returns") relating to Taxes required to be filed by the
Company and each of its subsidiaries with any Tax authority, except such
Returns which are not,
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individually or in the aggregate, material to the Company. The Company and
each of its subsidiaries have paid all Taxes shown to be due on such
Returns.
(ii) The Company and each of its subsidiaries as of the Effective Time
will have withheld with respect to its employees all federal and state
income Taxes, Taxes pursuant to the Federal Insurance Contribution Act,
Taxes pursuant to the Federal Unemployment Tax Act and other Taxes required
to be withheld, except such Taxes which are not, individually or in the
aggregate, material to the Company.
(iii) Except as set forth in Section 2.16(b) of the Company Schedule,
neither the Company nor any of its subsidiaries has been delinquent in the
payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against the Company or any of its
subsidiaries, nor has the Company or any of its subsidiaries executed any
unexpired waiver of any statute of limitations on or extension of any the
period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company or any
of its subsidiaries by any Tax authority is presently in progress, nor has
the Company or any of its subsidiaries been notified in writing of any
request for such an audit or other examination.
(v) No adjustment relating to any Returns filed or required to be
filed by the Company or any of its subsidiaries has been proposed in
writing, formally or informally, by any Tax authority to the Company or any
of its subsidiaries or any representative thereof.
(vi) Neither the Company nor any of its subsidiaries has any liability
for any material unpaid Taxes (whether or not shown to be done on any
Return) which has not been accrued for or reserved on the Company balance
sheet dated December 23, 2000 in accordance with GAAP, whether asserted or
unasserted, contingent or otherwise, which is material to the Company,
other than any liability for unpaid Taxes that may have accrued since
December 23, 2000 in connection with the operation of the business of the
Company and its subsidiaries in the ordinary course. There are no liens
with respect to Taxes on any of the assets of the Company or any of its
subsidiaries, other than liens which are not, individually or in the
aggregate, material, or customary liens for Taxes not yet due and payable.
(vii) Except as set forth in Section 2.16(b) of the Company Schedule,
there is no contract, agreement, plan or arrangement to which the Company
or any of its subsidiaries is a party as of the date of this Agreement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of the Company or any of its subsidiaries that,
individually or collectively, would reasonably be expected to give rise to
the payment of any amount that would not be deductible pursuant to Sections
280G, 404 or 162(m) of the Code. Except as set forth in Section 2.16(b) of
the Company Schedule, there is no contract, agreement, plan or arrangement
to which the Company or any of its subsidiaries is a party or by which it
is bound to compensate any individual for excise taxes paid pursuant to
Section 4999 of the Code.
(viii) Neither the Company nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
asset (as defined in Section 341(f)(4) of the Code) owned by the Company or
any of its subsidiaries.
(ix) Except as set forth in Section 2.16(b) of the Company Schedule,
neither the Company nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement
or arrangement. Neither the Company nor any of its subsidiaries has ever
been a member of a group filing a consolidated, unitary, combined or
similar Return (other than Returns which include only the Company and any
of its subsidiaries) under any federal, state, local or foreign law.
Neither the Company nor any of its subsidiaries is party to any joint
venture, partnership or other arrangement that could be treated as a
partnership for federal and applicable state, local or foreign Tax
purposes.
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(x) None of the Company's or its subsidiaries' assets are tax exempt
use property within the meaning of Section 168(h) of the Code.
(xi) Neither the Company nor any of its subsidiaries has distributed
the stock of any corporation in a transaction satisfying the requirements
of Section 355 of the Code. The stock of neither the Company nor any of its
subsidiaries has been distributed in a transaction satisfying the
requirements of Section 355 of the Code.
2.17 Environmental Matters.
(a) Hazardous Material. Except as would not result in material liability to
the Company or any of its subsidiaries, no underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, but
excluding office and janitorial supplies, (a "Hazardous Material") are present
(i) as a result of the actions of the Company or any of its subsidiaries or any
affiliate of the Company, or (ii) to the Company's knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that the
Company or any of its subsidiaries has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the aggregate)
(i) neither the Company nor any of its subsidiaries has transported, stored,
used, manufactured, disposed of, released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither the Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"Company Environmental Permits") necessary for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted. All such Company Environmental Permits are valid and in full
force and effect. The Company has complied in all material respects with all
covenants and conditions of any such Company Environmental Permit which is or
has been in force with respect to its Hazardous Material Activities. To the
knowledge of the Company, no circumstances exist which could cause any such
Company Environmental Permit to be revoked, modified, or rendered non-renewable
upon payment of the permit fee. All such Company Environmental Permits and all
other consent and clearances required by any Environmental Law or any agreement
to which the Company is bound as a condition to the performance and enforcement
of this Agreement, have been obtained or will be obtained prior to the Closing
at no cost to Parent.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to the
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against the Company or any of its subsidiaries in a writing delivered to the
Company or any of its subsidiaries concerning any Company Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or any of
its subsidiaries. The Company has no knowledge of any fact or circumstance which
could involve the Company or any of its subsidiaries in any environmental
litigation or impose upon the Company any material environmental liability.
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(e) Reports and Records. The Company has delivered to Parent or made
available for inspection by Parent and its agents, representatives and employees
all records in the Company's possession concerning the Hazardous Materials
Activities of the Company relating to its business and all environmental audits
and environmental assessments of any facility conducted at the request of, and
in the possession of, the Company. The Company has complied (or will comply
prior to the Closing) with all environmental disclosure obligations imposed by
applicable law with respect to the Merger.
2.18 Brokers. Except as set forth in Section 2.18 of the Company Schedule,
the Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders fees or agent's commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
2.19 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "Intellectual Property" shall mean any or all of the following and
all worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii)
copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) domain names,
uniform resource locators ("URLs") and other names and locators associated
with the Internet ("Domain Names"); (v) industrial designs and any
registrations and applications therefor; (vi) trade names, logos, common
law trademarks and service marks, trademark and service mark registrations
and applications therefor; (vii) all databases and data collections and all
rights therein; (viii) all moral and economic rights of authors and
inventors, however denominated; and (ix) any similar or equivalent rights
to any of the foregoing (as applicable).
(ii) "Company Intellectual Property" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, the Company and it
subsidiaries.
(iii) "Registered Intellectual Property" means all Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any
private, state, government or other legal authority.
(iv) "Company Registered Intellectual Property" means all of the
Registered Intellectual Property owned by, or filed in the name of, the
Company or any of its subsidiaries.
(b) Section 2.19(b) of the Company Schedule contains a complete and
accurate list of all Company Registered Intellectual Property and specifies,
where applicable, the jurisdictions in which each such item of Company
Registered Intellectual Property has been issued or registered and lists any
proceedings or actions before any court or tribunal (including the United States
Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the
world) related to any of the Company Registered Intellectual Property.
(c) Section 2.19(c) of the Company Schedule contains a complete and
accurate list (by name and version number) of all products or service offerings
of the Company or any of its subsidiaries ("Company Products") that have been
distributed or provided in the one (1) year period preceding the date hereof or
which the Company or any of its subsidiaries currently intends to distribute or
provide in the future, including any products or service offerings under
development.
(d) Except as set forth in Section 2.19(d) of the Company Schedule, no
Company Intellectual Property or Company Product is subject to any proceeding or
outstanding decree, order, judgment, contract, license, agreement, or
stipulation restricting in any manner the use, transfer, or licensing thereof by
the Company or any of its subsidiaries, or which may affect the validity, use or
enforceability of such Company Intellectual Property or Company Product.
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(e) Each material item of Company Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees
currently due in connection with such Company Registered Intellectual Property
have been made and all necessary documents, recordations and certificates in
connection with such Company Registered Intellectual Property have been filed
with the relevant patent, copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Company Registered Intellectual Property.
(f) Section 2.19(f) of the Company Schedule contains a complete and
accurate list of all material actions that are required to be taken by the
Company within ninety (90) calendar days of the date hereof with respect to any
of the foregoing Company Registered Intellectual Property.
(g) The Company owns and has good and exclusive title to, each material
item of Company Intellectual Property owned by it and used in the business of
the Company as currently conducted and reasonably contemplated to be conducted
or otherwise necessary for the sale and distribution of the Company Product, in
each case free and clear of any lien or encumbrance (excluding non-exclusive
licenses and related restrictions granted in the ordinary course). Without
limiting the foregoing: (i) the Company is the exclusive owner of, or has the
right to use, all trademarks and trade names used in connection with the
operation or conduct of the business of the Company and its subsidiaries,
including the sale, distribution or provision of any Company Products by the
Company or its subsidiaries; (ii) the Company owns exclusively, and has good
title to, all copyrighted works that are Company Products or which the Company
or any of its subsidiaries otherwise purports to own; and (iii) to the extent
that, to the knowledge of the Company, any Patents would be infringed by any
Company Products, the Company is the exclusive owner of such Patents.
(h) To the extent that any material technology, software or Intellectual
Property has been developed or created independently or jointly by a third party
for the Company or any of its subsidiaries or is incorporated into any of the
Company Products, the Company has a written agreement with such third party with
respect thereto and the Company thereby either (i) has obtained ownership of,
and is the exclusive owner of, or (ii) has obtained a perpetual, non-terminable
license (sufficient for the conduct of its business as currently conducted and
as proposed to be conducted) to all such third party's Intellectual Property in
such work, material or invention by operation of law or by valid assignment, to
the fullest extent it is legally possible to do so.
(i) Neither the Company nor any of its subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is material Company Intellectual Property, to any third party, or
knowingly permitted the Company's rights in such material Company Intellectual
Property to lapse or enter the public domain.
(j) Section 2.19(j) of the Company Schedule contains a complete and
accurate list of all material contracts, licenses and agreements to which the
Company or any of its subsidiaries is a party: (i) with respect to Company
Intellectual Property licensed or transferred to any third party (other than
end-user licenses in the ordinary course); or (ii) pursuant to which a third
party has licensed or transferred any material Intellectual Property to the
Company.
(k) All material contracts, licenses and agreements relating to either (i)
Company Intellectual Property or (ii) Intellectual Property of a third party
licensed to the Company or any of its subsidiaries, are in full force and
effect. Except as set forth in Section 2.19(k) of the Company Schedule, the
consummation of the transactions contemplated by this Agreement will neither
violate nor result in the breach, modification, cancellation, termination or
suspension of such contracts, licenses and agreements. Each of the Company and
its subsidiaries is in material compliance with, and has not breached any
material term of any such contracts, licenses and agreements and, to the
knowledge of the Company, all other parties to such contracts, licenses and
agreements are in compliance with, and have not breached any material term of,
such contracts, licenses and agreements. Except as set forth in Section 2.19(k)
of the Company Schedule, following the Closing Date, the Surviving Corporation
will be permitted to exercise all of the Company's rights under such contracts,
licenses and agreements to the same extent the Company and its subsidiaries
would have been able to had the transactions contemplated by this Agreement not
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occurred and without the payment of any additional amounts or consideration
other than ongoing fees, royalties or payments which the Company would otherwise
be required to pay. Except as set forth in Section 2.19(k) of the Company
Schedule, neither this Agreement nor the transactions contemplated by this
Agreement, including the assignment to Parent or Merger Sub by operation of law
or otherwise of any contracts or agreements to which the Company is a party,
will result in (i) either Parent's or the Merger Sub's granting to any third
party any right to or with respect to any material Intellectual Property right
owned by, or licensed to, either of them, (ii) either the Parent's or the Merger
Sub's being bound by, or subject to, any non-compete or other material
restriction on the operation or scope of their respective businesses, or (iii)
either the Parent's or the Merger Sub's being obligated to pay any royalties or
other material amounts to any third party in excess of those payable by Parent
or Merger Sub, respectively, prior to the Closing.
(l) Except as set forth in Section 2.19(l) of the Company Schedule, to the
knowledge of the Company, the operation of the business of the Company and its
subsidiaries as such business currently is conducted, including (i) the
Company's and its subsidiaries' design, development, manufacture, distribution,
reproduction, marketing or sale of the Company Products and (ii) the Company's
use of any product, device or process, has not, does not and, to its knowledge,
will not infringe or misappropriate the Intellectual Property of any third party
or constitute unfair competition or trade practices under the laws of any
jurisdiction.
(m) Except as set forth in Section 2.19(m) of the Company Schedule, neither
the Company nor any of its subsidiaries has received notice from any third party
that the operation of the business of the Company or any of its subsidiaries or
any act, product or service of the Company or any of its subsidiaries, infringes
or misappropriates the Intellectual Property of any third party or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
(n) To the knowledge of the Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(o) The Company and each of its subsidiaries has taken reasonable steps to
protect the Company's and its subsidiaries' rights in the Company's confidential
information and trade secrets that it wishes to protect or any trade secrets or
confidential information of third parties provided to the Company or any of its
subsidiaries, and, without limiting the foregoing, each of the Company and its
subsidiaries has and uses commercially reasonable efforts to enforce a policy
requiring each employee and contractor to execute a proprietary
information/confidentiality agreement substantially in the form provided to
Parent and all current and former employees and contractors of the Company and
any of its subsidiaries have executed such an agreement, except where the
failure to do so is not reasonably expected to be material to the Company.
(p) All of the Company Products (i) will record, store, process, calculate
and present calendar dates falling on and after (and if applicable, spans of
time including) January 1, 2000, and will calculate any information dependent on
or relating to such dates in the same manner, and with the same functionality,
data integrity and performance, as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"Year 2000 Compliant"), (ii) will lose no functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000,
and (iii) will, to the knowledge of the Company, be interoperable with other
products used and distributed by Parent that may reasonably deliver records to
the Company's or any of its subsidiaries' products or receive records from the
Company's or any of its subsidiaries' products, or interact with the Company's
or any of its subsidiaries' products. All of the Company's or its subsidiaries'
Information Technology (as defined below) is Year 2000 Compliant, and will not
cause an interruption in the ongoing operations of the Company's or any of its
subsidiaries' business on or after January 1, 2000. For purposes of the
foregoing, the term "Information Technology" shall mean and include all
software, hardware, firmware, telecommunications systems, network systems,
embedded systems and other systems, components and/or services (other than
general utility services including gas, electric, telephone and postal) that are
owned or used by the Company or any of its
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subsidiaries in the conduct of their business, or purchased by the Company or
any of its subsidiaries from third-party suppliers.
2.20 Agreements, Contracts and Commitments.
(a) Except as set forth in Section 2.20(a) of the Company Schedule, neither
the Company nor any of its subsidiaries is a party to or is bound by:
(i) any employment or consulting agreement, contract or commitment
with any officer, director, the Company employee currently earning an
annual salary in excess of $100,000 or member of the Company's Board of
Directors, other than those that are terminable by the Company or any of
its subsidiaries on no more than thirty (30) calendar days' notice without
liability or financial obligation to the Company;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(iii) any material agreement of indemnification or any guaranty other
than any agreement of indemnification entered into in connection with the
sale or license of software products in the ordinary course of business;
(iv) any material agreement, contract or commitment containing any
covenant limiting in any respect the right of the Company or any of its
subsidiaries to engage in any line of business or to compete with any
person or granting any exclusive distribution rights;
(v) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by the Company or any of its subsidiaries
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which the Company or any of its
subsidiaries has any material ownership interest in any corporation,
partnership, joint venture or other business enterprise other than the
Company's subsidiaries;
(vi) any dealer, distributor, joint marketing or development agreement
currently in force under which the Company or any of its subsidiaries have
continuing material obligations to jointly market any product, technology
or service and which may not be canceled without penalty upon notice of
ninety (90) calendar days or less, or any material agreement pursuant to
which the Company or any of its subsidiaries have continuing material
obligations to jointly develop any intellectual property that will not be
owned, in whole or in part, by the Company or any of its subsidiaries and
which may not be canceled without penalty upon notice of ninety (90)
calendar days or less;
(vii) any agreement, contract or commitment currently in force to
provide source code to any third party for any product or technology that
is material to the Company and its subsidiaries taken as a whole;
(viii) any agreement, contract or commitment currently in force to
license any third party to manufacture or reproduce any Company product,
service or technology or any agreement, contract or commitment currently in
force to sell or distribute any Company products, service or technology
except agreements with distributors or sales representative in the normal
course of business cancelable without penalty upon notice of ninety (90)
calendar days or less and substantially in the form previously provided to
Parent;
(ix) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating
to the borrowing of money or extension of credit;
(x) to the knowledge of the Company, any material settlement agreement
entered into within five (5) years prior to the date of this Agreement
which has not yet been fully performed or which
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contains provisions that restrict or otherwise govern the conduct of
business by the Company or any of its subsidiaries; or
(xi) any other agreement, contract or commitment that has a value of
$100,000 or more individually or annually.
(b) Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), is in
breach, violation or default under, and neither the Company nor any of its
subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which the Company or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the Company Schedule (any such agreement, contract or commitment, a
"Company Contract") in such a manner as would permit any other party to cancel
or terminate any such Company Contract, or would permit any other party to seek
material damages or other remedies (for any or all of such breaches, violations
or defaults, in the aggregate). The Company has made available to Parent true
and correct copies of any contracts the Company may have with its top ten
customers.
2.21 Insurance. The Company maintains insurance policies and/or fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its subsidiaries
(collectively, the "Insurance Policies") which are of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Company and its subsidiaries. There is no material claim by the Company or any
of its subsidiaries pending under any of the material Insurance Policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds.
2.22 Opinion of Financial Advisor. The Company has been advised in writing
by its financial advisor, H.C. Wainwright & Co., that in its opinion, as of the
date of this Agreement, the Exchange Ratio is fair to the stockholders of the
Company from a financial point of view.
2.23 Board Approval. The Board of Directors of the Company has, as of the
date of this Agreement unanimously (i) approved, subject to stockholder
approval, this Agreement and the transactions contemplated hereby and thereby,
(ii) determined that the Merger is advisable, in the best interests of the
stockholders of the Company and on terms that are fair to such stockholders and
(iii) recommended that the stockholders of the Company adopt and approve this
Agreement and the Merger.
2.24 Vote Required. The affirmative vote of a majority of the votes that
holders of the outstanding shares of Company Common Stock and the holders of the
Series B Preferred Stock, voting together as a single class, are entitled to
vote with respect to the Merger is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
2.25 Prior Pooling Transactions; Reorganization. To its knowledge, based
on consultation with its independent accountants, neither the Company nor any of
its directors, officers or affiliates has taken any action which would interfere
with (i) the ability of Parent, the Surviving Corporation or the Company to
continue to account for as a "pooling of interests" any past acquisition by the
Company currently accounted for by the Company as a "pooling of interests," or
(ii) the ability of the Company, Parent and the stockholders of the Company to
treat the Merger as a "reorganization" within the meaning of Section 368(a) of
the Code for federal income tax purposes.
2.26 Company Rights Agreement. The Company has delivered to Parent a true
and complete copy of the Rights Agreement, dated as of March 16, 1999, by and
between Company and American Securities Transfer & Trust, Inc. (the "Company
Rights Plan"). The Company has taken all action necessary or appropriate so that
the execution and delivery of this Agreement by the Company, the Merger and the
other transactions contemplated hereby will not result in a grant of any rights
to any person under the Company Rights Plan.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub hereby jointly and severally represent and warrant to
the Company, subject to such exceptions as are specifically disclosed in writing
in the disclosure letter and referencing a specific representation supplied by
Parent to Company dated as of the date hereof and certified by a duly authorized
officer of Parent (the "Parent Schedule"), which disclosure shall provide an
exception to or otherwise qualify the representations or warranties of the
Company specifically referred to in the Parent Schedule and such other
representations and warranties to the extent such disclosure shall reasonably
appear to be applicable to such other representations or warranties, as follows:
3.1 Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.
3.2 Certificate of Incorporation and Bylaws. Parent has previously
furnished to the Company complete and correct copies of its Certificate of
Incorporation and Bylaws as amended to date (together the "Parent Charter
Documents"). Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.
3.3 Capitalization. As of January 10, 2001, the authorized capital stock
of Parent consists of (i) 800,000,000 shares of Parent Common Stock, par value
$0.001 per share, and (ii) 1,200,000 shares of Preferred Stock, par value $0.001
per share ("Parent Preferred Stock"). At the close of business on January 10,
2001, (i) 646,110,493 shares of Parent Common Stock were issued and outstanding,
(ii) no shares of Parent Common Stock were held in treasury by Parent or by
subsidiaries of Parent, (iii) 6,486,824 shares of Parent Common Stock were
reserved for future issuance pursuant to Parent's employee stock purchase plan,
(iv) 44,831,803 shares of Parent Common Stock were reserved for issuance upon
the exercise of outstanding options ("Parent Options") to purchase Parent Common
Stock. As of the date hereof, no shares of Parent Preferred Stock were issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.001 per share, all of which, as of the date
hereof, are issued and outstanding. All of the outstanding shares of Parent's
and Merger Sub's respective capital stock have been duly authorized and validly
issued and are fully paid and nonassessable. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall, and the
shares of Parent Common Stock to be issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock (other than directors' qualifying shares) of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
owned by Parent or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Parent's voting rights,
charges or other encumbrances of any nature whatsoever.
3.4 Authority Relative to this Agreement. Each of Parent and Merger Sub
has all necessary corporate power and authority to execute and deliver this
Agreement, and to perform its obligations
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hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Parent and
Merger Sub, and no other corporate proceedings on the part of Parent or Merger
Sub are necessary to authorize this Agreement, or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal and binding
obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
(i) conflict with or violate the Parent Charter Documents or equivalent
organizational documents of Parent or any of Parent's subsidiaries, (ii) subject
to compliance with the requirements set forth in Section 3.5(b) hereof, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Parent or any of its subsidiaries or by which it or their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair Parent's or any such subsidiary's rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Parent
or any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
properties are bound or affected, except to the extent such conflict, violation,
breach, default, impairment or other effect could not in the case of clauses
(ii) or (iii) individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Parent.
(b) The execution and delivery of this Agreement by Parent and Merger Sub
do not, and the performance of this Agreement by Parent and Merger Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity except (i) for applicable requirements,
if any, of the Securities Act, the Exchange Act, Blue Sky Laws, the pre-merger
notification requirements of the HSR Act and of foreign governmental entities
and the rules and regulations thereunder, the rules and regulations of Nasdaq,
and the filing and recordation of the Certificate of Merger as required by
Delaware Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, (x) would
not prevent consummation of the Merger or otherwise prevent Parent or Merger Sub
from performing their respective obligations under this Agreement or (y) could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent.
3.6 SEC Filings; Financial Statements.
(a) Parent has made available to the Company a correct and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by Parent with the SEC on or after August 25, 2000 (the "Parent SEC
Reports"), which are all the forms, reports and documents required to be filed
by Parent with the SEC since August 25, 2000. The Parent SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) 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 therein, in light of the circumstances under which
they were made, not misleading. None of Parent's subsidiaries is required to
file any reports or other documents with the SEC.
(b) Each set of consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports was prepared in
accordance with GAAP applied on a consistent
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basis throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited statements, do not contain footnotes as
permitted by Form 10-Q of the Exchange Act) and each fairly presents in all
material respects the consolidated financial position of Parent and its
subsidiaries at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal adjustments which
were not or are not expected to be material in amount.
3.7 No Material Adverse Effect. Since the date of the balance sheet
included in Parent's Annual Report on Form 10-K filed on November 13, 2000, and
until the date hereof, there has not occurred any Material Adverse Effect on
Parent.
3.8 Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 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 in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading; and (ii) the Proxy Statement/Prospectus will, at the dates mailed to
the stockholders of the Company, at the time of the Company Stockholders'
Meeting and as of the Effective Time, 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 S-4 will comply as to form in all
material respects with the provisions of the Securities Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
Parent makes no representation or warranty with respect to any information
supplied by the Company which is contained in any of the foregoing documents.
3.9 Absence of Litigation. There are no claims, suits, actions or
proceedings that have a reasonable likelihood of success on the merits pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, of any arbitrator that seek to
restrain or enjoin the consummation of the transactions contemplated by this
Agreement.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, the Company and each of
its subsidiaries shall, (i) except to the extent that Parent shall otherwise
consent in writing, carry on its business, in the usual, regular and ordinary
course, in substantially the same manner as heretofore conducted and in
compliance with all applicable laws and regulations, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
other material obligations when due, and use its commercially reasonable efforts
consistent with past practices and policies to (A) preserve intact its present
business organization, (B) keep available the services of its present officers
and employees and (C) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has significant
business dealings, and (ii) notify Parent in writing (or by electronic mail) in
the event that any employee of the Company or any of its subsidiaries is
terminated or resigns from the Company or such subsidiary. In addition, except
as permitted by the terms of this Agreement, and except as provided in Section
4.1 of the Company Schedule, without the prior written consent of Parent, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement pursuant to its terms or the Effective Time,
the Company shall not do any of the following and shall not permit its
subsidiaries to do any of the following:
(a) waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or
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other stock plans or authorize cash payments in exchange for any options
granted under any of such plans;
(b) grant (whether cash or otherwise) any severance or termination pay
to any officer or employee except pursuant to written agreements
outstanding, or policies existing, on the date hereof and as previously
disclosed in writing or made available to Parent, or adopt any new
severance plan, or amend or modify or alter in any manner any severance
plan, agreement or arrangement existing on the date hereof;
(c) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Company Intellectual Property, or enter
into grants to transfer or license to any person future patent rights,
other than in the ordinary course of business consistent with past
practices, provided that in no event shall the Company license on an
exclusive basis or sell any Company Intellectual Property;
(d) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock or split, combine or reclassify any capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any capital stock;
(e) purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of the Company or its subsidiaries, except
repurchases of unvested shares at cost in connection with the termination
of the employment relationship with any employee pursuant to stock option
or purchase agreements in effect on the date hereof;
(f) issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to, any shares of capital stock
or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter
into other agreements or commitments of any character obligating it to
issue any such shares or convertible securities, other than (x) the
issuance delivery and/or sale of (i) shares of Company Common Stock
pursuant to the exercise of stock options outstanding as of the date of
this Agreement, and (ii) shares of Company Common Stock issuable to
participants in the ESPP consistent with the terms thereof and (iii) shares
of Company Common Stock issuable upon conversion of the Series B Preferred
Stock and (y) the granting of stock options (and the issuance of Common
Stock upon exercise thereof), in the ordinary course of business and
consistent with past practices, in an amount not to exceed options to
purchase (and the issuance of Company Common Stock upon exercise thereof)
10,000 shares in the aggregate;
(g) cause, permit or propose any amendments to the Company Charter
Documents (or similar governing instruments of any of its subsidiaries);
(h) acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to enter into any joint ventures, strategic partnerships or
alliances;
(i) sell, lease, license, encumber or otherwise dispose of any
properties or assets except sales of inventory in the ordinary course of
business consistent with past practice, except for the sale, lease or
disposition (other than through licensing) of property or assets which are
not material, individually or in the aggregate, to the business of the
Company and its subsidiaries and except for those assets set forth in
Section 4.1(i) of the Company Schedule;
(j) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
the Company, enter into any "keep well" or other agreement to maintain any
financial statement condition or enter into any arrangement having the
economic effect of any of the foregoing
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other than in connection with the financing of ordinary course trade
payables consistent with past practice;
(k) adopt or amend any employee benefit plan, policy or arrangement,
any employee stock purchase or employee stock option plan, or enter into
any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable
"at will"), pay (whether cash or otherwise) any bonus or remuneration to
any director or employee (other than any bonus or continuing salary
payments which such directors and employees are entitled to receive as of
the date hereof), or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors,
officers, employees or consultants;
(l) (i) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or litigation (whether or not commenced prior to the date of
this Agreement) other than the payment, discharge, settlement or
satisfaction, in the ordinary course of business consistent with past
practice or in accordance with their terms, or liabilities recognized or
disclosed in the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Company SEC Reports or
incurred since the date of such financial statements, or (ii) waive the
benefits of, agree to modify in any manner, terminate, release any person
from or knowingly fail to enforce any confidentiality or similar agreement
to which the Company or any of its subsidiaries is a party or of which the
Company or any of its subsidiaries is a beneficiary; provided, however,
that Parent's consent to take any such action shall not be unreasonably
withheld;
(m) make any individual or series of related payments (other than
payments of the type described in (a) through (l) above and not prohibited
by (a) through (l)) outside of the ordinary course of business in excess of
$25,000; provided, however, that Parent's consent to take any such action
shall not be unreasonably withheld;
(n) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which the Company or any subsidiary thereof is a party or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
provided, however, that Parent's consent to take any such action shall not
be unreasonably withheld;
(o) enter into, renew or materially modify any contracts, agreements,
or obligations relating to the distribution, sale, license or marketing by
third parties of the Company's products or products licensed by the Company
other than renewals of existing nonexclusive contracts, agreements or
obligations; provided, however, that Parent's consent to take any such
action shall not be unreasonably withheld;
(p) except as required by GAAP, revalue any of its assets or make any
change in accounting methods, principles or practices;
(q) incur or enter into any (i) purchase or sales order, agreement,
contract or commitment involving payments in the case of any single order,
agreement, contract or commitment in excess of $250,000 in the aggregate,
or (ii) agreement, contract or commitment (other than a purchase or sales
order, agreement, contract or commitment) involving payments in the case of
any single agreement, contract or commitment in excess of $100,000 in the
aggregate; provided, however, that Parent's consent to take any such action
shall not be unreasonably withheld;
(r) engage in any action that could reasonably be expected to cause
the Merger to fail to qualify as a "reorganization" under Section 368(a) of
the Code, whether or not otherwise permitted by the provisions of this
Article IV;
(s) settle any litigation; provided, however, that Parent's consent to
take any such action shall not be unreasonably withheld;
(t) make any tax election that, individually or in the aggregate, is
reasonably likely to adversely affect in any material respect the Tax
liability or Tax attributes of the Company or any of its
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subsidiaries or settle or compromise any material Tax liability, or consent
to any extension or waiver of any limitation period with respect to Taxes;
or
(u) agree in writing or otherwise to take any of the actions described
in Section 4.1(a) through Section 4.1(t) hereof, inclusive;
provided, however, that notwithstanding the foregoing, Parent shall be deemed to
have consented to a request to take any action set forth in Section 4.1(a)
through Section 4.1(u) hereof, inclusive, if (A) the Company shall have
delivered a written request to take such action to at least one (1) of the
persons set forth in Section 4.1 of the Parent Schedule (at the facsimile
numbers set forth thereon or the e-mail addresses set forth thereon), (B) a
representative of the Company shall have made a verbal request to take such
action by contacting (including by recorded voice message) each of the persons
set forth in Section 4.1 of the Parent Schedule (at the telephone numbers set
forth therein), and (C) Parent shall not have responded to the Company's request
within seventy-two (72) hours of the initial written and telephonic request to
take such action (or forty-eight (48) hours with respect to any request to take
any action set forth in Section 4.1(q) hereof).
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, except as permitted by the terms of
this Agreement, without the prior written consent of the Company, Parent shall
not engage in any action that could reasonably be expected to cause the Merger
to fail to qualify as a "reorganization" under Section 368(a) of the Code.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
Board Recommendations.
(a) As promptly as practicable after the execution of this Agreement, the
Company and Parent shall prepare, and file with the SEC, the Proxy
Statement/Prospectus, and Parent shall prepare and file with the SEC the S-4 in
which the Proxy Statement/Prospectus shall be included as a prospectus. Each of
Parent and the Company shall provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Proxy Statement/Prospectus and the S-4, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the Proxy
Statement/Prospectus and the S-4. Each of the Company and Parent shall respond
to any comments of the SEC, and shall use its respective commercially reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and the Company shall cause the Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest
practicable time after the S-4 is declared effective by the SEC. As promptly as
practicable after the date of this Agreement, each of the Company and Parent
shall prepare and file any other filings required to be filed by it under the
Exchange Act, the Securities Act or any other Federal, foreign or Blue Sky or
related laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). Each of the Company and Parent shall notify the
other promptly upon the receipt of any comments from the SEC or its staff or any
other government officials and of any request by the SEC or its staff or any
other government officials for amendments or supplements to the S-4, the Proxy
Statement/Prospectus or any Other Filing or for additional information and shall
supply the other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or its staff or any other
government officials, on the other hand, with respect to the S-4, the Proxy
Statement/Prospectus, the Merger or any Other Filing. Each of the Company and
Parent shall cause all documents that it is responsible for filing with the SEC
or other regulatory authorities under this Section 5.1(a) to comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement/Prospectus,
the S-4 or any Other Filing, the Company
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or Parent, as the case may be, shall promptly inform the other of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of the Company, such
amendment or supplement.
(b) The Proxy Statement/Prospectus shall include the recommendation of the
Board of Directors of the Company in favor of adoption and approval of this
Agreement and approval of the Merger (subject to the terms of Section 5.2
hereof).
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, the Company shall take all action
necessary in accordance with Delaware Law and the Company Charter Documents to
convene the Company Stockholders' Meeting to be held as promptly as practicable,
for the purpose of voting upon this Agreement and the Merger. Subject to the
terms of Section 5.2(c) hereof, the Company shall use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the approval of the Merger and shall
take all other action necessary or advisable to secure the vote or consent of
its stockholders required by the rules of Nasdaq or Delaware Law to obtain such
approvals. Notwithstanding anything to the contrary contained in this Agreement,
the Company may adjourn or postpone the Company Stockholders' Meeting to the
extent necessary to ensure that any necessary supplement or amendment to the
Prospectus/Proxy Statement is provided to the Company's stockholders in advance
of a vote on the Merger and this Agreement or, if as of the time for which the
Company Stockholders' Meeting is originally scheduled (as set forth in the
Prospectus/Proxy Statement) there are insufficient shares of Company Common
Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Company Stockholders' Meeting. The
Company shall ensure that the Company Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by the Company in
connection with the Company Stockholders' Meeting are solicited, in compliance
with Delaware Law, the Company Charter Documents, the rules of Nasdaq and all
other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in accordance with
this Section 5.2(a) shall not be limited to or otherwise affected by the
commencement, disclosure, announcement or submission to the Company of any
Acquisition Proposal.
(b) Subject to the terms of Section 5.2(c) hereof: (i) the Board of
Directors of the Company shall unanimously recommend that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting; (ii) the Prospectus/Proxy Statement
shall include a statement to the effect that the Board of Directors of the
Company has unanimously recommended that the Company's stockholders vote in
favor of and adopt and approve this Agreement and the Merger at the Company
Stockholders' Meeting; and (iii) neither the Board of Directors of the Company
nor any committee thereof shall withdraw, amend or modify, or propose or resolve
to withdraw, amend or modify in a manner adverse to Parent, the unanimous
recommendation of the Board of Directors of the Company that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.
(c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer (as defined in
Section 5.4 hereof) is made to the Company and is not withdrawn, (ii) neither
the Company nor any of its representatives shall have violated any of the
restrictions set forth in Section 5.4 hereof, and (iii) the Board of Directors
of the Company concludes in good faith, after consultation with its outside
counsel, that, in light of such Superior Offer, the withholding, withdrawal,
amendment or modification of such recommendation is required in order for the
Board of Directors of the Company to comply with its fiduciary duties to the
Company's stockholders under applicable law; provided, however, that prior to
any commencement thereof the Company shall have given Parent at least seventy
two (72) hours notice thereof and the opportunity to meet with the Company and
its counsel.
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Nothing contained in this Section 5.2 shall limit the Company's obligation to
hold and convene the Company Stockholders' Meeting (regardless of whether the
unanimous recommendation of the Board of Directors of the Company shall have
been withdrawn, amended or modified).
5.3 Confidentiality; Access to Information.
(a) The parties acknowledge that Parent and H.C. Wainwright & Co., as the
representative and agent of the Company, have previously executed a Mutual
Confidentiality Agreement, dated as of September 22, 2000 (the "Confidentiality
Agreement"), which Confidentiality Agreement will continue in full force and
effect in accordance with its terms.
(b) Access to Information. The Company shall afford Parent and its
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of the Company during the period prior to the Effective Time to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of the
Company, as Parent may reasonably request. No information or knowledge obtained
by Parent in any investigation pursuant to this Section 5.3 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.4 No Solicitation.
(a) From and after the date of this Agreement until the Effective Time or
termination of this Agreement pursuant to Article VII hereof, the Company and
its subsidiaries shall not, nor will they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Acquisition Proposal (as defined in Section
5.4(c) hereof), (ii) participate in any discussions or negotiations regarding,
or furnish to any person any non-public information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any Acquisition
Proposal, (iv) subject to the terms of Section 5.2(c) hereof, approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction (as defined in Section 5.4(c)
hereof); provided, however, that the terms of this Section 5.4 shall not
prohibit the Company from furnishing nonpublic information regarding the Company
and its subsidiaries to, entering into a confidentiality agreement with or
entering into discussions with, any person or group in response to a Superior
Offer submitted by such person or group (and not withdrawn) if (1) neither the
Company nor any representative of the Company and its subsidiaries shall have
violated any of the restrictions set forth in this Section 5.4, (2) the Board of
Directors of the Company concludes in good faith, after consultation with its
outside legal counsel, that such action is required in order for the Board of
Directors of the Company to comply with its fiduciary duties to the Company's
stockholders under applicable law, (3)(x) at least three (3) business days prior
to furnishing any such nonpublic information to, or entering into discussions or
negotiations with, such person or group, the Company gives Parent written notice
of the identity of such person or group and of the Company's intention to
furnish nonpublic information to, or enter into discussions or negotiations
with, such person or group and (y) the Company receives from such person or
group an executed confidentiality agreement containing customary limitations on
the use and disclosure of all nonpublic written and oral information furnished
to such person or group by or on behalf of the Company, and (4)
contemporaneously with furnishing any such nonpublic information to such person
or group, the Company furnishes such nonpublic information to Parent (to the
extent such nonpublic information has not been previously furnished by the
Company to Parent); and provided further, however, that the terms of this
Section 5.4 shall not prohibit the Company from taking any action necessary in
order to comply with Rule 14d-9 or Rule 14e-2 promulgated under the Exchange
Act. The Company and its subsidiaries shall immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. Without
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limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding two sentences by any officer or director of the
Company or any of its subsidiaries or any investment banker, attorney or other
advisor or representative of the Company or any of its subsidiaries shall be
deemed to be a breach of this Section 5.4 by the Company. In addition to the
foregoing, the Company shall (i) provide Parent with at least forty-eight (48)
hours prior notice (or such lesser prior notice as provided to the members of
the Company's Board of Directors but in no event less than eight hours) of any
meeting of the Company's Board of Directors at which the Company's Board of
Directors is reasonably expected to consider a Superior Offer and (ii) provide
Parent with at least three (3) business days prior written notice of a meeting
of the Company's Board of Directors at which the Company's Board of Directors is
reasonably expected to recommend a Superior Offer to its stockholders and
together with such notice a copy of the definitive documentation relating to
such Superior Offer.
(b) In addition to the obligations of the Company set forth in Section
5.4(a) hereof, the Company as promptly as practicable shall advise Parent orally
and in writing of any request received by the Company for non-public information
which the Company reasonably believes would lead to an Acquisition Proposal or
of any Acquisition Proposal, or any inquiry received by the Company with respect
to or which the Company reasonably should believe would lead to any Acquisition
Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the person or group making any such
request, Acquisition Proposal or inquiry. The Company shall use reasonable
efforts to keep Parent informed in all material respects of the status and
details (including material amendments or proposed amendments) of any such
request, Acquisition Proposal or inquiry.
(c) For purposes of this Agreement, (i) "Acquisition Proposal" shall mean
any offer or proposal (other than an offer or proposal by Parent) relating to
any Acquisition Transaction. For the purposes of this Agreement,
(ii)"Acquisition Transaction" shall mean any transaction or series of related
transactions other than the transactions contemplated by this Agreement
involving: (A) any acquisition or purchase from the Company by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a fifteen percent (15%) interest in the
total outstanding voting securities of the Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or "group" (as defined under Section 13(d) of the Exchange Act and the
rules and regulations thereunder) beneficially owning fifteen percent (15%) or
more of the total outstanding voting securities of the Company or any of its
subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than eighty-five
percent (85%) of the equity interests in the surviving or resulting entity of
such transaction; (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than fifteen percent (15%) of the
assets of the Company; or (C) any liquidation or dissolution of the Company, and
(iii) "Superior Offer" shall mean an unsolicited, bona fide written offer made
by a third party to consummate any of the following transactions: (A) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Company pursuant to which the stockholders
of the Company immediately preceding such transaction hold less than a majority
of the equity interests in the surviving or resulting entity of such
transaction; (B) the acquisition by any person or group (including by way of a
tender or exchange offer or issuance by the Company), directly or indirectly, of
beneficial ownership or a right to acquire beneficial ownership of shares
representing a majority of the voting power of the outstanding shares of the
Company's capital stock; or (C) a sale or other disposition by the Company of
substantially all of its assets, in the case of each of clauses (A), (B) and (C)
on terms that the Board of Directors of the Company determines, in its
reasonable judgment (based on advice of a financial advisor of nationally
recognized reputation) to be more favorable to the Company stockholders from a
financial point of view than the terms of the Merger.
5.5 Public Disclosure. Parent and the Company shall consult with each
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and shall not issue any such press release or
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make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange.
The parties have agreed to the text of the joint press release announcing the
signing of this Agreement.
5.6 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all consents, approvals or waivers
from third parties required as a result of the transactions contemplated in this
Agreement, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed and (v) the execution or delivery of any
additional instruments reasonably necessary to consummate the transactions
contemplated by, and to fully carry out the purposes of, this Agreement. In
connection with and without limiting the foregoing, the Company and its Board of
Directors shall, if any state takeover statute or similar statute or regulation
is or becomes applicable to the Merger, this Agreement or any of the
transactions contemplated by this Agreement, use all commercially reasonable
efforts to ensure that the Merger and the other transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, this Agreement and the transactions
contemplated hereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require Parent or the Company or any
subsidiary or affiliate thereof to agree to any divestiture by itself or any of
its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their business or to own or exercise control of such assets,
properties and stock.
(b) The Company shall give prompt notice to Parent upon becoming aware that
any representation or warranty made by it contained in this Agreement has become
untrue or inaccurate in any material respect, or of any failure of the Company
to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
hereof would not be satisfied; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
(c) Parent shall give prompt notice to the Company upon becoming aware that
any representation or warranty made by it or Merger Sub contained in this
Agreement has become untrue or inaccurate, or of any failure of Parent or Merger
Sub to comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
hereof would not be satisfied; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
5.7 Third Party Consents. As soon as practicable following the date
hereof, Parent and the Company shall each use its commercially reasonable
efforts to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
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5.8 Stock Options, Warrants and Employee Benefits.
(a) Stock Options. At the Effective Time, each Company Stock Option,
whether or not vested, shall by virtue of the Merger be assumed by Parent. Each
Company Stock Option so assumed by Parent under this Agreement will continue to
have, and be subject to, the same terms and conditions of such options
immediately prior to the Effective Time (including, without limitation, any
repurchase rights or vesting provisions and provisions regarding the
acceleration of vesting on certain transactions), except that (i) each Company
Stock Option will be exercisable (or will become exercisable in accordance with
its terms) for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Stock Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, rounded down to the nearest whole number of
shares of Parent Common Stock and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Stock Option will be equal to the quotient determined by dividing the exercise
price per share of Company Common Stock at which such Company Stock Option was
exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole cent.
(b) ESPP. Outstanding rights to purchase shares of Company Common Stock
shall be exercised in accordance with Section 13(b) of the ESPP, and each share
of Company Common Stock purchased pursuant to such exercise shall by virtue of
the Merger, and without any action on the part of the holder thereof, be
converted into the right to receive a number of shares of Parent Common Stock
equal to the Exchange Ratio, without issuance of certificates representing
issued and outstanding shares of Company Common Stock to participants under the
ESPP. The rights of participants in the ESPP with respect to any offering then
underway under the ESPP shall be determined by treating the last business day
prior to the Effective Time as the last day of such offering and by making such
other pro rata adjustments as may be necessary to reflect the shortened offering
but otherwise treating such shortened offering as a fully effective and
completed offering for all purposes under the ESPP. As of the Effective Time,
the ESPP shall be terminated. Prior to the Effective Time, the Company shall (i)
provide Parent with evidence that the ESPP has been terminated pursuant to
resolutions of the Board of Directors of the Company (the form and substance of
which shall be subject to prior review and approval of Parent), and (ii) take
such other actions (including, without limitation, if appropriate, amending the
ESPP) that are necessary to give effect to the transaction contemplated by this
Section 5.8(b). Employees of the Company who become employees of Parent shall be
eligible to participate in the employee stock purchase plan of Parent (the
"Parent ESPP") (subject to such plan's terms and conditions) at the next
regularly scheduled offering period under the Parent ESPP.
(c) Employee Benefits. As soon as practicable after the Effective Time,
Parent shall provide the employees of the Company and its subsidiaries who
remain employed after the Effective Time (each, a "Transferred Company Employee"
and collectively, the "Transferred Company Employees") with the types and levels
of employee benefits maintained by Parent for similarly situated employees of
Parent. Parent shall treat and cause its applicable benefit plans (including
vacation policies) to treat the service of Transferred Company Employees with
the Company or any subsidiary of the Company prior to the Effective Time as
service rendered to Parent or any affiliate of Parent for purposes of
eligibility to participate, vesting and for other appropriate benefits
(including, without limitation, applicability of minimum waiting periods for
participation (but not for benefit accrual)), provided that such service credit
will not result in the duplication of benefits. Transferred Company Employees
shall also be given credit for any deductible or co-payment amounts paid in
respect of the plan year in which the Closing Date occurs to the extent that,
following the Closing Date, they participate in any plan of Parent or
subsidiaries of Parent for which deductibles and co-payments are requested
(subject to the terms and conditions of such plans and the cooperation of
Parent's insurance carriers).
(d) Employment Agreements. Following the Effective Time, Parent shall honor
and shall cause its subsidiaries to honor in accordance with their terms all
individual employment, retention, termination, severance, change in control,
post-employment and other compensation agreements, arrangements and plans set
forth in Section 5.8(d) of the Company Schedule.
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(e) Employee Termination. Parent shall not terminate the employment of any
employees of the Company or any of its subsidiaries who are employed by the
Company or any of its subsidiaries immediately prior to the Effective Time and
who accept employment with Parent or any of its subsidiaries, effective as of
the Effective Time, for a period of sixty (60) calendar days immediately
following the Closing Date; provided, however, that notwithstanding the
foregoing, Parent may terminate the employment of any of such employee on the
basis of "cause" without limitation (including within such sixty (60) calendar
day period).
5.9 Form S-8. Parent agrees to file, within fifteen (15) business days of
the Effective Time, a registration statement on Form S-8 for the shares of
Parent Common Stock issuable with respect to assumed Company Stock Options.
5.10 Indemnification.
(a) From and after the Effective Time, Parent shall cause the Surviving
Corporation to fulfill and honor in all respects the obligations of the Company
pursuant to any indemnification agreements between the Company and its directors
and officers in effect immediately prior to the Effective Time (the "Indemnified
Parties") and any indemnification provisions under the Company Charter Documents
as in effect on the date hereof. The Certificate of Incorporation and Bylaws of
the Surviving Corporation will contain provisions with respect to exculpation
and indemnification that are at least as favorable to the Indemnified Parties as
those contained in the Company Charter Documents as in effect on the date
hereof, which provisions will not be amended, repealed or otherwise modified for
a period of six (6) years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of the
Company, unless such modification is required by applicable law.
(b) At or prior to the Effective Time, the Company may purchase a policy of
directors' and officers' insurance approved in advance by Parent, or a "tail"
policy under the Company's existing directors' and officers' insurance policy,
in either case which (i) has an effective term of six (6) years from the
Effective Time, (ii) covers only those persons who are currently covered by the
Company's directors' and officers' insurance policy in effect as of the date
hereof and only for actions and omissions occurring on or prior to the Effective
Time, (iii) contains terms and conditions (including, without limitation,
coverage amounts) that are no more favorable in the aggregate than the terms and
conditions of the Company's existing directors' and officers' insurance policy
in effect as of the date hereof, and (iv) has an aggregate cost of approximately
$335,000.
(c) This Section 5.10 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of Parent, the Company and the Surviving Corporation.
Each of the Indemnified Parties shall be entitled to enforce the covenants
contained in this Section 5.10.
(d) In the event that Parent or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be 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 or entity, then, and in each such
case, proper provision shall be made so that the successors and assigns of
Parent and the Surviving Corporation, as the case may be, assume the obligations
set forth in this Section 5.10.
5.11 NYSE Listing. Parent agrees to cause the listing on the NYSE of the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, subject to official notice of issuance.
5.12 Affiliate Agreement. Section 5.12 of the Company Schedule contains a
complete and accurate list of those persons who may be deemed to be, in the
Company's reasonable judgment, "affiliates" of the Company within the meaning of
Rule 145 promulgated under the Securities Act (each, a "Company Affiliate" and
collectively, the "Company Affiliates"). The Company shall provide Parent with
such information and documents as Parent reasonably requests for purposes of
reviewing such list. Parent shall
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be entitled to place appropriate legends on the certificates evidencing any
Parent Common Stock to be received by a Company Affiliate pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of the
Affiliate Agreements.
5.13 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, the Company and Parent each shall file with the United States
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Department of Justice (the "DOJ") Notification and Report Forms relating
to the transactions contemplated herein as required by the HSR Act, as well as
comparable pre-merger notification forms required by the merger notification or
control laws and regulations of any applicable jurisdiction, as agreed to by the
parties. The Company and Parent each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate; provided,
however, that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.14 401(k) Plan. Effective as of the day immediately preceding the
Closing Date, the Company and its Affiliates, as applicable, shall each
terminate any and all plans intended to include a Code Section 401(k)
arrangement (unless Parent provides written notice to the Company that such
401(k) plan(s) shall not be terminated). Unless Parent provides such written
notice to the Company, no later than five (5) business days prior to the Closing
Date, the Company shall provide Parent with evidence that such 401(k) plan(s)
have been terminated (effective as of the day immediately preceding the Closing
Date) pursuant to resolutions of the Board of Directors of the Company. The form
and substance of such resolutions shall be subject to review and approval of
Parent. The Company also shall take such other actions in furtherance of
terminating such 401(k) plan(s) as Parent may reasonably request. In the event
that such 401(k) plan(s) is/are not merged with and into the Parent 401(k) Plan,
Transferred Company Employees who have outstanding loans from such 401(k)
plan(s) shall be permitted to make a direct rollover of their loan balances to
the Parent 401(k) Plan, provided that (i) such rollovers are permitted by the
administrator of the Parent 401(k) Plan and (ii) such rollover includes any such
Transferred Company Employee's entire distribution amount that is an eligible
rollover distribution pursuant to the Parent 401(k) Plan.
5.15 Inventory Matters. At least one (1) week prior to the Effective Time,
the Company shall either (i) have returned all of the inventory previously
received from Hitachi and collected a cash refund in respect of the full value
of such inventory, or (ii) (a) written off in accordance with GAAP on its
financial statements, books and records the full value of any Hitachi
controllers previously received from Hitachi, and (b) written down in accordance
with GAAP on its financial statements, books and records the value of any
Hitachi flash memory components previously received from Hitachi to the then
fair market value of such inventory as of the time of such write down.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been
approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the stockholders of the Company.
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(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the S-4 effective. No stop order suspending the effectiveness
of the S-4 or any part thereof shall have been issued and no proceeding for
that purpose, and no similar proceeding in respect of the Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by
the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All waiting periods, if any, under the HSR Act relating to the
transactions contemplated hereby will have expired or terminated early and
all material foreign antitrust approvals required to be obtained prior to
the Merger in connection with the transactions contemplated hereby shall
have been obtained.
(d) Tax Opinions. Parent and the Company shall each have received
written opinions from their respective tax counsel (Wilson Sonsini Goodrich
& Rosati, Professional Corporation, and Goodwin, Procter & Hoar LLP,
respectively), in form and substance reasonably satisfactory to them, to
the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and such opinions shall not have been
withdrawn; provided, however, that if the counsel to either Parent or the
Company does not render such opinion, this condition shall nonetheless be
deemed to be satisfied with respect to such party if counsel to the other
party renders such opinion to such party. The parties to this Agreement
agree to make such customary representations as requested by such counsel
for the purpose of rendering such opinions.
(e) NYSE Listing. The shares of Parent Common Stock issuable to the
stockholders of the Company pursuant to this Agreement and such other
shares required to be reserved for issuance in connection with the Merger
shall have been authorized for listing on NYSE upon official notice of
issuance.
6.2 Additional Conditions to Obligations of Company. The obligation of the
Company to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Closing Date of each of the following conditions, any of
which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty
of Parent and Merger Sub contained in this Agreement (i) shall have been
true and correct as of the date of this Agreement and (ii) shall be true
and correct on and as of the Closing Date with the same force and effect as
if made on the Closing Date except (A) in each case, or in the aggregate,
as does not constitute a Material Adverse Effect on Parent and Merger Sub,
(B) for changes contemplated by this Agreement and (C) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications as set forth in the preceding clause (A) as
of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations
and warranties shall be disregarded and (ii) any update of or modification
to the Parent Schedule made or purported to have been made after the date
of this Agreement shall be disregarded). The Company shall have received a
certificate with respect to the foregoing signed on behalf of Parent by an
authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them on or prior to the Closing Date, and the Company shall have received a
certificate to such effect signed on behalf of Parent by an authorized
officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the
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Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent:
(a) Representations and Warranties. Each representation and warranty
of the Company contained in this Agreement (i) shall have been true and
correct as of the date of this Agreement and (ii) shall be true and correct
on and as of the Closing Date with the same force and effect as if made on
and as of the Closing Date except (A) in each case, or in the aggregate, as
does not constitute a Material Adverse Effect on the Company; provided,
however, that such Material Adverse Effect qualifier shall be inapplicable
with respect to representations and warranties set forth in Section 2.3
hereof, (B) for changes contemplated by this Agreement and (C) for those
representations and warranties which address matters only as of a
particular date (which representations shall have been true and correct
(subject to the qualifications as set forth in the preceding clause (A)) as
of such particular date) (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
"Material Adverse Effect" qualifications and other qualifications based on
the word "material" or similar phrases contained in such representations
and warranties shall be disregarded and (ii) any update of or modification
to the Company Schedule made or purported to have been made after the date
of this Agreement shall be disregarded). Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company
by an authorized officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date, and Parent shall have received a certificate to
such effect signed on behalf of the Company by the Chief Executive Officer
and the Chief Financial Officer of the Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect
to the Company and its subsidiaries shall have occurred since the date of
this Agreement.
(d) Affiliate Agreements. Each of the Company Affiliates set forth in
Section 5.12 of the Company Schedule shall have entered into the Affiliate
Agreement and each of such agreements will be in full force and effect as
of the Effective Time.
(e) Consents. The Company shall have obtained all consents, waivers
and approvals required in connection with the consummation of the
transactions contemplated hereby in connection with the agreements,
contracts, licenses or leases set forth in Section 6.3(e) of the Parent
Schedule.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approval of the
stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of
Directors of Parent and the Company;
(b) by either the Company or Parent if the Merger shall not have been
consummated by April 30, 2001 (the "Termination Date") for any reason;
provided; however, that (i) if the S-4 is reviewed by the SEC, then the
Termination Date will be June 30, 2001; and (ii) the right to terminate
this Agreement under this Section 7.1(b) shall not be available to any
party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and
such action or failure to act constitutes a breach of this Agreement;
(c) by either the Company or Parent if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining,
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enjoining or otherwise prohibiting the Merger, which order, decree, ruling
or other action is final and nonappealable;
(d) by either the Company or Parent if the required approval of the
stockholders of the Company contemplated by this Agreement shall not have
been obtained by reason of the failure to obtain the required vote at a
meeting of the Company stockholders duly convened therefor or at any
adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(d) shall not be available to the Company
where the failure to obtain the Company stockholder approval shall have
been caused by the action or failure to act of the Company and such action
or failure to act constitutes a breach by the Company of this Agreement;
(e) by the Company, upon a breach of any representation, warranty,
covenant or agreement on the part of Parent set forth in this Agreement, or
if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) hereof would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue,
provided, however, that if such inaccuracy in Parent's representations and
warranties or breach by Parent is curable by Parent through the exercise of
its commercially reasonable efforts, then the Company may not terminate
this Agreement under this Section 7.1(e) for thirty (30) calendar days
after delivery of written notice from the Company to Parent of such breach,
provided Parent continues to exercise commercially reasonable efforts to
cure such breach (it being understood that the Company may not terminate
this Agreement pursuant to this paragraph (e) if it shall have materially
breached this Agreement or if such breach by Parent is cured during such
thirty (30) calendar day period);
(f) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) hereof would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue,
provided, however, that if such inaccuracy in the Company's representations
and warranties or breach by the Company is curable by the Company through
the exercise of its commercially reasonable efforts, then Parent may not
terminate this Agreement under this Section 7.1(f) for thirty (30) calendar
days after delivery of written notice from Parent to the Company of such
breach, provided the Company continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Parent may not
terminate this Agreement pursuant to this paragraph (f) if it shall have
materially breached this Agreement or if such breach by the Company is
cured during such thirty (30) calendar day period);
(g) by Parent, upon a breach of the provisions of Section 5.4 hereof;
(h) by Parent if a Triggering Event (as defined below) shall have
occurred. For the purposes of this Agreement, a "Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of the Company or
any committee thereof shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Parent its unanimous
recommendation in favor of, the adoption and approval of the Agreement or
the approval of the Merger; (ii) the Company shall have failed to include
in the Proxy Statement/Prospectus the unanimous recommendation of the Board
of Directors of the Company in favor of the adoption and approval of the
Agreement and the approval of the Merger; (iii) the Board of Directors of
the Company or any committee thereof shall have approved or recommended any
Acquisition Proposal; (iv) the Company shall have entered into any letter
of intent or similar document or any agreement, contract or commitment
accepting any Acquisition Proposal; or (v) a tender or exchange offer
relating to securities of the Company shall have been commenced by a person
unaffiliated with Parent and the Company shall not have sent to its
security holders pursuant to Rule 14e-2 promulgated under the Securities
Act, within ten (10) business days after such tender or exchange offer is
first published sent or given, a statement disclosing that the Company
recommends rejection of such tender or exchange offer.
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7.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 hereof will be effective immediately upon (or, if
the termination is pursuant to Section 7.1(f) or Section 7.1(g) hereof and the
proviso therein is applicable, thirty (30) calendar days after) the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 7.1 hereof,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 hereof and Article VIII hereof, each of which
shall survive the termination of this Agreement, and (ii) nothing herein shall
relieve any party from liability for any intentional or willful breach of this
Agreement. No termination of this Agreement shall affect the obligations of the
parties contained in the Confidentiality Agreement, all of which obligations
shall survive termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that (i) Parent shall pay all fees and
expenses (other than the fees and expenses of the Company's attorneys and
accountants) incurred in connection with the filing with the SEC of the S-4 (and
any amendments or supplements thereto), and any filings fees under the HSR Act,
and (ii) the Company shall pay all fees and expenses (other than the fees and
expenses of Parent's attorneys and accountants), incurred in connection with the
printing and mailing of the Proxy Statement/Prospectus (and any amendments or
supplements thereto).
(b) Company Payments.
(i) The Company shall pay to Parent in immediately available funds, within
one (1) business day after demand by Parent, an amount equal to $4,825,000 (the
"Termination Fee") if this Agreement is terminated by Parent pursuant to Section
7.1(g) or Section 7.1(h) hereof.
(ii) If (A) this Agreement is terminated by Parent or the Company, as
applicable, pursuant to Sections 7.1(b) or Section 7.1(d) hereof, (B) following
the date hereof and prior to the termination of this Agreement, a third party
has announced an Acquisition Proposal, and (C) within nine (9) months following
the termination of this Agreement a Company Acquisition (as defined below) is
consummated, then the Company shall pay to Parent in immediately available
funds, within one (1) business day after demand by Parent, an amount equal to
the Termination Fee.
(iii) if (A) this Agreement is terminated by Parent or the Company, as
applicable, pursuant to Sections 7.1(b) or Section 7.1(d) hereof, (B) following
the date hereof and prior to the termination of this Agreement, a third party
has announced an Acquisition Proposal, and (C) within nine (9) months following
the termination of this Agreement the Company enters into an agreement or letter
of intent providing for a Company Acquisition, the Company shall pay to Parent,
in immediately available funds, within one (1) business day following the
consummation of the Company Acquisition referred to in the foregoing clause (C),
an amount equal to the Termination Fee.
(iv) The Company hereby acknowledges and agrees that the agreements set
forth in this Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent would
not enter into this Agreement. Accordingly, if the Company fails to pay in a
timely manner the amounts due pursuant to this Section 7.3(b) and, in order to
obtain such payment, Parent makes a claim that results in a judgment against the
Company for the amounts set forth in this Section 7.3(b), the Company shall pay
to Parent its reasonable costs and expenses (including reasonable attorneys'
fees and expenses) in connection with such suit, together with interest on the
amounts set forth in this Section 7.3(b) at the prime rate of The Chase
Manhattan Bank in effect on the date such payment was required to be made.
Payment of the fees described in this Section 7.3(b) shall not be in lieu of
damages incurred in the event of breach of this Agreement.
(v) Notwithstanding anything to the contrary set forth in this Agreement,
each of the parties hereto hereby expressly acknowledges and hereby agrees that,
with respect to any termination of this Agreement pursuant to Section 7.1 hereof
(other than a termination based upon fraud or the willful or intentional
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breach of this Agreement) under circumstances in which the Termination Fee is
payable pursuant to Section 7.3(b) hereof, payment of the Termination Fee shall
constitute liquidated damages with respect to any claim for damages or any other
claim which Parent or Merger Sub would otherwise be entitled to assert against
the Company or its assets, or against any of the Company's directors, officers,
employees or stockholders, with respect to any such termination of this
Agreement, and shall constitute the sole and exclusive remedy with respect to
any such termination of this Agreement. The parties hereto expressly acknowledge
and agree that, in light of the difficulty of accurately determining actual
damages with respect to the foregoing upon any such termination of this
Agreement pursuant to Section 7.1 hereof (other than a termination based upon
fraud or the willful or intentional breach of this Agreement) under
circumstances in which the Termination Fee is payable pursuant to Section 7.3(b)
hereof, the right to such payment: (A) constitutes a reasonable estimate of the
damages that will be suffered by reason of any such termination this Agreement
and (B) shall be in full and complete satisfaction of any and all damages
arising as a result of any such termination of this Agreement. Except for
nonpayment of the Termination Fee pursuant to Section 7.3(b) the parties hereto
hereby agree that, upon any termination of this Agreement pursuant to Section
7.1 hereof (other than a termination based upon fraud or the willful or
intentional breach of this Agreement) under circumstances in which the
Termination Fee is payable pursuant to Section 7.3(b) hereof, in no event shall
Parent or Merger Sub be entitled to seek or to obtain any recovery or judgment
against the Company or any subsidiaries of the Company or any of their
respective assets, or against any of their respective directors, officers,
employees or stockholders for any such termination of this Agreement, and in no
event shall Parent or Merger Sub be entitled to seek or obtain any other damages
of any kind, including, without limitation, consequential, special, indirect or
punitive damages, for any such termination of this Agreement. Notwithstanding
the foregoing, payment of the Termination Fee pursuant to Section 7.3(b) hereof
shall not constitute liquidated damages with respect to any claim for damages or
any other claim which Parent or Merger Sub would be entitled to assert against
the Company or its assets, or against any of the Company's directors, officers,
employees or stockholders, with respect to any such termination of this
Agreement based upon fraud or the willful or intentional breach of any
representations, warranties or covenants of the Company in this Agreement, and
shall not constitute the sole and exclusive remedy with respect to any such
termination of this Agreement based upon fraud or the willful or intentional
breach of any of the representations, warranties or covenants of the Company in
this Agreement.
(vi) For the purposes of this Agreement, "Company Acquisition" shall mean
any of the following transactions (other than the transactions contemplated by
this Agreement): (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than fifty percent (50%) of the aggregate equity
interests in the surviving or resulting entity of such transaction; (ii) a sale
or other disposition by the Company of assets representing in excess of fifty
percent (50%) of the aggregate fair market value of the Company's business
immediately prior to such sale; or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by the
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of shares representing in excess of fifty percent (50%) of
the voting power of the then outstanding shares of capital stock of the Company.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and the Company.
7.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
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ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Solectron Corporation
4211 Starboard Drive
Fremont, California 94538
Attention: Ann T. Nguyen
Telephone No.: (510) 644-8118
Telecopy No.: (510) 252-8450
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market, Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Michael J. Kennedy, Esq.
Telephone No.: (415) 947-2000
Telecopy No.: (415) 947-2099
(b) if to the Company, to:
Centennial Technologies, Inc.
7 Lopez Road
Wilmington, Massachusetts 01887
Attention: Richard J. Pulsifer, CFO
Telephone No.: (978) 805-2117
Telecopy No.: (978) 988-7509
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Raymond C. Zemlin, P.C.
Telephone No.: (617) 570-1512
Telecopy No.: (617) 523-1231
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the
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business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with respect
to a party hereto, with respect to any matter in question, that any of the
executive officers of such party has actual knowledge of such matter.
(c) For purposes of this Agreement, the term "Material Adverse Effect" when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect, individually or when aggregated with other
changes, events, violations, inaccuracies, circumstances or effects, that is
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition or results of operations of such entity and
its subsidiaries taken as a whole; provided, however, that a "Material Adverse
Effect" shall not be deemed to include any change, event, violation, inaccuracy,
circumstance or effect (i) relating to the United States economy or United
States financial markets in general, (ii) relating to the industry or industries
in which such entity operates or conducts business and not specifically related
to (or having a materially disproportionate effect (relative to most other
industry participants) on) such entity, or (iii) resulting from any actions
taken by the Company pursuant to Section 5.15 hereof.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Disclosure Schedule
and the Parent Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.10 hereof.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
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 seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger and Reorganization to be executed by their duly authorized respective
officers as of the date first written above.
SOLECTRON CORPORATION
By: /s/ KEVIN R. BURNS
------------------------------------
Name: KEVIN R. BURNS
----------------------------------
Title: SVP & CMO
-----------------------------------
CENTERS ACQUISITION CORPORATION
By: /s/ JACK A. PACHECO
------------------------------------
Name: JACK A. PACHECO
----------------------------------
Title: CFO
--------------------------------------
CENTENNIAL TECHNOLOGIES, INC.
By: /s/ RICHARD J. PULSIFER
------------------------------------
Name: RICHARD J. PULSIFER
----------------------------------
Title: Chief Financial Officer
-----------------------------------
[AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
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ANNEX B
FORM OF VOTING AGREEMENT
177
ANNEX B
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
January 22, 2001 by and among Solectron Corporation, a Delaware corporation
("Parent"), and the undersigned Stockholder (the "Stockholder") of Centennial
Technologies, Inc., a Delaware corporation (the "Company").
WHEREAS, Parent, the Company and Merger Sub (as defined below) have entered
into an Agreement and Plan of Merger and Reorganization of even date herewith
(the "Merger Agreement"), which provides for the merger (the "Merger") of a
wholly-owned subsidiary of Parent ("Merger Sub") with and into the Company.
Pursuant to the Merger, all outstanding capital stock of the Company will be
converted into the right to receive the consideration set forth in the Merger
Agreement, and the Company will become a wholly-owned subsidiary of Parent.
WHEREAS, the Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such number of (i) shares of the outstanding capital stock of the Company, and
(ii) shares of capital stock of the Company issuable upon the exercise of
outstanding options to acquire such shares of capital stock of the Company, in
each case as is set forth on the signature page of this Agreement.
WHEREAS, in consideration of the execution of the Merger Agreement by
Parent, the Stockholder (solely in his or her capacity as such) is hereby
agreeing to vote the Shares (as defined below) and other such shares of capital
stock of the Company over which the Stockholder has voting power so as to
facilitate the consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto hereby
agree as follows:
1. Certain Definitions. Capitalized terms used but not otherwise defined
herein shall have the respective meanings ascribed to them in the Merger
Agreement. For purposes of this Agreement, the following terms shall have the
following respective meanings:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
and time as the Merger Agreement shall have been validly terminated
pursuant to Article VII thereof, or (ii) such date and time as the Merger
shall become effective in accordance with the terms and conditions of the
Merger Agreement.
(b) "Person" shall mean any individual, any corporation, limited
liability company, general or limited partnership, business trust,
unincorporated association or other business organization or entity, or any
governmental body or authority.
(c) "Shares" shall mean: (i) all voting securities of the Company
beneficially owned by the Stockholder as of the date of this Agreement, and
(ii) all additional voting securities of the Company of which the
Stockholder acquires beneficial ownership during the period commencing with
the execution and delivery of this Agreement until the Expiration Date,
including, without limitation, through the exercise of options, warrants or
other rights to acquire such voting securities of the Company, or the
conversion of other securities of the Company into such voting securities
of the Company.
(d) Transfer. A Person shall be deemed to have effected a "Transfer"
of a security if such Person, directly or indirectly (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security, or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant
of an option with respect to, transfer of or disposition of such security
or any interest therein.
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2. Transfer of Shares.
(a) Transferee of Shares to be Bound by this Agreement. The Stockholder
hereby agrees that, at all times during the period commencing with the execution
and delivery of this Agreement until the Expiration Date, the Stockholder shall
not cause or permit any Transfer of any of the Shares (or any securities
convertible into or exercisable or exchangeable for Shares), or any interest in
the foregoing, to be effected unless each Person to which any of such Shares (or
any securities convertible into or exercisable or exchangeable for Shares), or
any interest in any of the foregoing, is or may be Transferred shall have (i)
executed a counterpart of this Agreement and a Irrevocable Proxy in the form
attached hereto as Exhibit A (with such modifications as Parent may reasonably
request), and (ii) agreed in writing to hold such Shares (or any securities
convertible into or exercisable or exchangeable for Shares), or such interest in
the foregoing, subject to the terms and conditions of this Agreement.
(b) Transfer of Voting Rights. The Stockholder hereby agrees that, at all
times during the period commencing with the execution and delivery of this
Agreement until the Expiration Date, the Stockholder shall not deposit (or
permit the deposit of) any Shares (or any securities convertible into or
exercisable or exchangeable for Shares), or any interest in the foregoing, in a
voting trust or grant any proxy, or enter into any voting agreement or similar
agreement or arrangement in contravention of the obligations of the Stockholder
under this Agreement with respect to any of the Shares (or any securities
convertible into or exercisable or exchangeable for Shares), or any interest in
the foregoing.
3. Agreement to Vote Shares. Until the Expiration Date, at every meeting
of the Stockholders of the Company called, and at every adjournment or
postponement thereof, and on every action or approval by written consent of the
Stockholders of the Company, to the extent that such Shares are entitled to vote
on such matters, the Stockholder (solely in his or her capacity as such) shall
cause the Shares to be voted (i) in favor of approval and adoption of the Merger
Agreement and the Merger, (ii) in favor of each of the other transactions
contemplated by the Merger Agreement, (iii) in favor of any matter that could
reasonably be expected to facilitate the Merger, and (iv) against any matter
that could reasonably be expected to result in a breach of any covenant,
representation, warranty or other obligation of the Company contained in the
Merger Agreement, or could reasonably be expected to result in any of the
conditions to the obligations of the Company under the Merger Agreement not
being satisfied or fulfilled. If the Stockholder is a director of the Company,
nothing contained in this Agreement shall be deemed to apply to, or to limit in
any manner, the obligations of the Stockholder acting as a director of the
Company (in his capacity as such) to comply with his fiduciary duties as a
director of the Company, including, without limitation, recommending (in his
capacity as a director) that the stockholders of the Company vote against the
Merger and voting (in his capacity as a director) in favor of a competing
transaction or against the Merger.
4. Irrevocable Proxy. The Stockholder hereby agrees to deliver to Parent,
concurrently with the execution and delivery of this Agreement, a proxy in the
form attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
the fullest extent permitted by applicable law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. The Stockholder
hereby represents and warrants to Parent that, as of the date hereof and at all
times until the Expiration Date: (i) the Stockholder is (and will be, unless
Transferred pursuant to Section 2(a) hereof) the sole beneficial owner of the
shares of Company Common Stock, Company Preferred Stock and the options to
purchase shares of Company Common Stock set forth on the signature page of this
Agreement, with full power to vote or direct the voting of the Shares for and on
behalf of all beneficial owners of the Shares; (ii) the Shares are (and will be,
unless Transferred pursuant to Section 2(a) hereof) free and clear of any liens,
claims, options, rights of first refusal, co-sale rights, charges or other
encumbrances of any kind or nature; (iii) the Stockholder does not beneficially
own any securities of the Company other than the shares of Company Common Stock,
Company Preferred Stock and options to purchase shares of Company Common Stock
set forth on the signature page of this Agreement; and (iv) has (and will have,
unless Transferred pursuant to
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179
Section 2(a) hereof) full power and authority to make, enter into and carry out
the terms of this Agreement and the Proxy.
6. Additional Documents. The Stockholder (solely in his or her capacity as
such) hereby agrees to execute and deliver any additional documents necessary or
desirable, in the reasonable opinion of Parent, to carry out the intent of this
Agreement.
7. Consent and Waiver. The Stockholder (solely in his or her capacity as
such) hereby gives any consents or waivers that are reasonably required for the
consummation of the Merger under the terms of any agreements to which the
Stockholder is a party or pursuant to any rights the Stockholder may have.
8. Legending of Shares. If so requested by Parent, the Stockholder hereby
agrees that the Shares shall bear a legend stating that they are subject to this
Agreement and to an irrevocable proxy. Subject to the terms of Section 2 hereof,
the Stockholder hereby agrees that the Stockholder shall not Transfer the Shares
without first having the aforementioned legend affixed to the certificates
representing the Shares.
9. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
10. Miscellaneous.
(a) Waiver. No waiver by any party hereto of any condition or any breach of
any term or provision set forth in this Agreement shall be effective unless in
writing and signed by each party hereto. The waiver of a condition or any breach
of any term or provision of this Agreement shall not operate as or be construed
to be a waiver of any other previous or subsequent breach of any term or
provision of this Agreement.
(b) Severability. In the event that any term, provision, covenant or
restriction set forth in this Agreement, or the application of any such term,
provision, covenant or restriction to any person, entity or set of
circumstances, shall be determined by a court of competent jurisdiction to be
invalid, unlawful, void or unenforceable to any extent, the remainder of the
terms, provisions, covenants and restrictions set forth in this Agreement, and
the application of such terms, provisions, covenants and restrictions to
persons, entities or circumstances other than those as to which it is determined
to be invalid, unlawful, void or unenforceable, shall remain in full force and
effect, shall not be impaired, invalidated or otherwise affected and shall
continue to be valid and enforceable to the fullest extent permitted by
applicable law.
(c) Binding Effect; Assignment. This Agreement and all of the terms and
provisions hereof shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor any
of the rights, interests or obligations of the Stockholder may be assigned to
any other Person without the prior written consent of Parent.
(d) Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by each of the parties hereto.
(e) Specific Performance; Injunctive Relief. Each of the parties hereto
hereby acknowledge that (i) the representations, warranties, covenants and
restrictions set forth in this Agreement are necessary, fundamental and required
for the protection of Parent and to preserve for Parent the benefits of the
Merger; (ii) such covenants relate to matters which are of a special, unique,
and extraordinary character that gives each such representation, warranty,
covenant and restriction a special, unique, and extraordinary value; and (iii) a
breach of any such representation, warranty, covenant or restriction, or any
other term or provision of this Agreement, will result in irreparable harm and
damages to Parent which cannot be adequately compensated by a monetary award.
Accordingly, Parent and the Stockholder hereby expressly agree that in addition
to all other remedies available at law or in equity, Parent shall be entitled to
the immediate remedy of specific performance, a temporary and/or permanent
restraining order, preliminary injunction, or such other form of injunctive or
equitable relief as may be used by any court of competent jurisdiction to
restrain or enjoin any of the parties hereto from breaching any representations,
warranties,
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180
covenants or restrictions set forth in this Agreement, or to specifically
enforce the terms and provisions hereof.
(f) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision, rule
or principle (whether of the State of Delaware or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of Delaware.
(g) Entire Agreement. This Agreement and the Proxy and the other agreements
referred to in this Agreement set forth the entire agreement and understanding
of Parent and the Stockholder with respect to the subject matter hereof and
thereof, and supersede all prior discussions, agreements and understandings
between Parent and the Stockholder, both oral and written, with respect to the
subject matter hereof and thereof.
(h) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
respective parties at the following address (or at such other address for a
party as shall be specified by like notice):
If to Parent: Solectron Corporation
4211 Starboard Drive
Fremont, California 94538
Attention: Ann T. Nguyen
Telephone No.: (510) 624-8118
Telecopy No.: (510) 252-8450
With a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market, Spear Street Tower
Suite 3300
San Francisco, California 94105
Attention: Michael J. Kennedy, Esq.
Telephone No.: (415) 947-2000
Telecopy No.: (415) 947-2099
If to the Stockholder: To the address for notice set forth on the signature page
hereof.
With a copy to: Centennial Technologies, Inc.
7 Lopez Road
Wilmington, Massachusetts 01887
Attention: Richard J. Pulsifer
Telephone No.: (978) 805-2323
Telecopy No.: (978) 988-7509
And to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Raymond C. Zemlim, P.C.
Telephone No.: (617) 570-1000
Telecopy No.: (617) 523-1231
(i) Further Assurances. The Stockholder (in his or her capacity as such)
shall execute and deliver any additional certificate, instruments and other
documents, and take any additional actions, as Parent may deem necessary or
desirable, in the reasonable opinion of Parent, to carry out and effectuate the
purpose and intent of this Agreement.
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181
(j) Headings. The section headings set forth in this Agreement are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement in any manner.
(k) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
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182
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed on the date first above written.
SOLECTRON CORPORATION STOCKHOLDER:
By: ------------------------------------------------- By: -------------------------------------------------
Signature
Name: ---------------------------------------------- Name: ----------------------------------------------
Title: Title:
----------------------------------------------- -----------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Address
-----------------------------------------------------
Telephone Number
-----------------------------------------------------
Facsimile Number
Shares Beneficially Owned:
____shares of Company Common Stock
____shares of Company Common Stock issuable upon the
exercise of outstanding options
____shares of Company Preferred Stock
[VOTING AGREEMENT]
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EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of Centennial Technologies, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints the members of the Board of Directors of Solectron Corporation,
a Delaware corporation ("Parent"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of the Company that now are or hereafter may be
beneficially owned by the undersigned, and any and all other shares or
securities of the Company issued or issuable in respect thereof on or after the
date hereof (collectively, the "Shares") in accordance with the terms of this
Irrevocable Proxy. The Shares beneficially owned by the undersigned stockholder
of the Company as of the date of this Irrevocable Proxy are listed on the final
page of this Irrevocable Proxy. Upon the undersigned's execution of this
Irrevocable Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Irrevocable Proxy is irrevocable (to the fullest extent permitted by
applicable law), is coupled with an interest and is granted pursuant to that
certain Voting Agreement of even date herewith by and among Parent and the
undersigned stockholder (the "Voting Agreement"), and is granted in
consideration of Parent entering into that certain Agreement and Plan of Merger
and Reorganization of even date herewith (the "Merger Agreement") by and among
Parent, Centers Acquisition Corporation, a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and the Company. The Merger
Agreement provides for the merger of Merger Sub with and into the Company in
accordance with its terms (the "Merger"). As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the Merger
Agreement shall have been validly terminated pursuant to Article VII thereof or
(ii) such date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of the Company and in every written consent in lieu of such meeting (i) in favor
of approval and adoption of the Merger Agreement and the Merger, (ii) in favor
of each of the other transactions contemplated by the Merger Agreement, (iii) in
favor of any matter that could reasonably be expected to facilitate the Merger,
and (iv) against any matter that could reasonably be expected to result in a
breach of any covenant, representation, warranty or other obligation of the
Company contained in the Merger Agreement, or could reasonably be expected to
result in any of the conditions to the obligations of the Company under the
Merger Agreement not being satisfied or fulfilled.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
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This Irrevocable Proxy is irrevocable (to the fullest extent permitted by
law). This Irrevocable Proxy shall terminate, and be of no further force and
effect, automatically upon the Expiration Date.
Dated
- ---------------------------- , 2001
Signature:
--------------------------------------
Name:
--------------------------------------
Name and Title of Authorized
Signatory:
--------------------------------------
--------------------------------------
Shares Beneficially Owned:
________ shares of Company Common
Stock
________ shares of the Company Common
Stock issuable upon the exercise of
outstanding options
________ shares of Company Preferred
Stock
[IRREVOCABLE PROXY]
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185
ANNEX C
OPINION OF H.C. WAINWRIGHT & CO., INC.
186
January 18, 2001
Board of Directors
Centennial Technologies, Inc.
7 Lopez Road
Wilmington, MA 01887
To The Board of Directors:
Under an engagement letter, dated December 26, 2000, Centennial
Technologies, Inc. ("Centennial" or the "Company") retained H.C. Wainwright &
Co., Inc. ("Wainwright") to provide an opinion to the Board of Directors of the
Company as to the fairness, from a financial point of view, to the holders of
the Company's common stock, of the Exchange Ratio (as defined below) set forth
in the Agreement and Plan of Merger and Reorganization, by and among Solectron
Corporation ("Solectron"), Centers Acquisition Corporation (a wholly-owned
subsidiary of Solectron), and the Company, dated January 22, 2001 (the
"Agreement"). The Agreement provides, among other things, that each share of
common stock, par value $0.01 per share, of the Company ("Company Common Stock")
issued and outstanding immediately prior to the Effective Time (as defined in
the Agreement), other than any Company Common Stock to be canceled pursuant to
the Agreement, will be automatically converted into the right to receive, upon
surrender of the certificate representing such share of Company Common Stock, in
the manner provided in the Agreement, a number of shares of fully paid and
nonassessable common stock, par value $0.001 per share, of Solectron ("Solectron
Common Stock") equal to the exchange ratio as calculated pursuant to section
1.6(a) of the Agreement (the "Exchange Ratio"). As of the date hereof and
assuming all the outstanding shares of Centennial's Series B Convertible
Preferred Stock, par value $0.01 per share, were converted into shares of
Company Common Stock as of the date hereof, the Exchange Ratio would be 0.536.
The opinion addresses the fairness of the Exchange Ratio to holders of
Company Common Stock from a financial point of view, as of the date above, and
does not address what the value of Solectron Common Stock actually will be when
issued to holders of Company Common Stock pursuant to the Agreement, or the
price at which Solectron Common Stock will trade subsequent to the date above.
This opinion is addressed to, and is for the use, information and benefit of,
the Board of Directors of the Company and is not a recommendation to the holders
of Company Common Stock to approve the transactions contemplated by the
Agreement. Wainwright expresses no opinion as to the merits of the underlying
decision by the Company to enter into the Agreement or to consummate the
transactions contemplated thereby.
In arriving at its opinion, Wainwright reviewed certain information
including publicly available financial and other information concerning the
Company and Solectron, financial forecasts provided to it by the Company,
discussed the past, current and future prospects of the Company, and considered
such other information, financial studies, analyses and investigations, as well
as financial, economic and market criteria which it deemed relevant. In
addition, Wainwright reviewed the terms of the Agreement and reviewed the
financial terms of certain recent business combinations which it deemed
comparable in whole or in part. In connection with its review, Wainwright did
not assume any responsibility for the independent verification of any of the
foregoing information and relied on the completeness and accuracy as represented
by the Company. With respect to financial forecasts, Wainwright assumed that
they had been reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the management of Centennial as to the
future financial performance of the Company. In addition, Wainwright did not
make any independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor was Wainwright furnished with any
such evaluations or appraisals. The opinion is necessarily based upon financial,
economic, market and other conditions as they existed and should be evaluated as
of the date of the opinion.
We have assumed that the Exchange Ratio was determined through arm's-length
negotiations between the appropriate parties. Any and all analyses performed by
Wainwright were prepared solely as
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part of Wainwright's engagement to assess the fairness, from a financial point
of view, to holders of Company Common Stock in accordance with the terms of the
Agreement.
The scope of Wainwright's opinion is expressly limited to the contents
herein. It is understood that this letter is not intended to confer any rights
or remedies upon any other entity or persons, and may not be quoted or referred
to for any other purpose without our prior written consent, except for inclusion
in a proxy statement or information statement related to the Merger that we have
had an opportunity to review (which such proxy statement may also be part of a
registration statement filed by Solectron). Wainwright will receive a fee in
connection with the delivery of this opinion. In the ordinary course of our
business, Wainwright may have actively traded the equity or debt securities of
either or both Solectron and the Company and may continue to actively trade the
equity or debt securities of each. In addition, certain individuals who are
employees of or are affiliated with Wainwright may have in the past and may
currently be shareholders of either or both Solectron and the Company.
Based upon and subject to the foregoing, it is Wainwright's opinion that,
as of the date hereof, the Exchange Ratio as set forth in the Agreement, is
fair, from a financial point of view, to the holders of Company Common Stock.
Very truly yours,
/s/ H.C. WAINRIGHT & CO., INC.
- --------------------------------------
H.C. WAINWRIGHT & CO., INC.
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PART II
INFORMATION NOT REQUIRED IN DOCUMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or arising out of
the person's status as such, whether or not the corporation would have the power
to indemnify the person against such liability under the provisions of the law.
Article VI of the Bylaws of the registrant provides in effect that, subject
to certain limited exceptions, the registrant shall indemnify its directors and
officers to the extent authorized or permitted by the Delaware Corporation Law.
The directors and officers of the registrant are insured under policies of
insurance maintained by the registrant, subject to the limits of the policies,
against certain losses arising from any claims made against them by reason of
being or having been such directors or officers. In addition, the registrant has
entered into contracts with certain of its directors providing for
indemnification of such persons by the registrant to the full extent authorized
or permitted by law, subject to certain limited exceptions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
INCORPORATED BY
REFERENCE
EXHIBIT ---------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE HEREWITH
- ------- ------------------- ----- --------- --------
2.1 Agreement and Plan of Reorganization, by and among the
registrant, Force Acq. Corp. and Force Computers, Inc. as
amended S-4 11/20/96
2.2 Agreement and Plan of Merger and Reorganization, by and
among the registrant, Centers Acquisition Corporation and
Centennial Technologies, Inc.(1)
3.1 Certificate of Incorporation of the registrant 10-Q 2/26/99
3.2 Bylaws of the registrant 10-Q 2/26/99
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation X
II-1
189
INCORPORATED BY
REFERENCE
EXHIBIT ---------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE HEREWITH
- ------- ------------------- ----- --------- --------
8.1 Tax opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation X
8.2 Tax opinion of Goodwin Procter LLP X
10.1 Preferred Stock Purchase Agreement dated September 29, 1983,
together with amendments thereto dated February 28, 1984 and
June 23, 1988 S-1
10.2 Form of Indemnification Agreement between the registrant and
its officers, directors and certain other key employees 10-K 8/31/97
10.3 1983 Incentive Stock Option Plan, as amended August 13, 1991 S-8
10.4 1988 Employee Stock Purchase Plan, as amended October 1992 10-K 8/31/92
10.5 Amended and Restated 1992 Stock Option Plan S-8 4/7/99
10.6 Stock Acquisition Agreement dated August 28, 1993, between
the registrant and Solectron California Corporation 10-K 8/31/93
10.7 Lease Agreement between BNP Leasing Corporation, as
Landlord, and the registrant, as Tenant, Effective September
6, 1994 10-K 8/31/94
10.8 Purchase Agreement, by and between the registrant and BNP
Leasing Corporation, dated September 6, 1994 10-K 8/31/94
10.9 Pledge and Security Agreement, by and between the registrant
as Debtor, and BNP Leasing Corporation, as Secured Party,
dated September 6, 1994 10-K 8/31/94
10.10 Assignment and Assumption Agreement between the registrant
and Solectron California Corporation, dated November 9, 1994 10-K 8/31/94
10.11 Custodial Agreement by and between the registrant, Banque
Nationale De Paris and BNP Leasing Corporation, dated
September 6, 1994 10-K 8/31/94
10.12 Modification Agreement (First Amendment to Purchase
Agreement and Second Amendment to Lease Agreement) by and
between the registrant and BNP Leasing Corporation, dated
May 1, 1997 10-K 8/31/97
10.13 Credit Agreement between the registrant and Bank of America
National Trust and Savings Association, as Agent and Issuing
Bank, dated April 30, 1997 10-K 8/31/97
10.14a Amended and Restated Lease Agreement between BNP Leasing
Corporation and Solectron Washington, Inc., dated July 1,
1998 10-Q 2/26/99
10.14b Amended and Restated Purchase Agreement between BNP Leasing
Corporation and Solectron Washington, Inc., dated July 1,
1998 10-Q 2/26/99
10.14c Amended and Restated Guaranty from the registrant in favor
of BNP Leasing Corporation, effective as of July 1, 1998 10-Q 2/26/99
10.15a Amended and Restated Lease Agreement between BNP Leasing
Corporation and Force Computers, Inc., dated July 16, 1998 10-Q 2/26/99
10.15b Amended and Restated Purchase Agreement between BNP Leasing
Corporation and Force Computers, Inc., dated July 16, 1998 10-Q 2/26/99
10.15c Amended and Restated Guaranty from the registrant in favor
of BNP Leasing Corporation, effective as of July 16, 1998 10-Q 2/26/99
10.16a Lease Agreement between BNP Leasing Corporation and
Solectron Georgia Corporation, dated October 20, 1998 10-Q 2/26/99
10.16b Purchase Agreement between BNP Leasing Corporation and
Solectron Georgia Corporation, dated October 20, 1998 10-Q 2/26/99
10.16c Guaranty from the registrant in favor of BNP Leasing
Corporation, effective as of October 20, 1998 10-Q 2/26/99
II-2
190
INCORPORATED BY
REFERENCE
EXHIBIT ---------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE HEREWITH
- ------- ------------------- ----- --------- --------
10.17 Agreement and Plan of Reorganization, dated as of September
13, 1999, by and among the registrant, SM Acquisition
Corporation and SMART Modular Technologies, Inc. S-4 10/14/99
10.18 Stock Option Agreement, dated as of September 13, 1999, by
and between the registrant and SMART Modular Technologies S-4 10/14/99
21.1 Subsidiaries of the Registrant 10-K 11/13/00
23.1 Consent of KPMG LLP X
23.2 Consent of PricewaterhouseCoopers LLP X
23.3 Consent of Ernst & Young, LLP X
23.4 Consent of H.C. Wainwright & Co., Inc. X
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation(3)
23.6 Consent of Goodwin Procter LLP(4)
99.1 Form of Centennial Proxy X
99.2 Fairness Opinion of H.C. Wainwright & Co., Inc.(2)
- -------------------------
(1) Included in this registration statement as Annex A.
(2) Included in this registration statement as Annex C.
(3) Included in Exhibit 5.1 and Exhibit 8.1 of this registration statement.
(4) Included in Exhibit 8.2 of this registration statement.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(2) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
document will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request,
II-3
191
and to send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milpitas,
State of California, on February 26, 2001.
SOLECTRON CORPORATION
By: /s/ SUSAN S. WANG
------------------------------------
Name: Susan S. Wang
Title: Senior Vice President,
Chief Financial Officer
and Corporate Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Koichi Nishimura and Susan S. Wang and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ KOICHI NISHIMURA President, Chief Executive Officer February 26, 2001
- ------------------------------------------------ and Chairman of the Board
Koichi Nishimura, Ph.D. (Principal Executive Officer)
/s/ SUSAN S. WANG Senior Vice President, Chief February 26, 2001
- ------------------------------------------------ Financial Officer and Corporate
Susan S. Wang Secretary (Principal Financial and
Accounting Officer)
/s/ RICHARD A. D'AMORE Director February 26, 2001
- ------------------------------------------------
Richard A. D'Amore
/s/ CHARLES A. DICKINSON Director February 26, 2001
- ------------------------------------------------
Charles A. Dickinson
/s/ HEINZ FRIDRICH Director February 26, 2001
- ------------------------------------------------
Heinz Fridrich
/s/ PHILIP V. GERDINE Director February 26, 2001
- ------------------------------------------------
Philip V. Gerdine
II-5
193
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM A. HASLER Director February 26, 2001
- ------------------------------------------------
William A. Hasler
/s/ KENNETH E. HAUGHTON Director February 26, 2001
- ------------------------------------------------
Kenneth E. Haughton, Ph.D.
/s/ PAUL R. LOW Director February 26, 2001
- ------------------------------------------------
Paul R. Low, Ph.D.
/s/ OSAMU YAMADA Director February 26, 2001
- ------------------------------------------------
Osamu Yamada
/s/ WINSTON H. CHEN Director February 26, 2001
- ------------------------------------------------
Winston H. Chen
II-6
194
EXHIBIT INDEX
INCORPORATED BY
REFERENCE
EXHIBIT ---------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE HEREWITH
- ------- ------------------- ----- --------- --------
2.1 Agreement and Plan of Reorganization, by and among the
registrant, Force Acq. Corp. and Force Computers, Inc. as
amended S-4 11/20/96
2.2 Agreement and Plan of Merger and Reorganization, by and
among the registrant, Centers Acquisition Corporation and
Centennial Technologies, Inc.(1)
3.1 Certificate of Incorporation of the registrant 10-Q 2/26/99
3.2 Bylaws of the registrant 10-Q 2/26/99
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation X
8.1 Tax opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation X
8.2 Tax opinion of Goodwin Procter LLP X
10.1 Preferred Stock Purchase Agreement dated September 29, 1983,
together with amendments thereto dated February 28, 1984 and
June 23, 1988 S-1
10.2 Form of Indemnification Agreement between the registrant and
its officers, directors and certain other key employees 10-K 8/31/97
10.3 1983 Incentive Stock Option Plan, as amended August 13, 1991 S-8
10.4 1988 Employee Stock Purchase Plan, as amended October 1992 10-K 8/31/92
10.5 Amended and Restated 1992 Stock Option Plan S-8 4/7/99
10.6 Stock Acquisition Agreement dated August 28, 1993, between
the registrant and Solectron California Corporation 10-K 8/31/93
10.7 Lease Agreement between BNP Leasing Corporation, as
Landlord, and the registrant, as Tenant, Effective September
6, 1994 10-K 8/31/94
10.8 Purchase Agreement, by and between the registrant and BNP
Leasing Corporation, dated September 6, 1994 10-K 8/31/94
10.9 Pledge and Security Agreement, by and between the registrant
as Debtor, and BNP Leasing Corporation, as Secured Party,
dated September 6, 1994 10-K 8/31/94
10.10 Assignment and Assumption Agreement between the registrant
and Solectron California Corporation, dated November 9, 1994 10-K 8/31/94
10.11 Custodial Agreement by and between the registrant, Banque
Nationale De Paris and BNP Leasing Corporation, dated
September 6, 1994 10-K 8/31/94
10.12 Modification Agreement (First Amendment to Purchase
Agreement and Second Amendment to Lease Agreement) by and
between the registrant and BNP Leasing Corporation, dated
May 1, 1997 10-K 8/31/97
10.13 Credit Agreement between the registrant and Bank of America
National Trust and Savings Association, as Agent and Issuing
Bank, dated April 30, 1997 10-K 8/31/97
10.14a Amended and Restated Lease Agreement between BNP Leasing
Corporation and Solectron Washington, Inc., dated July 1,
1998 10-Q 2/26/99
10.14b Amended and Restated Purchase Agreement between BNP Leasing
Corporation and Solectron Washington, Inc., dated July 1,
1998 10-Q 2/26/99
10.14c Amended and Restated Guaranty from the registrant in favor
of BNP Leasing Corporation, effective as of July 1, 1998 10-Q 2/26/99
195
INCORPORATED BY
REFERENCE
EXHIBIT ---------------- FILED
NUMBER EXHIBIT DESCRIPTION FORM DATE HEREWITH
- ------- ------------------- ----- --------- --------
10.15a Amended and Restated Lease Agreement between BNP Leasing
Corporation and Force Computers, Inc., dated July 16, 1998 10-Q 2/26/99
10.15b Amended and Restated Purchase Agreement between BNP Leasing
Corporation and Force Computers, Inc., dated July 16, 1998 10-Q 2/26/99
10.15c Amended and Restated Guaranty from the registrant in favor
of BNP Leasing Corporation, effective as of July 16, 1998 10-Q 2/26/99
10.16a Lease Agreement between BNP Leasing Corporation and
Solectron Georgia Corporation, dated October 20, 1998 10-Q 2/26/99
10.16b Purchase Agreement between BNP Leasing Corporation and
Solectron Georgia Corporation, dated October 20, 1998 10-Q 2/26/99
10.16c Guaranty from the registrant in favor of BNP Leasing
Corporation, effective as of October 20, 1998 10-Q 2/26/99
10.17 Agreement and Plan of Reorganization, dated as of September
13, 1999, by and among the registrant, SM Acquisition
Corporation and SMART Modular Technologies, Inc. S-4 10/14/99
10.18 Stock Option Agreement, dated as of September 13, 1999, by
and between the registrant and SMART Modular Technologies S-4 10/14/99
21.1 Subsidiaries of the Registrant 10-K 11/13/00
23.1 Consent of KPMG LLP X
23.2 Consent of PricewaterhouseCoopers LLP X
23.3 Consent of Ernst & Young, LLP X
23.4 Consent of H.C. Wainwright & Co., Inc. X
23.5 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation(3)
23.6 Consent of Goodwin Procter LLP(4)
99.1 Form of Centennial Proxy X
99.2 Fairness Opinion of H.C. Wainwright & Co., Inc.(2)
- -------------------------
(1) Included in this registration statement as Annex A.
(2) Included in this registration statement as Annex C.
(3) Included in Exhibit 5.1 and Exhibit 8.1 of this registration statement.
(4) Included in Exhibit 8.2 of this registration statement.