As filed with the Securities and Exchange Commission on November 2, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
GARMIN LTD.
(exact name of registrant as specified in its charter)
CAYMAN ISLANDS 3812 98-0229227
(state or other (primary standard industrial (I.R.S. employer
jurisdiction of classification code number) identification number)
incorporation or
organization)
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Queensgate House
P.O. Box 30464SMB
113 South Church Street, George Town,
Grand Cayman, Cayman Islands
(345) 946-5203* (address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Andrew R. Etkind, Esq.
c/o Garmin International, Inc.
1200 East 151st Street
Olathe, Kansas 66062
(913) 397-8200
(name, address, including zip code, and telephone number, including area code,
of agent for service)
*Garmin Ltd. maintains its registered office at Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands, and its principal executive offices at Queensgate House, P.O. Box 30464SMB, 113 South Church Street, George Town, Grand Cayman, Cayman Islands. The executive offices of Garmin Ltd.'s principal United States subsidiary are located at 1200 East 151st Street, Olathe, Kansas 66062. The telephone number there is (913) 397-8200.
Copies to:
JOHN F. MARVIN, ESQ. VINCENT PAGANO, JR., ESQ.
Sonnenschein Nath & Rosenthal Simpson Thacher & Bartlett
4520 Main Street 425 Lexington Avenue
Kansas City, Missouri 64111 New York, New York 10017-3954
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Approximate date of commencement of sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please 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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_]
Proposed
Maximum Aggregate
Title of Each Class of Offering Proceeds Amount of
Securities to be Registered (1)(2) Registration Fee
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Common shares, par value US$0.01 per
share..................................... US$230,000,000 US$60,720(3)
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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 Commission, acting pursuant to said
Section 8(a), may determine.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 2000
10,500,000 Shares
Common Shares
8,925,000 common shares are initially being offered in the United States and Canada by the U.S. underwriters and 1,575,000 common shares are initially being concurrently offered outside the United States and Canada by the international managers. The offering price and underwriting discounts and commissions for both offerings are identical.
We are selling 7,875,000 common shares and the selling shareholders are selling 2,625,000 common shares.
Prior to this offering, there has been no public market for our common shares. The initial public offering price of our common shares is expected to be between $18.00 and $20.00 per share. Our common shares have been approved for listing on The Nasdaq Stock Market's National Market under the symbol "GRMN."
Investing in the common shares involves risks that are described in the "Risk Factors" section beginning on page 7 of this prospectus.
Per Share Total
--------- -----
Public offering price..................................... $ $
Underwriting discount..................................... $ $
Proceeds, before expenses, to Garmin Ltd. ................ $ $
Proceeds, before expenses, to the selling shareholders.... $ $
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The U.S. underwriters may also purchase up to an additional 156,578 shares from Garmin Ltd., and up to an additional 1,182,172 shares from the selling shareholders, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. The international managers may similarly purchase up to an additional 27,632 shares from Garmin Ltd. and up to an additional 208,618 shares from the selling shareholders.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
Merrill Lynch & Co.
Credit Suisse First Boston
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Salomon Smith Barney
The date of this prospectus is , 2000
[Graphics on inside front cover page of prospectus.]
TABLE OF CONTENTS
Page
Special Note Regarding Forward-
Looking Statements and Certain
Other Information................. ii
Prospectus Summary................... 1
Risk Factors......................... 7
Conventions.......................... 18
Use of Proceeds...................... 19
Dividend Policy...................... 19
Dilution............................. 20
Capitalization....................... 21
Selected Consolidated Financial and
Other Data........................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 24
Reorganization....................... 36
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Page
Business............................. 37
Management........................... 53
Certain Relationships and Related
Transactions...................... 61
Principal and Selling Shareholders... 62
Description of Share Capital......... 65
Shares Eligible for Future Sale...... 69
Tax Considerations................... 71
Underwriting......................... 78
Notice to Canadian Residents......... 83
Legal Matters........................ 84
Experts.............................. 84
Enforceability of Civil Liabilities.. 84
Additional Information............... 85
Index to Consolidated Financial
Statements........................ F-1
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GARMIN, the GARMIN logo, the GARMIN globe design, the GARMIN "swoosh" design, STREETPILOT, TRACBACK, DCG, GPS II, GPS III, GPSCOM, PHASETRAC 12, TRACPAK, G CHART, GPS 40, PERSONAL NAVIGATOR, GUIDANCE BY GARMIN, MULTITRAC 8, AUTOLOCATE, QUICKFIX, NAVTALK and SEE-THRU are registered trademarks of Garmin Corporation, and EMAP, ETREX, ETREX SUMMIT and MAPSOURCE are trademarks of Garmin Corporation. All other registered trademarks and tradenames referred to in this prospectus are the property of their respective owners.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND CERTAIN OTHER INFORMATION
Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus constitute forward- looking statements. These statements relate to future events or our future financial performance, and are identified by terminology such as "may," "might," "will," "should," "expect," "scheduled," "plan," "intend," "anticipate," "believe," "estimate," "potential," or "continue" or the negative of such terms or other comparable terminology. These statements speak only as of the date of this prospectus and are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors, among others, may cause our actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as may be required by any obligations imposed by applicable law, after the date of this prospectus, we do not intend to update any of the forward-looking statements, whether as a result of new information, future events or otherwise.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before buying shares in this offering. You should read the entire prospectus carefully.
Garmin
We are a leading, worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System technology. The Global Positioning System, first made available by the U.S. government for commercial use in 1983, is a worldwide navigation system which enables the precise determination of geographic location using established satellite technology. We design, develop, manufacture and market under the GARMIN brand a diverse family of hand-held, portable and fixed mount Global Positioning System-enabled products and other navigation, communications and information products. Each of our Global Positioning System products utilizes our proprietary integrated circuit and receiver designs to collect, calculate and display location, direction, speed and other information in forms optimized for specific consumer uses.
The precise determination of location is a fundamental requirement in many activities such as navigation, and is an increasingly attractive feature for other recreational and business applications. According to a 2000 report by Frost & Sullivan, the combined North American marine/recreational and aviation Global Positioning System markets, which we currently serve, are projected to grow from an estimated $726 million in 1999 to $1.4 billion in 2005. According to a 1999 report by Allied Business Intelligence, Inc., the worldwide commercial Global Positioning System market, which also includes markets in which we do not currently participate, is projected to grow from an estimated $4.9 billion in 1999 to $13.9 billion by 2005. On May 2, 2000, the accuracy of the Global Positioning System improved from approximately 100 meters to 10 meters or less as a result of the U.S. government's removal of its intentional accuracy degradation, known as Selective Availability. We believe that improved accuracy and functionality of Global Positioning System devices as well as the continued integration of Global Positioning System, communications and information technologies into unified products will drive continued industry growth.
We were founded in 1989 with a goal to be a leading supplier of navigation, communications and information devices to customers around the world. Our management team includes the original founders of our company in addition to others with significant experience in our selected markets. Our target markets currently consist of the consumer segment, which primarily includes marine/recreational products, and the aviation segment, which consists of panel mount and portable products for use in aircraft. We offer approximately fifty navigation, communications and information products, including:
. small, handheld personal Global Positioning System navigation devices;
. award-winning avionics which integrate cockpit communications, instrument landing system receivers and Global Positioning System technology;
. portable automotive navigation systems with local street-level map detail and business and address information;
. Global Positioning System-enabled and stand-alone sonar depth sounders (fishfinders) for recreational boating and fishing; and
. the first Global Positioning System-enabled hand-held cellular phone.
While the marine/recreational and aviation product lines will continue to be the core of our business in the near-term, Global Positioning System capabilities are becoming increasingly commercially viable in a wide range of consumer products and services, including automotive navigation systems and wireless consumer and mobile information devices (such as phones and personal digital assistants). Our goal is to take advantage of our brand name and our product development experience to expand our product line in many of these potentially high-growth Global Positioning System markets.
We believe our emphasis on simplicity and ease of use, our rugged yet elegant designs, and the introduction of innovative features across a range of applications have been the foundation of our success to date. Our products have won numerous awards and significant recognition, including an "Editor's Choice" award in 1998 from Flying magazine for our GNS 430 integrated avionics product and the selection by Popular Science magazine of our NavTalk(R) Global Positioning System-enabled cellular telephone as one of the "Best of What's New" in 1998. More recently, our eTrex(TM) product has garnered recognition and favorable reviews in magazines such as Men's Journal, Outdoor Life, Popular Mechanics, Sail and Vogue.
We have sold approximately 3.6 million devices and have sustained consistent growth and profitability, despite significant competition. Our sales have grown from $102 million in 1995 to $233 million in 1999. Over the same period, our net income grew from $23 million to $64 million. We estimate that in 1999 we had a market share by unit volume of approximately 50% in the North American Global Positioning System marine and recreational market, based upon data from an independent market report published by Frost and Sullivan. We estimate that in 1999 our market share was 59% by unit volume of the U.S. general aviation retrofit market for Global Positioning System-enabled panel mount applications, and that our market share was 76% by unit volume of the U.S. market for portable aviation Global Positioning System devices, based upon data from independent market reports published by the Aircraft Electronics Association.
Our products are sold in approximately 100 countries through our global network of approximately 2,500 independent dealers and distributors, as well as through original equipment manufacturers for certain product lines. Dealers and distributors for our consumer products include national mass market retail chains, national consumer electronics retail chains, national and regional sporting goods and outdoors specialty retailers, national marine specialty retailers and catalog retailers. Our products are also standard equipment or optional equipment on various models of recreational boats. In addition, our panel-mount aviation products are installed as standard equipment by several general aviation aircraft manufacturers.
Our track record of product innovations is a result of our strong emphasis on research and development and the close partnership between our engineering and manufacturing teams. We have introduced 23 new products in the last two years and expect to introduce approximately 25 new products in the next 12 months. As of October 10, 2000, we held 37 U.S. patents and have approximately 40 U.S. patent applications pending. Our products are created by our in-house engineering and design staff of approximately 200 people worldwide. Our design and manufacturing processes are certified to ISO 9001/2, an international standard for superior quality and reliability. We have manufacturing facilities in Shijr, Taiwan and Olathe, Kansas. As of June 30, 2000, we had 1,212 full- time employees worldwide.
Our strategy is to expand our market leadership by designing, producing, marketing and supporting innovative navigation, communications and information products to customers around the world. The key elements of our strategy include:
. Maintain Our Customer Focused Approach to Product Design. Our goal is to serve our customers' needs by designing products that offer superior value, higher quality, and lower cost of ownership than those of our competitors.
. Emphasize Continuous Innovation. We intend to continue to be a leader in innovation as we expand the utility of, and market for, our devices.
. Expand and Broaden Our Product Line. Our goal is to offer a comprehensive line of products within each of our current market segments, and introduce an innovative line of devices, including mobile information appliances, which combine Global Positioning System, communications and information technologies in an integrated device.
. Maintain and Selectively Expand Our Distribution Network. We plan to maintain and expand on our close relationships with our global network of existing and new dealers and original equipment manufacturers to reach new customers and introduce the utility of our products to new markets.
. Continue Our Practice of Vertical Integration. We intend to continue to perform in-house each of the design, manufacturing and marketing functions in providing our products whenever superior results can be achieved.
We are incorporated in the Cayman Islands. Our registered office is located at Ugland House, P.O. Box 309, South Church Street, George Town, Grand Cayman, Cayman Islands. Our principal executive offices are located at Queensgate House, P.O. Box 30464SMB, 113 South Church Street, George Town, Grand Cayman, Cayman Islands, and our telephone number is (345) 946-5203. The executive offices of our principal United States subsidiary are located at 1200 East 151st Street, Olathe, Kansas 66062. The telephone number there is (913) 397-8200. Our Web site address is www.garmin.com. The information on the Web site is not part of this prospectus.
The Offering
Common shares offered by us........ 7,875,000 shares
Common shares offered by the
selling shareholders............ 2,625,000 shares
Common shares to be outstanding
after
the offering.................... 107,875,000 shares
Use of proceeds.................... We plan to use the proceeds to us from this
offering for working capital and other
general corporate purposes, including
possible acquisitions or strategic
partnerships and expansion into new
products and markets. We currently have no
specific plan for allocating those proceeds
among working capital and other general
corporate purposes. We currently have no
commitments to make any material
investments or acquisitions.
Nasdaq National Market symbol...... GRMN
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The number of common shares to be outstanding after this offering is based on our shares outstanding as of October 27, 2000 and reflects a 1.12379256 for 1 stock split of our common shares, which will be effected through a stock dividend prior to the offering. This number excludes:
. 1,200,000 common shares issuable upon exercise of options which we expect to grant to our employees under our 2000 Equity Incentive Plan immediately prior to the offering.
. 184,210 shares which may be sold by us subject to the underwriters' over-allotment option.
Summary Consolidated Financial and Other Data
The following table presents summary consolidated financial data of Garmin Ltd. for each of the five fiscal years in the period ended December 25, 1999 and the nine-month periods ended September 25, 1999 and September 23, 2000. We have derived the historical data below from our audited consolidated financial statements except for data for the nine months ended September 25, 1999 and September 23, 2000, and as of September 23, 2000, which was derived from our unaudited consolidated financial statements.
You should read the following information in conjunction with "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes, included elsewhere in this prospectus. The consolidated financial statements for the five fiscal years ended December 25, 1999 have been audited by Ernst & Young LLP, independent auditors.
Nine Months
Years Ended(1) Ended(1)
----------------------------------------------- -------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, Sept. 25, Sept. 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- --------- ---------
(In thousands, except per share data)
Consolidated Statements
of Income Data:
Net sales............. $102,474 $135,874 $160,280 $169,030 $232,586 $164,536 $260,079
Cost of goods sold.... 55,446 77,616 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 47,028 58,258 66,660 86,243 126,932 88,106 140,969
Operating expenses:
Selling, general and
administrative.... 13,935 17,720 17,102 24,680 27,063 19,195 23,678
Research and
development....... 7,703 10,383 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 21,638 28,103 29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- -------- -------- --------
Operating income...... 25,390 30,155 36,901 46,687 82,530 56,435 101,817
Other income, net..... 558 818 11,971(2) 833 1,602 698 351
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.............. 25,948 30,973 48,872 47,520 84,132 57,133 102,168
Provision for income
taxes.............. 2,869 7,943 12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ======== ======== ========
Net income per share
(basic and
diluted).......... $ 0.23 $ 0.23 $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ======== ======== ========
Weighted average
common shares
outstanding (basic
and diluted)...... 98,876 98,876 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ======== ======== ========
Cash dividends per
share(3)........... $ 0.04 $ 0.03 $ 0.09 $ 0.12 $ 0.13 $ 0.13 $ 0.29
======== ======== ======== ======== ======== ======== ========
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As of September 23, 2000
------------------------
As Adjusted for
Actual the Offering(4)
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(In thousands)
Balance Sheet Data:
Cash and cash equivalents............................ $135,968 $274,767
Total assets......................................... 340,104 478,903
Long-term debt....................................... 47,907 47,907
Total stockholders' equity........................... 245,895 384,694
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(3) Represents cash dividends per share based on the actual number of shares outstanding at the time of the dividend, as adjusted for the 1.12379256 for 1 stock split of our common shares, which will be effected through a stock dividend prior to the offering.
(4) Reflects the issuance and sale of 7,875,000 common shares offered hereby at an assumed initial public offering price of $19.00 per share, the mid-point of the estimated price range set forth on the prospectus cover page after deduction of underwriting fees and offering expenses payable by us.
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the following factors and other information in this prospectus before deciding to invest in our common shares.
Risks Related to Our Company
Our Global Positioning System products depend upon satellites maintained by the United States Department of Defense. If a significant number of these satellites become inoperable, unavailable or are not replaced or if the policies of the United States government for the use of the Global Positioning System without charge are changed, our business will suffer.
The Global Positioning System is a satellite-based navigation and positioning system consisting of a constellation of orbiting satellites. The satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense. The Department of Defense does not currently charge users for access to the satellite signals. These satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of satellites in place, the average age is 6 years and some have been operating for more than 11 years.
If a significant number of satellites were to become inoperable, unavailable or are not replaced, it would impair the current utility of our Global Positioning System products and the growth of current and additional market opportunities. In addition, there can be no assurance that the U.S. government will remain committed to the operation and maintenance of Global Positioning System satellites over a long period, or that the policies of the U.S. government that provide for the use of the Global Positioning System without charge and without accuracy degradation will remain unchanged. Because of the increasing commercial applications of the Global Positioning System, other U.S. government agencies may become involved in the administration or the regulation of the use of Global Positioning System signals. Any of the foregoing factors could affect the willingness of buyers of our products to select Global Positioning System-based products instead of products based on competing technologies.
Any reallocation of radio frequency spectrum could cause interference with the reception of Global Positioning System signals. This interference could harm our business.
Our Global Positioning System technology is dependent on the use of radio frequency spectrum. The assignment of spectrum is controlled by an international organization known as the International Telecommunications Union ("ITU"). The Federal Communications Commission ("FCC") is responsible for the assignment of spectrum for non-government use in the United States in accordance with ITU regulations. Any ITU or FCC reallocation of radio frequency spectrum, including frequency band segmentation or sharing of spectrum, could cause interference with the reception of Global Positioning System signals and may materially and adversely affect the utility and reliability of our products, which would, in turn, cause a material adverse effect on our operating results. In addition, emissions from mobile satellite service and other equipment operating in adjacent frequency bands or inband may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our operating results.
Ultra-Wideband radio devices could cause interference with the reception of Global Positioning System signals. This intereference could harm our business.
On May 11, 2000, the FCC issued a Notice of Proposed Rulemaking that proposes rules for the operation of Ultra-Wideband ("UWB") radio devices on an unlicensed basis in the frequency bands allocated to the Global Positioning System. If the FCC issues final rules authorizing such operation, UWB devices might cause interference with the reception of Global Positioning System signals. Such interference could reduce demand for Global Positioning System products in the future. Any resulting change in market demand for Global Positioning System products could have a material adverse effect on our financial results.
If we are not successful in the continued development, introduction or timely manufacture of new products, demand for our products could decrease.
We expect that a significant portion of our future revenue will continue to be derived from sales of newly introduced products. The market for our products is characterized by rapidly changing technology, evolving industry standards and changes in customer needs. If we fail to modify or improve our products in response to changes in technology, industry standards or customer needs, our products could rapidly become less competitive or obsolete. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance for such products. However, there can be no assurance that development stage products will be successfully completed or, if developed, will achieve significant customer acceptance.
If we are unable to successfully develop and introduce competitive new products, and enhance our existing products, our future results of operations would be adversely affected. Our pursuit of necessary technology may require substantial time and expense. We may need to license new technologies to respond to technological change. These licenses may not be available to us on terms that we can accept. We may not succeed in adapting our products to new technologies as they emerge. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that we will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. We have previously experienced delays in shipping certain of our products and any future delays, whether due to manufacturing delays, lack of market acceptance, delays in regulatory approval, or otherwise, could have a material adverse effect on our results of operations.
If we do not correctly anticipate demand for our products, we may not be able to secure sufficient quantities or cost-effective production of our products or we could have costly excess production or inventories.
Historically, we have experienced steady increases in demand for our products and have generally been able to increase production to meet that demand. However, the demand for our products depends on many factors and will be difficult to forecast. We expect that it will become more difficult to forecast demand as we introduce and support multiple products and as competition in the market for our products intensifies. Significant unanticipated fluctuations in demand could cause the following problems in our operations:
. If demand increases beyond what we forecast, we would have to rapidly increase production. We would depend on suppliers to provide additional volumes of components
and those suppliers might not be able to increase production rapidly enough to meet unexpected demand.
. Rapid increases in production levels to meet unanticipated demand could result in higher costs for manufacturing and supply of components and other expenses. These higher costs could lower our profit margins. Further, if production is increased rapidly, manufacturing quality could decline, which may also lower our margins.
. If forecasted demand does not develop, we could have excess production resulting in higher inventories of finished products and components, which would use cash and could lead to write-offs of some or all of the excess inventories. Lower than forecasted demand could also result in excess manufacturing capacity at our facilities, which could result in lower margins.
We may become subject to significant product liability costs.
If our aviation products malfunction or contain errors or defects, airplane collisions or crashes could occur resulting in property damage, personal injury or death. Malfunctions or errors or defects in our marine navigational products could cause boats to run aground or cause other wreckage, personal injury or death. If any of these events occurs, we could be subject to significant liability for personal injury and property damage. We maintain insurance against accident-related risks involving our products. However, there can be no assurance that such insurance would be sufficient to cover the cost of damages to others or that such insurance will continue to be available at commercially reasonable rates. If we are unable to maintain sufficient insurance to cover product liability costs, our business could be harmed.
We depend on our suppliers, some of which are the sole source for specific components, and our production would be seriously harmed if these suppliers are not able to meet our demand and alternative sources are not available, or if the costs of components rise.
We are dependent on third party suppliers for various components used in our current products. Some of the components that we procure from third party suppliers include semiconductors and electroluminescent panels, liquid crystal displays, memory chips and microprocessors. The cost, quality and availability of components are essential to the successful production and sale of our products. Some components come from our sole source suppliers. International Business Machines Corporation, NEC Electronics, Inc. and Texas Instruments Taiwan Ltd. are each the sole source supplier to us of certain application- specific integrated circuits incorporating our proprietary designs which they manufacture for us. Intel Corporation is the sole source supplier of certain microprocessors used in some of our products. Alternative sources may not be currently available for these sole source components.
In the past, we have experienced shortages, particularly involving components that are also used in cellular phones. In addition, if there are shortages in supply of components, the costs of such components may rise. If suppliers are unable to meet our demand for components on a timely basis and if we are unable to obtain an alternative source or if the price of the alternative source is prohibitive, or if the costs of components rise, our ability to maintain timely and cost-effective production of our products would be seriously harmed. In the last twelve months, we have experienced upward pricing pressures on our high technology components. We continue to search for
alternate sources or redesign components for less expensive parts. However, if we are unable to find alternate sources or are not able to effectively redesign components, our business, financial condition and results of operations could be materially adversely affected.
We license mapping data for use in our products from various sources. There are only a limited number of suppliers of mapping data for each geographical region. If we are unable to continue licensing such mapping data and are unable to obtain an alternative source, or if the price of the alternative source is prohibitive, our ability to supply mapping data for use in our products would be seriously harmed.
We rely on independent dealers and distributors to sell our products, and disruption to these channels would harm our business.
Because we sell a majority of our products to independent dealers and distributors, we are subject to many risks, including risks related to their inventory levels and support for our products. In particular, our dealers and distributors maintain significant levels of our products in their inventories. If dealers and distributors attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted.
Our dealers and distributors also sell products offered by our competitors. If our competitors offer our dealers and distributors more favorable terms, those dealers and distributors mayde-emphasize or decline to carry our products. In the future, we may not be able to retain or attract a sufficient number of qualified dealers and distributors. If we are unable to maintain successful relationships with dealers and distributors or to expand our distribution channels, our business will suffer.
If we fail to manage our growth and expansion effectively, we may not be able to successfully manage our business.
Our ability to successfully offer our products and implement our business plan in a rapidly evolving market requires an effective planning and management process. We continue to increase the scope of our operations domestically and internationally and have grown our shipments and headcount substantially. In addition, we plan to continue to hire a significant number of employees within the next 12 months. This growth has placed, and our anticipated growth in future operations will continue to place, a significant strain on our management systems and resources.
Our business may suffer if we are not able to hire and retain sufficient qualified personnel or if we lose our key personnel.
Our future success depends partly on the continued contribution of our key executive, engineering, sales, marketing, manufacturing and administrative personnel. In particular, we rely on Min H. Kao and Gary Burrell, our Co- Chairmen, Co-Chief Executive Officers and founders. We currently do not have employment agreements with any of our key executive officers. We do not have key man life insurance on any of our key executive officers and do not currently intend to obtain such insurance. The loss of the services of any of our senior level management, or other key employees, could harm our business. Recruiting and retaining the skilled personnel we require to maintain our market position may be difficult. For example, there is a nationwide shortage of qualified electrical engineers and software engineers that are necessary for us to design and develop new products and
therefore, it may be challenging to recruit such personnel. If we fail to hire and retain qualified employees, we may not be able to maintain and expand our business.
Our sales and gross margins for our products may fluctuate.
Our sales and gross margins for our products may fluctuate from period to period due to a number of factors, including product mix, competition and unit volumes. In particular, the average selling prices of a specific product tend to decrease over that product's life. To offset such decreases, we intend to rely primarily on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and therefore can be sold at higher average selling prices. However, there can be no assurance that we will be able to obtain any such yield improvements or cost reductions or introduce any such new products in the future. To the extent that such cost reductions and new product introductions do not occur in a timely manner or our customers' products do not achieve market acceptance, our business, financial condition and results of operations could be materially adversely affected.
Our quarterly operating results are subject to fluctuations and seasonality.
Our operating results are difficult to predict. Our future quarterly operating results may fluctuate significantly. If this occurs, the price of our stock would likely decline. As we expand our operations, our operating expenses, particularly our sales, marketing and research and development costs, may increase. If revenues decrease and we are unable to reduce those costs rapidly, our operating results would be negatively affected.
Historically, our revenues have usually been weaker in the first and third quarters of each fiscal year and have, from time to time, been lower than the preceding quarter. Our devices are highly consumer-oriented, and consumer buying is traditionally lower in these quarters. Sales of certain of our consumer products tend to be higher in our second fiscal quarter due to increased consumer spending for such products during the bass fishing season. Sales of certain of our consumer products also tend to be higher in our fourth fiscal quarter due to increased consumer spending patterns on electronic devices during the holiday season. In addition, we attempt to time our new product releases to coincide with relatively higher consumer spending in the second and fourth fiscal quarters, which contributes to these seasonal variations.
Because our reporting currency is in U.S. Dollars and the functional currencies of two of our operating subsidiaries are in NT Dollars and the British Pound Sterling, respectively, exchange rate fluctuations impact the financial statements of our operating subsidiaries and our consolidated financial statements.
Foreign exchange effects on our financial statements can be material because our reporting currency is in U.S. Dollars while the functional currencies of Garmin Corporation and Garmin (Europe) Ltd., two of our operating subsidiaries, are in NT Dollars and the British Pound Sterling, respectively. We are exposed to foreign exchange risks related to recurring foreign currency payments, principally in U.S. Dollars. In addition, fluctuations in exchange rates between the U.S. Dollar and the NT Dollar, and between the U.S. Dollar and the British Pound Sterling, may have an adverse impact on the financial statements of Garmin Corporation and Garmin (Europe) Ltd., respectively, and, as a consequence, upon consolidation have an indirect adverse effect on our consolidated financial statements.
If we are unable to compete effectively with existing or new competitors, our resulting loss of competitive position could result in price reductions, fewer customer orders, reduced margins and loss of market share.
The markets for our products are highly competitive and we expect competition to increase in the future. We plan to enter the wireless market and will be competing against Telefon AB LM Ericsson, Motorola, Inc. and Nokia Oy with certain products. These competitors, as well as some of our existing competitors or potential competitors, such as Honeywell International, Inc. and UPS Aviation Technologies, have significantly greater financial, technical and marketing resources than we do. These competitors may be able to respond more rapidly to new or emerging technologies or changes in customer requirements. They may also be able to devote greater resources to the development, promotion and sale of their products. Increased competition could result in price reductions, fewer customer orders, reduced margins and loss of market share. Our failure to compete successfully against current or future competitors could seriously harm our business, financial condition and results of operations.
Our intellectual property rights are important to our operations, and we could suffer loss if they infringe upon other's rights or are infringed upon by others.
We rely on a combination of patents, copyrights, trademarks and trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. To this end, we hold rights to a number of patents and registered trademarks and regularly file applications to attempt to protect our rights in new technology and trademarks. However, there is no guarantee that our patent applications will become issued patents, or that our trademark applications will become registered trademarks. Moreover, even if approved, our patents or trademarks may thereafter be successfully challenged by others or otherwise become invalidated for a variety of reasons. In addition, the only patents we have obtained are U.S. patents. Thus, any patents or trademarks we currently have or may later acquire may not provide us a significant competitive advantage.
Third parties may claim that we are infringing their intellectual property rights. Such claims could have a serious adverse effect on our business and financial condition. Litigation concerning patents or other intellectual property can be costly and time consuming. We may seek licenses from such parties, but they could refuse to grant us a license or demand commercially unreasonable terms. We might not have sufficient resources to pay for the licenses. Such infringement claims could also cause us to incur substantial liabilities and to suspend or permanently cease the use of critical technologies or processes or the production or sale of major products.
Failure to obtain required certifications of our products on a timely basis could harm our business.
We have certain products, especially in our aviation segment, that are subject to governmental and similar certifications before they can be sold. For example, Federal Aviation Administration ("FAA") certification is required for all of our aviation products that are intended for installation in type certificated aircraft. To the extent that it is required, certification is an expensive and time consuming process that requires significant focus and resources. An inability to obtain, or excessive delay in obtaining, such certifications could have an adverse effect on our ability to introduce new products and, therefore, our operating results. In addition, we cannot assure you that our certified
products will not be decertified. Any such decertification could have an adverse effect on our operating results.
Our business is subject to economic, political and other risks associated with international sales and operations.
Our business is subject to risks associated with doing business internationally. We estimate that approximately 28% of our net sales in the fiscal year ended December 25, 1999 represented products shipped to international destinations. Accordingly, our future results could be harmed by a variety of international factors, including:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic conditions, particularly in emerging markets;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in managing widespread sales and manufacturing operations; and
. less effective protection of intellectual property.
We may experience unique economic and political risks associated with companies that operate in Taiwan.
Relations between Taiwan and the People's Republic of China, also referred to as the PRC, and other factors affecting the political or economic conditions of Taiwan in the future could affect our business and the market price and the liquidity of our shares. Our principal manufacturing facilities where we manufacture all of our products, except our panel-mounted aviation products, are located in Taiwan.
Taiwan has a unique international political status. The PRC asserts sovereignty over all of China, including Taiwan, certain other islands and all of mainland China. The PRC government does not recognize the legitimacy of the Taiwan government. Although significant economic and cultural relations have been established during recent years between Taiwan and the PRC, the PRC government has indicated that it may use military force to gain control over Taiwan in certain circumstances, such as the declaration of independence by Taiwan. Relations between Taiwan and the PRC have on occasion adversely affected the market value of Taiwanese companies and could negatively affect our operations in Taiwan in the future.
There is uncertainty as to our shareholders' ability to enforce certain foreign civil liabilities in the Cayman Islands and Taiwan.
We are a Cayman Islands company and a substantial portion of our assets are located outside the United States, particularly in Taiwan. As a result, it may be difficult for you to effect service of process within the United States upon us. In addition, there is uncertainty as to whether the courts of the Cayman Islands and Taiwan would recognize or enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the Cayman Islands or Taiwan against us predicated upon the securities laws of the United States or any state thereof.
Our shareholders may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.
Our corporate affairs are governed by our Memorandum and Articles of Association and by the Companies Law (2000 Revision) and the common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as under statutes or judicial precedent in existence in jurisdictions in the United States. Therefore, our public shareholders may have more difficulty in protecting their interests in the face of actions by the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, due to the comparatively less developed nature of Cayman Islands law in this area.
We may pursue strategic acquisitions, investments, strategic partnerships or other ventures, and our business could be materially harmed if we fail to successfully identify, complete and integrate such transactions.
We intend to evaluate acquisition opportunities and opportunities to make investments in complementary businesses, technologies, services or products, or to enter into any strategic partnerships with parties who can provide access to those assets, additional product or services offerings or additional industry expertise. We currently have no commitments to make any material investments or acquisitions, or to enter into strategic partnerships. We may not identify suitable acquisition, investment or strategic partnership candidates, or if we do identify suitable candidates, we may not complete those transactions on commercially favorable terms, or at all.
Any future acquisition could result in difficulties assimilating acquired operations and products, diversion of capital and management's attention away from other business issues and opportunities and amortization of acquired intangible assets. Integration of acquired companies may result in problems related to integration of technology and inexperienced management teams. In addition, the key personnel of the acquired company may decide not to work for us. Our management has not had experience in assimilating acquired organizations and products into our operations. We may not successfully integrate any operations, personnel or products that we may acquire in the future. If we fail to successfully integrate such transactions, our business could be materially harmed.
We have benefited in the past from Taiwan government tax incentives offered on certain high technology capital investments that may not always be available.
Our effective tax rate is lower than the U.S. Federal statutory rate, because we have benefited from lower tax rates since our inception and from incentives offered in Taiwan related to our high technology investments in Taiwan. The loss of these tax benefits could have a significant effect on our financial results in the future.
Changes in our United States federal income tax classification or in applicable tax law could result in adverse tax consequences to our shareholders.
We do not believe that we (or any of our non-United States subsidiaries) are currently a "foreign personal holding company" or "passive foreign investment company" for United States federal income tax purposes. We would constitute a foreign personal holding company in any taxable
year if (1) 60% (or 50% in any year following the year in which we first became a foreign personal holding company) or more of our gross income were foreign personal holding company income (which is generally income of a passive nature such as dividends, interest and royalties) (the "income test") and (2) more than 50% of the voting power or value of our equity were owned, directly or indirectly, by five or fewer U.S. holders that are individuals (the "shareholder test"). If we (or any of our non-United States subsidiaries) are classified as a foreign personal holding company in any taxable year, then each shareholder that is a United States person would be required to pay tax on its pro rata share of the undistributed foreign personal holding income of such foreign personal holding company. We currently satisfy the shareholder test for qualifying as a foreign personal holding company but intend to manage our affairs so as to attempt to avoid satisfaction of the income test for qualifying as a foreign personal holding company, or minimize the impact to our shareholders if we satisfy the income test, to the extent this management of our affairs would be consistent with our business goals, although we cannot assure you in this regard.
We do not expect to become a passive foreign investment company. However, because the passive foreign investment company determination is made annually on the basis of facts and circumstances that may be beyond our control and because the principles for applying the passive foreign investment company tests are not entirely clear, we cannot assure you that we will not become a passive foreign investment company. If we are a passive foreign investment company in any year, then any of our shareholders that is a United States person could be liable to pay tax at ordinary income tax rates plus an interest charge upon some distributions by us or when that shareholder sells our common shares at a gain. Further, if we are classified as a passive foreign investment company in any year in which a United States person is a shareholder, we generally will continue to be treated as a passive foreign investment company with respect to such shareholder in all succeeding years, regardless of whether we continue to satisfy the income or asset tests described above. Additional tax considerations would apply if we or any of our subsidiaries were a controlled foreign corporation or a personal holding company.
Risks Relating to Our Shares
We have broad discretion to use the offering proceeds, and the investment of these proceeds may not yield a favorable return.
We have not committed the net proceeds to us from this offering to any specific purpose other than to use generally for working capital and other general corporate purposes, including possible acquisitions, strategic partnerships and expansion into new products and markets. Our management will have significant flexibility in applying the net proceeds of this offering. The proceeds may be invested in ways that do not yield favorable returns. If we do not apply the funds we receive effectively, we may adversely affect our financial performance and available resources.
We do not plan to pay dividends in the foreseeable future.
We do not currently anticipate paying cash dividends going forward. In addition, if in the future we determined to pay dividends on our shares, as a holding company, we expect to be principally dependent on receipt of funds from our operating subsidiaries. Our principal operating subsidiary is a Taiwan company and dividends payable to us from that company would be subject to Taiwan withholding tax, which is currently applicable at the rate of 20%.
Our common stock has no prior market, and you may have difficulty reselling your shares if no liquid trading market develops.
Before this offering, there has not been a public market for our common shares, and an active public market for our common shares may not develop or be sustained after this offering. We have applied to list our shares on the Nasdaq National Market. However, being listed on the Nasdaq National Market does not guarantee that a liquid trading market will develop. If no liquid trading develops, you may have difficulty reselling your shares.
The markets for high technology stocks have experienced extreme volatility and you may not be able to resell your shares at or above the initial public offering price.
The markets for high technology stocks have experienced extreme volatility that has often been unrelated to the operating performance of the particular companies. These broad market fluctuations may adversely affect the trading price of our common shares. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price.
Our officers and directors exert substantial influence over us.
Following the completion of this offering, members of our Board of Directors and our executive officers, together with members of their families and entities that may be deemed affiliates of or related to such persons or entities, will beneficially own approximately 50.3% of our outstanding common shares. Accordingly, these shareholders may be able to elect all members of our Board of Directors and determine the outcome of corporate actions requiring shareholder approval, such as mergers and acquisitions. This level of ownership may have a significant effect in delaying, deferring or preventing a change in control of Garmin Ltd. and may adversely affect the voting and other rights of other holders of our common shares.
Prior to 2006, without the approval of a majority of certain of our shareholders, we may not dispose of our shares of Garmin Corporation or its assets, even if it would benefit all of our shareholders.
In connection with the reorganization whereby Garmin Ltd. became the holding company for Garmin Corporation, shareholders of Garmin Corporation entered into a shareholders' agreement whereby each shareholder party to the agreement agreed to take all reasonable actions required to prevent the disposition by Garmin Ltd. of any shares of Garmin Corporation or of substantially all of the assets of Garmin Corporation until after December 31, 2005 except upon approval of a majority in interest of such shareholders who are U.S. citizens or residents. Certain of our officers and directors own a substantial portion of these shares.
Provisions in our charter documents might deter, delay or prevent a third party from acquiring us, which could decrease the value of our shares.
Our Board of Directors has the authority to issue up to 1,000,000 preferred shares and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the shareholders. This could have an adverse impact on the market price of our common shares. We have no present plans to issue any preferred shares, but
we may do so. The rights of the holders of common shares may be subject to, and adversely affected by, the rights of the holders of any preferred shares that may be issued in the future. In addition, we have adopted a classified board of directors. Our shareholders are unable to remove any director or the entire board of directors without a super majority vote. In addition, a super majority vote is required to approve transactions with interested shareholders. Shareholders do not have the right to call a shareholders meeting. We intend to adopt a shareholders' rights plan after our independent directors have been placed on our Board of Directors which under certain circumstances would significantly impair the ability of third parties to acquire control of us without prior approval of our Board of Directors. This shareholders' rights plan and the provisions in our charter documents could make it more difficult for a third party to acquire us, even if doing so would benefit our shareholders.
Future sales of our shares to the public may cause our share price to fall.
Upon completion of the offering, we will have outstanding 107,875,000 shares, assuming no exercise of the underwriters' over-allotment option. Of these, 97,375,000 shares will continue to be held by existing shareholders following completion of the offering and may be sold at any time or in any manner, subject to compliance with applicable securities laws and, in the case of certain shareholders, observance of the lock-up period agreed with the underwriters. If our shareholders sell substantial amounts of their shares in the public market following the offering, the market price of our shares could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.
As a new investor, you will experience immediate and substantial dilution in the net tangible book value of the shares.
The initial public offering price of the shares is substantially higher than the net tangible book value per share of the outstanding common shares as of September 23, 2000. As a result, if you purchase the shares in this offering, you will suffer an immediate and substantial dilution of $15.47 per share in the net tangible book value per share based upon an initial public offering price of $19.00 per share, the midpoint of our estimated offering price range. In the event we issue additional shares in the future pursuant to stock options or otherwise, you may experience further dilution.
CONVENTIONS
All references to Taiwan in this prospectus are to the Republic of China. In this prospectus, references to "NT Dollars" or "New Taiwan Dollar(s)" are to the currency of Taiwan and all references to "U.S. Dollar," "Dollars," "$" or "US$" are to the currency of the United States of America. Unless otherwise indicated, the information contained in this prospectus:
. assumes that the underwriters do not exercise the option granted by us and the selling shareholders to purchase additional shares in this offering to cover over-allotments;
. assumes that no outstanding employee stock options are exercised;
. is presented as if Garmin Ltd., which was established in July 2000, had been in existence for all periods presented;
. is presented as if the 1.12379256 for 1 stock split of Garmin Ltd. common shares, which will be effected through a stock dividend prior to the offering, had taken place prior to the periods presented; and
. is presented as if the exchange offer pursuant to which the holders of shares of Garmin Corporation effectively exchanged their shares for shares of Garmin Ltd. had taken place prior to the periods presented. See note 1 of our consolidated financial statements and "Reorganization."
USE OF PROCEEDS
The net proceeds to us from this offering, based on an assumed initial public offering price of $19.00 per share, the mid-point of the estimated price range set forth on the prospectus cover page and after deducting underwriting discounts and the estimated offering expenses payable by us, are estimated to be approximately $138.8 million, or $142.1 million if the underwriters' over- allotment option is exercised in full. We will not receive any proceeds from the sale of our shares by the selling shareholders in this offering. We plan to use the proceeds to us from this offering for working capital and other general corporate purposes, including possible acquisitions or strategic partnerships and expansion into new products and markets. We currently have no specific plan for allocating those proceeds among working capital and other general corporate purposes. We currently have no commitments to make any material investments or acquisitions and will retain broad discretion in the allocation of net proceeds of this offering.
The amounts and timing of these expenditures will vary depending on a number of factors, including competitive and technological developments, success of our marketing efforts and the rate of growth, if any, of our business. Because of these uncertainties, we cannot tell you with any reasonable certainty how we plan to allocate the net proceeds.
DIVIDEND POLICY
We intend to retain any earnings for use in our business. Although we have historically declared cash dividends, we do not intend to pay dividends on our common shares for the foreseeable future. Future cash dividends, if any, will be declared by our board of directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as our board of directors may deem relevant. Our Articles of Association provide that dividends must be paid out of our profits and out of share premium, a concept analogous to paid- in surplus in the United States, subject to a statutory solvency test. We expect that any dividends we declare will be paid in U.S. Dollars.
DILUTION
Our net tangible book value as of September 23, 2000 was approximately $242.2 million, or $2.42 per common share. Net tangible book value per share is equal to our net tangible assets, less total liabilities, divided by the number of common shares outstanding as of September 23, 2000. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of common shares in this offering and the net tangible book value per common share immediately after completion of this offering. After giving effect to the sale of shares at an assumed public offering price of $19.00 per common share, the mid-point of the estimated price range as set forth on the prospectus cover page, and the application of the net proceeds from this offering, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us, our net tangible adjusted book value as of September 23, 2000 would have been approximately $381.0 million, or $3.53 per common share. This amount represents an immediate increase in net tangible book value of $1.11 per share to existing shareholders and an immediate dilution in net tangible book value of $15.47 per share to new investors. The following table illustrates this per share dilution:
Assumed public offering price per share........................... $19.00
Net tangible book value per share as of September 23, 2000...... $2.42
Increase in net tangible book value per share attributable to
new investors................................................ 1.11
-----
Net tangible book value per share after the offering.............. 3.53
------
Dilution per share to new investors............................... $15.47
======
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The following table summarizes the difference as of September 23, 2000, between our existing shareholders and the new investors with respect to the number of shares purchased from us, the total consideration paid and the average price per share paid:
Shares Purchased Total Consideration
------------------- -------------------- Average Price
Number Percent Amount Percent Per Share
----------- ------- ------------ ------- -------------
Existing shareholders... 100,000,000 92.7% $ 5,009,000 3.2% $ 0.05
New investors........... 7,875,000 7.3 149,625,000 96.8 19.00
----------- ----- ------------ -----
Total................. 107,875,000 100.0% $154,634,000 100.0%
=========== ===== ============ =====
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The foregoing tables and calculations assume no exercise by the underwriters of their over-allotment option and no exercise of outstanding employee stock options. We have reserved 3,500,000 common shares for issuance under our 2000 Equity Incentive Plan and 50,000 common shares for issuance under our 2000 Non-Employee Directors' Option Plan. We expect to have options for approximately 1,200,000 common shares outstanding at the completion of this offering, all of which will have a per share exercise price equal to the initial public offering price of the common shares in this offering. In addition, we have reserved 1,000,000 common shares for issuance under our Employee Stock Purchase Plan. Immediately following this offering, a company stock fund will be added to Garmin International, Inc.'s Savings and Profit Sharing Plan. We expect to reserve 500,000 common shares for issuance under that Plan. To the extent that the over-allotment option or outstanding options are exercised, there may be further dilution to new investors.
CAPITALIZATION
The following table sets forth our capitalization as of September 23, 2000. Our capitalization is presented on an actual basis and on an as adjusted basis to reflect the issuance and sale of 7,875,000 common shares offered by Garmin Ltd. at an assumed initial public offering price of $19.00 per share, the mid-point of the estimated price range set forth on the prospectus cover page after deduction of underwriting fees and offering expenses payable by us.
You should read this table in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the notes thereto, included elsewhere in this prospectus.
As of
September 23, 2000
---------------------
As
Adjusted
for the
Actual Offering
--------- ----------
(Dollars in
thousands)
Cash and cash equivalents................................ $ 135,968 $ 274,767
========= =========
Long-term debt........................................... $ 47,907 $ 47,907
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; no shares issued and outstanding........ -- --
Common stock, $0.01 par value; 500,000,000 shares
authorized; 100,000,000 shares issued and
outstanding actual; 107,875,000 shares issued and
outstanding as adjusted for the offering............ 1,000 1,079
Additional paid-in capital............................. 29,593 168,313
Retained earnings...................................... 225,529 225,529
Accumulated other comprehensive loss................... (10,227) (10,227)
--------- ---------
Total stockholders' equity........................... 245,895 384,694
--------- ---------
Total capitalization................................. $ 293,802 $ 432,601
========= =========
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The information in the table above assumes no exercise by the underwriters of their over-allotment option and no exercise of employee stock options. We expect to grant options for a total of 1,200,000 common shares to our employees under our 2000 Equity Incentive Plan immediately prior to the offering.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present our selected financial data. The information set forth below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and notes to those statements included in this prospectus. We have prepared the consolidated financial data below using the consolidated financial statements of Garmin Ltd. for each of the five fiscal years in the period ended December 25, 1999 and the nine month periods ended September 25, 1999 and September 23, 2000. The consolidated financial statements for each of the five fiscal years in the period ended December 25, 1999 have been audited by Ernst & Young LLP, independent auditors.
The financial statements as of and for the nine month periods ended September 25, 1999 and September 23, 2000 have not been audited, but in the opinion of management, include all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of our financial position and results of operations for these periods. This data should be read together with our consolidated financial statements and the notes to those statements included in the prospectus. The results of operations for any interim period are not necessarily indicative of the results of operations that may be expected for a full fiscal year.
Nine Months
Years Ended (1) Ended (1)
----------------------------------------------- -----------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
Consolidated Statements
of
Income Data:
Net sales............. $102,474 $135,874 $160,280 $169,030 $232,586 $164,536 $260,079
Cost of goods sold.... 55,446 77,616 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 47,028 58,258 66,660 86,243 126,932 88,106 140,969
Operating expenses:
Selling, general and
administrative.... 13,935 17,720 17,102 24,680 27,063 19,195 23,678
Research and
development....... 7,703 10,383 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 21,638 28,103 29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- -------- -------- --------
Operating income...... 25,390 30,155 36,901 46,687 82,530 56,435 101,817
Other income, net
(2)................ 558 818 11,971(3) 833 1,602 698 351
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.............. 25,948 30,973 48,872 47,520 84,132 57,133 102,168
Provision for income
taxes.............. 2,869 7,943 12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- -------- -------- --------
Net income........... $ 23,079 $ 23,030 $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ======== ======== ========
Net income per share
(basic
and diluted)...... $ 0.23 $ 0.23 $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ======== ======== ========
Weighted average
common shares
outstanding (basic
and diluted)...... 98,876 98,876 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ======== ======== ========
Cash dividends per
share (4).......... $ 0.04 $ 0.03 $ 0.09 $ 0.12 $ 0.13 $ 0.13 $ 0.29
======== ======== ======== ======== ======== ======== ========
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As of (1) As of (1)
------------------------------------------------ ------------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands)
Balance Sheet Data:
Cash and cash
equivalents........ $ 18,097 $ 37,073 $ 64,243 $ 80,360 $104,079 $ 94,644 $135,968
Total assets.......... 91,440 118,775 143,482 174,532 254,645 216,518 340,104
Total debt(5)......... 14,533 14,275 15,823 9,708 27,720 9,345 47,907
Total stockholders'
equity............. 63,981 86,047 104,204 135,940 194,599 167,925 245,895
Nine Months
Years Ended (1) Ended (1)
------------------------------------------------ ------------------
Sept. Sept.
Dec. 31, Dec. 31, Dec. 31, Dec. 26, Dec. 25, 25, 23,
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(In thousands)
Other Data:
Net cash provided by
(used in):
Operating activities.. $ 9,565 $ 27,094 $ 39,868 $ 36,548 $ 44,342 $ 34,040 $ 61,665
Investing activities.. (11,709) (3,870) (2,615) (9,339) (32,302) (10,387) (23,036)
Financing activities.. 10,255 (4,182) (3,408) (12,126) 10,153 (7,864) (8,959)
|
(2) Other income, net mainly consists of interest income, interest expense and
foreign currency gain/(loss).
(3) Includes a $10 million foreign currency gain.
(4) Represents cash dividends per share based on the actual number of shares outstanding at the time of the dividend, as adjusted for the 1.12379256 for 1 stock split of our common shares, which will be effected through a stock dividend prior to the offering.
(5) Total debt consists of notes payable and long-term debt.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the financial condition and results of operations is based on the consolidated financial statements included in this prospectus which were prepared to reflect the consolidated financial position, results of operations and cash flows of Garmin Ltd. and subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to, those described under "Risk Factors" and elsewhere in this prospectus. The following discussion should be read in conjunction with our consolidated financial statements contained elsewhere in this prospectus.
Overview
We are a leading worldwide provider of navigation, communications and information devices, most of which are enabled by Global Positioning System, or GPS, technology. We operate in two business segments, the consumer and aviation markets. Both of our segments offer products through our network of independent dealers and distributors. However, the nature of products and types of customers for the two segments vary significantly. As such, the segments are managed separately. Our consumer segment includes portable GPS receivers and accessories for marine, recreation, land and automotive use sold primarily to retail outlets. Our aviation products are portable and panel-mount avionics for Visual Flight Rules and Instrument Flight Rules navigation and are sold primarily to retail outlets and certain aircraft manufacturers.
Since our first products were delivered in 1991, we have generated positive income from operations each year and have funded our growth from these profits. Our sales have increased at a compounded annual growth rate of 23% since 1995 and our net income has increased at a compounded annual growth rate of 29% since 1995. All of this growth has been organic; none has occurred as a result of any acquisition or merger.
Since our principal locations are in the United States, Taiwan and the U.K., we experience some foreign currency fluctuations in our operating results. The functional currency of our European operations is the British Pound Sterling and the functional currency of our Asian operations is the New Taiwan Dollar. Other than in 1997, when we experienced a $10.0 million foreign currency gain due to a strong U.S. Dollar, we generally have not been significantly affected by foreign currency fluctuations. To date, we have not entered into hedging transactions with either the British Pound Sterling or the New Taiwan Dollar, although we may utilize hedging transactions in the future.
Net Sales
Our net sales are generated through sales to our global dealer and distributor network and to original equipment manufacturers. We recognize sales when products are shipped. Our sales are largely of a consumer nature; therefore backlog levels are not necessarily indicative of our future sales results. We aim to achieve a quick turnaround on orders we receive, and we typically ship most orders within 72 hours.
Net sales are subject to some seasonal fluctuation. Typically, sales of our consumer products are highest in the second quarter, due to increased demand during the spring and summer marine season, and in the fourth quarter, due to increased demand during the holiday buying season. Our aviation products do not experience much seasonal variation, but are more influenced by the timing of the release of new products when the initial demand is typically the strongest.
Gross Profit
The most significant components of our cost of goods sold are raw material, labor and depreciation. Raw material costs, which are our most significant cost item, generally have not fluctuated materially as a percentage of sales since early 1998, when we negotiated lower raw material costs with our key suppliers. As a result, gross profit increased substantially as a percentage of sales in 1998 from that realized in prior years.
In the last twelve months, we have experienced upward pricing pressures on our high technology components, but have offset these with efficiencies in our manufacturing processes. Our existing practice of performing in-house the design and manufacture of our products has enabled us to utilize alternative lower cost components from different suppliers and, where necessary, to redesign our products to permit us to use these lower cost components. We believe that because of our practice of performing in-house the design, manufacture and marketing of our products, both the Taipei, Taiwan and Olathe, Kansas manufacturing plants have experienced relatively low costs of manufacturing, compared to our competition. In general, products manufactured in Taiwan have been our highest volume products. Our manufacturing labor costs historically have been lower in Taiwan than in Olathe.
Sales price variability has had and can be expected to have an effect on our gross profit. In the past, prices of some of our handheld devices sold into the consumer market have declined due to market pressures and introduction of new products sold at lower price points. The average selling prices of our aviation products have increased due to the introduction of more advanced and innovative products. In conjunction with the effects of lower labor costs experienced on Taiwan production, the effect of the sales price variability inherent within the mix of GPS-enabled products sold could have a significant impact on our gross profit.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses consist primarily of:
. salaries for sales and marketing personnel;
. salaries and related costs for executives and administrative personnel;
. advertising, marketing, and other brand building costs;
. accounting and legal costs;
. information systems and infrastructure costs;
. travel and related costs; and
. occupancy and other overhead costs.
Since we plan to increase market penetration in the future, we expect selling, general and administrative expenses to continue to increase for the foreseeable future. However, a majority of
these expenses are relatively fixed and would not be expected to increase as significantly as sales. We also intend to increase advertising and marketing expenses in order to build increased brand awareness in the consumer marketplace. We do not anticipate that these increased expenses will significantly impact our financial results in 2000 and subsequent periods.
Research and Development
The majority of our research and development costs represent salaries for our engineers, costs for high technology components used in product and prototype development, and costs of test equipment needed during product development.
We have continued to grow our research and development capabilities since our inception. Substantially all of the research and development of our products is performed in the United States.
We are committed to increasing the level of innovative design and development of new products as we strive for expanded ability to serve our existing consumer and aviation markets as well as new markets for GPS-enabled devices. We continue to grow our research and development budget on absolute terms and are experiencing accelerating returns on our research and development investment as net sales increase.
Customers
No customer accounted for greater than 10% of our sales in the year ended December 25, 1999. Our top ten customers accounted for approximately 29% of net sales. We have experienced average sales days in our customer accounts receivable of 35 days since 1997.
Income Taxes
We have experienced a relatively low effective tax rate in Taiwan due to lower marginal tax rates and substantial tax incentives offered by the Taiwanese government on certain high-technology capital investments. Therefore, profits earned in Taiwan have been taxed at a lower rate than those in the United States and Europe. As a result, our consolidated effective tax rate was approximately 24% during 1999. We have taken advantage of this tax benefit in Taiwan since our inception and we expect to continue to benefit from lower effective tax rates at least through 2004. The current Taiwan tax incentives terminate at the end of 2004. Additional incentives could be available after 2004 depending on whether or not the Taiwan government chooses to continue their current tax incentive policies. However, there can be no assurance that such tax incentives will be available after 2004.
Results of Operations
The following table sets forth our results of operations as a percentage of net sales during the periods shown:
Fiscal
Fiscal Years Ended Nine Months Ended
-------------------------- -------------------
Dec. 31, Dec. 26, Dec. 25, Sept. 25, Sept. 23,
1997 1998 1999 1999 2000
-------- -------- -------- --------- ---------
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............. 58.4% 49.0% 45.4% 46.5% 45.8%
----- ----- ----- ----- -----
Gross profit................... 41.6% 51.0% 54.6% 53.5% 54.2%
Operating expenses:
Selling, general and
administrative............... 10.7% 14.6% 11.6% 11.6% 9.1%
Research and development....... 7.9% 8.8% 7.5% 7.6% 6.0%
----- ----- ----- ----- -----
Total operating expenses....... 18.6% 23.4% 19.1% 19.2% 15.1%
----- ----- ----- ----- -----
Operating income............... 23.0% 27.6% 35.5% 34.3% 39.1%
Other income, net.............. 7.5% 0.5% 0.7% 0.4% 0.2%
----- ----- ----- ----- -----
Income before income taxes..... 30.5% 28.1% 36.2% 34.7% 39.3%
Provision for income taxes..... 8.0% 7.3% 8.6% 8.2% 9.3%
----- ----- ----- ----- -----
Net income..................... 22.5% 20.8% 27.6% 26.5% 30.0%
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The following table sets forth our results of operations for each of our two segments through income before income taxes during the periods shown. For each line item in the table, the total of the consumer and aviation segments' amounts equals the amount in the consolidated statements of income included in this prospectus.
Fiscal Years Ended Fiscal Nine Months Ended
----------------------------------------------------- -----------------------------------
Dec. 31, 1997 Dec. 26, 1998 Dec. 25, 1999 Sept. 25, 1999 Sept. 23, 2000
----------------- ----------------- ----------------- ----------------- -----------------
Consumer Aviation Consumer Aviation Consumer Aviation Consumer Aviation Consumer Aviation
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
Net sales............... $122,025 $38,255 $135,446 $33,584 $169,164 $63,422 $121,125 $43,411 $173,322 $86,757
Cost of goods sold...... 76,271 17,349 68,787 14,000 78,088 27,566 58,715 17,715 83,102 36,008
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Gross profit............ 45,754 20,906 66,659 19,584 91,076 35,856 62,410 25,696 90,220 50,749
Operating expenses:
Selling, general and
administrative........ 13,063 4,039 20,047 4,633 20,486 6,577 14,689 4,506 17,385 6,293
Research and
development........... 7,808 4,849 9,177 5,699 11,431 5,908 8,097 4,379 9,708 5,766
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total operating
expenses.............. 20,871 8,888 29,224 10,332 31,917 12,485 22,786 8,885 27,093 12,059
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Operating income........ 24,883 12,018 37,435 9,252 59,159 23,371 39,624 16,811 63,127 38,690
Other income (expense).. 9,114 2,857 500 333 1,291 311 564 134 718 (367)
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Income before income
taxes................. $ 33,997 $14,875 $ 37,935 $ 9,585 $ 60,450 $23,682 $ 40,188 $16,945 $ 63,845 $38,323
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Nine Months Ended September 23, 2000 and September 25, 1999
Net Sales
Our net sales were $260.1 million in the nine months ended September 23, 2000, a 58% increase over net sales of $164.5 million in the nine months ended September 25, 1999. The increase in sales during this period was driven by increased demand across nearly all product lines which reflects the overall growth of the GPS market. Sales from our consumer products accounted for 66.6% of net sales in the nine months ended September 23, 2000 compared to 73.6% of net sales in the nine months ended September 25, 1999. Sales from our aviation products accounted for 33.4% of net sales in the nine months ended September 23, 2000 compared to 26.4% of net sales in the nine months ended September 25, 1999. Net sales increased $52.2 million, or 43%, in the consumer segment and $43.3 million, or 100%, in the aviation segment. In May 2000, President Clinton withdrew the prior government degradation placed on GPS accuracy. Although difficult to quantify, management believes that the withdrawal of this degradation has helped drive increased demand for and sales of consumer GPS devices in 2000. The aviation sales growth was driven by new products introduced in early 2000 and continued strong demand of our panel mount aviation products that were introduced in early 1999.
Gross Profit
Gross profit was $141.0 million in the nine months ended September 23, 2000, a 60% increase over gross profit of $88.1 million in the nine months ended September 25, 1999. Gross profit as a percent of net sales increased to 54.2% in the nine months ended September 23, 2000 from 53.5% in the nine months ended September 25, 1999 due primarily to the effects of increased efficiencies from higher volume across all products and the 7.0 percentage point shift in the mix to higher margin aviation sales. Gross profit increased $27.8 million, or 45%, in the consumer segment and $25.1 million, or 97%, in the aviation segment, both percentage increases of which are comparable to the percentage increases in segment net sales.
Selling, General and Administrative Expenses
Despite a 58% increase in net sales, selling, general and administrative expenses only increased 23%, to $23.7 million (9.1% of net sales) in the first nine months of 2000 from $19.2 million (11.6% of net sales) in the first nine months of 1999. Selling, general and administrative expenses increased $2.7 million, or 18%, in the consumer segment and $1.8 million, or 40%, in the aviation segment. The increase in expense reflects increased employment generally across the organization but also specifically in the areas of customer service and marketing, in support of our increased sales in both segments. The percentage increase was higher in the aviation segment than in the consumer segment due to the significant increase in aviation net sales as compared to consumer sales growth. We also experienced an increase in our cooperative advertising costs, which is an ongoing program with our key dealers and distributors in both segments. The selling, general and administrative expenses are expected to increase at a significantly lower rate than sales in both segments due to the effects of increased volume on these relatively fixed costs.
Research and Development Expense
Research and development expense increased approximately 24% to $15.5 million (6.0% of net sales) in the first nine months of 2000 from $12.5 million (7.6% of net sales) in the first nine months of 1999. Research and development expense increased $1.6 million, or 20%, in the consumer
segment and $1.4 million, or 32%, in the aviation segment. The increase in expense was due primarily to additional product development costs in both consumer and aviation segments as well as additional software development in the consumer segment. The percentage increase was higher in the aviation segment due to the increasing demand for additional features and functionality in the panel mount and other aviation product lines.
Other Income (Expense)
Other income (expense) principally consists of interest income, interest expense and foreign currency exchange gains and losses. Other income (expense) for the first nine months of 2000 amounted to $0.4 million compared to $0.7 million in the first nine months of 1999. Interest income for the first nine months of 2000 amounted to $4.4 million compared to $2.7 million in the first nine months of 1999. Interest expense increased to $2.3 million in the first nine months of 2000 from $0.4 million in the first nine months of 1999, due primarily to the additional long-term debt required to finance the 1999 purchase of our new Taiwan facility and further expand our Olathe, Kansas facility in 2000. We recognized a foreign currency exchange loss of $1.4 million in the first nine months of 2000 compared to a $1.1 million loss in the first nine months of 1999 due to a weakness of the U.S. Dollar compared to the New Taiwan Dollar during the first nine months of 2000.
Income Tax Provision
Income tax expense increased by $10.5 million, to $24.1 million, in the first nine months of 2000 from $13.6 million in the first nine months of 1999, due to our higher taxable income. The effective tax rate was 23.6% in the first nine months of 2000 versus 23.7% in the first nine months of 1999.
Net Income
As a result of the above, net income in the nine months ended September 23, 2000 was $78.1 million compared to $43.6 million in the nine months ended September 25, 1999.
Fiscal Year Ended December 25, 1999 Compared to Fiscal Year Ended December 26, 1998
Net Sales
Our net sales increased 38%, to $232.6 million, in fiscal 1999, from $169.0 million in fiscal 1998. Net sales from our consumer products accounted for 72.7% of net sales in fiscal 1999 compared to 80.1% of net sales in fiscal 1998. Net sales from our aviation products accounted for 27.3% of net sales in fiscal 1999 compared to 19.9% of net sales in fiscal 1998. Net sales increased $33.7 million, or 25%, in the consumer segment and $29.8 million, or 89%, in the aviation segment. The aviation sales growth was driven by continued strong demand for new products introduced in early 1998 and significant demand for our panel mount aviation products that were introduced in early 1999. The consumer products sales growth was driven by new handheld products introduced in 1999.
Gross Profit
Gross profit increased 47%, to $126.9 million, in fiscal 1999, from $86.2 million in fiscal 1998. Gross profit as a percent of net sales increased to 54.6% in fiscal 1999, from 51.0% in fiscal
1998, due primarily to the effects of increased manufacturing efficiencies due to higher volume and favorable product mix associated with the incremental sales of aviation products. Gross profit increased $24.4 million, or 37%, in the consumer segment and $16.3 million, or 83%, in the aviation segment. Gross profit as a percentage of consumer net sales increased to 53.8% in fiscal 1999 from 49.2% in fiscal 1998 due to increased sales of higher margin recreational products introduced in 1999. Gross profit as a percentage of aviation net sales decreased to 56.5% in fiscal 1999 from 58.3% in fiscal 1998 due to a slight shift in the aviation sales mix in 1999 to panel mount products, which sell at slightly lower margins than portable aviation products.
Selling, General and Administrative Expenses
Despite a 38% increase in net sales, selling, general and administrative expenses increased only 10%, to $27.1 million (11.6% of net sales), in fiscal 1999, from $24.7 million (14.6% of net sales) in fiscal 1998. Selling, general and administrative expenses increased $0.4 million, or 2%, in the consumer segment and $1.9 million, or 42%, in the aviation segment. The increase in expense was driven primarily by increased advertising costs and additional marketing and administrative staff needed to support the increased sales during 1999, particularly in the aviation segment. The percentage increase was much higher in the aviation segment than in the consumer segment due to the significant increase in aviation net sales. Again, the selling, general and administrative expenses increased at a lower rate than sales in both segments, as expected, due to the effects of increased volume on relatively fixed costs.
Research and Development Expense
Research and development expense increased approximately 17%, to $17.3 million (7.5% of net sales), in fiscal 1999, from $14.9 million (8.8% of net sales) in fiscal 1998. Research and development expense increased $2.3 million, or 25%, in the consumer segment and $0.2 million, or 4%, in the aviation segment. The increase in expense was due primarily to additional product development costs in the consumer segment related to increases in the engineering staff dedicated to new product development initiatives in this segment. Research and development expense in the aviation development segment experienced little change in 1999 as development of the new family of panel mount aviation products was completed in late 1998 and required less continuing development effort in 1999.
Other Income (Expense)
Other income (expense) for fiscal 1999 amounted to $1.6 million, compared to $0.8 million in fiscal 1998. Interest income for 1999 amounted to $4.3 million, compared to $3.5 million in fiscal 1998. Interest expense increased to $0.6 million in fiscal 1999 from $0.5 million in fiscal 1998. No additional debt was undertaken during fiscal 1998 and 1999, with the exception of a new facility purchased in Taiwan late in fiscal 1999. We recognized a foreign currency exchange loss of $1.5 million in fiscal 1999, compared to $2.2 million loss in fiscal 1998, due to weakness of the U.S. Dollar compared to the New Taiwan Dollar in both years.
Income Tax Provision
Income tax expense increased by $7.6 million, to $20.0 million, in fiscal 1999, from $12.4 million in fiscal 1998, due to our higher taxable income. The effective tax rate was 23.7% in fiscal 1999 versus 26.0% in fiscal 1998. This decrease was driven primarily by added tax incentives made available by the Taiwanese government in 1999.
Net Income
As a result of the above, net income in fiscal 1999 was $64.2 million compared to $35.2 million in fiscal 1998.
Fiscal Year Ended December 26, 1998 Compared to Fiscal Year Ended December 31, 1997
Net Sales
Our net sales increased 5%, to $169.0 million, in fiscal 1998, from $160.3 million in fiscal 1997. Net sales from our consumer products accounted for 80.1% of net sales in fiscal 1998, compared to 76.1% of net sales in fiscal 1997. Net sales from our aviation products accounted for 19.9% of net sales in fiscal 1998, compared to 23.9% of net sales in fiscal 1997. Net sales increased $13.4 million, or 11%, in the consumer segment and decreased $4.7 million, or 12% in the aviation segment. The increase in consumer products sales was driven by key introductions of new recreational and marine products during 1998. The reduction in sales of our aviation products in fiscal 1998 was driven by the tendency of our customers to postpone orders in anticipation of new products which were announced during 1998 but not shipped until early 1999.
Gross Profit
Gross profit increased 29%, to $86.2 million, in fiscal 1998, from $66.7 million in fiscal 1997. Gross profit as a percent of net sales increased to 51.0% in fiscal 1998, from 41.6% in fiscal 1997, due primarily to significantly reduced material costs. Material cost reductions designed into next generation products sold in 1998 drove additional margin improvement. Gross profit increased $20.9 million, or 46%, in the consumer segment and decreased $1.3 million, or 6%, in the aviation segment. Gross profit as a percentage of consumer net sales increased to 49.2% in fiscal 1998 from 37.5% in fiscal 1997 due primarily to the material cost reductions negotiated with certain key suppliers. Gross profit as a percentage of aviation net sales increased to 58.3% in fiscal 1998 from 54.6% in fiscal 1997, despite the decline in net sales, due to a reduction in sales of certain lower margin aviation panel mount products as a percentage of total aviation sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 44%, to $24.7 million (14.6% of net sales), in fiscal 1998, from $17.1 million (10.7% of net sales) in fiscal 1997. Selling, general and administrative expenses increased $7.0 million, or 53%, in the consumer segment and $0.6 million or 15% in the aviation segment. The increase in expense was driven primarily by additional investments in marketing and administrative staff in anticipation of new product shipments across all product lines that did not materialize until early 1999. During 1998, we also incurred a $2.5 million charge
pursuant to a dispute resolution that also provided us a license on certain of our consumer segment GPS-enabled products. As a result, selling, general and administrative expenses as a percentage of net sales increased to 14.8% in fiscal 1998 from 10.7% in fiscal 1997 in the consumer segment and increased to 13.8% in fiscal 1998 from 10.6% in fiscal 1997 in the aviation segment.
Research and Development Expense
Research and development expense increased approximately 18%, to $14.9 million (8.8% of net sales), in fiscal 1998, from $12.7 million (7.9% of net sales) in fiscal 1997. Research and development expense increased $1.4 million, or 18%, in the consumer segment and $0.9 million, or 18%, in the aviation segment. The increases were due primarily to additional product development costs in both consumer and aviation segments as well as additional software development.
Other Income (Expense)
Other income (expense) for fiscal 1998 amounted to $0.8 million, compared to $12.0 million in fiscal 1997. Interest income for 1998 amounted to $3.5 million, compared to $2.6 million in fiscal 1997. Interest expense was $0.5 million in fiscal 1998, compared to $0.9 million in fiscal 1997. No additional debt was undertaken during fiscal 1997 and 1998. We recognized a foreign currency exchange loss of $2.2 million in fiscal 1998 compared to a gain of $10.0 million in fiscal 1997 due to the significant strength of the U.S. Dollar compared to the New Taiwan Dollar during 1997. Other income (expense) decreased $8.6 million, or 95%, in the consumer segment and $2.5 million, or 88%, in the aviation segment, due primarily to the effects of the foreign currency loss experienced in 1998 compared to the significant foreign currency gain experienced in 1997 in both segments.
Income Tax Provision
Income tax expense decreased by $0.4 million to $12.4 million in fiscal 1998 from $12.8 million in fiscal 1997 reflecting the decreased taxable income in 1998. The effective tax rate was 26.0% in fiscal 1998 versus 26.1% in fiscal 1997, a rate lower than the United States statutory rate, primarily due to lower tax rates on Taiwan source income.
Net Income
As a result of the above, net income in fiscal 1998 was $35.2 million compared to $36.1 million in fiscal 1997.
Selected Quarterly Information
The following tables present our operating results for each of the ten fiscal quarters in the period ended September 23, 2000 in dollars. The information for each of these quarters is unaudited and has been prepared on the same basis as the audited annual consolidated financial statements included in this prospectus. In the opinion of management, all necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present the unaudited quarterly results. This data should be read together with our consolidated financial statements and the notes to those statements included in the prospectus.
The historical financial information may not be indicative of our future performance. We expect that quarterly sales may fluctuate significantly.
Three Months Ended
---------------------------------------------------------------------------------------------------
June 27, Sept. 26, Dec. 26, March 27, June 26, Sept. 25, Dec. 25, March 25, June 24, Sept. 23,
1998 1998 1998 1999 1999 1999 1999 2000 2000 2000
-------- --------- -------- --------- -------- --------- -------- --------- -------- ---------
(unaudited)
(in thousands)
Consolidated Statements
of Income:
Net sales.............. $48,641 $40,792 $40,175 $50,949 $55,446 $58,141 $68,050 $76,576 $93,964 $89,539
Cost of goods sold..... 21,578 20,241 22,269 24,453 25,990 25,987 29,224 34,663 43,939 40,508
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........... 27,063 20,551 17,906 26,496 29,456 32,154 38,826 41,913 50,025 49,031
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and
administrative..... 5,245 6,062 8,730 6,352 6,082 6,761 7,868 7,091 7,984 8,603
Research and
development. 3,582 3,643 4,278 3,806 4,130 4,540 4,863 4,706 5,013 5,755
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............. 8,827 9,705 13,008 10,158 10,212 11,301 12,731 11,797 12,997 14,358
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income....... 18,236 10,846 4,898 16,338 19,244 20,853 26,095 30,116 37,028 34,673
Other income
(expense)............ 3,250 2,274 (5,710) 3,582 (1,688) (1,196) 904 (3,152) 1,143 2,360
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes......... 21,486 13,120 (812)(1) 19,920 17,556 19,657 26,999 26,964 38,171 37,033
Income tax provision
(benefit)............ 5,586 3,411 (211) 4,727 4,166 4,665 6,407 6,365 9,010 8,741
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).... $15,900 $ 9,709 $ (601) $15,193 $13,390 $14,992 $20,592 $20,599 $29,161 $28,292
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(1) Includes the effects of a $2.5 million selling, general and administrative charge pursuant to a one-time legal settlement and a $6.6 million foreign currency loss due to the weakness of the U.S. Dollar compared to the New Taiwan Dollar.
Liquidity and Capital Resources
Net cash generated by operating activities was $39.9 million, $36.5 million and $44.3 million in fiscal 1997, 1998 and 1999, respectively, and was $34.0 million and $61.7 million during the first nine months of 1999 and 2000, respectively. We operate with a strong customer driven approach and therefore carry sufficient inventory to meet customer demand. Because we desire to respond quickly to our customers and minimize order fulfillment time, our inventory levels are generally high enough to meet most demand. We also attempt to carry sufficient inventory levels on key components so that potential supplier shortages have as minimal an impact as possible on our ability to deliver our finished products. We do not anticipate that our inventory management techniques will have a negative impact on our financial results in the future.
During the first nine months of 2000, our capital expenditures totaled $16.4 million. In fiscal 1997, 1998 and 1999, our capital expenditures totaled approximately $2.7 million, $8.3 million and $32.2 million, respectively. These expenditures were incurred primarily to increase our manufacturing capacity both in the United States and in Taiwan. A significant investment was made in 1999 in our Taiwan facilities.
We financed these capital expenditures through net operating cash flow, debt from outside financial institutions and capital leases. We also made use of capital leases to finance part of our capital expenditures programs during 1997 and 1998.
As a result of our continuing expansion plans, capital expenditures in 2000 are expected to be in line with 1999 capital expenditures. The 2000 expenditures are primarily for our Olathe, Kansas building and land expansion project that is approximately 55% complete. We expect our needs for capital in 2001 to be less than in 2000 since the current expansions will be nearly complete. We expect our future capital requirements to consist primarily of purchases of production machinery and equipment to expand capacity. A portion will also be used for conversion of available space in our Olathe, Kansas building for assembly use and expansion of our testing operations using our recently acquired facility in Shijr, Taiwan. We may use a portion of the net proceeds from this offering to acquire targeted strategic businesses.
We believe that our existing cash balances, cash flow from operations and the net proceeds from this offering will be sufficient to meet our projected capital expenditures, working capital and other cash requirements at least through the end of fiscal 2001.
Dividends paid to stockholders were $3.6 million, $6.0 million, $7.5 million and $29.0 million in fiscal 1997, 1998, 1999 and 2000, respectively. Included in dividends for fiscal 2000 was a special one-time dividend of $17.4 million that was paid in order to provide funds to shareholders to pay withholding taxes and stock transfer taxes related to the reorganization of Garmin Corporation. We do not anticipate paying additional dividends in the foreseeable future.
Market Sensitivity
We have market risk primarily in connection with the pricing of our products and services and the purchase of raw materials. Product pricing and raw materials costs are both significantly influenced by semiconductor market conditions. Historically, during cyclical industry downturns, we have been able to offset pricing declines for our products through a combination of improved product mix and success in obtaining price reductions in raw material costs.
Although some fluctuations have occurred, particularly in 1997, we generally have not been significantly affected by foreign exchange fluctuations because the New Taiwan Dollar has proven to be relatively stable since the fourth quarter of 1998. However, more volatile foreign exchange rate fluctuations in the future could have a significant effect on our results of operations.
As of September 23, 2000, we have interest rate risk in connection with our industrial revenue bonds that bear interest at a floating rate. Garmin International, Inc. entered into an interest rate swap agreement to modify the characteristics of $15 million of its outstanding long-term debt from a floating rate to a fixed rate basis. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The gain or loss on interest rate swap agreements is immaterial.
Inflation
We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we
may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.
Recent Accounting Pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities and SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133. These statements require companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 will be effective for our fiscal year ending December 29, 2001. The adoption of Statement No. 133 is not expected to have a material impact on our financial condition or results of operations.
In March 2000, the Financial Accounting Standards Board issued Interpretation No. 44 ("FIN 44") Accounting for Certain Transactions Involving Stock Compensation, and Interpretation of APB Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the definition of employee for purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. As of June 24, 2000, we have not issued any stock compensation awards.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, or "SAB 101", Revenue Recognition, which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. Because our current revenue recognition policies are basically consistent with SAB 101, implementation of SAB 101 is not expected to have a material impact on our financial condition or results of operations.
REORGANIZATION
Garmin Corporation was formed in Taiwan, Republic of China, in January 1990. Prior to the reorganization described below, Garmin Corporation was the parent corporation of the Garmin group. Garmin Corporation currently owns 100% of Garmin International, Inc., a Kansas corporation. Garmin International, Inc. currently owns 100% of Garmin (Europe) Ltd., a U.K. company, 100% of Garmin Foreign Sales Corporation, a Barbados company, and 100% of Garmin Realty, LLC, a Kansas company.
Under the current legal framework of Taiwan, Garmin Corporation is not permitted to offer its shares in the United States except upon compliance with cumbersome regulatory requirements in Taiwan. Therefore, on July 24, 2000, we formed Garmin Ltd. as a holding company for Garmin Corporation in order to facilitate the listing of our common shares in the United States. Subsequently, the stockholders of Garmin Corporation executed a shareholders agreement to transfer to Garmin Ltd. their investments in 88,984,394 common shares of stock of Garmin Corporation. These shares, which represented approximately 100% of the issued and outstanding common stock of Garmin Corporation as of July 24, 2000, were used by the stockholders to pay for their subscriptions to 100,000,000 common shares (post-split) of Garmin Ltd. with a per share par value of $0.01.
As a result of that reorganization, Garmin Ltd., a Cayman Islands corporation, owns 100% of the capital stock of Garmin Corporation, except for one share of Garmin held of record, but not beneficially, by each of six shareholders as nominees to satisfy the Taiwan requirement that Garmin Corporation have at least seven shareholders, and 4,000 shares held by two related shareholders who did not convert their Garmin Corporation shares to shares of Garmin Ltd. These 4,006 shares represent approximately 0.004% of the outstanding shares of Garmin Corporation. In addition, under the shareholders' agreement, shareholders of Garmin Corporation party to the agreement agreed to take all reasonable actions required to prevent the disposition by Garmin Ltd. of any shares of Garmin Corporation or of substantially all of the assets of Garmin Corporation until after December 31, 2005 except upon approval of a majority in interest of such shareholders who are U.S. citizens or residents.
As a result of this reorganization, Garmin Ltd. owns, directly or indirectly, each of Garmin Corporation, Garmin International, Inc., Garmin (Europe) Ltd., Garmin Foreign Sales Corporation and Garmin Realty, LLC.
The diagrams set forth below illustrate the Garmin organization both prior to and after the reorganization discussed above.
Prior to Reorganization in September Post Reorganization
2000
Garmin Ltd.
Garmin
Corporation
(Cayman
Islands)
(Taiwan)
Garmin
Garmin Corporation
International,
Inc.
(Taiwan)
(Kansas)
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Garmin Garmin Garmin
Garmin (Europe) Foreign International,
Realty, LLC Ltd. Sales Inc.
(U.K.) Corporation (Kansas)
(Kansas)
(Barbados) --------------------------
Garmin
Realty, LLC Garmin Garmin
(Europe) Foreign
Ltd. Sales
(Kansas)
(U.K.) Corporation
(Barbados)
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BUSINESS
Company Overview
We are a leading, worldwide provider of navigation, communications and information devices, most of which are enabled by GPS technology. We design, develop, manufacture and market under the GARMIN brand a diverse family of hand-held, portable and fixed mount GPS-enabled products and other navigation, communications and information products. Each of our GPS products utilizes our proprietary integrated circuit and receiver designs to collect, calculate and display location, direction, speed and other information in forms optimized for specific consumer uses.
Our products cover a wide range of applications and price points, ranging from an entry-level handheld GPS receiver that retails for approximately $119 to an avionics instrument suite for general aviation aircraft that retails for approximately $22,000. Based upon independent market surveys, we estimate that in 1999 we had a market share by unit volume of approximately 50% in the North American GPS marine and recreational market, a 59% market share by unit volume of the U.S. general aviation retrofit market for GPS-enabled panel mount applications, and a 76% market share by unit volume of the U.S. market for portable aviation GPS devices. We believe that we have achieved our leading market position by offering a broad range of products for a variety of applications and by developing ergonomically designed and user friendly products with innovative features.
We were founded in 1989 with a goal to be a leading supplier of navigation, communications and information equipment to customers around the world. With an initial staff of 10 individuals, we designed our first product, the GPS 100, and produced working prototypes within a year after we were founded. By January 1991, we established manufacturing facilities in Taiwan and began producing the GPS 100. Initial product deliveries included units that served Allied troops during the Gulf War.
At the time of its introduction in 1990, we believe the GPS 100 was the most versatile GPS product available for a broad range of customers and applications. For example, the GPS 100 could be installed directly in the panel of an aircraft and could interface with a variety of cockpit instruments such as an autopilot or moving map display. The GPS 100 could also be mounted in a boat and interface with a variety of marine electronics, such as an autopilot, chart plotter and ship alarms. It included a battery pack which provided power for portable operation or, if installed in a vehicle, for continued operation if vehicle power was lost, providing life-saving guidance to an aircraft or vessel in distress. By attaching a small antenna the GPS 100 could be operated in a portable mode, providing navigation guidance to hunters, hikers, and other outdoor enthusiasts.
After delivering the GPS 100, we expanded our design, marketing and production capabilities to develop additional products for our target markets. We currently produce approximately 50 different models, including GPS-enabled devices, depth sounders/fishfinders, VHF communications transmitters/receivers, radios, transponders (which transmit either an aircraft's altitude or its flight identification number in response to requests transmitted by ground- based air traffic control radar systems or air traffic avoidance devices on other aircraft) and audio products at our production facilities in Shijr, Taiwan and Olathe, Kansas. These products are sold through a network of approximately 2,500 dealers and distributors around the world.
Our management team still includes the original founders of our company in addition to others with significant experience in our selected markets. We believe this combination of experience and stability has been a key factor in successfully serving our chosen markets and in anticipating the needs of customers as we create new products.
Overview of The Global Positioning System
The Global Positioning System, or GPS, first made available by the U.S. government for commercial use in 1983, is a worldwide navigation system which enables the precise determination of geographic location using established satellite technology. The system consists of a constellation of orbiting satellites. The satellites and their ground control and monitoring stations are maintained and operated by the United States Department of Defense, which maintains an ongoing satellite replenishment program to ensure continuous global system coverage. Access to the system is provided free of charge by the U.S. government.
"Where am I and how can I get to where I want to go?" The Global Positioning System can provide an instant response to this question anywhere in the world. The diagram below illustrates the use of GPS.
. the satellites must be in view,
. a minimum of four satellite signals required, and
. location determined by triangulation
Reception of GPS signals from the satellites requires line-of-sight visibility between the satellites and the receiver. GPS receivers generally do not work indoors and when a receiver is outside, buildings, hills and dense foliage can block reception. GPS receivers can be very compact, and it is not necessary to have a large dish antenna to receive GPS signals.
Prior to May 2000, the U.S. Department of Defense intentionally degraded the accuracy of civilian GPS signals in a process known as Selective Availability ("SA") for national security purposes. SA variably degraded GPS position accuracy to a radius of 100 meters. On May 2, 2000, the U.S. Department of Defense discontinued SA. With SA removed, a GPS receiver can calculate its position to an accuracy of 10 meters or less, significantly enhancing the utility of GPS for most applications.
The accuracy and utility of GPS can be enhanced even further through augmentation techniques which compute any remaining errors in the signal and broadcast these corrections to a GPS device. The FAA is developing a Wide Area Augmentation System ("WAAS") comprising ground reference stations and additional satellites which will improve the accuracy of GPS positioning available in the United States and portions of Canada and Mexico to approximately 3 meters. WAAS is intended to support the use of GPS as the primary means of enroute, terminal and approach navigation for aviation in the United States. The increased accuracy offered by WAAS will also enhance the utility of WAAS-enabled GPS receivers for consumer applications. The FAA has stated that it expects the WAAS system to have initial operating capability in 2002.
Market Opportunity
The market for GPS-enabled products is projected to grow rapidly in the next five years. We believe improved accuracy, primarily as a result of the U.S. government's removal of SA, increased device functionality of GPS applications and the continued trend toward combining navigation, communications and information technologies in an integrated device will drive projected industry growth. We believe that the removal of SA will particularly benefit the consumer and general aviation markets in which we currently maintain leading positions. According to a 2000 report by Frost & Sullivan, the combined North American marine/recreational and aviation GPS market segments, which we currently serve, are projected to grow from an estimated $726 million in 1999 to $1.4 billion in 2005. Allied Business Intelligence, Inc. has forecast in a 1999 report that the worldwide commercial GPS market, which also includes markets in which we do not currently participate, will grow from an estimated $4.9 billion in 1999 to $13.9 billion by 2005, a 19% compound annual growth rate.
To date we have concentrated primarily on the marine, recreational, and aviation markets because of the significant immediate market opportunity available in these markets.
. Marine--Recreational boaters, fisherman, and commercial vessels use GPS receivers for worldwide navigation and locating favorite mooring or fishing spots. According to data from the National Marine Manufacturers Association published in the February 2000 issue of Boating Industry, there were 12,565,981 recreational boats in the United States in 1999 and an additional 483,600 recreational boats were produced in the United States in 1999.
. Recreational--Hikers, hunters, campers and bikers use GPS receivers to navigate through rural and wilderness terrain. Frost & Sullivan estimated that GPS recreational product sales in North America in 1999 were 738,600 units. Frost & Sullivan projects annual recreational GPS product sales in North America alone to exceed 3 million units by 2006.
. Aviation--GPS receivers can be used for en route navigation and landing approaches. Today, FAA certified GPS receivers can be used for non- precision approaches. When the FAA's WAAS system is fully operational, GPS receivers certified in accordance with FAA technical standards orders will be used for precision approaches and will become the primary navigation means for aircraft in the United States. According to the FAA's Aerospace Forecasts published in March 2000, there were a total of 204,700 active general aviation aircraft in the United States in 1998. The FAA's Aerospace Forecasts also state that the U.S. general aviation fleet is projected to grow by about 2,100 aircraft annually through 2005.
These segments will continue to be the core of our business in the near- term. However, GPS capabilities are becoming increasingly commercially viable in a wide range of consumer products and services, including automotive navigation systems, wireless consumer and information devices (such as phones and personal digital assistants), emergency locating services, and tracking/anti-theft products. We intend to continue to be a leader in innovation by capitalizing on the increasing integration of information and location technologies as we expand the utility of, and market for, our devices. We intend to take advantage of our brand name and our product development experience to expand our product line in new GPS markets which we expect to experience significant growth, such as automotive and wireless applications. We currently have products under development for launches into these markets in the next 12 to 24 months.
. Automotive--GPS receivers with detailed street map displays and "turn by turn" guidance currently offer navigational assistance to drivers around the world. We believe that GPS technology will be critical to delivering the next generation of automotive services including telematics and emergency assistance. By linking a GPS receiver to a cellular communications device, a vehicle's location can automatically be transmitted to a base station or emergency service provider in the event of a collision or air bag deployment, improving emergency assistance response times.
Telematics is the combination of communications, entertainment and information within the automotive environment. Automobile manufacturers are increasingly focused on developing telematic solutions/services to enhance the automotive consumer's experience, comfort and safety. Telematic solutions/services include remote system diagnostics to alert the vehicle owner of maintenance issues, mobile commerce ("M-commerce") and "concierge services" such as General Motors' OnStar service. Vehicle location identification plays a meaningful role in delivery of these services. According to J.D. Power-LMC, there are approximately 200 million cars and light trucks in the U.S. alone, out of an estimated total of 621 million globally. J.D. Power-LMC predicts new vehicle deliveries (cars and light trucks) of 17.3 million and 53.3 million by 2005 for North America and globally, respectively. While we believe that telematics represents a significant growth opportunity for us, we expect that near-term penetration of telematics will represent only a small fraction of the total addressable market.
. Wireless--Demand for wireless services is expected to continue to grow rapidly. International Data Corporation ("IDC") predicts that the number of global wireless subscribers will increase from approximately 303 million subscribers in 1998 to 1.1 billion subscribers in 2003, representing a compound annual growth rate of 29%. Increasingly, wireless devices incorporate elements of voice, text messaging, Internet access and navigation/location determination in a single unit. We believe that one of the key attributes of the wireless services markets will be the tailoring of services and content to the specific location of the end-user and that this will be particularly important to the emerging M-commerce industry. GPS is one of several location identification technologies that may be incorporated into wireless devices enabling delivery of location specific content and services, including M-commerce offerings. Emergency assistance mandates may also expand GPS wireless product opportunities. The FCC has ordered that by October 2001
cellular telephone carriers be able to identify an emergency 911 caller's location to within 125 meters. In addition, the European Union is currently investigating similar directives for a European emergency 112 system.
Our Vision and Strategy
Our vision is to continually expand our position as a leading supplier of navigation, communications and information devices to customers around the world. Our goal is to design, produce, market and support innovative products that will expand our leadership in established markets and provide opportunity to serve new markets. The key elements of our strategy include:
Maintain Our Customer Focused Approach To Product Design. Our goal is to serve our customers' needs by designing products that offer superior value, higher quality and lower cost of ownership than our competitors offer. We periodically meet with some of our major independent dealers to seek feedback on our existing products and product concepts that are candidates for design. Our product designers monitor feedback provided by customers through our sales and customer service departments as well as the Internet. We encourage our staff to evaluate product concepts relative to their own every-day life experience in order to visualize how customers will respond to our products. We believe we have strong brand recognition and a loyal customer base and that our customer focused approach has been a key factor in developing these to date.
Emphasize Continuous Innovation. We have introduced industry-leading innovations, ranging from small, low-cost, high performance GPS-enabled devices to products that integrate a broad range of navigation, communications and information technologies. We continually improve our products by adding innovative features and incorporating new technologies that offer improved performance and lower cost. We intend to continue to be a leader in innovation as we expand the utility of, and market for, our devices.
Expand and Broaden Our Product Line. Our goal is to offer a comprehensive line of navigation, communications and information products within each market segment, and to offer a variety of products within each line to appeal to a broad range of customer needs, price points and applications. This strategy allows efficient use of resources and improves the economics of scale within our organization. In addition, we expect to enter the new and rapidly expanding market for devices combining different technologies through the introduction of innovative mobile information appliances, which combine GPS, communications and information capabilities.
Within the consumer market we offer fixed mounted and portable GPS- enabled devices, depth sounders/fishfinders, and VHF communication transmitters/receivers. Within the aviation market we offer panel mounted and portable GPS-enabled devices, traditional VHF navigation receivers, instrument landing receivers, marker beacon receivers, audio panels and digital transponders (which transmit altitude or identification information in response to requests transmitted by ground-based air traffic control radar systems or air traffic avoidance devices on other aircraft). We believe this breadth of market coverage provides our customers a one-stop shopping opportunity and contributes to our strength within our chosen markets.
Within each product line we generally offer multiple products that allow our customers to choose the features and benefits that are most important to them. This approach allows us to better serve the low-end markets with cost- competitive products while our mid-range and high-end entries provide improved profit margins and opportunities to sell accessories.
Maintain and Selectively Expand Our Distribution Network. We intend to expand our global network of approximately 2,500 independent dealers and distributors by developing new dealers in selected markets who meet our standards for sales volume and customer service. We also plan to pursue avenues of distribution that will reach new customers and introduce the utility of our products to new markets. We plan to maintain and expand on our close relationships with our global network of dealers and original equipment manufacturers who provide valuable input to our engineering and marketing teams.
Continue Our Practice of Vertical Integration. Performing in-house the design, manufacturing and marketing functions in providing our products, also known as vertical integration, has enabled us to develop a broad set of core competencies that distinguish us from our competition. Examples include:
. Our modern manufacturing facilities in Shijr, Taiwan and Olathe, Kansas, which we own and operate, unlike many of our competitors who outsource; and
. Our proprietary GPS chipset designs, liquid crystal display modules and software technologies which we believe offer superior performance with higher quality and at lower cost.
We intend to continue integrating vertically whenever superior results can be achieved. We continually evaluate technologies and processes and elect to develop those that will differentiate our products from a potentially large field of competitors. In some cases we may elect to partner with others that offer significant technology components. For example, we have licensed technologies from Qualcomm, Inc., a leading supplier of wireless technology, and from Etak, Inc. and Navigation Technologies, Inc, the leading suppliers of automotive mapping information.
Products
We have achieved a leading market position and a record of growth in revenues and profits by offering ergonomically designed, user friendly products with innovative features and designs covering a broad range of applications and price points.
Consumer
We currently offer a wide range of consumer products, including handheld GPS receivers, our StreetPilot(R) portable automotive navigation devices and fixed-mount GPS/Sounder products, targeted toward the marine and recreational market segments. We believe our consumer products are known for their value leadership, high performance, innovation and ergonomics. Many of our products are optimized for outdoor enthusiasts. For example, our popular eTrex(TM) product, is the smallest, full-featured handheld GPS receiver which is waterproof and rugged. Its unique design locates all control buttons on the side of the unit so that it can be conveniently held and operated with one hand. eTrex retails in the U.S. for approximately $119. Our exclusive TracBack(R) feature, found on many of our GPS receivers, further enhances GPS functionality as it automatically creates an "electronic breadcrumb" trail as you travel that can lead you back to your starting place. Based on data from the 1999 Frost & Sullivan report, we believe that we lead the North American marine and recreational GPS market with approximately 50% unit volume share in the combined market segments we serve.
In addition to our products, we offer a broad set of accessories from which we believe a customer can achieve even more value from our products. For instance, our line of MapSource CDs, which can be loaded into selected GPS products through a personal computer, provide detailed mapping information for the United States as well as a number of European countries. With this information, our StreetPilot, StreetPilot ColorMap and eMap(TM) products can provide the customer with detailed information concerning business listings and points of interest. A user can enter a street address or choose a business listing (e.g., restaurants, hotels, and shops) and the unit will display the location of the destination on a map along with the user's location and the distance from the user's location.
The table below includes a sampling of the innovative products that we currently offer to consumers.
eMap Pocket-size GPS with built-in basic map showing highways
and major streets for personal use and business travel.
MapSource compatibility allows street level mapping,
points of interest and address location functionality.
eMap introduces benefits of GPS to a new class of
consumers.
eTrex & eTrex Summit Ultra compact full feature handheld GPS design for
outdoor enthusiasts. Both models are waterproof and have
rugged designs. The eTrex Summit also offers electronic
compass and barometric altimeter functions. This entry
level recreational product is our fastest growing product
in unit sales.
StreetPilot GPS Portable automotive navigation systems with basic map and
(2 models) MapSource compatibility allowing street level mapping,
points of interest and address location functionality.
The ColorMap model features a color display.
GPS 12 Rugged handhelds for serious outdoor enthusiasts.
(4 models) Capabilities and features available in different GPS 12
models include basic navigation, color graphics, built-in
database of cities, detailed built-in maps and MapSource
compatibility.
GPS 48 Handheld GPS with a built-in database of marine
navigation aids.
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GPS III(2 models) Portable GPS, with unique selectable vertical or
horizontal displays. Capabilities and features available
in different GPS III models include built-in basic maps
and MapSource compatibility.
GPSMAP 175 This portable GPS/Plotter is suitable for avid boaters,
providing fuel and planning functions, distance and
bearing calculations and inland and offshore digital
marine charts. The unit offers a large display and the
capability to access detailed marine charts from G-
Chart(R) cartridges.
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GPS126 & 128 Low cost fixed-mount GPS's for boating with either a
built-in antenna or an external antenna for exposed
installations.
GPSMAP (5 models) Marine GPS/plotter combinations for boating and fishing
enthusiasts of different levels. Features available on
different models include a variety of display sizes
(ranging in size from 4.2 to 7.1 ), high-contrast LCD
graphics, monochrome or 16-color active matrix displays
and the capability of uploading current mapping data from
a personal computer with MapSource CD-ROM's.
GBR 21 & 23 These differential beacon receivers complement all of our
GPS receivers by providing boaters and fisherman
additional positioning accuracy to within approximately 5
meters.
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Sounder products:
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FishFinders All fishfinders feature our exclusive DCG(R) and See-
(3 models) Thru(R) technology, which aid fishermen in defining the
ocean/lake bottom and spotting fish in hidden or obscured
areas.
GPSMAP/Sounder The "all-in-one" product line with GPS, chartplotter and
(3 models) sonar functionality. These units come with different
display sizes (ranging in size from 4.2 to 7.1 ) and the
capability of uploading current mapping data.
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NavTalk A waterproof handheld unit that combines a cellular
telephone and a full-featured GPS receiver with mapping
display. An optional feature offered includes
FirstAssist(TM) emergency service which, at the touch of
a button, connects the user to an emergency response
center and transmits the unit's location to the center.
VHF 720 & 725 Waterproof, portable handheld marine radios with either
3-watt or 5-watt power output provide clear VHF
communication capabilities for all types of boaters.
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Aviation
Our panel mounted product line includes GPS-enabled navigation, VHF communications transmitters/receivers, traditional VHF navigation receivers, instrument landing receivers, digital transponders (which transmit either an aircraft's altitude or its flight identification number in response to requests transmitted by ground-based air traffic control radar systems or air traffic avoidance devices on other aircraft), marker beacon receivers and audio panels. Our goal is to supply every major electronic component in the cockpit, including weather information and primary flight instruments that use the latest display technologies.
Our aviation products have won prestigious awards throughout the industry for their innovative features and ease of use. We were the first company to offer a GPS receiver, the GPS 155/165, which met the FAA's requirements for certain kinds of instrument approaches and did so a full year ahead of our competitors. The GPS 155/165 with its instrument approach capability won Flying Magazine's outstanding achievement award for 1994. The GNS 430/530 offers an unprecedented set of features and capabilities integrated into a single product. This high level of integration has revolutionized the aviation electronics industry by minimizing the use of precious space in the cockpit, enhancing the quality and safety of flight through the use of modern designs and components and reducing the cost of equipping an aircraft with modern electronics. The GNS 430 was also recognized by Flying Magazine as the Editor's Choice Product of the Year for 1998. In 1994 and again in 2000, we earned recognition from the Aircraft Electronics Association for outstanding contribution to the general aviation electronics industry.
According to dealer surveys conducted by the Aircraft Electronics Association ("AEA") for 1999, we lead the U.S. industry, with a 59% share by unit volume of the U.S. GPS panel-mount retrofit market, a 41% share by unit volume of the U.S. audio panel retrofit market and a 76% share by unit volume of portable GPS devices sold to the U.S. aviation market. In addition, AEA estimates that our transponder product line, introduced in 1998, has captured 24% of the U.S. retrofit market share by unit volume.
Large portions of our sales come from the retrofit market where older aircraft are fitted with the latest electronics from our broad product line. We believe this market continues to have good growth potential as aircraft owners elect to upgrade their existing aircraft at a cost that is lower than purchasing a new aircraft.
We have also gained market share as an original equipment manufacturer supplier to leading airframe manufacturers such as the New Piper Aircraft Company, Raytheon Aircraft Company, Mooney Aircraft Corporation and Cirrus Design Corporation. We anticipate further growth in our sales to original equipment manufacturers market as our product offerings expand to include weather information and primary flight instruments that use the latest display technologies.
The table below includes a sampling of the innovative aviation products that we currently offer.
GPS 92
Value-priced unit for recreational pilots with built-in
Jeppesen(R) database. The Jeppesen database includes
airports, navigation beacons, controlled airspace, runway
data and final approach waypoints.
GPS III Pilot Aviation style GPS III, with built-in maps and Jeppesen
database.
GPSMAP 195 Portable GPS receiver with 4.1 moving map display and
built-in aviation database.
GPSMAP 295 A high-end portable GPS receiver designed specifically
for the serious aviator. Features include a 16-color
display and built-in aviation database; it can download
MapSource CD-ROM information through a personal computer
for street level map details.
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GNC 300XL TSO
Instrument Flight Rules ("IFR") certified product that
combines a GPS receiver with VHF radio and features
moving map graphics.
400 Series
The GNS 430 is the world's first "all-in-one" IFR
(3 models) certified GPS navigation receiver/traditional VHF
navigation receiver/instrument landing systems receiver
and VHF communication transmitter/receiver. Features
available in different 400 series models include 4 color
map graphics, GPS, communication and navigation
capabilities.
GNS 530 This unit combines all of the features of the GNS 430
along with a larger 5 color display.
GI-102A & 106A
Course deviation indicators (CDIs). The GI-106A features
an instrument landing system receiver to aid in landing.
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GMA 340 A feature-rich audio panel with six-place stereo intercom
and independent pilot/co-pilot communications
capabilities.
GTX 320 & 327
FAA-certified transponders which transmit altitude or
flight information to air traffic control radar systems
or other aircraft's air traffic avoidance devices and
feature solid-state construction for longer life. The GTX
327 offers a digital display with unique timing
functions.
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NavTalk Pilot Similar to the original NavTalk, this GPS-enabled
cellular telephone, with built-in aviation database,
offers AirCell(R) airborne service so that pilots can
make and receive cellular telephone calls while airborne.
GPSCOM 190
A GPS-enabled handheld with a VHF radio. This unit
combines a portable GPS receiver with an aviation band
communication transmitter/receiver for communication with
airports and air traffic controllers.
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Sales and Marketing
Our consumer products are sold through a worldwide network of approximately 2,500 independent dealers and distributors in approximately 100 countries who meet our sales and customer service qualifications. We intend to selectively grow our dealer network geographically and by product lines. Marketing support is provided geographically from our offices in Olathe, Kansas (North, South and Central America), Romsey, U.K. (Europe, Middle East and Africa) and Shijr, Taiwan (Asia and Australasia). Our distribution strategy is intended to increase our global penetration and presence while maintaining high quality standards to ensure end-user satisfaction.
Our U.S. consumer segment marketing is handled through our dealers who are serviced by a staff of regional sales managers and in-house sales associates. Some of our largest consumer products dealers include:
. Bass Pro Shops--a freshwater sports specialist with a sophisticated catalog sales effort and "super store" locations;
. Boat America/Boat U.S.--A major marine dealer featuring memberships for special buying privileges;
. Boaters World--a leading off-shore marine retailer with multiple locations;
. Cabela's--a major catalogue retailer for the outdoor marine market;
. Wal-Mart--one of the world's largest mass retailers; and
. West Marine--one of the largest U.S. marine retailers specializing in offshore boating equipment.
None of these dealers for our consumer products individually accounted for 10% or more of our total sales during 1999.
Our European consumer segment marketing is handled through in-country distributors who resell to dealers. Working closely with our in-house sales and marketing staff in Romsey, U.K., these distributors are responsible for inventory levels and staff training requirements at each retail location. Our Taiwan-based marketing team handles our Asia marketing effort with support from our U.S. office.
Aviation marketing is handled through dealers around the world. Our largest aviation dealers include Sportsmen's Market, Tropic Aero and JA Air Center. All have the training, equipment and certified staff required for the at-airport installation of our most sophisticated Instrument Flight Rules ("IFR") avionics equipment. Visual Flight Rules ("VFR") equipment including handheld GPS receivers, is sold through dealers, usually at airport locations or through catalogs.
None of these dealers for our aviation products individually accounted for 10% or more of our total sales during 1999. In the aggregate the above named dealers for our consumer products and for our aviation products accounted for approximately 32% of our total sales during 1999.
In addition to the traditional distribution channels mentioned, we enjoy significant market penetration with original equipment manufacturers. In the consumer market, our products are standard equipment on boats manufactured by Ranger Boats and Lund Boat Company. In the aviation market, our avionics are standard equipment on airplanes built by The New Piper Aircraft Company, Raytheon Aircraft Company, Mooney Aircraft Corporation and Cirrus Design Corporation. The qualification process associated with aviation original equipment manufacturer certification represents a significant barrier to entry for our potential competitors in the aviation original equipment manufacturer sales channel. Other airframe and boat manufacturers offer our products as optional equipment.
We believe that customer word-of-mouth has been a significant driver of our brand's success to date, at little cost to us. We expect that our reputation for quality and innovative products and word-of-mouth support will continue to play a significant role in our growth and success. In addition,
we expect to continue our investment in advertising and marketing to further build brand awareness. We expect to maximize the returns on our advertising and marketing budget by focusing on the most direct and cost-effective means to reach our targeted customer base, which includes trade show appearances, event sponsorships, packaging and in-store promotions, direct and dealer co-op advertising, and media/press relations. We believe our significant in-house experience designing campaigns, promotional materials, and media targeting is a significant competitive advantage.
We also emphasize ongoing customer service and support. Customer service representatives, some of whom are pilots and mariners themselves, respond to thousands of support calls each day. Our web site, www.garmin.com, is also playing an increasing role in supporting brand awareness, answering customer questions and serving as a powerful showcase for our products. To avoid distribution channel conflict, however, only product accessories are sold directly through our site. Our site includes information on how to contact an authorized dealer and even links to our dealers' e-commerce sites where customers can directly purchase our products.
Competition
The market for navigation, communications and information products is highly competitive and we expect competition to increase. We believe the principal competitive factors impacting the market for our products are features, quality, design, customer service, brand, price, time-to-market and availability. We believe that we generally compete favorably in these areas. In 1999, we had an estimated market share by unit volume of approximately 50% in the North American marine and recreational market based upon data from an independent market report published by Frost and Sullivan. In 1999, we estimate that we had a 59% market share by unit volume of the U.S. general aviation retrofit market for GPS-enabled panel mount applications and a 76% market share by unit volume of the U.S. market for portable aviation GPS devices based upon data from independent market reports published by the Aircraft Electronics Association.
For our consumer GPS-enabled product lines, we consider our principal competitors to be Magellan Corporation ("Magellan"), a subsidiary of Orbital Sciences, Inc., Lowrance Electronics Inc. ("Lowrance"), Raytheon Marine Company ("Raytheon"), Furuno Electronic Company, MLR, Simrad AS ("Simrad"), the Cetrek division of Teleflex, Inc., Japan Radio Company and Koden Electronics Co., Ltd. For our fishfinder/depth sounder product lines, we consider our principal competitors to be Lowrance and the Humminbird division of Techsonic Industries, Inc. ("Humminbird"). For our marine VHF transceiver product lines, we consider Standard Communications, Shakespeare Corporation, Humminbird, Raytheon, Uniden Corporation, Simrad and Icom, Inc. to be our principal competitors. For our general aviation product lines, we consider our principal competitors to be Lowrance and Magellan, for portable GPS units, and UPS Aviation Technologies, a subsidiary of United Parcel Service, Inc., Honeywell, Inc., Northstar Technologies and Avidyne Corporation for panel-mount GPS and display units. For our wireless product lines, we consider our principal competitors to be Nokia Oy, Telefon AB LM Ericsson, Motorola, Inc. ("Motorola"), Benefon Oy, Siemens AG, Sony Corporation and Samsung. For our original equipment manufacturer product lines, we consider our principal competitors to be Trimble Navigation, Ltd., Conexant, Inc., Magellan, Motorola, Phillips N.V. ("Phillips") and SiRF Technology, Inc. For our automotive product lines, we consider our principal competitors to be Magellan, Alpine Electronics, Inc., Denso KK, Visteon, On- Star Division of General Motors Corporation and Phillips.
Research and Development
We believe that our future success depends upon our ability to continue to develop new products and enhancements to our existing products. We intend to continue to employ a customer focused design approach by providing innovative products that respond to and anticipate customer needs for functionality, design and ease of use. We plan to introduce approximately 25 new products within the next 12 months.
Our product innovations are driven by our strong emphasis on research and development and the close partnership between our engineering and manufacturing teams. Our products are created by our engineering and design staff of approximately 200 people worldwide. Our manufacturing staff includes manufacturing process engineers who work closely with our design engineers to ensure manufacturability and manufacturing cost control for our products. Our design staff includes industrial designers, as well as software engineers, electrical engineers and mechanical engineers. We believe the industrial design of our products has played an important role in our success. Once a development project is initiated and approved, a multi-disciplinary team is created to design the product and transition it into manufacturing. Despite intense competition for engineering professionals, we have been successful in recruiting and retaining a capable staff. We anticipate that our design staff will grow significantly upon the completion of our facility expansion.
Manufacturing and Operations
One of our core competencies is our manufacturing capability at both our Shijr, Taiwan facility and our Olathe, Kansas facility. With the expansion of our Olathe facility underway, we believe that we have sufficient manufacturing capacity to meet current and near-term demand. Our vertically integrated approach has offered us the following competitive advantages:
Reduced time-to-market. Manufacturing a new product requires a close relationship between the product designers and the manufacturing organization in order to minimize the time required introducing a new design to production. Utilizing concurrent engineering techniques, our products are introduced to production at an early development stage and the feedback provided by manufacturing is incorporated into the design before mass production begins. In this manner, we can significantly reduce the time required to move a product from its design phase to mass production deliveries, with improved quality and yields. Reducing time to market has enabled us to offer several industry firsts, such as the NavTalk GPS-enabled wireless phone and the GNC 430, which integrates traditional aviation navigation and communications systems with GPS in a single package.
Design and process optimization. Using our manufacturing resources, we can rapidly prototype design concepts, products and processes in order to achieve higher efficiency, lower cost and best value for the customer. Our ability to fully explore product design and manufacturing process concepts has enabled us to optimize our designs to minimize size and weight in a GPS device that is fully functional, waterproof, and rugged.
Logistical agility. Operating our own manufacturing facilities helps us minimize problems common to the electronics industry, such as component shortages and long component lead times. Many products can be re-engineered to bypass component shortages or reduce cost and the new designs can quickly fill the distribution pipeline. We can react rapidly to changes in market demand
by maintaining a safety stock of long-lead components or by rescheduling components from one product line to another. We pragmatically evaluate manufacturing resources and can elect to sub-contract non-critical assemblies to others in order to maintain our strategic focus.
Our design and manufacturing processes are certified to ISO 9001/2 for superior quality. In addition our aviation panel-mount products are designed according to processes which are approved and monitored by the FAA.
Intellectual Property
Our success and ability to compete is dependent in part on our proprietary technology. We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements, to establish and protect our proprietary rights. As of October 10, 2000, we held 37 U.S. patents and have approximately 40 U.S. patent applications pending. Our U.S. patents do not create any patent rights in foreign countries. In addition, we often rely on licenses of intellectual property for use in our business. For example, we obtain licenses for digital cartography technology for use in our products from various sources. Our registered U.S. trademarks include: GARMIN; the GARMIN logo; the GARMIN globe design; the GARMIN "swoosh" design; STREETPILOT; TRACBACK; DCG; PERSONAL NAVIGATOR; PERSONAL SURVEYOR; GPS II; GPS III; GUIDANCE BY GARMIN; GPSCOM; PHASETRAC 12; TRACPAK; G CHART; GPS 40; MULTITRAC 8; AUTOLOCATE; QUICKFIX, NAVTALK and SEE-THRU. Our mark GARMIN and certain other trademarks have also been registered in selected other countries. Our trademarks include EMAP, ETREX, ETREX SUMMIT, METROGUIDE AND MAPSOURCE. Our patents and our registered trademarks and trademarks are owned by Garmin Corporation.
We believe that our continued success depends in large part on the intellectual skills of our employees and their ability to continue to innovate. We will continue to file and prosecute patent applications when appropriate to attempt to protect our rights in our proprietary technologies. We will also encourage our employees to continue to invent and innovate new technologies so as to maintain our competitiveness in the marketplace.
It is possible that our current patents, or patents which we may later acquire, may be successfully challenged or invalidated in whole or in part. It is also possible that we may not obtain issued patents for inventions we seek to protect. It is also possible that we may not develop proprietary products or technologies in the future that are patentable, or that any patent issued to us may not provide us with any competitive advantages, or that the patents of others will harm or altogether preclude our ability to do business. Legal protections afford only limited protection for our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any resulting litigation could result in substantial costs and diversion of our resources. Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology that is similar to ours.
Regulations
Our aviation products that are intended for installation in type certificated aircraft are required to be certified by the FAA, its European counterpart, the Joint Aviation Authorities ("JAA"), and other comparable organizations before they can be used in an aircraft. The telecommunications industry is highly regulated, and the regulatory environment in which we operate is subject to change. In accordance with FCC rules and regulations, wireless transceiver and cellular handset products are required to be certified by the FCC and comparable authorities in foreign countries where they are sold. Our products sold in Europe are required to comply with relevant directives of the European Commission. A delay in receiving required certifications for new products or enhancements to our products or losing certification for our existing products could adversely affect our business.
Because Garmin Corporation, one of our principal subsidiaries, is located in Taiwan, foreign exchange control laws and regulations of Taiwan with respect to remittances into and out of Taiwan may have an impact on our operations. The Taiwan Foreign Exchange Control Statute, and regulations thereunder, provide that all foreign exchange transactions must be executed by banks designated to handle such business by the Ministry of Finance of Taiwan and by the Central Bank of China, also referred to as the CBC. Current regulations favor trade- related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, while all foreign currency needed for the import of merchandise and services may be purchased freely from the designated foreign exchange banks. Aside from trade-related foreign exchange transactions, Taiwan companies and residents may, without foreign exchange approval, remit outside and into Taiwan foreign currencies of up to $50 million and $5 million respectively, or their equivalent, each calendar year. Currency conversions within the limits are processed by the designated banks and do not have to be reviewed and approved by the CBC. The above limits apply to remittances involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies. The CBC typically approves foreign exchange in excess of the limits if a party applies with the CBC for review and presents legitimate business reasons justifying the currency conversion. A requirement is also imposed on all enterprises to register all medium and long-term foreign debt with the CBC.
Employees
As of June 30, 2000, we had 1,212 full-time employees worldwide, of whom 542 were in the United States, 643 were in Taiwan and 27 were in England. We believe that our relationship with our employees is good.
Facilities
Our principal executive offices are located in a 103,000 square foot facility on 41 acres in Olathe, Kansas, where we produce all aviation panel- mount products and warehouse, distribute, sell and support our products in North and South America. An expansion of this facility to 240,000 square feet is currently underway and construction is expected to be completed in the first quarter of
2001. We recently purchased an additional 46 acres at this site. In connection with the bond financings for our facility in Olathe and the expansion of that facility, the City of Olathe holds the legal title to this property. Upon the payment in full of the outstanding bonds, the City of Olathe is obligated to transfer title to us for the aggregate sum of $200.
We own a 249,326 square foot facility in Shijr, Taipei County, Taiwan where we manufacture all of our consumer and portable aviation products and warehouse, market and support our products in Pacific Rim countries. We occupy 186,367 square feet at this facility and lease the remainder to third parties.
We lease approximately 15,000 square feet in Romsey, England for warehousing, marketing and supporting our products in Europe, Africa and the Middle East. We also repair products at this facility. We also lease an aggregate of 2,090 square feet of office space in Tempe, Arizona for software development, and Wichita, Kansas for support for our aviation original equipment manufacturer operations, and 24,311 square feet in Lenexa, Kansas used as a temporary shipping facility during construction of our expansion in Olathe.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations. We currently are not a party to any material legal proceedings.
MANAGEMENT
Directors and Executive Officers
The following table sets forth information about our executive officers and directors as of October 27, 2000.
Name Age Position(s)
---- --- -----------
Min H. Kao, Ph.D. 51 Co-Chairman of the Board; Co-Chief Executive Officer
Gary L. Burrell 63 Co-Chairman of the Board; Co-Chief Executive Officer
Kevin Rauckman 38 Chief Financial Officer and Treasurer
Andrew R. Etkind 45 General Counsel and Secretary
Gary Kelley 54 Director of Marketing--Garmin International, Inc.
Ruey-Jeng Kao 63 Director
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Dr. Min H. Kao has been Co-Chairman and Co-Chief Executive Officer of Garmin Ltd. since August 2000. Dr. Kao is a founder of Garmin Corporation and has been President of Garmin Corporation since January 1999. He has been Chairman and a director of Garmin Corporation since January 1990. Dr. Kao has also been a director of Garmin International, Inc. since August 1990 and a Vice President since April 1991, a director of Garmin (Europe) Ltd. since 1992 and a director of Garmin Foreign Sales Corporation since May 1998 and Vice President since July 1998. Dr. Kao holds Ph.D. and MS degrees in Electrical Engineering from the University of Tennessee and a BS in Electrical Engineering from National Taiwan University.
Gary Burrell has been Co-Chairman and Co-Chief Executive Officer of Garmin Ltd. since August 2000. He is a founder of Garmin Corporation and has been a director of Garmin Corporation since January 1990. He served as President of Garmin Corporation from January 1990 to December 1998. Mr. Burrell has also been President and a director of Garmin International, Inc. since August 1990, a director and Chairman of Garmin (Europe) Ltd. since 1992 and a director of Garmin Foreign Sales Corporation since May 1998 and President since July 1998. Mr. Burrell holds a BS degree in Electrical Engineering from Wichita State University and a MS degree in Electrical Engineering from Rennsselaer Polytechnic Institute.
Kevin Rauckman has been Chief Financial Officer and Treasurer of Garmin Ltd. since August 2000. He has been Director of Finance and Treasurer of Garmin International, Inc. since January 1999 and has been a director and Treasurer of Garmin Foreign Sales Corporation since January 1999. Previously, Mr. Rauckman served as Director of Finance and in other finance capacities for one of AlliedSignal's (now known as Honeywell International, Inc.) Aerospace units from May 1996 to January 1999 and served as Finance Manager with Unisys Corporation, a technology hardware and consulting services company, from June 1993 to April 1996. Mr. Rauckman holds BS and MBA degrees in Business from the University of Kansas.
Andrew R. Etkind has been General Counsel and Secretary of Garmin Ltd. since August 2000. He has been General Counsel of Garmin International, Inc. since February 1998 and Secretary since October 1998. Previously, Mr. Etkind served as Senior Attorney for Alumax Inc., a manufacturer of
aluminum and aluminum products, from March 1996 to January 1998 and was Vice President, General Counsel and Secretary of Information Management Resources, Inc. (now known as IMR Global, Inc.), a software systems development and consulting company, from July 1993 to February 1996. Mr. Etkind holds BA, MA and LLM degrees from Cambridge University, England and a JD degree from the University of Michigan Law School.
Gary Kelley has been Director of Marketing of Garmin International, Inc. since 1992 and has been a director of Garmin (Europe) Ltd. since 1993. Mr. Kelley holds a BBA degree from Baker University. He also holds a commercial pilot license with instrument and flight instructor ratings.
Ruey-Jeng Kao has been a director of Garmin Ltd. since August 2000. He has been a Supervisor of Garmin Corporation since January 1990. Elected by shareholders, a Supervisor serves as an ex officio member of the board of directors, attending, but not voting in, board meetings, and oversees actions of the board of directors to protect the interests of all shareholders. Mr. Kao has been a partner in Fortune Land Law Offices, Taipei, Taiwan, since January 2000. Prior to founding Fortune Land Law Offices, Mr. Kao had his own law practice in Taipei, Taiwan from 1967 to 1999. He was Chairman of the Taipei Bar Association in 1996 and 1997. Mr. Kao holds LLB and LLM degrees from National Taiwan University. Mr. Kao is Dr. Kao's brother.
Board of Directors
The Articles of Association provide for not less than one nor more than ten directors. The Board will consist of six directors, at least three of which shall be independent directors. We currently anticipate that our independent directors will be appointed within 90 days after the effective date of this registration statement. The directors are to be elected or appointed at the annual general meetings of our shareholders. The directors will be divided equally into three classes, designated Class I, Class II and Class III, respectively. The terms of office for each class are as follows:
. Class I terms of office shall expire at the annual general meeting in 2001.
. Class II terms of office shall expire at the general annual meeting in 2002.
. Class III terms of office shall expire at the annual general meeting in 2003.
At each general meeting held after the adoption of the Articles of Association, directors are to be elected for a full three year term, to succeed those whose terms expire. Each director shall hold office for the term for which he or she is elected and until his or her successor is elected and qualified. Vacancies on the Board can be filled by a majority of the directors present at a Board meeting. Any director so appointed shall hold office only until the next following annual general meeting of our shareholders and shall then be eligible for re-election at that meeting. The shareholders may, by a 75% vote, remove for cause any director before the expiration of his or her period of office.
Committees of the Board
Audit Committee
In accordance with our Articles of Association, we will establish an audit committee composed of three independent directors. The audit committee will be responsible for supervising
corporate accounting and auditing, recommending our independent auditor and verifying our compliance with applicable accounting principles and rules. The audit committee will also be responsible for reviewing potential conflict of interest situations in material related party transactions. The members of our Audit Committee will be appointed after this offering.
Compensation Committee
Our board of directors intends to establish a compensation committee composed of three directors. The compensation committee will be responsible for reviewing and approving the compensation and benefits for our key executive officers, reviewing our employee benefit plans and making recommendations to our board of directors regarding those matters. The members of our Compensation Committee will be appointed after this offering.
Duties of Directors
Under Cayman Islands laws, the directors have a duty of loyalty and must act honestly and in good faith and in our best interests. The directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties to us, the directors must ensure compliance with the Memorandum and Articles of Association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain circumstances have rights to damages if a duty owed by the directors is breached.
Compensation of Directors
Under Taiwan banking practice, the directors of a company are generally required to personally guarantee the company's loans and mortgages. During fiscal year 1999, Dr. Kao and Mr. Burrell, as directors of Garmin Corporation, each received compensation from Garmin Corporation in the amount of $52,021 for their personal guarantees of Garmin Corporation's obligations. As Supervisor of Garmin Corporation, Mr. Ruey-Jeng Kao was also required to personally guarantee Garmin Corporation's loans and mortgages and during fiscal year 1999 received compensation from Garmin Corporation similar to Dr. Kao and Mr. Burrell for such personal guarantee.
Compensation Committee Interlocks and Insider Participation
Dr. Kao and Mr. Burrell determined executive officer compensation for the last fiscal year and for prior years. Dr. Kao is the Co-Chairman and Co-Chief Executive Officer of Garmin Ltd., the President, Chairman and a director of Garmin Corporation, the Vice President and a director of Garmin International, Inc., a director of Garmin (Europe) Ltd. and a director of Garmin Foreign Sales Corporation. Mr. Burrell is the Co-Chairman and Co-Chief Executive Officer of Garmin Ltd., a director of Garmin Corporation, the President and a director of Garmin International, Inc., a director of Garmin (Europe) Ltd. and a director of Garmin Foreign Sales Corporation.
Executive Compensation
The following table sets forth information about compensation earned in the fiscal years ended December 25, 1999, December 26, 1998 and December 31, 1997 by our Chief Executive Officer and our other executive officers (the "Named Executive Officers").
Annual Compensation(1)
-----------------------------------
Other
Name and Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
------------------ ---- ------ ----- ------------ ------------
Min H. Kao, Ph.D. 1999 $166,270 $14,330(2) $52,104(3) $18,091(4)
Co-Chairman of the 1998 163,800 203 50,747 17,116
Board; Co-Chief 1997 150,050 203 33,828 15,116
Executive Officer
Gary L. Burrell 1999 166,270 14,330(2) 52,271(3) 18,101(5)
Co-Chairman of the 1998 163,800 203 50,914 17,036
Board; Co-Chief 1997 150,050 203 34,641 15,535
Executive Officer
Andrew R. Etkind 1999 127,634 15,203 -- 15,821(8)
General Counsel and 1998 103,133(6) 10,203 24,000(7) 11,578
Secretary 1997 N/A N/A -- N/A
Gary Kelley 1999 124,475 6,203 -- 13,462(9)
Director of 1998 122,112 6,703 -- 13,293
Marketing, Garmin 1997 112,362 1,703 -- 10,908
International,
Inc.
Kevin Rauckman 1999 111,650 5,203 -- 8,641(10)
Chief Financial 1998 N/A N/A -- N/A
Officer and 1997 N/A N/A -- N/A
Treasurer
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(1) All compensation paid to the Named Executive Officers was paid by Garmin
International, Inc. to such Named Executive Officers in their capacities
as officers and employees of Garmin International, Inc., except that the
other annual compensation amounts for Dr. Kao and Mr. Burrell include
compensation to each from Garmin Corporation in the following amounts:
1999--$52,021; 1998--$50,747 and 1997--$33,828. Under Taiwan law, the
directors of a company are required to personally guarantee the company's
loans and mortgages. These salaries from Garmin Corporation were paid as
compensation for the personal guarantees of Garmin Corporation's
obligations signed by Dr. Kao and Mr. Burrell.
(2) Includes a bonus payment equal to one month's salary payable to an
employee upon 10 years of service, in the amount of $14,127 for each of
Dr. Kao and Mr. Burrell, and a holiday bonus paid to all employees in a
fixed amount of $203.
(3) Includes $52,021 in compensation from Garmin Corporation, as described in
footnote (1) above and incentive payments for inventions for which patent
applications were filed in the amount of $83 to Dr. Kao and $250 to Mr.
Burrell.
(4) Includes a contribution to Dr. Kao's account under Garmin International,
Inc.'s 401(k) plan of $7,500, a contribution to his account under Garmin
International, Inc.'s pension plan of $10,405 and premiums on life
insurance of $186.
(5) Includes a contribution to Mr. Burrell's account under Garmin
International, Inc.'s 401(k) plan of $7,500, a contribution to his account
under Garmin International, Inc.'s pension plan of $10,415 and premiums on
life insurance of $186.
(6) Mr. Etkind joined Garmin International, Inc. in February 1998.
(7) Consists of reimbursements of relocation expenses.
(8) Includes a contribution to Mr. Etkind's account under Garmin
International, Inc.'s 401(k) plan of $7,500, a contribution to his account
under Garmin International, Inc.'s pension plan of $8,135 and premiums on
life insurance of $186.
(9) Includes a contribution to Mr. Kelley's account under Garmin
International, Inc.'s 401(k) plan of $5,871, a contribution to his account
under Garmin International, Inc.'s pension plan of $7,405 and premiums on
life insurance of $186.
(10) Includes a contribution to Mr. Rauckman's account under Garmin
International, Inc.'s 401(k) plan of $4,941, a contribution to his account
under Garmin International, Inc.'s pension plan of $3,529 and premiums on
life insurance of $171.
Option Grants and Exercises During 1999
No options were granted to or exercised by the Named Executive Officers during 1999.
Pension Plan
Effective January 1, 1990, we established a retirement plan called a "money purchase pension plan" (the "Pension Plan"). An employee of Garmin International, Inc. automatically becomes a participant in the Pension Plan as of the first January 1 or July 1 after he or she reaches age 21 and completes three months of service. All contributions to the Pension Plan are made by Garmin International, Inc. Garmin International, Inc.'s contribution for each participant is equal to 3% of each participant's eligible compensation up to 20% of the Social Security taxable wage base, plus 6% of each participant's eligible compensation in excess of 20% of the Social Security taxable wage base. For 2000, the Social Security taxable wage base is $76,200, but this amount is increased from time to time by the Social Security Administration. Participants become vested in their accounts gradually over a seven-year period. Participants become fully vested if they reach age 65, die or become disabled while they are still working for us. Participants are allowed to direct the investment of their accounts in a menu of authorized investment alternatives. A participant's account is distributable when the participant terminates employment, retires, dies, or becomes disabled. The Pension Plan is intended to qualify under Section 401 of the Internal Revenue Code, so that participants are not taxed on contributions or earnings on those contributions until withdrawn from the Pension Plan, and so that contributions by Garmin International, Inc. are tax deductible when made. The Named Executive Officers, as employees of Garmin International, Inc., are covered by the Pension Plan.
Equity Incentive Plan
Our 2000 Equity Incentive Plan, which was approved by our shareholders on October 24, 2000, provides for grants of non-qualified stock options and incentive stock options. The 2000 Equity Incentive Plan also provides for grants of restricted shares, bonus shares, deferred shares, stock appreciation rights, performance units and performance shares. The objectives of the plan are to strengthen key employees' commitment to the success of Garmin Ltd., to stimulate employee efforts on behalf of Garmin Ltd., and to help us attract new employees with skills which are in high demand and retain existing key employees. The 2000 Equity Incentive Plan is administered by the board of directors or a committee of the board. The 2000 Equity Incentive Plan provides for up to 3,500,000 common shares to be used for awards. The shares may be newly issued shares, and any awards that lapse or are forfeited, or used for tax withholding, may be used again. The number is subject to adjustment for changes in capitalization, reorganizations, mergers, stock splits, and other corporate transactions as the board or the committee determines to require an equitable adjustment.
Employees of Garmin Ltd. or any majority owned subsidiary are eligible for awards. The 2000 Equity Plan will remain in effect until all the shares available have been used to pay awards, subject to the right of the board of directors to amend or terminate the 2000 Equity Incentive Plan at any time.
The board or the committee will select the grantees and set the term of each award, which may not be more than ten years. The board of directors or the committee has the power to determine the terms of the awards granted, including the number of shares subject to each award, the form of consideration payable upon exercise, the period in which the award may be exercised after
termination of employment, and all other matters. The exercise price of an option and the strike price of a stock appreciation right must be at least the fair market value of a share as of the grant date, unless the award is replacing an award granted by an entity that is acquired by Garmin Ltd. or a subsidiary. The board of directors or the committee will also set the vesting conditions of the award, except that vesting will be accelerated if Garmin Ltd. terminates the grantee's employment (other than for death, disability or cause) or the grantee terminates employment because of a diminution in compensation or status or a required move of over 50 miles, within 1 year after a change of control of Garmin Ltd. Awards granted under the 2000 Equity Incentive Plan are not generally transferable by the grantee. No grantee may be granted awards in any five-year period that, on exercise, would yield more than 700,000 shares, and no grantee may be granted SARs, Performance Units or Performance Shares in any five-year period relating to more than 100,000 shares.
Director Option Plan
We have adopted, and on October 24, 2000 our shareholders approved, the 2000 Non-Employee Directors' Option Plan ("Directors Plan"), effective November 1, 2000. The Directors Plan makes 50,000 common shares available for payment to non-employee directors. The shares may be newly issued shares, and any awards that lapse or are forfeited, or used for tax withholding may be used again. The number is subject to adjustment for changes in capitalization, reorganizations, mergers, stock splits, and other corporate transactions as the board or the committee determines to require an equitable adjustment. The Directors Plan will automatically terminate on the tenth anniversary of the effective date, unless sooner terminated by the board of directors, or because all the available shares have been paid under the Directors Plan.
The objectives of the Directors Plan are to strengthen non-employee directors' commitment to the success of Garmin Ltd., to align their interests with the interests of shareholders and to help us attract and retain experienced and knowledgeable individuals to serve as directors. Only directors who are not officers and not otherwise employed by Garmin Ltd. or a subsidiary are eligible to participate in the Directors Plan. The Directors' Plan is administered by the board of directors or a committee of the board.
The Directors Plan provides for an automatic annual option grant.
Each year at the annual meeting, each eligible director will automatically be granted an option for a number of shares equal to four times the annual retainer (currently expected to be $10,000) divided by the fair market value of a share on the grant date. If an eligible director first joins the board at a time other than the annual meeting, he or she will receive a pro-rata grant for that year. The per-share option price will be 100% of the fair market value of a share on the grant date. The option will vest in equal installments over three years, subject to acceleration in the event the director terminates his or her directorship on account of death, disability or an involuntary termination within one year after a change of control of Garmin Ltd. These options will have a term of 10 years, subject to earlier termination on certain terminations of the director's service on the board of directors.
Employee Stock Purchase Plan
We have adopted an employee stock purchase plan ("ESPP") to provide for eligible employees to purchase our common shares through payroll deductions. The ESPP was adopted on
October 20, 2000 and was approved by our shareholders on October 24, 2000. The ESPP may be amended or terminated at any time by our Board of Directors. A total of 1,000,000 common shares have been reserved for delivery under the ESPP. The shares may be newly issued shares. The number is subject to adjustment for changes in capitalization, reorganizations, mergers, stock splits, and other corporate transactions which occur after the effective date of this prospectus as the board or the committee determines to require an equitable adjustment.
The plan will be administered by a committee appointed by our Board of Directors which will have full and exclusive authority to interpret the terms of the plan and determine eligibility. All employees of Garmin Ltd. and participating subsidiaries will be eligible to participate, except those whose customary employment is less than 20 hours per week or is five months or less per calendar year, or those who are 5% or greater shareholders of Garmin Ltd. In addition, no employee may be granted an option to purchase shares under the plan to the extent that the person's right to purchase shares under the plan accrues at a rate that exceeds $25,000 worth of shares for each calendar year. Participation in the plan will be voluntary.
The ESPP generally contains 12-month offering periods. The offering periods generally start on each January 1, except for the first offering period, which commences on the date of this offering and ends on December 31, 2001. Eligible employees will automatically be enrolled in the plan, and may elect to have us deduct up to 10% of their base earnings to be used to purchase our common shares, subject to the calendar year limitation described above. On the last trading day of each year after 2000 (the "Purchase Date"), the funds accumulated will automatically be used to purchase our common shares at a purchase price equal to the lesser of (i) 85% of the fair market value of our common shares that day, or (ii) 85% of the fair market value of our common shares as of the enrollment date (or the date of this registration statement, in the case of the first offering period).
Participants may end their participation at any time during an offering period and will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with us. Rights granted under the ESPP are generally not transferable by a participant other than by will, the laws of descent and distribution. The plan is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code.
Savings and Profit Sharing Plan
Garmin International, Inc. sponsors a retirement plan which is sometimes called a "401(k) plan" (the "401(k) Plan") because of the section of the Internal Revenue Code which authorizes this type of plan. Every employee of Garmin International, Inc. is eligible to participate in the 401(k) Plan as of the first January 1 or July 1 after he or she reaches age 21 and completes three months of service. Participants can elect to make pre-tax contributions to the 401(k) Plan from their eligible compensation, up to the limits imposed by law. Participants are always fully vested in their pre-tax contributions and earnings on those contributions. In addition, Garmin International, Inc. makes a matching contribution for each participant equal to 75% of his or her pre-tax contributions up to 10% of the participant's eligible compensation. Garmin International, Inc. may also make a profit sharing contribution which is divided among participants based on their compensation. Participants become vested in their matching and profit sharing contributions, and earnings on those contributions,
gradually over five years. Participants become fully vested automatically if they reach age 65, die or become disabled while they are still working for Garmin International, Inc. Participants are allowed to direct the investment of their accounts in a menu of authorized investment alternatives. It is anticipated that participants will be given an opportunity to direct the investment of their accounts up to 100% in Garmin Ltd. common shares effective within 30 days after the effective date of this registration statement. Accounts are distributable when the participant terminates employment, retires, dies, becomes disabled, reaches age 59 1/2 or suffers a financial hardship. Participants may also be permitted to request a loan from their 401(k) Plan accounts. The 401(k) Plan is intended to be a tax-qualified plan under the Internal Revenue Code which means that participants are generally not taxed on contributions to the 401(k) Plan or earnings on those contributions until they are withdrawn from the 401(k) Plan, and that contributions by Garmin International, Inc. are tax deductible when made. The Named Executive Officers, as employees of Garmin International, Inc., are covered by this plan.
Employment Agreements
We do not have employment agreements with any of our key personnel.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reorganization
As part of the recent restructuring of our company, shareholders of Garmin Corporation were offered common shares of Garmin Ltd. in exchange for their shares of Garmin Corporation. Pursuant to this transaction, we acquired approximately 100% of Garmin Corporation. We are a holding company and currently intend to continue to conduct our principal business activities through Garmin Corporation, Garmin International, Inc. and Garmin (Europe) Ltd.
One share of Garmin Corporation's stock is held by each of six shareholders as nominees under nominee trusts in order to comply with Article 2 of the Company Law of Taiwan which requires that, as a "company limited by stock," Garmin Corporation have at least seven shareholders, and 4,000 shares are held by two related shareholders. See "Reorganization."
Trademarks and Licenses
All of our U.S. and foreign trademarks and patents are currently held by Garmin Corporation. Garmin Corporation licenses such trademarks to Garmin International, Inc. and Garmin (Europe) Ltd., but no fee is paid for such licenses.
Certain Relationships
Ruey-Jeng Kao, a director of Garmin Ltd., is also a Supervisor of Garmin Corporation. Mr. Kao's law firm, Ruey-Jeng Kao Law Office, received compensation for legal services provided to Garmin Corporation during the 1999 fiscal year. Mr. Kao is currently a partner in the Fortune Land Law Offices which has received compensation from Garmin Corporation for legal services during the 2000 fiscal year and will receive additional compensation during fiscal year 2000 for legal services rendered to us in connection with the reorganization and this offering. Mr. Kao is Dr. Kao's brother.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information with respect to the beneficial ownership of our common shares as of November 1, 2000, on a fully-diluted basis and as adjusted to reflect the sale of shares offered hereby, by:
. each person known to us to own beneficially 5% or more of our common shares;
. each selling shareholder;
. each of our directors;
. each of our executive officers named in the Summary Compensation Table; and
. all of our directors and executive officers as a group.
For purposes of calculating the percentage beneficially owned, the number of common shares deemed outstanding prior to this offering consists of 100,000,000 common shares outstanding as of November 1, 2000. The number of common shares deemed outstanding after this offering includes an additional 7,875,000 shares that are being offered for sale by us, and 2,625,000 shares that are being offered for sale by the selling shareholders, in this offering (excluding the shares subject to the underwriters' over-allotment option).
Common Shares Common Shares
Beneficially Owned Number of Beneficially Owned
Before Offering(1)(2) Shares to be After Offering(1)(2)
------------------------- Sold in --------------------
Name of Beneficial Owner Number % the Offering Number %
------------------------ ------------- -------- ------------ ------------ -------
Min H. Kao(3)..... 22,872,328(3) 22.87 N/A 22,872,328 21.20
Gary L.
Burrell(4)..... 22,376,007 22.38 N/A 22,376,007 20.74
Ruey-Jeng Kao(5).. 8,972,481 8.97 N/A 8,972,481 8.32
Jia-Fang Tsai(6).. 7,337,440(6) 7.51 N/A 7,337,440 6.80
Kevin Rauckman.... -- N/A N/A N/A N/A
Andrew R. Etkind.. -- N/A N/A N/A N/A
Gary Kelley....... -- N/A N/A N/A N/A
Shu-Fen Hsu Lin... 977,794 * 146,918 830,876 *
Yu-Yen Chang...... 250,011 * 58,767 191,244 *
Sen-Shuh Chiou.... 466,689 * 22,878 443,811 *
Min-Shia C. Chau.. 500,023 * 29,384 470,639 *
Yin-An Hsieh...... 250,011 * 71,904 178,107 *
Gender Industrial
Corp........... 1,920,672 1.92 654,196 1,266,476 1.17
Chi-Min Wang...... 188,797 * 123,411 65,386 *
Hsing-Yung Chung.. 1,805,645 1.81 183,647 1,621,998 1.50
Ching-Shun Su..... 409,706 * 117,534 292,172 *
Fan-Min Huang..... 183,200 * 29,384 153,816 *
Gene-Wen Su....... 648,746 * 36,606 612,140 *
Ching-Yao Su...... 476,806 * 32,683 444,123 *
Ha-Na Wu.......... 500,023 * 19,625 480,398 *
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Common Shares Common Shares
Beneficially Owned Number of Beneficially Owned
Before Offering(1)(2) Shares to be After Offering(1)(2)
---------------------- Sold in --------------------
Name of Beneficial Owner Number % the Offering Number %
------------------------ ------------- -------- ------------ ------------ -------
Wen-Jen Hung......... 83,336 * 7,346 75,990 *
Mei-Hsueh Lin........ 153,498 * 58,830 94,668 *
Kuo-Cheng Kao........ 1,849,721 1.85 78,440 1,771,281 1.64
Chao-Chung Wu........ 800,276 * 39,220 761,056 *
Tsung-Te Ho.......... 718,828 * 78,211 640,617 *
An-Hsiung Tseng...... 1,866,905 1.87 138,066 1,728,839 1.60
Tsai-Sheng Liu....... 551,959 * 83,743 468,216 *
Chiu-Chieh Lai....... 321,528 * 10,284 311,244 *
Li-Yun Peng.......... 102,570 * 3,268 99,302 *
I-Mao Kuan........... 136,541 * 20,914 115,627 *
Yueh-Roei Tseng...... 239,123 * 15,427 223,696 *
Tzay-Nong Tseng...... 238,617 * 15,427 223,190 *
Hui-Ching Chen....... 203,941 * 16,528 187,413 *
Hui-Min Chen......... 254,512 * 16,161 238,351 *
Jin-Lien Huang....... 384,633 * 49,952 334,681 *
Tsai-Wei Tseng....... 379,280 * 60,971 318,309 *
Donald H. Eller(7)... 2,000,090 2.00 196,101 1,803,989 1.67
Dave Don Casey....... 3,750,169 3.75 65,367 3,684,802 3.42
Paul K. Shumaker..... 2,500,113 2.50 143,807 2,356,306 2.18
All directors and
executive
officers as a
group (6
persons).......... 54,220,819 54.22 N/A 54,220,819 50.26
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(1) Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable within 60 days of October 27, 2000 are deemed outstanding. Such shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each shareholder named in the table has sole voting power and investment power with respect to the shares set forth opposite such shareholder's name.
(2) Based on 100,000,000 shares of common stock outstanding prior to the offering and 107,875,000 outstanding upon the completion of the offering.
(3) Dr. Kao's address is 1200 East 151st Street, Olathe, Kansas 66062. The amount of common shares beneficially owned includes 8,990,341 shares held by the Min-Hwan Kao 2000 Grantor Retained Annuity Trust and 3,942,718 shares held by the Min-Hwan Kao Revocable Trust 9/28/95. The amount of common shares beneficially owned also includes 948,928 shares held by his children, and 8,990,341 shares held by the Yu-Fan C. Kao 2000 Grantor Retained Annuity Trust, of which he disclaims beneficial ownership. Yu-Fan C. Kao is Dr. Kao's wife.
(4) Mr. Burrell's address is 1200 East 151st Street, Olathe, Kansas 66062. The amount of common shares beneficially owned includes 3,000,135 shares held by the Gary L. Burrell 2000 Grantor Retained Annuity Trust. The amount also includes 3,000,135 shares held by the Judith M. Burrell 2000 Grantor Retained Annuity Trust, as to which Mr. Burrell disclaims beneficial ownership. Mr. Burrell's son acts as trustee of both of these trusts.
(5) Mr. Kao's address is 8th Floor, 132, Hsinyi Road, Section 3, Taipei, Taiwan, Republic of China.
(6) Ms. Tsai's address is 10FL. No. 48, Lane 177, BBC I, Tunhwa S. Rd., Taipei, Taiwan, Republic of China. The amount of common shares beneficially owned includes 3,809,262 shares held by her husband, as to which Ms. Tsai disclaims beneficial ownership.
(7) Does not include 17,980,682 shares held by the Min-Hwan Kao 2000 Grantor Retained Annuity Trust (8,990,341 shares) and the Yu-Fan C. Kao 2000 Grantor Retained Annuity Trust (8,990,341 shares), for which Mr. Eller acts as trustee, and which are included in the number of shares beneficially owned by Dr. Kao. See footnote (3) above.
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of 500,000,000 common shares with a par value of $0.01 per share and 1,000,000 undesignated preferred shares, each with a par value of $1.00 per share. As of the date hereof, there are 100,000,000 common shares issued and outstanding and no preferred shares have been issued. There are no other authorized classes of common shares other than our common shares.
We are a Cayman Islands company and our affairs are governed by our Memorandum and Articles of Association and the Companies Law (2000 Revision) and the common law of the Cayman Islands. The following are summaries of material provisions of our Memorandum and Articles of Association and the Companies Law insofar as they relate to the material terms of our common shares. We have filed copies of our complete Memorandum and Articles of Association as exhibits to our registration statement on Form S-1.
Common Shares
General. All the outstanding common shares are fully paid and nonassessable. Certificates representing the common shares are issued in registered form. The common shares are issued when registered in the register of shareholders of Garmin Ltd. The common shares are not entitled to any sinking fund or pre-emptive or redemption rights. Our shareholders may freely hold and vote their shares.
Voting Rights. Each common share is entitled to one vote on all matters upon which the common shares are entitled to vote, including the election of directors. Voting at any meeting of shareholders is by a poll. The Articles of Association does not provide for written consents of shareholders.
A quorum required for a meeting of shareholders consists of at least a number of shareholders present or by proxy and entitled to vote representing the holders of not less than a majority of our issued voting share capital. Shareholders' meetings are held annually and may only be convened by the Board of Directors. Advance notice of at least 10 days is required for the convening of shareholders' meetings. Shareholders do not have the right to call a shareholders' meeting.
Any ordinary resolution to be made by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the common shares cast in a general meeting of Garmin Ltd., while a special resolution requires the affirmative vote of 75% of the votes cast attaching to the common shares. A special resolution is required for matters such as a change of name, amending the Memorandum and Articles of Association and removing directors. Holders of common shares, which are currently the only shares carrying the right to vote at our general meetings, have the power, among other things, to elect directors, appoint auditors, and make changes in the amount of our authorized share capital.
Dividends. The holders of our common shares are entitled to receive such dividends as may be declared by the Board of Directors. Dividends may be paid only out of profits, which include net earnings and retained earnings undistributed in prior years, and out of share premium, a concept analogous to paid-in surplus in the United States, subject to a statutory solvency test.
Liquidation. If Garmin Ltd. is to be liquidated, the liquidator may, with the approval of the shareholders, divide among the shareholders in cash or in kind the whole or any part of our assets, may determine how such division shall be carried out as between the shareholders or different classes of shareholders, and may vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the approval of the shareholders, thinks fit, provided that a shareholder shall not be compelled to accept any shares or other assets which would subject such shareholder to liability.
Miscellaneous. Share certificates registered in the names of two or more persons are deliverable to any one of them named in the share register, and if two or more such persons tender a vote, the vote of the person whose name first appears in the share register will be accepted to the exclusion of any other.
Undesignated Preferred Shares
Pursuant to our Articles of Association, the Board of Directors has the authority, without further action by the shareholders, to issue up to 1,000,000 preferred shares in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common shares. The Board of Directors, without shareholder approval, can issue preferred shares with voting, conversion or other rights that could adversely affect the voting power and other rights of holders of our common shares. Subject to the directors' duty of acting in the best interest of Garmin Ltd., preferred shares can be issued quickly with terms calculated to delay or prevent a change in control of Garmin Ltd. or make removal of management more difficult. Additionally, the issuance of preferred shares may have the effect of decreasing the market price of the common shares, and may adversely affect the voting and other rights of the holders of common shares. No preferred shares have been issued and we have no present plans to issue any preferred shares.
Shareholders' Rights Plan
We contemplate adopting a shareholders rights plan ("Rights Plan") after our independent directors have been placed on our Board of Directors. In connection with the Rights Plan, our Board of Directors would grant one right ("Right") for each outstanding common share as of the close of business on a certain date (the "Rights Record Date"). Common shares issued after such date (assuming no triggering event) would automatically receive these Rights upon issuance. The Rights would not be exercisable or transferable separately from the common shares until the end of a certain period of time following (1) a public announcement that a person or group has acquired or obtained the right to acquire beneficial ownership of a certain percentage or more of our outstanding common shares, or (2) the commencement or announcement of an intention to make a tender or exchange offer that would result in an acquiring person or group beneficially owning a certain percentage or more of our outstanding common shares (an "Acquiring Person"), unless our Board of Directors sets a later date in either event (the earlier of (i) or (ii) being the "Rights Distribution Date"). Under the Rights Plan, our Board of Directors would have the option to redeem the Rights at a nominal cost or
prevent the Rights from being triggered by designating certain offers for all the outstanding common shares as a Permitted Offer (as defined in the Rights Plan). The Rights would expire ten years after the Rights Record Date unless earlier redeemed by us.
The Rights, when exercisable, would entitle their holders (other than those held by an Acquiring Person, any Associate or Affiliate of such Acquiring Person or certain transferees) to purchase a fraction of a preferred share or, in certain instances, other securities of Garmin Ltd., including common shares, having a certain market value. In certain circumstances, if we are involved in a merger or consolidation and are not the surviving entity or dispose of more than 50 percent of our assets or earnings power, the Rights also would entitle their holders (other than an Acquiring Person or any Associate, Affiliate of such Acquiring Person or certain transferees) to purchase the highest priority voting shares in the surviving entity or its affiliates having a certain market value.
The Rights Plan is intended to encourage a potential Acquiring Person to negotiate directly with the Board of Directors, but may have certain antitakeover effects. The Rights Plan could significantly dilute the interests in Garmin Ltd. of an Acquiring Person. The Rights Plan may therefore have the effect of delaying, deterring or preventing a change in control of Garmin Ltd.
Differences in Corporate Law
The Companies Law is modeled after that of England but does not follow recent United Kingdom statutory enactments and differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to Garmin Ltd. and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and Similar Arrangements. Cayman Islands law does not provide for mergers as that expression is understood under United States corporate law. However, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction ought not to be approved, the court can be expected to not approve the arrangement if it satisfies itself that:
. a company is acting or proposing to act illegally, or beyond the scope of the company's powers as defined in its charter or the laws of its jurisdiction of organization (also known as ultra vires);
. the act complained of, although not ultra vires, could be effected only if authorized by more than a simple majority vote (which has not been obtained); or
. those who control the company are perpetrating a "fraud on the minority."
Indemnification
Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Articles of Association provide for indemnification, to the fullest extent permitted by law, of officers and directors for expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in their capacities as such, and advancement of expenses of defending any such action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable as a matter of U.S. law.
Inspection of Books and Records
Holders of our shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See "Additional Information."
Transfer Agent
We have appointed UMB Bank, N.A. as the transfer agent and registrar for the common shares.
Listing
Our common shares have been approved for listing on the Nasdaq National Market under the symbol "GRMN".
Prohibited Sale of Securities Under Cayman Islands Law
An exempted company such as Garmin Ltd. that is not listed on the Cayman Islands Stock Exchange is prohibited from making any invitations to the public in the Cayman Islands to subscribe for any of its securities.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no U.S. public market for our shares, and there can be no assurance that a significant public market for our shares will develop or be sustained after this offering. We can make no prediction as to the effect, if any, that market sales of common shares or the availability of shares for sale will have on the market price prevailing from time to time. Nevertheless, sales of significant numbers of common shares, including shares issued upon exercise of outstanding options, in the public market could adversely affect the market price of the common shares and could impair our future ability to raise capital through an offering of our equity securities.
Upon completion of this offering, we will have 107,875,000 shares outstanding assuming no exercise of the underwriting over-allotment option and no exercise of outstanding options. Of these shares, the 10,500,000 shares sold in this offering will be freely tradeable without restriction under the Securities Act except for any shares purchased by our "affiliates" as that term is defined in Rule 144 under the Securities Act. The remaining 97,375,000 shares are subject to lock-up agreements. These lock-up agreements provide that, with some limited exceptions, the shareholder will not offer, sell, contract to sell or otherwise dispose of our securities that are substantially similar to our shares, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, our shares for a period of 180 days after the date of this prospectus without the prior written consent of Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated. All of these remaining shares are also "restricted securities" as that term is defined in Rule 144 under the Securities Act and will be eligible for sale in the public market subject to limitations imposed by Rule 144 as summarized below, upon expiration of the 180-day lock-up period.
These shares are treated as if they were acquired at the same time as the Garmin Corporation shares for which they were exchanged, and will be freely tradeable without restriction under the Securities Act upon expiration of the 180-day lock-up period, except for any shares owned by our affiliates, which shares will continue to be subject to Rule 144 limitations applicable to affiliates.
In addition, we have agreed that, without the prior consent of the underwriters, we will not offer, sell or contract to sell, or otherwise dispose of, directly or indirectly, or announce an offering of, any equity securities or any securities which may be converted into or exchanged for any such equity securities for a period of 180 days from the date of this prospectus, except that:
. we may without such consent grant options, none of which will be exercisable prior to 180 days after the date of this prospectus, and sell common shares pursuant to our 2000 Equity Incentive Plan, our Directors Plan, our Employee Stock Purchase Plan and Garmin International, Inc.'s Savings and Profit Sharing Plan and,
. we may without consent issue equity shares in connection with any bona fide business acquisition of or by Garmin Ltd. (whether by reconstruction or amalgamation, consolidation, sale of assets, sale or exchange of stock or otherwise), provided that prior to any such issuance, the recipients of such equity shares in such transaction shall have agreed in writing that, unless they have received the prior consent of Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated, they will be bound by the lock-up restrictions described above in this paragraph for the remainder of such 180-day period.
Credit Suisse First Boston Corporation and Merrill Lynch, Pierce, Fenner & Smith Incorporated may, in their sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, if one year has elapsed since the later of the date of acquisition of restricted common shares from us or any affiliate of ours, the purchaser or subsequent holder of such securities is entitled to sell within any three-month period a number of shares that does not exceed the greater of:
. 1% of our then outstanding common shares; or
. the average weekly trading volume of our common shares on the Nasdaq National Market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. If two years have elapsed since the later of the date of acquisition of restricted shares from us or from any affiliate of ours and the purchaser or subsequent holder thereof is deemed not to have been an affiliate of ours at any time during the 90 days preceding a sale, such person would be entitled to sell such shares in the public market under Rule 144(k) without regard to the volume limitations, manner of sale provisions, notice requirements or public information requirements.
We intend to file registration statements on Form S-8 under the Securities Act to register an aggregate of 3,500,000 and 50,000 common shares reserved for issuance under our 2000 Equity Incentive Plan and our Directors Plan, respectively. In addition, we intend to file registration statements on Form S- 8 under the Securities Act to register an aggregate of 1,000,000 shares for issuance under our Employee Stock Purchase Plan and 500,000 shares for issuance under our 401(k) Plan. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates, be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up agreements described above.
TAX CONSIDERATIONS
A summary of the material United States federal income tax and general Cayman Islands tax consequences of the beneficial ownership and disposition of our common shares is set forth below. This summary is based on laws, regulations, rulings, income tax conventions or treaties, administrative practices and judicial decisions in effect at the date of this prospectus. Subsequent legislative, judicial or administrative changes or interpretations may be retroactive and could affect your tax consequences.
Your tax treatment as a holder of common shares may vary depending upon your particular situation, and some holders may be subject to special rules not discussed below. We do not discuss below any state, local or foreign tax consequences of the beneficial ownership and disposition of the common shares other than the Cayman Islands. This summary does not address all tax aspects that may be important to you as a holder of common shares.
You are urged to consult your tax advisor as to your particular tax consequences of the ownership and disposition of a common share, including whether any state, local or foreign tax laws apply to you.
Cayman Islands Tax Considerations
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of the inheritance tax or estate duty. There are no other taxes likely to be material to Garmin Ltd. levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. The Cayman Islands are not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Under current Cayman Islands law, Garmin Ltd. will not be subject to income, capital, transfer, sales or corporation tax in the Cayman Islands. Garmin Ltd. has been incorporated under the laws of the Cayman Islands as an exempted company. Garmin Ltd. has received from the Governor in Council of the Cayman Islands an Undertaking as to Tax Concessions pursuant to Section 6 of the Tax Concessions Law (1999 Revision). The Undertaking provides that, for a period of 20 years from the date of such Undertaking, no law subsequently enacted in the Cayman Islands imposing any tax or withholding tax on profits, income, gains or appreciation will apply to Garmin Ltd. or its operations.
Under the current law of the Cayman Islands, no Cayman Islands withholding tax applies to distributions by Garmin Ltd. in respect of the shares. Holders are not subject to any income, capital, transfer, sales or other taxes in the Cayman Islands in respect of their purchase, holding or disposition of the common shares.
United States Federal Income Tax Considerations
The following is a general discussion of the material United States federal income tax considerations relevant to the acquisition, ownership and disposition of the common shares. This summary is based on existing United States federal income tax law, which is subject to change,
possibly retroactively. The discussion addresses only persons that hold common shares as capital assets, which generally are properties held for investment, under the United States Internal Revenue Code of 1986, and that use the U.S. Dollar as their functional currency. The discussion does not consider the circumstances of particular purchasers that may be subject to special tax rules, such as banks, insurance companies, tax-exempt organizations, persons subject to the alternative minimum tax, dealers, traders who elect to mark to market, financial institutions, persons holding common shares as part of a hedge, straddle, integration, conversion or constructive sale transaction, persons that have a functional currency other than the U.S. Dollar and persons treated as owning 10% or more of the voting power of our shares.
For purposes of this discussion, a "U.S. holder" is a beneficial owner of common shares that is:
. an individual who is a citizen or resident of the United States for United States federal income tax purposes;
. a corporation, partnership or other business entity organized in or under the laws of the United States or any of its political subdivisions;
. a trust (1) the administration of which is subject to the primary supervision of a United States court and one or more United States persons have the authority to control all substantial decisions of the trust or (2) that was in existence on August 20, 1996, was treated as a United States person under the Internal Revenue Code on the preceding day, and elected to continue to be so treated provided that it satisfies certain conditions; or
. an estate the income of which is subject to United States federal income tax regardless of its source.
A "Non-U.S. holder" is a beneficial owner of common shares that is not a U.S. holder.
We believe that neither we nor any of our subsidiaries are currently a "foreign personal holding company", "personal holding company", "passive foreign investment company", or "controlled foreign corporation" for United States federal income tax purposes. Except as expressly noted below, the discussion below assumes that we will not be so treated. As discussed below under "--Foreign Personal Holding Company", we currently satisfy the "shareholder test" for purposes of qualifying as a foreign personal holding company. We cannot assure you that we are not or will not become a foreign personal holding company, personal holding company, passive foreign investment company or controlled foreign corporation.
Each prospective purchaser should consult its own tax advisor with respect to the United States federal, state, local and foreign tax consequences of acquiring, owning or disposing of common shares.
Distributions on Common Shares. A distribution on common shares will be treated as foreign source dividend income to a U.S. holder to the extent paid out of our current or accumulated earnings and profits, as determined for United States federal income tax purposes. The amount of such dividend will be the U.S. Dollar value of such dividend when received. Such dividend will not be eligible for the dividends received deduction generally allowed to corporate U.S. holders. To the
extent that the amount of any distribution on common shares exceeds our current and accumulated earnings and profits, as determined for United States federal income tax purposes, the distribution will be treated:
. first, as a nontaxable return of capital that would be applied against and would reduce the U.S. holder's tax basis in its common shares until this tax basis is equal to zero; and
. thereafter, as capital gain.
For foreign tax credit purposes, dividends on common shares generally would constitute "passive income" or, in the case of some U.S. holders, "financial services income."
Although we do not expect to pay dividends, we expect that any dividends we declare will be paid in United States Dollars. However, the amount of any distribution paid in a currency other than the U.S. Dollar will be the U.S. Dollar value of the payment made. The U.S. Dollar value of the payment made will be determined at the foreign exchange rate on the date such payment is includible in the income of the U.S. holder, regardless of whether the payment is in fact converted into U.S. Dollars. Any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is includible in income to the date such payment is converted into U.S. Dollars will be treated as United States source ordinary income or loss to the U.S. holder.
Sale, Exchange or Other Disposition. A U.S. holder generally will recognize gain or loss upon the sale or other taxable disposition of common shares in an amount equal to the difference between (1) the United States Dollar value of the amount realized on the sale or other taxable disposition and (2) the U.S. holder's adjusted tax basis in the common shares. Such gain or loss will generally be capital gain or loss. In the case of some non-corporate U.S. holders, any gain may be subject to United States federal income tax at a preferential rate where the U.S. holder's holding period exceeds one year. Further, any gain recognized by a U.S. holder on a sale or other taxable disposition of common shares will generally be treated as United States source gain for foreign tax credit purposes. Any loss recognized by a U.S. holder should be allocable to reduce U.S. source income for U.S. foreign tax credit purposes, except for certain U.S. holders for whom previous distributions with respect to the common shares qualified as "financial services income." In that event, any such recognized loss would be treated as reducing foreign source income to the extent of the amount of such distributions. A U.S. holder's ability to deduct capital losses in respect of common shares is subject to limitations.
Foreign Personal Holding Company. We do not believe that we (nor any of our non-United States subsidiaries) are a "foreign personal holding company." If we (or any of our non-United States subsidiaries) are classified as a foreign personal holding company in any taxable year, then each shareholder that is a United States person would be required to pay tax on its pro rata share of the undistributed foreign personal holding income of such foreign personal holding company. We would constitute a foreign personal holding company in any taxable year if:
. 60% (or 50% in any year following the year in which we first became a foreign personal holding company) or more of our gross income were foreign personal holding company income (which is generally income of a passive nature such as dividends, interest and royalties) (the "income test"); and
. more than 50% of the voting power or value of our equity were owned, directly or indirectly, by five or fewer U.S. holders that are individuals (the "shareholder test").
We currently satisfy the shareholder test. Based on our current ownership, we expect that we will satisfy the shareholder test after this offering. However, we intend to manage our affairs so as to attempt to avoid the satisfaction of the income test, or minimize the impact to our shareholders if we satisfy the income test, to the extent this management of our affairs would be consistent with our business goals, although we cannot assure you in this regard.
Our gross income for purposes of the income test is expected to consist of
(1) any dividends paid from Garmin Corporation and Garmin International, Inc.,
upon a proposed acquisition of a direct interest in Garmin International, Inc.
by Garmin Ltd. and (2) the gross income of Garmin (Europe) Ltd. because Garmin
Ltd. will, upon the acquisition of Garmin (Europe) Ltd. from Garmin
International, Inc., elect to treat Garmin (Europe) Ltd. as a branch of Garmin,
Ltd. for United States federal income tax purposes. In addition, for purposes
of determining whether we satisfy the income test in any taxable year, to the
extent that Garmin Corporation is treated as a foreign personal holding
company, we would be considered to have received a dividend in an amount equal
to the undistributed foreign personal holding company income of Garmin
Corporation. However, based on its current income and operations, we do not
expect that Garmin Corporation would be treated as a foreign personal holding
company. Because the gross income of Garmin (Europe) Ltd. should not be treated
as foreign personal holding company income and because such gross income is
expected to exceed 40% of the total gross income of Garmin Ltd., we do not
expect that we will satisfy the income test after this offering.
If we (or any non-United States subsidiary) are or become a foreign personal holding company, U.S. holders, whether or not such holders are individuals, would be required to include in income, as a dividend, their pro rata share of our taxable income whether or not we pay dividends. In addition, if we are a foreign personal holding company, and your common shares are acquired by inheritance, the beneficiary would not receive a basis in those common shares equal to their fair market value on the date of death. Instead, the beneficiary would have a tax basis equal to the lower of the fair market value of these common shares or your tax basis in them. We intend to manage our affairs so as to attempt to minimize having income imputed to you under these rules, to the extent such management of our affairs is consistent with our business goals, although there can be no assurance in this regard. We urge you to consult your tax advisor regarding the consequences of an investment in a foreign personal holding company before purchasing shares.
Personal Holding Company. We do not believe that we (or any of our subsidiaries) are a "personal holding company" for United States federal income tax purposes. We (or a subsidiary) would generally be classified as a personal holding company if:
. at any time during the last half of our (or such subsidiary's) taxable year, five or fewer individuals own, directly or indirectly, more than 50% of our (or such subsidiary's) stock (by value) (the "shareholder test"); and
. at least 60% of our (or such subsidiary's) gross income for the taxable year, as adjusted, is personal holding company income (which is generally income of a passive nature, such as dividends, interest and royalties) and which, for a non-United States corporation, is either:
. derived from United States sources; or
. effectively connected to a United States trade or business (the "income test").
However, if we (or a subsidiary) constitute a foreign personal holding company or a passive foreign investment company, we (or such subsidiary) cannot constitute a personal holding company. If we (or a subsidiary) were to constitute a personal holding company, we (or such subsidiary) would be subject to a United States tax of 39.6% on our undistributed personal holding company income. We (and our subsidiaries) currently satisfy the shareholder test but do not expect to satisfy the income test. We intend to manage our and our subsidiaries' affairs so as to attempt to avoid the satisfaction of the income test, provided that such management would be consistent with our goals, although we cannot assure you in this regard.
Passive Foreign Investment Company. We do not believe that we (or any of our non-United States subsidiaries) are a "passive foreign investment company" for United States federal income tax purposes. We would be treated as a passive foreign investment company only if:
. at least 75% of our gross income for a taxable year is passive income; or
. the value of our assets during the taxable year which produce passive income represents at least 50% of the value of our total assets.
In making this determination, our proportionate share of the income and assets of entities in which we hold at least a 25% interest will be included in our income and assets. Based upon our current and anticipated income, assets and activities, we do not expect that we (or any of our non-United States subsidiaries) will be classified as a passive foreign investment company. However, because the passive foreign investment company determination is made annually on the basis of facts and circumstances that may be beyond our control, and because the principles for applying the passive foreign investment company tests are not entirely clear, we cannot assure you that we (or any of our non-United States subsidiaries) will not become a passive foreign investment company.
If we are a passive foreign investment company for any taxable year during a U.S. holder's holding period of the common shares, a U.S. holder would be subject to additional tax on certain excess distributions received or gains realized with respect to such shares. In such case, a U.S. holder would be subject to the following adverse tax consequences:
. the excess distribution or gain would be allocated ratably over such U.S. holder's holding period;
. the amount allocated to the current taxable year and to any year prior to our treatment as a passive foreign investment company would be subject to tax as ordinary income;
. the amount allocated to each other taxable year would be subject to tax at the highest applicable marginal rate in effect for that year; and
. an interest charge would be imposed to recover the deemed benefit from the deferred payment of such tax.
These rules would effectively prevent a U.S. holder from treating the gain realized on the disposition of the common shares as capital gain. If we are classified as a passive foreign investment company in
any year in which a United States person is a shareholder, we generally will continue to be treated as a passive foreign investment company with respect to such shareholder in all succeeding years, regardless of whether we continue to satisfy the income or asset tests described above. A U.S. holder who owns common shares during any year that we are a passive foreign investment company must file Internal Revenue Service Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund). The passive foreign investment company rules are extremely complex and U.S. holders should consult with their own tax advisors regarding the application of the passive foreign investment company rules to the common shares. We do not intend to notify any holder of common shares as to whether we qualify as a passive foreign investment company in any taxable year, nor do we intend to provide information that would enable a holder of common shares to make a qualified electing fund election.
Controlled Foreign Corporation. We do not believe that we (or any of our non-United States subsidiaries) are a "controlled foreign corporation" for United States federal income tax purposes. If we (or any of our non-United States subsidiaries) are treated as a controlled foreign corporation, the U.S. holders that own, directly or indirectly, at least 10% of the voting power of the equity of such controlled foreign corporation, referred to as 10% U.S. Shareholders, would be required to include in income their pro rata share of the Subpart F income of the controlled foreign corporation (which generally is income of a passive nature such as dividends and interest) whether or not we pay dividends. In addition, if we are treated as a controlled foreign corporation, 10% U.S. Shareholders would be subject to special rules on disposition of common shares that may treat all or a portion of any gain as ordinary dividend income. It is not anticipated that a U.S. holder purchasing shares in this offering will be a 10% U.S. Shareholder. As a result, there should be no adverse impact to such U.S. holders if we (or any of our non- United States subsidiaries) become a controlled foreign corporation.
Taxation of Non-U.S. Holders. Distributions on common shares to a Non-U.S. holder would not be subject to U.S. withholding tax or to United States federal income tax unless such income is effectively connected with the conduct by such Non-U.S. holder of a trade or business within the United States. Gain realized by a Non-U.S. holder on the sale or other disposition of a common share generally will not be subject to United States federal income tax unless either:
. the gain is effectively connected with the Non-U.S. holder's conduct of a trade or business in the United States; or
. the Non-U.S. holder is an individual who was present in the United States for at least 183 days in the taxable year of the sale or other disposition and other conditions are met.
Information Reporting and Backup Withholding. United States backup withholding tax and information reporting requirements generally apply to certain payments to certain non-corporate holders. Information reporting will apply to payments of dividends on, and to proceeds from the sale or redemption of, common shares by a paying agent within the United States to a holder (other than an "exempt recipient", including a corporation, a payee that is a Non-U.S. holder that provides an appropriate certification and certain other persons). A paying agent within the United States will be required to withhold 31% of any such payment made within the United States to a holder (other than an "exempt recipient", including a corporation, a payee that is a Non-U.S. holder that provides an appropriate certification and certain other persons) if such holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with such backup withholding requirements.
The Treasury Department issued new regulations which make certain modifications to the backup withholding and information reporting rules. These new regulations, which generally will be effective for payments made after December 31, 2000, attempt to unify certification requirements and modify reliance standards. Prospective investors are urged to consult their own tax advisors regarding these new regulations.
UNDERWRITING
We intend to offer the common shares in the U.S. and Canada through the U.S. underwriters and elsewhere through the international managers. Subject to the terms and conditions of a U.S. purchase agreement, dated , 2000, the U.S. underwriters named below, who are represented by Credit Suisse First Boston Corporation ("CSFB") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") as joint book-running managers, and concurrently with the sale of 1,575,000 shares to the international managers, have severally agreed to purchase from us and the selling shareholders the respective number of common shares set forth opposite their names below.
Number of
Shares
U.S. Underwriters:
Credit Suisse First Boston Corporation.............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
Salomon Smith Barney Inc...........................................
---------
Total............................................................ 8,925,000
=========
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We and the selling shareholders have also entered into an international purchase agreement with the international managers for sale of the common shares outside the U.S. and Canada for whom Credit Suisse First Boston (Europe) Limited and Merrill Lynch International are acting as joint book-running managers. Subject to the terms and conditions in the international purchase agreement, and concurrently with the sale of 8,925,000 shares to the U.S. underwriters pursuant to the U.S. purchase agreement, we and the selling shareholders have agreed to sell to the international managers, and the international managers severally have agreed to purchase, 1,575,000 shares from us and the selling shareholders. The initial public offering price per common share and the total underwriting discount per common share are identical under the U.S. purchase agreement and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to purchase all of the common shares sold under the U.S. and international purchase agreements if any of these common shares are purchased. If an underwriter defaults, the U.S. and international purchase agreements provide that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreements may be terminated. The closings for the sale of common shares to be purchased by the U.S. underwriters and the international managers are conditioned on one another.
The U.S. purchase agreement provides that the obligations of the several U.S. underwriters to purchase and accept delivery of the common shares offered in this offering are subject to approval of certain legal matters and to certain other conditions. The U.S. underwriters are obligated to purchase and accept delivery of all the common shares, other than those common shares covered by the over-allotment option described below, if they purchase any of the common shares.
We and the selling shareholders have agreed to indemnify the U.S. underwriters and the international managers against certain liabilities, including liabilities under the Securities Act,
and to contribute to payments that the U.S. underwriters and the international managers may be required to make in respect of those liabilities.
The underwriters are offering the common shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the common shares, and other conditions contained in the purchase agreements, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The U.S. underwriters propose to initially offer some of the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and some of the common shares to dealers at the initial public offering price less a concession not in excess of $ per share. The U.S. underwriters may allow, and these dealers may re-allow, a concession not in excess of $ per share on sales to other dealers. After the initial offering of the common shares to the public, the U.S. representatives may change the public offering price and such concessions.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling shareholders. The information assumes either no exercise or full exercise by the U.S. underwriters and the international managers of their over-allotment options.
Per Share Without Option With Option
--------- -------------- -----------
Public offering price.................... $ $ $
Underwriting discount.................... $ $ $
Proceeds, before expenses, to Garmin
Ltd................................... $ $ $
Proceeds, before expenses, to the selling
shareholders.......................... $ $ $
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The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.
Over-allotment Option
We and the selling shareholders have granted to the U.S. underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 1,338,750 additional common shares at the initial public offering price less the underwriting fees. The U.S. underwriters may exercise this option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the U.S. underwriters exercise this option, each U.S. underwriter will become obligated, subject to certain conditions, to purchase a number of additional shares proportionate to such U.S. underwriter's initial purchase commitment.
We and the selling shareholders have also granted options to the international managers, exercisable for 30 days from the date of this prospectus, to purchase up to 236,250 additional common shares to cover any over-allotments on terms similar to those granted to the U.S. underwriters.
Intersyndicate Agreement
The U.S. underwriters and the international managers have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the U.S. underwriters and the international managers may sell common shares to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom they sell shares will not offer to sell or sell shares to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the international managers and any dealer to whom they sell shares will not offer to sell or sell shares to U.S. persons or Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement.
No Sales of Similar Securities
We, our executive officers and directors, the selling shareholders and all of our other shareholders have agreed, and are contractually bound, for a period of 180 days after the date of this prospectus, not to, without the prior written consent of CSFB and Merrill Lynch:
. offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any common shares or any securities convertible into or exercisable or exchangeable for common shares; or
. enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common shares regardless of whether a covered transaction is to be settled by the delivery of common shares or such other securities, in cash or otherwise;
except that:
. we may without such consent grant options, none of which will be exercisable prior to 180 days after the date of this prospectus, and sell common shares pursuant to our 2000 Equity Incentive Plan, our Directors Plan, our Employee Stock Purchase Plan and Garmin International, Inc.'s Savings and Profit Sharing Plan;
. we may without such consent issue equity shares in connection with any bona fide business acquisition of or by Garmin Ltd. (whether by reconstruction or amalgamation, consolidation, sale of assets, sale or exchange of stock or otherwise), provided that prior to any such issuance, the recipients of such equity shares in such transaction shall have agreed in writing that, unless they have received the prior consent of CSFB and Merrill Lynch, they will be bound by the lock-up restrictions described above in this paragraph for the remainder of such 180-day period; and
. our executive officers and directors, the selling shareholders and our other shareholders may offer, sell, assign or otherwise transfer common shares to family trusts provided those trusts agree to be bound by the lock-up restrictions described above.
In addition, during this period, we have also agreed not to file any registration statement (other than registration statements on Form S-8) for, and each of our executive officers, directors and several shareholders have agreed not to make any demand for, or exercise any right of, the registration of any common shares or any securities convertible into or exchangeable for common shares without the prior written consent of CSFB and Merrill Lynch.
Reserved Shares
At our request, the underwriters have reserved for sale at the initial public offering price up to 10% of the common shares to be sold in this offering for sale to our employees, friends and persons having relationships with us. The number of shares available for sale to the general public will be reduced to the extent that any reserved shares are purchased. Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered through this prospectus.
Quotation on the Nasdaq National Market
Prior to the offering, there has been no established trading market for our common shares. The initial public offering price for the common shares offered by this prospectus will be determined by negotiations among us and the representatives of the U.S. underwriters. The factors to be considered in determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable companies; and
. the general condition of the securities markets at the time of the offering.
An active trading market for the common shares may not develop. It is also possible that after the offering the common shares will not trade in the public market at or above the initial public offering price.
Our common shares have been approved for listing on the Nasdaq National Market under the symbol "GRMN."
The U.S. underwriters have informed us that they do not expect discretionary sales to exceed 5% of the common shares being offered.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, certain U.S. underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common shares. Specifically, the U.S. underwriters may create a syndicate short position by making short sales of our common shares and may purchase our common shares on the open market to cover syndicate short positions created by
short sales. Short sales involve the sale by the U.S. underwriters of a greater number of common shares than they are required to purchase in the offering. Short sales can be either "covered" or "naked." "Covered" short sales are sales made in an amount not greater than the U.S. underwriters' over-allotment option to purchase additional common shares in the offering from us through the over- allotment option. "Naked" short sales are sales in excess of the over-allotment option. A naked short position is more likely to be created if the U.S. underwriters are concerned that there may be downward pressure on the price of the common shares in the open market after pricing that could adversely affect investors who purchase in the offering. The U.S. underwriters may close out any covered short position by either exercising their over-allotment option to purchase additional shares from us or purchasing common shares in the open market. The U.S. underwriters must close out any naked short position by purchasing common shares in the open market. In determining the source of common shares to close out the covered short position, the U.S. underwriters will consider, among other things, the price of common shares available for purchase in the open market as compared to the price at which they may purchase common shares from us through the over-allotment option. The U.S. underwriting syndicate may reclaim selling concessions if the syndicate repurchases previously distributed common shares in syndicate covering transactions, in stabilization transactions or in some other way or if CSFB and/or Merrill Lynch receives a report that indicates clients of such syndicate members have "flipped" the common shares. Similar to other purchase activities, these activities may have the effect of raising or maintaining the market price of our common shares or preventing or retarding a decline in the market price of our common shares. As a result, the price of our common shares may be higher than the price that might otherwise exist in the open market. The U.S. underwriters are not required to engage in these activities, and may end any of these activities at any time.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common shares in Canada is being made only on a private placement basis exempt from the requirement that we and the selling shareholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common shares are made. Any resale of the common shares in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common shares.
Representations of Purchasers
By purchasing common shares in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling shareholders and the dealer from whom the purchase confirmation is received that
. the purchaser is entitled under applicable provincial securities laws to purchase the common shares without the benefit of a prospectus qualified under those securities laws,
. where required by law, that the purchaser is purchasing as principal and not as agent, and
. the purchaser has reviewed the text above under Resale Restrictions.
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named herein and the selling shareholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common shares to whom the Securities Act (British Columbia) applies is advised that the purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common shares acquired by the purchaser pursuant to this offering. The report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one report must be filed for common shares acquired on the same date and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common shares should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common shares in their particular circumstances and about the eligibility of the common shares for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
Legal matters relating to the offering as to Cayman Islands and Taiwan law will be passed on for us by Maples and Calder, George Town, Grand Cayman, Cayman Islands, and Fortune Land Law Offices, Taipei, Taiwan, respectively. Legal matters relating to the offering as to Taiwan law will be passed on for the underwriters by Lee & Li, Taipei, Taiwan. The validity of the common shares offered hereby and the principal tax consequences for holders who are not resident in the Cayman Islands will be passed upon by Maples and Calder, George Town, Grand Cayman, Cayman Islands, our Cayman Islands counsel. Legal matters as to United States law will be passed upon for us by Sonnenschein Nath & Rosenthal and for the underwriters by Simpson Thacher & Bartlett.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at December 25, 1999 and December 26, 1998, and for each of the three years in the period ended December 25, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
We are a Cayman Islands holding company. We are incorporated in the Cayman Islands because of the following benefits associated with being a Cayman Islands corporation:
. political and economic stability;
. an effective judicial system;
. a favorable tax system;
. the absence of exchange control or currency restrictions; and
. the availability of professional and support services.
However, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a significantly lesser extent. In addition, Cayman Islands companies do not have standing to sue before the federal courts of the United States.
A substantial majority of our assets are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon us or to enforce against us, judgments obtained in the United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. We have appointed Andrew R. Etkind, c/o Garmin International, Inc., as our agent for service of process in the United States.
Maples and Calder, our counsel as to Cayman Islands law, and Fortune Land Law Offices, our counsel as to Taiwan law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands and Taiwan, respectively, would (1) recognize or enforce judgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or (2) to be competent to hear original actions brought in each respective jurisdiction, against us predicated upon the securities laws of the United States or any state thereof.
Maples and Calder has further advised us that a final and conclusive judgment in federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the Courts of the Cayman Islands under the common law doctrine of obligation.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, which includes amendments, exhibits, schedules and supplements, under the Securities Act of 1933 and the rules and regulations of the SEC, for the registration of the common shares offered by this prospectus. Although this prospectus, which forms a part of the registration statement, contains all material information included in the registration statement, part of the registration statement has been omitted from this prospectus as permitted by the rules and regulations of the SEC. For further information with respect to our company and the common shares offered by this prospectus, please refer to the registration statement. Although this prospectus contains all material terms of the contracts or other documents referred to in this prospectus, the descriptions of these contracts or other documents contained in this prospectus are not necessarily complete.
Upon consummation of this offering, we will be subject to the information requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). As a result, we will be required to file reports, proxy statements and other information with the other information with the Securities and Exchange Commission. You may read and copy all or any portion of the registration statement, these reports, proxy statements and any other information that we file at the public reference facilities maintained by the SEC at:
. Judiciary Plaza
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549;
. Seven World Trade Center 13th Floor New York, New York 10048; and
. Northwestern Atrium Center 500 West Madison Street Suite 1400 Chicago, Illinois 60661-2511.
Copies of these materials can also be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Upon approval of our common shares for quotation on the Nasdaq National Market, our periodic reports and other information may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The SEC maintains a Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
GARMIN LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors............................................. F-2 Consolidated Balance Sheets at December 26, 1998, December 25, 1999 and September 23, 2000 (unaudited).......................................... F-3 Consolidated Statements of Income for the years ended December 31, 1997, December 26, 1998 and December 25, 1999 and for the nine-month periods ended September 25, 1999 and September 23, 2000 (unaudited)............. F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, December 26, 1998 and December 25, 1999 and for the nine-month period ended September 23, 2000 (unaudited).................. F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1997, December 26, 1998 and December 25, 1999 and for the nine-month periods ended September 25, 1999 and September 23, 2000 (unaudited)..... F-6 Notes to Consolidated Financial Statements................................. F-8 |
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Garmin Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Garmin Ltd. and subsidiaries (the Company) as of December 26, 1998 and December 25, 1999, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 25, 1999. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Garmin Ltd. and subsidiaries at December 26, 1998 and December 25, 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 25, 1999, in conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Kansas City, Missouri
February 26, 2000, except for Note 1,
as to which the date is September 22, 2000,
and Note 13, as to which the date is .
The foregoing opinion is in the form
that will be signed upon the
completion of the 1.12379256 for 1
common stock split as described in
Note 13 to the consolidated financial
statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
November 1, 2000
|
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents............ $ 80,360 $104,079 $135,968
Marketable securities................ 2,176 -- --
Accounts receivable, less allowance
for doubtful accounts of $618 in
1998, $1,116 in 1999 and $1,470 in
2000.............................. 17,560 35,908 41,742
Inventories.......................... 37,974 51,248 79,578
Deferred income taxes (Note 8)....... 6,570 5,883 6,868
Prepaid expenses and other current
assets (Note 3)................... 704 864 2,251
-------- -------- --------
Total current assets................ 145,344 197,982 266,407
Property and equipment (Notes 3 and 5):
Land and improvements................ 7,520 22,548 21,909
Building and improvements............ 7,810 19,324 24,958
Office furniture and equipment....... 6,594 7,575 8,626
Manufacturing equipment.............. 12,235 15,313 14,197
Engineering equipment................ 4,466 5,116 9,157
Vehicles............................. 209 230 249
-------- -------- --------
38,834 70,106 79,096
Accumulated depreciation and
amortization...................... 10,083 14,255 18,225
-------- -------- --------
28,751 55,851 60,871
Deferred income taxes (Note 8)......... 223 75 57
Restricted cash (Note 5)............... -- -- 9,085
Intangible assets...................... 214 737 3,684
-------- -------- --------
Total assets......................... $174,532 $254,645 $340,104
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..................... $ 9,334 $ 15,402 $ 23,014
Salaries and benefits payable........ 2,904 2,928 3,195
Accrued warranty costs............... 3,114 4,429 6,950
Accrued sales program costs.......... 662 2,330 1,628
Litigation settlement (Note 12)...... 2,500 -- --
Other accrued expenses............... 1,872 2,567 1,985
Income taxes payable................. 8,498 4,580 9,433
Notes payable (Note 3)............... 363 5 --
-------- -------- --------
Total current liabilities........... 29,247 32,241 46,205
Long-term debt (Note 5)................ 9,345 27,715 47,907
Other liabilities...................... -- 90 97
Stockholders' equity:
Preferred stock, $1.00 par value,
1,000,000 shares authorized, none
issued............................ -- -- --
Common stock, $0.01 par value,
500,000,000 shares authorized:
Shares issued and outstanding--
55,555,555 in 1998 and 100,000,000
in 1999 and 2000.................. 555 1,000 1,000
Additional paid-in capital........... 17,585 29,593 29,593
Retained earnings (Notes 5 and 6).... 132,247 176,431 225,529
Accumulated other comprehensive
loss.............................. (14,447) (12,425) (10,227)
-------- -------- --------
Total stockholders' equity.......... 135,940 194,599 245,895
-------- -------- --------
Total liabilities and stockholders'
equity........................... $174,532 $254,645 $340,104
======== ======== ========
|
See accompanying notes.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share information)
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
Net sales............... $160,280 $169,030 $232,586 $164,536 $260,079
Cost of goods sold...... 93,620 82,787 105,654 76,430 119,110
-------- -------- -------- -------- --------
Gross profit............ 66,660 86,243 126,932 88,106 140,969
Selling, general and
administrative
expenses............. 17,102 24,680 27,063 19,195 23,678
Research and development
expense.............. 12,657 14,876 17,339 12,476 15,474
-------- -------- -------- -------- --------
29,759 39,556 44,402 31,671 39,152
-------- -------- -------- -------- --------
Operating income........ 36,901 46,687 82,530 56,435 101,817
Other income (expense):
Interest income....... 2,598 3,512 4,327 2,692 4,427
Interest expense...... (897) (545) (577) (431) (2,325)
Foreign currency...... 9,967 (2,171) (1,469) (1,138) (1,398)
Other................. 303 37 (679) (425) (353)
-------- -------- -------- -------- --------
11,971 833 1,602 698 351
-------- -------- -------- -------- --------
Income before income
taxes................ 48,872 47,520 84,132 57,133 102,168
Income tax provision
(benefit):
Current............... 12,841 16,608 19,130 11,400 25,083
Deferred.............. (61) (4,254) 835 2,158 (967)
-------- -------- -------- -------- --------
12,780 12,354 19,965 13,558 24,116
-------- -------- -------- -------- --------
Net income.............. $ 36,092 $ 35,166 $ 64,167 $ 43,575 $ 78,052
======== ======== ======== ======== ========
Basic and diluted net
income per share..... $ 0.37 $ 0.35 $ 0.64 $ 0.44 $ 0.78
======== ======== ======== ======== ========
Weighted-average common
shares outstanding... 98,876 99,624 100,000 100,000 100,000
======== ======== ======== ======== ========
|
See accompanying notes.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
Accumulated
Common Stock Additional Other
--------------- Paid-In Retained Comprehensive
Shares Dollars Capital Earnings Income (Loss) Total
------- ------- ---------- -------- ------------- --------
Balance at December 31,
1996................. 39,442 $ 394 $12,984 $ 75,071 $ (2,403) $ 86,046
Net income............ -- -- -- 36,092 -- 36,092
Translation
adjustment......... -- -- -- -- (14,305) (14,305)
--------
Comprehensive
income............ 21,787
Cash dividend ($0.09
per share)......... -- -- -- (3,629) -- (3,629)
20% stock dividend.... 7,889 79 2,459 (2,538) -- --
------- ------ ------- -------- -------- --------
Balance at December 31,
1997................. 47,331 473 15,443 104,996 (16,708) 104,204
Net income............ -- -- -- 35,166 -- 35,166
Translation
adjustment......... -- -- -- -- 2,261 2,261
--------
Comprehensive
income............ 37,427
Cash dividend ($0.12
per share)......... -- -- -- (6,000) -- (6,000)
15% stock dividend.... 7,100 71 1,844 (1,915) -- --
Issuance of common
stock.............. 1,124 11 298 -- -- 309
------- ------ ------- -------- -------- --------
Balance at December 26,
1998................. 55,555 555 17,585 132,247 (14,447) 135,940
Net income............ -- -- -- 64,167 -- 64,167
Translation
adjustment......... -- -- -- -- 2,022 2,022
--------
Comprehensive
income............ 66,189
Cash dividend ($0.13
per share)......... -- -- -- (7,530) -- (7,530)
80% stock dividend.... 44,445 445 12,008 (12,453) -- --
------- ------ ------- -------- -------- --------
Balance at December 25,
1999................. 100,000 1,000 29,593 176,431 (12,425) 194,599
Net income
(unaudited)........ -- -- -- 78,052 -- 78,052
Translation adjustment
(unaudited)........ -- -- -- -- 2,198 2,198
--------
Comprehensive income
(unaudited)....... 80,250
Cash dividend ($0.29
per share)
(unaudited)........ -- -- -- (28,954) -- (28,954)
------- ------ ------- -------- -------- --------
Balance at September 23,
2000................. 100,000 $1,000 $29,593 $225,529 $(10,227) $245,895
======= ====== ======= ======== ======== ========
|
See accompanying notes.
GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
Operating Activities
Net income.............. $36,092 $35,166 $ 64,167 $43,575 $ 78,052
Adjustments to reconcile
net income to net
cash provided by
operating activities:
Depreciation.......... 3,225 4,308 5,554 4,020 5,194
Amortization.......... 53 30 18 15 15
Loss on disposal of
property and
equipment.......... 5 80 136 4 709
Provision for doubtful
accounts........... 287 414 825 171 241
Deferred income
taxes.............. (61) (4,254) 835 2,158 (967)
Net sale (purchase) of
trading
securities......... (1,034) (1,236) 2,173 2,156 --
Changes in operating
assets and
liabilities:
Accounts receivable.. (6,173) 1,054 (19,212) (9,590) (6,665)
Inventories.......... 2,729 (2,905) (12,917) 574 (27,942)
Prepaid expenses and
other current
assets............ (512) 1,481 (508) (904) (933)
Accounts payable..... 4,001 (611) 5,888 5,167 7,504
Accrued expenses..... (191) 1,057 1,278 (2,237) 1,603
Income taxes
payable........... 1,447 1,964 (3,895) (11,069) 4,854
------- ------- -------- ------- --------
Net cash provided by
operating
activities........... 39,868 36,548 44,342 34,040 61,665
Investing activities
Purchases of property
and equipment........ (2,667) (8,280) (32,195) (11,048) (16,408)
Proceeds from sale of
property and
equipment............ 1 44 69 64 5,854
Payment of lease
termination fee...... -- (1,179) -- -- --
Increase in restricted
cash................. -- -- -- -- (9,085)
Other................... 51 76 (176) 597 (3,397)
------- ------- -------- ------- --------
Net cash used in
investing
activities........... (2,615) (9,339) (32,302) (10,387) (23,036)
Financing activities
Dividends............... (3,629) (6,000) (7,530) (7,530) (28,954)
Principal payments on
capital lease
obligations.......... (987) (5,166) -- -- --
Proceeds from issuance
of notes payable and
long-term debt....... 1,208 -- 18,040 -- --
Proceeds from issuance
of common stock...... -- 309 -- -- --
Principal payments on
notes payable........ -- (1,269) (357) (334) (5)
Proceeds from issuance
of Industrial Revenue
Bonds ............... -- -- -- -- 20,000
------- ------- -------- ------- --------
Net cash provided by
(used in) financing
activities........... (3,408) (12,126) 10,153 (7,864) (8,959)
Effect of exchange rate
changes on cash...... (6,675) 1,034 1,526 (1,505) 2,219
------- ------- -------- ------- --------
Net increase in cash and
cash equivalents..... 27,170 16,117 23,719 14,284 31,889
Cash and cash
equivalents at
beginning of period.. 37,073 64,243 80,360 80,360 104,079
------- ------- -------- ------- --------
Cash and cash
equivalents at end of
period............... $64,243 $80,360 $104,079 $94,644 $135,968
======= ======= ======== ======= ========
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GARMIN LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
Year ended Nine months ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
Supplemental disclosures
of cash flow
information
Cash paid during the
period for income
taxes................ $12,865 $15,048 $28,733 $21,934 $15,035
======= ======= ======= ======= =======
Cash received during the
period from income
tax refunds.......... $ 1,464 $ 399 $ -- $ -- $ 12
======= ======= ======= ======= =======
Cash paid during the
period for interest.. $ 921 $ 565 $ 558 $ 267 $ 1,477
======= ======= ======= ======= =======
Supplemental disclosures
of noncash investing
and financing
activities
Additions to property
and equipment through
the issuance of
capital lease
obligations.......... $ 1,563 $ 305 $ -- $ -- $ --
======= ======= ======= ======= =======
Issuance of stock
dividends............ $ 2,538 $ 1,915 $12,453 $12,453 $ --
======= ======= ======= ======= =======
|
See accompanying notes.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
DECEMBER 26, 1998 AND DECEMBER 25, 1999
1. Organization
On July 24, 2000, the stockholders of Garmin Corporation (GARMIN) incorporated Garmin Ltd. under the laws of the Cayman Islands. Subsequently, the stockholders of GARMIN executed a Shareholders Agreement to transfer to Garmin Ltd. their investments in 88,984,394 common shares of stock of GARMIN. These shares, which represented approximately 100% of the issued and outstanding common stock of GARMIN as of July 24, 2000, were used by the stockholders to pay for their subscriptions to 100,000,000 common shares of Garmin Ltd. at a par value of $0.01 or an aggregate value of $1,000. As such, the exchange of shares in this reorganization between GARMIN and the newly formed holding company, Garmin Ltd., completed on September 22, 2000, has been accounted for at historical cost similar to that in pooling-of-interests accounting. In addition to the shares of GARMIN owned by Garmin Ltd., one share of GARMIN is held by each of six shareholders pursuant to the requirement of Taiwan law that a company have at least seven shareholders and 4,000 shares are owned by two related stockholders who did not convert GARMIN shares to shares of the Company. These 4,006 shares are not reported as or considered to be held by minority interests in the accompanying consolidated financial statements due to immateriality. As a result, GARMIN is considered herein to be a wholly-owned subsidiary of Garmin Ltd.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Accordingly, the accompanying consolidated financial statements reflect the accounts of Garmin Ltd. and its wholly-owned subsidiaries as if the reorganization described in Note 1 was effective prior to January 1, 1997. All significant intercompany balances and transactions have been eliminated.
Nature of Business
Garmin Ltd. and subsidiaries (together, the Company) manufacture, market and distribute Global Positioning System-enabled products and other related products. GARMIN was incorporated in Taiwan, Republic of China on January 16, 1990. GARMIN is primarily responsible for the manufacturing and distribution of the Company's products to Garmin International, Inc. and Garmin (Europe) Limited and, to a lesser extent, new product development and sales and marketing of the Company's products in Asia and the Far East. In April 1990, a 100%-owned subsidiary, Garmin International, Inc. (GII) was incorporated in the United States. GII is primarily responsible for sales and marketing of the Company's products in many international markets and in the United States as well as research and new product development. During June 1992, GII formed Garmin (Europe) Limited (GEL), a wholly-owned subsidiary in the United Kingdom, to sell its products principally within the European market. During the nine months ended September 23, 2000, Garmin Realty LLC was incorporated to hold certain real estate.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Fiscal Year
Prior to 1998, GARMIN's fiscal year end was based on a calendar year. However, both GII and GEL reported on a 52-53-week period ending on the last Saturday of the calendar year. As a result, the December 31, 1997 consolidated financial statements include operations of GARMIN from January 1, 1997 to December 31, 1997 and GII and GEL from December 28, 1996 to December 27, 1997. In 1998, GARMIN elected to change its fiscal year to a 52-53-week period consistent with GII and GEL. As a result, fiscal 1998 includes the operations of GARMIN from January 1, 1998 through December 26, 1998 and the operations of GII and GEL from December 28, 1997 through December 26, 1998.
Also, due to the fact that there are not exactly 52 weeks in a calendar year and there is slightly more than one additional day per year (not including the effects of leap year) in each calendar year as compared to a 52-week fiscal year, the Company will have a fiscal year comprising 53 weeks in certain fiscal years, as determined by when the last Saturday of the calendar year occurs in consecutive calendar years.
In those resulting fiscal years that have 53 weeks, the Company will record an extra week of sales, costs and related financial activity. Therefore, the financial results of those fiscal years, and the associated 14-week quarter, will not be exactly comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13 weeks. Fiscal 1997, 1998 and 1999 were all comprised of 52 weeks with the exception of the operations of GARMIN for the period from December 28, 1997 through December 31, 1997 recorded in fiscal 1997. This did not significantly impact the 1998 consolidated financial statements.
Unaudited Financial Information
The financial information as of September 23, 2000 and for the nine-month periods ended September 25, 1999 and September 23, 2000 contained herein is unaudited. The Company believes this information has been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and Article 10 of Regulation S-X. The Company also believes this information includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the periods then ended. The results of operations for the nine-month period ended September 23, 2000 are not necessarily indicative of the results of operations that may be expected for the entire year.
Foreign Currency Translation
GARMIN utilizes the New Taiwan Dollar as its functional currency. GEL utilizes the British pound sterling as its functional currency. In accordance with Statement of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation," the financial statements of both GARMIN and GEL have been translated into United States dollars, the functional currency of Garmin Ltd. and GII and the reporting currency herein, for purposes of consolidation at rates prevailing during the year for sales, costs and expenses and at end- of-year rates for all assets and liabilities. The effect of this translation is recorded in a separate component of stockholders' equity.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Transactions in foreign currencies are recorded at the approximate rate of exchange at the transaction date. Assets and liabilities resulting from these transactions are translated at the rate of exchange in effect at the balance sheet date. All differences are recorded in results of operations and amounted to exchange gains (losses) of approximately $9,967, $(2,171) and $(1,469) for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively, and $(1,138) and $(1,398) for the nine months ended September 25, 1999 and September 23, 2000, respectively. These gains (losses) are included in other income (expense) in the accompanying consolidated statements of income.
Earnings per Share
Basic and diluted earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding during the periods presented. There are no dilutive securities outstanding during any of the periods. All references in the consolidated financial statements to weighted- average common shares outstanding and related per share amounts have been restated retroactively to reflect stock dividends declared during the periods presented herein.
Common Stock
The amount of retained earnings capitalized in connection with the stock dividends previously issued by the Company has been based upon the par value of the underlying GARMIN common stock, which was the United States dollar equivalent of ten New Taiwan Dollars. In addition, the common stock issuance in 1998 was made on a pro rata basis to each stockholder of GARMIN based on the number of shares held at the time. As such, this issuance of shares, to qualify the Company for certain Taiwan tax incentives, was recorded at the amount of cash received, which was equal to par value.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, operating accounts, money market funds and securities with maturities of three months or less when purchased. The carrying amount of cash and cash equivalents approximates fair value given the short maturity of those instruments.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the weighted-average method (which approximates the first-in, first-out (FIFO) method) by GARMIN and the FIFO method by GII and GEL. Inventories consisted of the following:
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
Raw materials........................... $18,663 $30,492 $38,418
Work-in-process......................... 4,264 3,710 12,048
Finished goods.......................... 16,908 18,773 31,169
Inventory reserves...................... (1,861) (1,727) (2,057)
------- ------- -------
$37,974 $51,248 $79,578
======= ======= =======
|
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Marketable Securities
Marketable securities are considered trading securities pursuant to SFAS No. 115 and are held for resale in anticipation of short-term market movements. These investments are carried at fair value with gains and losses, both realized and unrealized, recognized in income. At December 26, 1998, the cost of such securities was $2,162. These securities were sold in 1999, and the related gains were reported in other income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities are included in investment income.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated useful lives:
Buildings and improvement.................................... 8-55 years Office furniture and equipment............................... 3-8 years Manufacturing and engineering equipment...................... 3-8 years Vehicles..................................................... 3 years |
Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to be Disposed Of," the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. SFAS No. 121 has not had an impact on the Company's consolidated financial statements.
Intangible Assets
Intangible assets principally consist of costs incurred with certain licensing agreements, which are being amortized over the lives of the related license agreements, which are generally three years.
Financial Instruments
GII has entered into interest-rate swap agreements to modify the interest characteristics of portions of its outstanding long-term debt from a floating rate to a fixed rate basis. This agreement involves the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from the counterparty is included in other liabilities or assets. The fair value of the swap agreement is not recognized in the consolidated financial statements. See Note 9.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Income Taxes
The Company accounts for income taxes using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." The liability method provides that deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income taxes have not been accrued at the GARMIN level for the unremitted earnings of GII or GEL totaling approximately $28,728, $46,502 and $81,130 at December 26, 1998, December 25, 1999 and September 23, 2000, respectively, because such earnings are intended to be reinvested in these subsidiaries indefinitely.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company grants credit to certain customers who meet the Company's preestablished credit requirements. Generally, the Company does not require security when trade credit is granted to customers. Credit losses are provided for in the Company's consolidated financial statements and consistently have been within management's expectations.
Revenue Recognition
The Company recognizes revenue from product sales when the product is shipped to the customer and title has transferred. The Company assumes no remaining significant obligations associated with the product sale other than that related to its warranty programs discussed below.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the staff's views in applying generally accepted accounting principles to revenue recognition in the consolidated financial statements. The Company plans to adopt SAB 101 no later than the fourth quarter of fiscal 2000 but does not expect it will have a material effect on the Company's consolidated financial position or results of operations.
Product Warranty
The Company provides for estimated warranty costs at the time of sale. The warranty period is generally for one year from date of shipment with the exception of certain aviation products for which the warranty period is two years from the date of shipment.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Sales Programs
The Company provides certain monthly and quarterly incentives for its dealers based on various factors including dealer purchasing volume and growth. Additionally, the Company provides rebates to end users on certain products. Estimated rebates and incentives payable to distributors are regularly reviewed and recorded as accrued expenses on a monthly basis. These rebates and incentives are recorded as reductions to net sales in the accompanying consolidated statements of income.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense charged to operations amounted to approximately $5,348, $7,245 and $8,574 for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively, and $6,307 and $9,562 for the nine months ended September 25, 1999 and September 23, 2000, respectively.
Research and Development
Substantially all research and development is performed by GII in the United States. Research and development costs, which are expensed as incurred, amounted to approximately $12,657, $14,876 and $17,339 for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively, and $12,476 and $15,474 for the nine months ended September 25, 1999 and September 23, 2000, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which is required to be adopted in years beginning after June 15, 2000. The statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new statement effective December 31, 2000, the beginning of fiscal 2001. The statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives not considered hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged asset, liability or firm commitment through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company does not anticipate the adoption of SFAS No. 133 will have a significant effect on its results of operations or financial position.
3. Notes Payable
The Company has certain promissory notes totaling $363 and $5 at December 26, 1998 and December 25, 1999, respectively. These notes are secured by certificates of deposit, included in
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
prepaid expenses and other current assets, totaling approximately $311 and $158 at December 26, 1998 and December 25, 1999, respectively. In addition, the Company had pledged, as additional security, land and buildings with book values totaling approximately $2,550 as of December 26, 1998.
4. Line of Credit
During November 1998, the Company renewed a line of credit agreement with a bank providing for maximum borrowings of $3,500 less indirect borrowings under certain standby letters of credit which totaled approximately $500 at December 25, 1999. There were no standby letters of credit at December 26, 1998, and there were no direct borrowings outstanding under the line of credit as of December 26, 1998 and December 25, 1999. The line of credit, which bears interest at the bank's prime rate less 1% or LIBOR plus 1.5%, expires June 30, 2000 and is unsecured.
5. Long-Term Debt
During 1995, GII entered into an agreement with the City of Olathe, Kansas for the construction of a new corporate headquarters (the project) which was financed through issuance of Series 1995 Industrial Revenue Bonds (the Bonds) totaling $9,500. Upon completion of the project in 1996, GII retired bonds totaling $155. At December 26, 1998, December 25, 1999 and September 23, 2000, outstanding principal under the Bonds totaled $9,345. Interest on the Bonds is payable monthly at a variable interest rate (4.15% and 4.80% at December 26, 1998 and December 25, 1999, respectively), which is adjusted weekly to the current market rate as determined by the remarketing agent for the Bonds, with principal due upon maturity on January 1, 2025. See Note 9.
The Bonds are secured by an irrevocable letter of credit totaling $9,650, with facility fees of 1.05% annually, through February 2001, renewable on an annual basis thereafter. The bank has the option of requiring GII to establish a sinking fund related to the principal balance outstanding on the Bonds, which it had not exercised through December 25, 1999. The letter of credit is secured by a mortgage on all assets financed with the proceeds of the Bonds and is guaranteed by GARMIN.
In connection with the letter of credit agreement entered into with the bank, GII is required to comply with various covenants, including minimum tangible net worth requirements of both GARMIN and GII and various financial performance ratios. In addition, under the agreement entered into with the City of Olathe, Kansas, GII was restricted from making capital expenditures, as defined by the agreement, for facilities located in Olathe, Kansas in excess of $10,000 for the period from February 28, 1992 to February 28, 1998.
During 1999, GARMIN borrowed $18,040 to finance the purchase of land and a new manufacturing facility in Taiwan. The outstanding balance ($18,370 at December 25, 1999 and $18,562 at September 23, 2000, based on period end exchange rates) is due in 60 equal payments of
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
principal plus interest beginning November 2001. In addition, GARMIN has pledged, as additional security, land and buildings with book values totaling approximately $24,640 as of December 25, 1999. Interest only on the note is payable monthly through November 2001 at a fixed rate of 6.155%. Subsequent to November 2001, interest is adjustable based on the Republic of China's government's preferential rate on term deposits plus 0.18%.
The aggregate amounts of principal to be paid on long-term debt outstanding at December 25, 1999 during each of the next five years and thereafter are as follows:
2000............................................................ $ --
2001............................................................ 262
2002............................................................ 3,254
2003............................................................ 3,460
2004............................................................ 3,679
Thereafter...................................................... 17,060
-------
$27,715
=======
|
During the nine months ended September 23, 2000, GII entered into another agreement with the City of Olathe, Kansas to finance the Company's expansion of its manufacturing facilities through the issuance of Series 2000 Industrial Revenue Bonds (the 2000 Bonds) totaling $20,000. The proceeds from the issuance of the 2000 Bonds were placed in an interest-bearing restricted cash account controlled by a trustee appointed by the issuer. Disbursements from the account are restricted to purchases of equipment and construction related to the project and amounted to $10,915 during the nine-months ended September 23, 2000. Unexpended bond proceeds in this restricted cash account amounted to $9,085 at September 23, 2000.
At September 23, 2000, outstanding principal under the 2000 Bonds totaled $20,000. Interest on the 2000 Bonds is payable monthly at a variable interest rate (6.59% at September 23, 2000), which is adjusted weekly to the current market rate as determined by the remarketing agent of the 2000 Bonds, with principal due upon maturity at April 15, 2020. See Note 9.
The 2000 Bonds are secured by an irrevocable letter of credit totaling $20,288 with facility fees of 1.43%. This renewable letter of credit initially expires on September 20, 2004. The bank has required a sinking fund be established with semiannual payments of $667 beginning April 2002.
6. Leases and Other Commitments
In December 1995, GII entered into several sale-leaseback transactions with a bank pursuant to a master lease agreement. The master lease was accounted for as a capital lease and provided GII an option to purchase the leased property and equipment at the expiration of the lease term, or earlier upon remittance of satisfactory termination payments, for its then fair market value. Additionally, the bank agreed to purchase and concurrently lease to GII up to $7,000 of property and equipment under the master lease agreement through March 31, 1998. All leases under the master lease agreement were accounted for as capital leases.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
In March 1998, GII exercised its option and purchased the property and equipment by paying the outstanding balance of its capital lease obligation and a termination payment of $1,179. In accordance with SFAS No. 13, "Accounting for Leases," GII capitalized the termination payment as property and equipment.
GII leases office and warehouse space under noncancelable operating lease agreements expiring through 2006. GEL also leases office space under an operating lease which it may, at its option, extend for up to 14 additional years. Noncancelable future minimum lease payments at December 25, 1999 are as follows:
2000............................................................ $ 140
2001............................................................ 140
2002............................................................ 140
2003............................................................ 140
2004............................................................ 140
Thereafter...................................................... 356
------
Total minimum lease payments.................................. $1,056
======
|
Rental expense amounted to $92, $94 and $140 for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively.
At December 25, 1999, standby letters of credit amounting to $500 were issued by banks, on behalf of GII, for the interest rate swap agreement discussed in Note 9. No standby letters of credit were issued on behalf of GII at December 26, 1998. At December 26, 1998 and December 25, 1999, standby letters of credit amounting to $235 and $443, respectively, were issued by banks on behalf of GARMIN. Additionally, at December 25, 1999, approximately $21,000 of GARMIN's retained earnings are indefinitely restricted from distribution to stockholders pursuant to the law of Taiwan.
Substantially all of the assets of GEL are held as collateral by a bank securing payment of the United Kingdom value-added tax requirements.
7. Employee Benefit Plans
GII has an employee savings plan under which its employees may contribute up to 10% of their annual compensation subject to Internal Revenue Code maximum limitations. Additionally, GEL has a defined contribution plan under which its employees may contribute up to 5% of their annual compensation. Both GII and GEL contribute an amount determined annually at the discretion of the Board of Directors. During the years ended December 31, 1997, December 26, 1998 and December 25, 1999, expense related to these plans of $585, $762 and $930, respectively, was charged to operations.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Additionally, GII has a defined contribution money purchase plan (the Plan) which covers substantially all employees. GII contributes a specified percentage of each participant's annual compensation up to certain limits as defined in the Plan. During the years ended December 31, 1997, December 26, 1998 and December 25, 1999, GII recorded expense related to the Plan of $502, $659 and $721, respectively.
8. Income Taxes
The Company's income tax provision consists of the following:
Year Ended Nine Months Ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
Federal:
Current... $ 2,187 $ 2,635 $ 8,883 $ 6,286 $10,907
Deferred.. (365) (555) (710) (329) (1,348)
------- ------- ------- ------- -------
1,822 2,080 8,173 5,957 9,559
State:
Current... 297 304 1,332 1,033 2,032
Deferred.. (15) (63) (85) (75) (277)
------- ------- ------- ------- -------
282 241 1,247 958 1,755
Foreign:
Current... 10,357 13,669 8,915 4,081 12,144
Deferred.. 319 (3,636) 1,630 2,562 658
------- ------- ------- ------- -------
10,676 10,033 10,545 6,643 12,802
------- ------- ------- ------- -------
Total... $12,780 $12,354 $19,965 $13,558 $24,116
======= ======= ======= ======= =======
|
The income tax provision differs from the amount computed by applying the statutory federal income tax rate to income before taxes. The sources and tax effects of the differences are as follows:
Year Ended Nine Months Ended
-------------------------------------- ---------------------------
December 31, December 26, December 25, September 25, September 23,
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------- -------------
(unaudited) (unaudited)
Federal income tax
expense at U.S.
statutory rate....... $17,105 $16,632 $29,446 $19,997 $35,759
State income tax
expense, net of
federal tax effect... 183 157 810 644 1,253
Foreign tax rate
differential......... (4,104) (3,853) (5,604) (3,592) (6,620)
Taiwan tax incentives
and credits.......... (224) (1,405) (3,817) (2,648) (6,139)
Other, net.............. (180) 823 (870) (843) (137)
------- ------- ------- ------- -------
Income tax expense...... $12,780 $12,354 $19,965 $13,558 $24,116
======= ======= ======= ======= =======
|
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
The Company's income before income taxes attributable to foreign operations was $42,171, $39,692 and $58,467 for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively, and $38,161 and $69,248 for the nine months ended September 25, 1999 and September 23, 2000, respectively. The tax incentives and credits received from Taiwan included in the table above reflect $0.00, $0.01 and $0.04 per weighted average common share outstanding for the years ended December 31, 1997, December 26, 1998 and December 25, 1999, respectively, and $0.03 and $0.06 per share for the nine months ended September 25, 1999 and September 23, 2000, respectively. The Company currently expects to benefit from the incentives and credits being offered by Taiwan through 2004, at which time these tax benefits expire.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
December 26, December 25, September 23,
1998 1999 2000
------------ ------------ -------------
(unaudited)
Deferred tax assets:
Product warranty accruals............ $ 953 $1,464 $2,711
Allowance for doubtful accounts........ 237 411 504
Inventory carrying value............... 4,613 3,606 3,206
Vacation accrual..................... 295 335 398
Depreciation........................... 321 75 57
Unrealized foreign currency losses..... 432 28 29
Other.................................. 10 57 38
------ ------ ------
6,861 5,976 6,943
Deferred tax liabilities:
Unrealized foreign currency gains...... 18 18 18
Other.................................. 50 -- --
------ ------ ------
68 18 18
------ ------ ------
Net deferred tax assets................ $6,793 $5,958 $6,925
====== ====== ======
|
9. Interest Rate Risk Management
During June 1996, GII entered into an interest rate swap agreement to effectively convert a portion of its floating rate long-term debt to a fixed rate basis, thus reducing the impact of interest rate changes on future income. Pursuant to this "pay-fixed" swap agreement, GII agreed to exchange, at specified intervals, the difference between the fixed and the floating interest amounts calculated on the notional amount of the swap agreement totaling $5,000 at December 26, 1998 and December 25, 1999. GII's fixed interest rate under the swap agreement is 5.1%. The counterparty's floating rate is
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
based on the nontaxable PSA Municipal Swap Index and amounted to 4.15%, 4.80% and 4.45% at December 26, 1998, December 25, 1999 and September 23, 2000, respectively. Notional amounts do not quantify risk or represent assets and liabilities of the Company, but are used in the determination of cash settlements under the agreement. The Company is exposed to credit losses from counterparty nonperformance but does not anticipate any losses from its agreement, which is with a major financial institution.
During the nine months ended September 23, 2000, GII entered into an additional swap agreement to effectively convert a portion of additional floating rate long-term debt associated with the 2000 Bonds to a fixed rate basis. Pursuant to this "pay-fixed" swap agreement, GII agreed to exchange, at specified intervals, the difference between the fixed and the floating interest amounts calculated on the notional amount of the swap agreement totaling $10,000 at September 23, 2000. GII's fixed interest rate under the swap agreement is 7.26% at September 23, 2000 compared to the counterparty's floating rate of 6.59% at the same date. The counterparty's floating rate is based on the bank's Taxable Low Floater Rate.
The gain and loss on interest rate swap agreements was immaterial for all periods presented.
10. Fair Value of Financial Instruments
In accordance with SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", the following summarizes required information about the fair value of certain financial instruments for which it is currently practicable to estimate such value. None of the financial instruments are held or issued for trading purposes. They carrying amounts and fair values of the Company's financial instruments are as follows:
December 26,
1998 December 25, 1999 September 23, 2000
---------------- ----------------- ----------------------
Carrying Fair Carrying Fair Carrying
Amount Value Amount Value Amount Fair Value
-------- ------- -------- -------- ----------- ----------
(unaudited) (unaudited)
Cash and cash
equivalents.......... $80,360 $80,360 $104,079 $104,079 $135,968 $135,968
Restricted cash......... -- -- -- -- 9,085 9,085
Notes payable........... 363 363 5 5 -- --
Long-term debt:
Term loan............. -- -- 18,370 18,370 18,562 18,179
Series 1995 Bonds..... 9,345 9,682 9,345 9,555 9,345 9,501
Series 2000 Bonds..... -- -- -- -- 20,000 20,000
|
The carrying value of cash and cash equivalents, restricted cash and notes payable approximates their fair value. The fair values of the Company's long-term debt have been estimated using discounted cash flow analyses, based on an estimate of the interest rate the Company would have to pay on the issuance of debt with a similar maturity and terms. The fair values of long- term debt as reported, are not necessarily the amounts the Company would currently have to pay to extinguish any of this debt.
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
11. Segment Information
The Company operates within its targeted markets through two reportable segments, those being related to products sold into the consumer and aviation markets. Both of the Company's reportable segments offer products through the Company's network of independent dealers and distributors. However, the nature of products and types of customers for the two segments vary significantly. As such, the segments are managed separately. The Company's consumer segment includes portable global positioning system (GPS) receivers and accessories for marine, recreation, land and automotive use sold primarily to retail outlets. The Company's aviation products are portable and panel mount avionics for Visual Flight Rules and Instrument Flight Rules navigation and are sold primarily to retail outlets and certain aircraft manufacturers.
The Company's co-Chief Executive Officers have been identified as the Chief Operating Decision Maker (CODM). The CODM evaluates performance and allocates resources based on income before income taxes of each segment. Income before income taxes represents net sales less operating expenses including certain allocated general and administrative costs, interest income and expense, foreign currency adjustments, and other nonoperating corporate expenses. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. There are no intersegment sales or transfers.
The identifiable assets associated with each reportable segment reviewed by CODM include accounts receivable and inventories. The Company does not report property and equipment, depreciation and amortization or capital expenditures by segment to the CODM.
Revenues, interest income and interest expense, income before income taxes and identifiable assets for each of the Company's reportable segments are presented below:
Year ended December 31,
1997
--------------------------
Consumer Aviation Total
-------- -------- --------
Sales to external customers......................... $122,025 $38,255 $160,280
Allocated interest income........................... 1,984 614 2,598
Allocated interest expense.......................... 685 212 897
Income before income taxes.......................... 33,997 14,875 48,872
Assets:
Accounts receivable............................... 13,863 4,291 18,154
Inventory......................................... 24,375 7,545 31,920
Year ended December 26,
1998
--------------------------
Consumer Aviation Total
-------- -------- --------
Sales to external customers......................... $135,446 $33,584 $169,030
Allocated interest income........................... 2,814 698 3,512
Allocated interest expense.......................... 437 108 545
Income before income taxes.......................... 37,936 9,584 47,520
Assets:
Accounts receivable............................... 14,071 3,489 17,560
Inventory......................................... 25,528 12,446 37,974
|
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the nine months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Year ended December 25, 1999
------------------------------------
Consumer Aviation Total
----------- ----------- -----------
Sales to external customers............... $169,164 $63,422 $232,586
Allocated interest income................. 3,147 1,180 4,327
Allocated interest expense................ 420 157 577
Income before income taxes................ 60,449 23,683 84,132
Assets:
Accounts receivable..................... 26,117 9,791 35,908
Inventory............................... 31,093 20,155 51,248
Nine months ended September 25,
1999
------------------------------------
Consumer Aviation Total
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Sales to external customers............... $121,125 $43,411 $164,536
Income before income taxes................ 40,188 16,945 57,133
Assets:
Accounts receivable..................... 18,500 6,631 25,131
Inventory............................... 31,986 11,464 43,450
Nine months ended September
23, 2000
------------------------------------
Consumer Aviation Total
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
Sales to external customers............... $173,322 $86,757 $260,079
Income before income taxes................ 63,845 38,323 102,168
Assets:
Accounts receivable..................... 27,818 13,924 41,742
Inventory............................... 53,381 26,197 79,578
|
Net sales, including intercompany sales or transfers and long-lived assets (property and equipment), prior to intercompany eliminations, by geographic area, are as follows for the years ended December 31, 1997, December 26, 1998 and December 25, 1999:
North America Asia Europe Total
------------- ------- ------- --------
December 31, 1997
Sales to external customers............. $110,591 $ 9,112 $40,577 $160,280
Long-lived assets....................... 12,326 10,717 204 23,247
North America Asia Europe Total
------------- ------- ------- --------
December 26, 1998
Sales to external customers............. $116,629 $ 9,609 $42,792 $169,030
Long-lived assets....................... 15,445 13,138 168 28,751
North America Asia Europe Total
------------- ------- ------- --------
December 25, 1999
Sales to external customers............. $172,742 $11,146 $48,698 $232,586
Long-lived assets....................... 17,433 38,228 190 55,851
|
GARMIN LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information pertaining to the six months ended September 25, 1999 and September 23, 2000 is unaudited)
(Dollars in Thousands)
Sales to one customer in the consumer segment represented approximately $26,400 of the Company's consolidated net sales in 1998. No single customer accounted for 10% or more of the Company's consolidated net sales in 1997 or 1999.
12. Litigation Settlement
In May 1998, a lawsuit was filed against the Company alleging patent infringement in prior years for unspecified damages. The Company settled the lawsuit through dispute resolution in May 1999 for $2,500. The related liability and expense were reflected in the December 26, 1998 consolidated financial statements.
13. Pending Public Offering of Common Stock
During September 2000, the Company filed a registration statement with the Securities and Exchange Commission for an underwritten initial public offering of 10,500,000 shares of common stock, 7,875,000 shares of which are to be offered by the Company (the "Offering"). The Board of Directors is expected to approve a 1.12379256 for 1 stock split of our common shares, which will be effected through a stock dividend prior to the Offering. All share and per share information included in the accompanying consolidated financial statements has been adjusted to give retroactive effect to the common stock split.
[Graphics on inside back cover page of prospectus]
10,500,000 Common Shares
PROSPECTUS
Merrill Lynch & Co.
Credit Suisse First Boston
Salomon Smith Barney
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 2, 2000
10,500,000 Shares
Common Shares
1,575,000 common shares are initially being offered outside the United States and Canada by the international managers and 8,925,000 shares are initially being concurrently offered in the United States and Canada by the U.S. underwriters. The offering price and underwriting discounts and commissions for both offerings are identical.
We are selling 7,875,000 common shares and the selling shareholders are selling 2,625,000 common shares.
Prior to this offering, there has been no public market for our common shares. The initial public offering price of our common shares is expected to be between $18.00 and $20.00 per share. Our common shares have been approved for listing on The Nasdaq Stock Market's National Market under the symbol "GRMN."
Investing in the common shares involves risks that are described in the "Risk Factors" section beginning on page 7 of this prospectus.
Per Share Total
--------- -----
Public offering price..................................... $ $
Underwriting discount..................................... $ $
Proceeds, before expenses, to Garmin Ltd.................. $ $
Proceeds, before expenses, to the selling shareholders.... $ $
|
The international managers may also purchase up to an additional 27,632 shares from Garmin Ltd., and up to an additional 208,618 shares from the selling shareholders, at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over- allotments. The U.S. underwriters may similarly purchase up to an additional 156,578 shares from Garmin Ltd. and up to an additional 1,182,172 shares from the selling shareholders.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
Merrill Lynch International Credit Suisse First Boston
Salomon Smith Barney International
The date of this prospectus is , 2000
UNDERWRITING
We intend to offer the common shares outside the U.S. and Canada through the international managers and in the U.S. and Canada through the U.S. underwriters. Subject to the terms and conditions of an international purchase agreement, dated , 2000, the international managers named below, who are represented by Merrill Lynch International ("Merrill Lynch") and Credit Suisse First Boston (Europe) Limited ("CSFB") as joint book-running managers, and concurrently with the sale of 8,925,000 shares to the U.S. underwriters, have severally agreed to purchase from us and the selling shareholders the respective number of common shares set forth opposite their names below.
Number of
Shares
International Managers:
Merrill Lynch International........................................
Credit Suisse First Boston (Europe) Limited........................
Salomon Smith Barney International Limited.........................
---------
Total............................................................ 1,575,000
=========
|
We and the selling shareholders have also entered into a U.S. purchase agreement with the U.S. underwriters for sale of the common shares in the U.S. and Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Credit Suisse First Boston Corporation are acting as U.S. representatives. Subject to the terms and conditions in the U.S. purchase agreement, and concurrently with the sale of 1,575,000 shares to the international managers pursuant to the international purchase agreement, we and the selling shareholders have agreed to sell to the U.S. underwriters, and the U.S. underwriters severally have agreed to purchase, 8,925,000 shares from us and the selling shareholders. The initial public offering price per common share and the total underwriting discount per common share are identical under the international purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to purchase all of the common shares sold under the international and U.S. purchase agreements if any of these common shares are purchased. If an underwriter defaults, the U.S. and international purchase agreements provide that the purchase commitments of the nondefaulting underwriters may be increased or the purchase agreements may be terminated. The closings for the sale of common shares to be purchased by the international managers and the U.S. underwriters are conditioned on one another.
The international purchase agreement provides that the obligations of the several international managers to purchase and accept delivery of the common shares offered in this offering are subject to approval of certain legal matters and to certain other conditions. The international managers are obligated to purchase and accept delivery of all the common shares, other than those common shares covered by the over-allotment option described below, if they purchase any of the common shares.
We and the selling shareholders have agreed to indemnify the international managers and the U.S. underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the international managers and the U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the common shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the common shares, and other conditions contained in the purchase agreements, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
No Public Offering Outside the United States
Other than in the United States, no action has been taken by us or the international managers that would permit a public offering of the common shares included in this offering in any jurisdiction that requires action for that purpose. The common shares included in this offering may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any of these common shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. We advise persons who receive this prospectus to inform themselves about and to observe any restrictions relating to the offering of the common shares and the distribution of this prospectus. This prospectus is not an offer to sell or a solicitation of an offer to buy any of our common shares included in this offering in any jurisdiction where such an offer or a solicitation would not be permitted or legal.
Purchasers of the common shares offered by this prospectus may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price on the cover page of this prospectus.
Commissions and Discounts
The international managers propose to initially offer some of the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and some of the common shares to dealers at the initial public offering price less a concession not in excess of $ per share. The international managers may allow, and these dealers may re-allow, a concession not in excess of $ per share on sales to other dealers. After the initial offering of the common shares to the public, the international managers may change the public offering price and such concessions.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling shareholders. The information assumes either no exercise or full exercise by the international managers and the U.S. underwriters of their over-allotment options.
Per Share Without Option With Option
--------- -------------- -----------
Public offering price.................... $ $ $
Underwriting discount.................... $ $ $
Proceeds, before expenses, to Garmin
Ltd................................... $ $ $
Proceeds, before expenses, to the selling
shareholders.......................... $ $ $
|
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.
Over-allotment Option
We and the selling shareholders have granted to the international managers an option, exercisable for 30 days from the date of this prospectus, to purchase up to 236,250 additional common shares at the initial public offering price less the underwriting fees. The international managers may exercise this option solely to cover over-allotments, if any, made in connection with this offering. To the extent that the international managers exercise this option, each international manager will become obligated, subject to certain conditions, to purchase a number of additional shares proportionate to such international manager's initial purchase commitment.
We and the selling shareholders have also granted options to the U.S. underwriters, exercisable for 30 days from the date of this prospectus, to purchase up to 1,338,750 additional common shares to cover any over-allotments on terms similar to those granted to the international managers.
Intersyndicate Agreement
The international managers and the U.S. underwriters have entered into an intersyndicate agreement that provides for the coordination of their activities. Under the intersyndicate agreement, the international managers and the U.S. underwriters may sell common shares to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the intersyndicate agreement, the international managers and any dealer to whom they sell shares will not offer to sell or sell shares to persons who are U.S. or Canadian persons or to persons they believe intend to resell to persons who are U.S. or Canadian persons, except in the case of transactions under the intersyndicate agreement. Similarly, the U.S. underwriters and any dealer to whom they sell shares will not offer to sell or sell shares to non-U.S. persons or non-Canadian persons or to persons they believe intend to resell to non-U.S. or non-Canadian persons, except in the case of transactions under the intersyndicate agreement.
No Sales of Similar Securities
We, our executive officers and directors and the selling shareholders have agreed, and we expect that substantially all of our other shareholders will agree, or are or will be contractually bound, for a period of 180 days after the date of this prospectus, not to, without the prior written consent of Merrill Lynch and CSFB:
. offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any common shares or any securities convertible into or exercisable or exchangeable for common shares; or
. enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any common shares regardless of whether a covered transaction is to be settled by the delivery of common shares or such other securities, in cash or otherwise;
except that:
. we may without such consent grant options, none of which will be exercisable prior to 180 days after the date of this prospectus, and sell common shares pursuant to our 2000 Equity
Incentive Plan, our Directors Plan, our Employee Stock Purchase Plan and Garmin International, Inc.'s Savings and Profit Sharing Plan;
. we may without such consent issue equity shares in connection with any bona fide business acquisition of or by Garmin Ltd. (whether by reconstruction or amalgamation, consolidation, sale of assets, sale or exchange of stock or otherwise), provided that prior to any such issuance, the recipients of such equity shares in such transaction shall have agreed in writing that, unless they have received the prior consent of Merrill Lynch and CSFB, they will be bound by the lock-up restrictions described above in this paragraph for the remainder of such 180-day period; and
. our executive officers and directors, the selling shareholders and our other shareholders may offer, sell, assign or otherwise transfer common shares to family trusts provided those trusts agree to be bound by the lock-up restrictions described above.
In addition, during this period, we have also agreed not to file any registration statement (other than registration statements on Form S-8) for, and each of our executive officers, directors and several shareholders have agreed not to make any demand for, or exercise any right of, the registration of any common shares or any securities convertible into or exchangeable for common shares without the prior written consent of Merrill Lynch and CSFB.
Reserved Shares
At our request, the underwriters have reserved for sale at the initial public offering price up to 10% of the common shares to be sold in this offering for sale to our employees, friends and persons having relationships with us. The number of shares available for sale to the general public will be reduced to the extent that any reserved shares are purchased. Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered through this prospectus.
Quotation on the Nasdaq National Market
Prior to the offering, there has been no established trading market for our common shares. The initial public offering price for the common shares offered by this prospectus will be determined by negotiations among us and the representatives of the U.S. underwriters. The factors to be considered in determining the initial public offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
. the recent market prices of securities of generally comparable companies; and
. the general condition of the securities markets at the time of the offering.
An active trading market for the common shares may not develop. It is also possible that after the offering the common shares will not trade in the public market at or above the initial public offering price.
Our common shares have been approved for listing on the Nasdaq National Market under the symbol "GRMN."
The international managers have informed us that they do not expect discretionary sales to exceed 5% of the common shares being offered.
Price Stabilization, Short Positions and Penalty Bids
In connection with this offering, certain U.S. underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common shares. Specifically, the U.S. underwriters may create a syndicate short position by making short sales of our common shares and may purchase our common shares on the open market to cover syndicate short positions created by short sales. Short sales involve the sale by the U.S. underwriters of a greater number of common shares than they are required to purchase in the offering. Short sales can be either "covered" or "naked." "Covered" short sales are sales made in an amount not greater than the U.S. underwriters' over-allotment option to purchase additional common shares in the offering from us through the over- allotment option. "Naked" short sales are sales in excess of the over-allotment option. A naked short position is more likely to be created if the U.S. underwriters are concerned that there may be downward pressure on the price of the common shares in the open market after pricing that could adversely affect investors who purchase in the offering. The U.S. underwriters may close out any covered short position by either exercising their over-allotment option to purchase additional shares from us or purchasing common shares in the open market. The U.S. underwriters must close out any naked short position by purchasing common shares in the open market. In determining the source of common shares to close out the covered short position, the U.S. underwriters will consider, among other things, the price of common shares available for purchase in the open market as compared to the price at which they may purchase common shares from us through the over-allotment option. The U.S. underwriting syndicate may reclaim selling concessions if the syndicate repurchases previously distributed common shares in syndicate covering transactions, in stabilization transactions or in some other way or if Merrill Lynch and/or CSFB receives a report that indicates clients of such syndicate members have "flipped" the common shares. Similar to other purchase activities, these activities may have the effect of raising or maintaining the market price of our common shares or preventing or retarding a decline in the market price of our common shares. As a result, the price of our common shares may be higher than the price that might otherwise exist in the open market. The U.S. underwriters are not required to engage in these activities, and may end any of these activities at any time.
UK Selling Restrictions
Each international manager has agreed that:
. it has not offered or sold and will not offer or sell any common shares to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;
. it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the common shares in, from or otherwise involving the United Kingdom; and
. it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of common shares to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 as amended by the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1997 or is a person to whom such document may otherwise lawfully be issued or passed on.
10,500,000 Common Shares
PROSPECTUS
Credit Suisse First Boston
Merrill Lynch International
Salomon Smith Barney International
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the offering described in the Registration Statement (all amounts are estimated except the SEC registration fee):
Securities and Exchange Commission registration fee................. $ 60,720
NASD filing fee..................................................... 6,000
Nasdaq National Market listing fee.................................. 76,625
Printing and engraving expenses..................................... 150,000
Legal fees and expenses............................................. 450,000
Accounting fees and expenses........................................ 300,000
Transfer agent fees................................................. 15,000
Miscellaneous....................................................... 41,655
----------
Total............................................................. $1,100,000
==========
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Item 14. Indemnification of Directors and Officers
Cayman Islands law does not limit the extent to which a company's articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Article 152 of our Articles of Association provides for indemnification, to the fullest extent permitted by law, of officers and directors for expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred in their capacities as such, and advancement of expenses of defending any such action, suit or proceeding.
Item 15. Recent Sales of Unregistered Securities
As part of the restructuring of the registrant, on September 22, 2000, substantially all the shareholders of Garmin Corporation exchanged their common shares of Garmin Corporation for 100,000,000 shares (post split) of the registrant. These shares were not registered under the Securities Act of 1933. Certain of these shares were issued to U.S. shareholders pursuant to an exemption from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) of, and Rule 506 of Regulation D under, the Securities Act of 1933. The remainder of the shares were offered and issued outside the United States to individuals who are not citizens or residents of the United States. Accordingly, the offering and issuance of these shares were not subject to the registration requirements of the Securities Act of 1933 pursuant to Regulation S under the Securities Act of 1933.
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Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits Description
1.1* Form of Underwriting Agreement.
3.1** Memorandum of Association.
3.2 Articles of Association (as amended).
4.1* Specimen share certificate.
4.2* Form of Shareholders' Rights Plan.
5.1* Form of opinion of Maples and Calder, Cayman Islands counsel to
the Issuer, as to the legality of the shares.
8.1* Opinion of Sonnenschein Nath & Rosenthal regarding United States
tax matters.
Opinion of Maples and Calder regarding Cayman Islands tax
8.2* matters.
10.1 Garmin Ltd. 2000 Equity Incentive Plan.
10.2 Garmin Ltd. 2000 Non-Employee Directors' Option Plan.
10.3 Garmin Ltd. Employee Stock Purchase Plan.
11.1* Statement regarding computation of per share earnings.
21.1** List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Maples and Calder (included in Exhibits 5.1 and 8.2).
Consent of Sonnenschein Nath & Rosenthal (included in Exhibit
23.3* 8.1).
24.1** Powers of Attorney (included on signature page).
27.1** Financial Data Schedule.
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(b) Financial Statement Schedules
Schedule II Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
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(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in item 14, or otherwise, we have 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 payment by a 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 of 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.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(ii) For the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 2 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Olathe, County of Johnson, State of Kansas on November 1, 2000.
Garmin Ltd.
/s/ Min H. Kao
By: _________________________________
Min H. Kao
Co-Chief Executive Officer
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Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the registration statement has been signed on November 1, 2000 by the following persons in the capacities indicated:
Signature Title
/s/ Min H. Kao Co-Chairman; Co-Chief Executive Officer
___________________________________________ (Co-Principal Executive Officer)
Min H. Kao
/s/ Gary L. Burrell Co-Chairman; Co-Chief Executive Officer
___________________________________________ (Co-Principal Executive Officer)
Gary L. Burrell
/s/ Kevin Rauckman Chief Financial Officer
___________________________________________ (Principal Financial Officer and Principal
Kevin Rauckman Accounting Officer)
Ruey-Jeng Kao* Director
___________________________________________
Ruey-Jeng Kao
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/s/ Andrew R. Etkind
*By:_________________________________
Andrew R. Etkind
Attorney-in-fact
Garmin International, Inc. Authorized Representative in the
U.S.
/s/ Gary L. Burrell
By: _________________________________
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Gary L. Burrell, its President
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GARMIN LTD. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULE
Garmin Ltd. Financial Statement Schedule for the years ended December 31, 1997, December 26, 1998 and December 25, 1999.
Report of Independent Auditors............................................ S-2 Schedule II--Valuation and qualifying accounts............................ S-3 |
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Garmin Ltd. and subsidiaries as of December 26, 1998 and December 25, 1999, and for each of the three years in the period ended December 25, 1999, and have issued our report thereon dated February 26, 2000 (except for Note 1, as to which the date is September 22, 2000 and Note 13, as to which the date is ), included elsewhere in this Registration Statement. Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Ernst & Young LLP
Kansas City, Missouri
February 26, 2000, except for Note 1,
as to which the date is September 22, 2000,
and Note 13, as to which the date is
The foregoing opinion is in the form that will be signed upon the completion of the 1.12379256 for 1 common stock split as described in Note 13 to the consolidated financial statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
November 1, 2000
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
GARMIN LTD. AND SUBSIDIARIES
Additions
---------------------
Balance at Charged to Charted to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
----------- ---------- ---------- ---------- ---------- ----------
Year Ended December 31,
1997:
Deducted from asset
accounts:
Allowance for
doubtful
accounts.......... $ 392 $ 287 $ -- $ (45)(1) $ 634
Inventory reserve.... 1,864 1,657 -- (1,441)(2) 2,080
------ ------ ------- ------- ------
Total.............. $2,256 $1,944 $ -- $(1,486) $2,714
====== ====== ======= ======= ======
Year Ended December 26,
1998:
Deducted from asset
accounts:
Allowance for
doubtful
accounts.......... $ 634 $ 414 $ -- $ (430)(1) $ 618
Inventory reserve.... 2,080 2,165 -- (2,384)(2) 1,861
------ ------ ------- ------- ------
Total.............. $2,714 $2,579 $ -- $(2,814) $2,479
====== ====== ======= ======= ======
Year Ended December 25,
1999:
Deducted from asset
accounts:
Allowance for
doubtful
accounts.......... $ 618 $ 825 $ -- $ (327)(1) $1,116
Inventory reserve.... 1,861 1,202 -- (1,336)(2) 1,727
------ ------ ------- ------- ------
Total.............. $2,479 $2,027 $ -- $(1,663) $2,843
====== ====== ======= ======= ======
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EXHIBIT INDEX
Exhibits Description
1.1* Form of Underwriting Agreement.
3.1** Memorandum of Association.
3.2 Articles of Association (as amended).
4.1* Specimen share certificate.
4.2* Form of Shareholders' Rights Plan.
5.1* Form of opinion of Maples and Calder, Cayman Islands counsel to the
Issuer, as to the legality of the shares.
Opinion of Sonnenschein Nath & Rosenthal regarding United States tax
8.1* matters.
8.2* Opinion of Maples and Calder regarding Cayman Islands tax matters.
10.1 Garmin Ltd. 2000 Equity Incentive Plan.
10.2 Garmin Ltd. 2000 Non-Employee Directors' Option Plan.
10.3 Garmin Ltd. Employee Stock Purchase Plan.
11.1* Statement regarding computation of per share earnings.
21.1** List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Maples and Calder (included in Exhibits 5.1 and 8.2).
23.3* Consent of Sonnenschein Nath & Rosenthal (included in Exhibit 8.1).
24.1** Powers of Attorney (included on signature page).
27.1** Financial Data Schedule.
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** Previously filed
Exhibit 3.2
The Companies Law (2000 Revision)
Company Limited by Shares
ARTICLES OF ASSOCIATION
OF
GARMIN LTD.
TABLE A
1. The regulations contained in Table A in the First Schedule to the Companies Law shall not apply to the Company.
INTERPRETATION
2. In these Articles, unless there be something in the subject or context inconsistent therewith:
(a) "these Articles" shall mean the present Articles of Association and all supplementary, amended or substituted Articles for the time being in force;
(b) "Audit Committee" shall mean the audit committee established pursuant to Article 143;
(c) "Auditors" shall mean the persons appointed by the Company from time to time to perform the duties of auditors of the Company;
(d) "Board" shall mean the majority of the Directors present and voting at a meeting of Directors at which a quorum is present;
(e) "capital" shall mean the share capital from time to time of the Company;
(f) "the Chairman" shall mean the Chairman appointed pursuant to Article 99 and includes Co-Chairman;
(g) "Common Shares" means the Common Shares in the capital of the Company of par value US$0.01 each;
(h) "the Company" or "this Company" shall mean Garmin Ltd.;
(i) "the Companies Law" or "the Law" shall mean the Companies Law (2000 Revision) of the Cayman Islands and any amendments thereto or re- enactments thereof for the
time being in force and includes every other law incorporated therewith or substituted therefor;
(j) "Directors" shall mean the directors from time to time of the Company;
(k) "dividend" shall include bonus dividends and distributions permitted by the Law to be categorised as dividends;
(l) "dollars" and "US$" shall mean dollars legally current in the United States;
(m) "electronic transmission" shall include telephone, telegram, telex, cable, facsimile and electronic mail;
(n) "Exchange" shall mean any securities exchange or other system on which the shares of the Company may be listed or otherwise authorised for trading from time to time;
(o) "Independent Director" shall mean a person recognised as such by the rules and regulations of the Exchange;
(p) "month" shall mean a calendar month;
(q) "ordinary resolution" shall mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting held in accordance with these Articles;
(r) "paid up" shall mean paid up and/or credited as paid up;
(s) "Preferred Share" shall mean a Preferred Share in the capital of the Company with a nominal or par value of US$1.00 having designations, powers, preferences, privileges and participating, optional or special rights, and the qualifications, limitations or restrictions thereof, including, without limitations, dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences as the Directors shall in their sole discretion determine and the "Series A Preferred Shares" shall mean the first series of Preferred Shares authorised and issued by the Board;
(t) "principal register" shall mean the register of members of the Company maintained at such place within or outside the Cayman Islands as the Board shall determine from time to time;
(u) "the register" shall mean the principal register and any branch registers;
(v) "registration office" shall mean the registered office for the time being of the Company;
(w) "seal" shall include the common seal of the Company, the securities seal or any
duplicate seal adopted by the Company pursuant to these Articles;
(x) "Secretary" shall mean the person appointed as company secretary by the Board from time to time;
(y) "share" shall mean a share in the capital of the Company;
(z) "shareholders" or "members" shall mean the persons who are duly registered as the holders from time to time of shares in the register including persons who are jointly so registered;
(aa) "special resolution" shall mean a resolution passed by not less than seventy five per cent of the votes of such members of the Company as, being entitled to do so, vote in person or, where proxies are allowed, by proxy or, in the case of corporations, by their duly authorised representatives, at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given;
(bb) "subsidiary" and "holding company" shall have the meanings ascribed to such terms in the Companies Act of the United Kingdom;
(cc) subject as aforesaid, any words defined in the Law shall, if not inconsistent with the subject and/or context, bear the same meanings in these Articles;
(dd) "writing" or "printing" shall include writing, printing, lithograph, photograph, type-writing and every other mode of representing words or figures in a legible and non-transitory form;
(ee) words importing either gender shall include the other gender and the neuter;
(ff) words importing persons and the neuter shall include companies and corporations and vice versa; and
(gg) words denoting the singular shall include the plural and words denoting the plural shall include the singular.
3. The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that part only of the shares may have been allotted.
4. The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration.
SHARE CAPITAL
5. The capital of the Company at the date of the adoption of these Articles is US$6,000,000 divided into 500,000,000 Common Shares of a nominal or par value of US$0.01 each and 1,000,000 Preferred Shares of a nominal or par value of US$1.00 each.
6. (a) Subject to the provisions of these Articles and to any direction that may be given by the Company in general meeting and without prejudice to any special rights conferred on the holders of any existing shares or attaching to any class of shares, any share including the Preferred Shares may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such times and for such consideration as the Board may determine.
(b) (i) Preferred Shares may be issued from time to time in one or more series, each of such series to have such voting powers (full or limited or without voting powers), designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed, or in any resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided.
(ii) Authority is hereby granted to the Board of Directors, subject to the provisions of the Memorandum of Association, these Articles and applicable law, to create one or more series of Preferred Shares and, with respect to each such series, to fix by resolution or resolutions, without any further vote or action by the members of the Company providing for the issue of such series:
(a) the number of shares to constitute such series and the distinctive designation thereof;
(b) the dividend rate on the shares of such series, the dividend payment dates, the periods in respect of which dividends are payable ("dividend periods"), whether such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate;
(c) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of shares of the Company and the conversion price or prices or rate or rates, or the rate or rates at which such exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided in such resolution or resolutions;
(d) the preferences, if any, and the amounts thereof, which the shares of such series shall be entitled to receive upon the winding up of the Company;
(e) the voting power, if any, of the shares of such series;
(f) transfer restrictions and rights of first refusal with respect to the shares of such series; and
(g) such other terms, conditions, special rights and provisions as may seem advisable to the Board of Directors. Notwithstanding the fixing of the number of shares constituting a particular series upon the issuance thereof, the Board of Directors at any time thereafter may authorise the issuance of additional shares of the same series subject always to the Law and the Memorandum of Association.
(iii) No dividend shall be declared and set apart for payment on any series of Preferred Shares in respect of any dividend period unless there shall likewise be or have been paid, or declared and set apart for payment, on all Preferred Shares of each other series entitled to cumulative dividends at the time outstanding which rank senior or equally as to dividends with the series in question, dividends ratably in accordance with the sums which would be payable on the said shares through the end of the last preceding dividend period if all dividends were declared and paid in full.
(iv) If, upon the winding up of the Company, the assets of the Company distributable among the holders of any one or more series of Preferred Shares which (i) are entitled to a preference over the holders of the Common Shares upon such winding up, and (ii) rank equally in connection with any such distribution, shall be insufficient to pay in full the preferential amount to which the holders of such shares shall be entitled, then such assets, or the proceeds thereof, shall be distributed among the holders of each such series of the Preferred Shares ratably in accordance with the sums which would be payable on such distribution if all sums payable were discharged in full.
7. The Company in general meeting may, from time to time, whether or not all the shares for the time being authorised shall have been issued and whether or not all the shares for the time being issued shall have been fully paid up, by ordinary resolution, increase its share capital by the creation of new shares, such new capital to be of such amount and to be divided into shares of such respective amounts as the resolution shall prescribe.
MODIFICATION OF RIGHTS
8. If at any time the share capital of the Company is divided into different classes of shares, all or any of the rights attached to any class of shares for the time being issued (unless otherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of the Law, be varied or abrogated with the consent in writing of the holders of not less than two-thirds in nominal value of the issued shares of that class or, in respect of
the Series A Preferred Shares, with the consent of not less than three fourths in nominal value of the issued Series A Preferred Shares, or with the sanction of a special resolution passed at a separate meeting of the holders of shares of that class. To every such separate meeting all the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate meeting and of any adjournment thereof shall be a person or persons together holding (or representing by proxy) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class, and that any holder of shares of the class present in person or by proxy may demand a poll.
9. The special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
REDEMPTION AND REPURCHASE OF SHARES
10. Subject to the Law and to any rights conferred on the holders of any class of shares, the Company shall have the power (i) to purchase or otherwise acquire all or any of its own shares (which expression as used in this Article includes redeemable shares), provided either:-
(a) that the manner of purchase has first been authorised by the Company in general meeting, or
(b) such purchases are made in open market transactions on a recognized stock exchange on which the Company's shares are listed; or
(c) such purchases may be effected from time to time, as authorised by the Board of Directors, at a price per share no higher than the average of the closing prices of said shares on a recognized stock exchange on which said shares are listed, for the five days on which said shares are traded immediately preceding any such purchase (the "Average Market Price"); or
(d) such purchases may be effected from time to time, as authorised by the Board of Directors at a price per share in excess of the Average Market Price, provided that: the shares thus to be purchased shall be in blocs consisting of a number equal to or greater than five per cent of the number of shares then outstanding and the price to be paid therefor shall have been found to be fair in a written opinion of independent investment bankers who have been selected for the purpose by a disinterested committee of Directors; or
(e) an offer is made to all shareholders of the Company to purchase a specified number of shares at a specified price, all tenders of shares made
in response to such offer to be accepted pro rata in the event that more shares are to be tendered than the Company has offered to purchase, except that all tenders of 99 shares or less may be accepted in full at the discretion of the Directors,
(ii) to purchase or otherwise acquire warrants for the subscription or purchase of its own shares and (iii) to give, directly or indirectly, by means of a loan, a guarantee, a gift, an indemnity, the provision of security or otherwise howsoever, financial assistance for the purpose of or in connection with a purchase or other acquisition made or to be made by any person of any shares or warrants in the Company. The Company may pay for such shares or warrants in any manner authorised or not prohibited by law, including out of capital. Should the Company purchase or otherwise acquire its own shares or warrants, neither the Company nor the Board shall be required to select the shares or warrants to be purchased or otherwise acquired rateably or in any other manner as between the holders of shares or warrants of the same class or as between them and the holders of shares or warrants of any other class or in accordance with the rights as to dividends or capital conferred by any class of shares.
11. Subject to the provisions of the Law and the Memorandum of Association of the Company, and to any special rights conferred on the holders of any shares or attaching to any class of shares, shares may be issued on the terms that they may be, or at the option of the Company or the holders are, liable to be redeemed on such terms and in such manner, including out of capital, as the Board may deem fit.
12. The holder of the shares being purchased, surrendered or redeemed shall be bound to deliver up to the Company at its registered office or such other place as the Board shall specify the certificate(s) thereof for cancellation and thereupon the Company shall pay to him the purchase or redemption monies in respect thereof.
ISSUE OF SHARES AND WARRANTS
13. Subject to the provisions of the Law, of the Memorandum of Association of the Company, and of these Articles relating to new shares, the unissued shares in the Company (whether forming part of its original or any increased capital) shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration, and upon such terms, as the Board shall determine. No shares shall be issued to bearer and all shares shall be issued fully paid.
14. The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine. No warrants shall be issued to bearer.
COMMISSION ON SHARES
15. The Company may, unless prohibited by law, at any time pay a commission to any person for subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares in the Company or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the Company, but so that the conditions and requirements of
the Law shall be observed and complied with.
NON-RECOGNITION OF TRUSTS
16. Except as otherwise expressly provided by these Articles or as required by law or as ordered by a court of competent jurisdiction, no person shall be recognised by the Company as holding any share upon any trust and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any shares or any interest in any fractional part of a share or any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder.
REGISTER OF MEMBERS AND SHARE CERTIFICATES
17. The Board shall cause to be kept at such place within or outside the Cayman Islands as they deem fit a principal register of the members and there shall be entered therein the particulars of the members and the shares issued to each of them and other particulars required under the Law.
18. If the Board considers it necessary or appropriate, the Company may establish and maintain a branch register or registers of members at such location or locations within or outside the Cayman Islands as the Board thinks fit. The principal register and the branch register(s) shall together be treated as the register for the purposes of these Articles.
19. The Board may, in its absolute discretion, at any time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.
20. The Company shall as soon as practicable and on a regular basis record in the principal register all transfers of shares effected on any branch register and shall at all times maintain the principal register in such manner as to show at all times the members for the time being and the shares respectively held by them, in all respects in accordance with the Companies Law.
21. The register may be closed at such times and for such periods as the Board may from time to time determine, either generally or in respect of any class of shares, provided that the register shall not be closed for more than 10 days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond 20 days in any year).
22. Every person whose name is entered as a member in the register shall be entitled without payment to receive, within 20 days, after allotment or lodgment of transfer (or within such other period as the conditions of issue shall provide), one certificate for all his shares of each class or, upon payment of such reasonable fee as the Board shall prescribe, such number of certificates for shares held as that person may request, provided that in respect of a share or shares held jointly by several persons the Company shall not be bound to issue a certificate or certificates to each such person, and the issue and delivery of a certificate or certificates
to one of several joint holders shall be sufficient delivery to all such holders.
23. Every certificate for shares or debentures or representing any other form of security of the Company shall be issued under the seal of the Company, which shall only be affixed with the authority of the Board.
24. Every share certificate shall specify the number of shares in respect of which it is issued and the amount paid thereon or the fact that they are fully paid, as the case may be, and may otherwise be in such form as the Board may from time to time prescribe.
25. The Company shall not be bound to register more than four persons as joint holders of any share. If any share shall stand in the names of two or more persons, the person first named in the register shall be deemed the sole holder thereof as regards service of notices and, subject to the provisions of these Articles, all or any other matters connected with the Company, except the transfer of the share.
26. If a share certificate is defaced, lost or destroyed, it may be replaced on payment of such reasonable fee, if any, as the Board may from time to time prescribe and on such terms and conditions, if any, as to publication of notices, evidence and indemnity, as the Board thinks fit and where it is defaced or worn out, after delivery up of the old certificate to the Company for cancellation.
TRANSFER OF SHARES
27. All transfers of shares may be effected by an instrument of transfer in the usual common form or in such other form as the Board may approve. All instruments of transfer must be left at the registered office of the Company or at such other place as the Board may appoint and all such instruments of transfer shall be retained by the Company.
28. The instrument of transfer shall be executed by or on behalf of the transferor and by or on behalf of the transferee PROVIDED that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. The instrument of transfer of any share shall be in writing and shall be executed with a manual signature or facsimile signature (which may be machine imprinted or otherwise) by or on behalf of the transferor and transferee PROVIDED that in the case of execution by facsimile signature by or on behalf of a transferor or transferee, the Board shall have previously been provided with a list of specimen signatures of the authorised signatories of such transferor or transferee and the Board shall be reasonably satisfied that such facsimile signature corresponds to one of those specimen signatures. The transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register in respect thereof.
29. The Board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share which is not fully paid up or on which the Company has a lien. The Board may also decline to register any transfer of any shares unless:
(a) the instrument of transfer is lodged with the Company accompanied by the certificate
for the shares to which it relates (which shall upon registration of the transfer be cancelled) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
(b) the instrument of transfer is in respect of only one class of shares;
(c) the instrument of transfer is properly stamped (in circumstances where stamping is required);
(d) in the case of a transfer to joint holders, the number of joint holders to which the share is to be transferred does not exceed four;
(e) the shares concerned are free of any lien in favour of the Company; and
(f) a fee of such maximum amount as the Exchange (if any) may from time to time determine to be payable (or such lesser sum as the Board may from time to time require) is paid to the Company in respect thereof.
30. If the Board shall refuse to register a transfer of any share, it shall, within two months after the date on which the transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.
31. No transfer shall be made to an infant or to a person in respect of whom an order has been made by an competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs or under other legal disability.
32. Upon every transfer of shares the certificate held by the transferor shall be given up to be cancelled, and shall forthwith be cancelled accordingly, and a new certificate shall be issued without charge to the transferee in respect of the shares transferred to him, and if any of the shares included in the certificate so given up shall be retained by the transferor, a new certificate in respect thereof shall be issued to him without charge. The Company shall also retain the instrument(s) of transfer.
33. The registration of transfers may be suspended and the register closed at such times for such periods as the Board may from time to time determine, provided always that such registration shall not be suspended or the register closed for more than 10 days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond 20 days in any year).
TRANSMISSION OF SHARES
34. In the case of the death of a member, the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares; but nothing herein contained shall release the estate of a deceased holder (whether sole or joint) from any liability in respect of any share solely or jointly held
by him.
35. Any person becoming entitled to a share in consequence of the death or bankruptcy or winding-up of a member may, upon such evidence as to his title being produced as may from time to time be required by the Board and subject as hereinafter provided, either be registered himself as holder of the share or elect to have some other person nominated by him registered as the transferee thereof.
36. If the person so becoming entitled shall elect to be registered himself, he shall deliver or send to the Company a notice in writing signed by him stating that he so elects. If he shall elect to have his nominee registered he shall testify his election by executing in favour of his nominee a transfer of such share. All the limitations, restrictions and provisions of these Articles relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy or winding-up of the member had not occurred and the notice or transfer were a transfer executed by such member.
37. A person becoming entitled to a share by reason of the death or bankruptcy or winding-up of the holder shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share. However, the Board may, if it thinks fit, withhold the payment of any dividend payable or other advantages in respect of such share until such person shall become the registered holder of the share or shall have effectually transferred such share, but, subject to the requirements of Article 64 being met, such a person may vote at meetings.
ALTERATION OF CAPITAL
38. The Company may from time to time by ordinary resolution:
(a) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares. On any consolidation of fully paid shares and division into shares of larger amount, the Board may settle any difficulty which may arise as it thinks expedient and in particular (but without prejudice to the generality of the foregoing) may as between the holders of shares to be consolidated determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Board for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to the Company for the Company's benefit;
(b) cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled subject to the provisions of the Law;
and
(c) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association of the Company, subject nevertheless to the provisions of the Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares.
39. The Company may by special resolution reduce its share capital, any capital redemption reserve or any share premium account in any manner authorised and subject to any conditions prescribed by Law.
BORROWING POWERS
40. The Board may from time to time at its discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof.
41. The Board may raise or secure the payment or repayment of such sum or sums in such manner and upon such terms and conditions in all respects as it thinks fit and, in particular, by the issue of debentures, debenture stock, bonds or other securities of the Company, whether outright or as collateral security for any debts, liability or obligations of the Company or of any third party.
42. Debentures, debenture stock, bonds and other securities may be made assignable free from any equities between the Company and the person to whom the same may be issued.
43. Any debentures, debenture stock, bonds or other securities may be issued at a discount, premium or otherwise and with any special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of Directors and otherwise.
44. The Board shall cause a proper register to be kept, in accordance with the provisions of the Law, of all mortgages and charges specifically affecting the property of the Company and shall duly comply with the requirements of the Law in regard to the registration of mortgages and charges therein specified and otherwise.
45. If the Company issues debentures or debenture stock (whether as part of a series or as individual instruments) not transferable by delivery, the Board shall cause a proper register to be kept of the holders of such debentures.
46. Where any uncalled capital of the Company is charged, all persons taking any subsequent charge thereon shall take the same subject to such prior charge, and shall not be entitled, by
notice to the members or otherwise, to obtain priority over such prior charge.
GENERAL MEETINGS
47. The Company shall in each year hold a general meeting as its annual general meeting in addition to any other meeting in that year and shall specify the meeting as such in the notices calling it; and not more than 15 months shall elapse (or such longer period as the Exchange may authorise) between the date of one annual general meeting of the Company and that of the next. So as long as the first annual general meeting of the Company is held within 15 months from the date of its incorporation, it need not be held in the year of its incorporation. The annual general meeting shall be held at such time and place as the Board shall appoint.
48. All general meetings other than annual general meetings shall be called extraordinary general meetings.
49. The Board may, whenever it thinks fit, convene an extraordinary general meeting.
50. An annual general meeting and any extraordinary general meeting shall be called by not less than 10 days' notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the time, place, and agenda of the meeting, particulars of the resolutions to be considered at the meeting and in the case of special business (as defined in Article 55) the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to all members other than such as, under the provisions hereof or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company.
51. Notwithstanding that a meeting of the Company is called by shorter notice than that referred to in Article 50, it shall be deemed to have been duly called if it is so agreed:
(a) in the case of a meeting called as an annual general meeting, by all the members of the Company entitled to attend and vote thereat or their proxies; and
(b) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95 per cent in nominal value of the shares giving that right.
52. There shall appear with reasonable prominence in every notice of general meetings of the Company a statement that a member entitled to attend and vote is entitled to appoint a proxy to attend and, on a poll, vote instead of him and that a proxy need not be a member of the Company.
53. The accidental omission to give any such notice to, or the non-receipt of any such notice by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting.
54. In cases where instruments of proxy are sent out with notices, the accidental omission to send such instrument of proxy to, or the non-receipt of such instrument of proxy by, any person entitled to receive notice shall not invalidate any resolution passed or any proceeding at any such meeting.
PROCEEDINGS AT GENERAL MEETINGS
55. All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:
(a) the declaration and sanctioning of dividends;
(b) the consideration and adoption of the accounts and balance sheets and the reports of the Directors and Auditors and other documents required to be annexed to the balance sheet;
(c) the election of Directors in place of those retiring;
(d) the appointment of Auditors;
(e) the fixing of, or the determining of the method of fixing of, the remuneration of the Directors and of the Auditors;
56. For all purposes the quorum for a general meeting shall be one or more members present in person or by proxy holding not less than a majority of the issued shares of the Company entitled to vote at the meeting in question. No business shall be transacted at any general meeting unless the requisite quorum shall be present at the commencement of the business.
57. If within one hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned to the same day in the next week and at such time and place as shall be decided by the Board, and if at such adjourned meeting a quorum is not present within one hour from the time appointed for holding the meeting, the member or members present in person or by proxy shall be a quorum and may transact the business for which the meeting was called.
58. The Chairman shall take the chair at every general meeting, or, if there be no such Chairman or, if at any general meeting such Chairman shall not be present within one hour after the time appointed for holding such meeting or is unwilling to act, the Directors present shall choose another Director as chairman of the meeting, and if no Director be present, or if all the Directors present decline to take the chair, or if the Chairman chosen shall retire from the chair, then the members present shall choose one of their own number to be chairman of the meeting.
59. The Chairman may, with the consent of any general meeting at which a quorum is present, and shall, if so directed by the meeting, adjourn any meeting from time to time and from place to place as the meeting shall determine. Whenever a meeting is adjourned for 14 days
or more, at least seven clear days' notice, specifying the place, the day and the hour of the adjourned meeting shall be given in the same manner as in the case of an original meeting but it shall not be necessary to specify in such notice the nature of the business to be transacted at the adjourned meeting. Save as aforesaid, no member shall be entitled to any notice of an adjournment or of the business to be transacted at any adjourned meeting. No business shall be transacted at any adjourned meeting other than the business which might have been transacted at the meeting from which the adjournment took place.
60. At any general meeting a resolution put to the vote of the meeting shall be decided on a poll.
61. A poll shall (subject as provided in Article 68) be taken in such manner (including the use of ballot or voting papers or tickets) and at such time and place, not being more than 10 days from the date of the meeting or adjourned meeting at which the poll was demanded as the Chairman directs. No notice need be given of a poll not taken immediately. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
62. In the case of an equality of votes, the Chairman of the meeting shall be entitled to a second or casting vote.
VOTES OF MEMBERS
63. Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting on a poll every holder of Common Shares present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each Common Share registered in his name in the register. On a poll a member entitled to more than one vote is under no obligation to cast all his votes in the same way.
64. Any person entitled under Article 35 to be registered as a holder of Common Shares may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that at least 48 hours before the time of the holding of the meeting or adjourned meeting (as the case may be) at which he proposed to vote, he shall satisfy the Board of his right to be registered as the holder of such shares or the Board shall have previously admitted his right to vote at such meeting in respect thereof.
65. Where there are joint registered holders of any share carrying a right to vote, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders stand on the register in respect of the relevant joint holding. Several executors or administrators of a deceased member in whose name any share stands shall for the purposes of this Article be deemed joint holders thereof.
66. Save as expressly provided in these Articles or as otherwise determined by the Board, no person other than a member duly registered shall be entitled to be present or to vote (save as
proxy for another member), or to be reckoned in a quorum, either personally or by proxy at any general meeting.
67. In the case of any dispute as to the admission or rejection of any vote, the Chairman of the meeting shall determine the same and such determination shall be final and conclusive.
PROXIES
68. Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person (who must be an individual) as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. Forms of proxy shall be sent by the Company to each member together with the notice convening each annual and general meeting of the Company. On a poll votes may be given either personally or by proxy. A proxy need not be a member of the Company. A member may appoint any number of proxies to attend in his stead at any one general meeting (or at any one class meeting).
69. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney authorised in writing, or if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person duly authorised to sign the same. The appointment of a proxy may be made by electronic transmission.
70. The instrument appointing a proxy and (if required by the Board) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered to the Secretary at any time before the polls for the general meeting close or may be delivered at the registered office of the Company (or at such other place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 24 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote, or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 24 hours before the time appointed for the taking of the poll, and in default the instrument of proxy shall not be treated as valid provided always that the Chairman of the meeting may at his discretion direct that an instrument of proxy shall be deemed to have been duly deposited upon receipt of electronic transmission from the appointor that the instrument of proxy duly signed is in the course of transmission to the Company. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
71. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in common form or such other form as the Board may from time to time approve, provided that it shall enable a member, according to his intention, to instruct his proxy to vote in favour of or against (or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect of) each resolution to be proposed at the meeting to which the form of proxy relates.
72. The instrument appointing a proxy to vote at a general meeting shall:
(a) be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit; and
(b) unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates, provided that the meeting was originally held within 12 months from such date.
73. A vote given in accordance with the terms of an instrument of proxy or resolution of a member shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or power of attorney or other authority under which the proxy or resolution of a member was executed or revocation of the relevant resolution or the transfer of the share in respect of which the proxy was given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by the Company at its registered office, or at such other place as is referred to in Article 59, at least two hours before the commencement of the meeting or adjourned meeting at which the proxy is used.
CORPORATE REPRESENTATIVES
74. Any corporation which is a member of the Company may, by resolution of its directors or other governing body or by power of attorney, authorise such person as it thinks fit to act as its representative at any meeting of the Company or of members of any class of shares of the Company and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation which he represents as that corporation could exercise if it were an individual member of the Company and where a corporation is so represented, it shall be treated as being present at any meeting in person.
BOARD OF DIRECTORS
75. So long as the shares of the Company are listed on the Exchange, the Company shall maintain a minimum of three Independent Directors on its Board. The Board shall consist of not less then one nor more than ten persons (exclusive of alternate Directors) PROVIDED HOWEVER, that the Company may from time to time by resolution passed by not less 75 per cent of the issued shares increase or reduce the limits in the number of Directors.
76. The first Directors of the Company shall be determined in writing by, or appointed by a resolution of, the subscribers to the Memorandum of Association.
77. The Directors shall be divided into three classes, designated Class I, Class II and Class III. All classes shall be as nearly equal in number as possible. The Directors as initially classified shall hold office for terms as follows:
(a) the Class I Directors shall hold office until the date of the annual general meeting of shareholders in 2001 or until their successors shall be elected and qualified;
(b) the Class II Directors shall hold office until the date of the annual general meeting of shareholders in 2002 or until their successors shall be elected and qualified; and
(c) the Class III Directors shall hold office until the date of the annual general meeting or shareholders in 2003 or until their successors shall be elected and qualified.
Upon expiration of the term of office of each class as set forth above, the Directors in each class shall be elected for a term of three years to succeed the Directors whose terms of office expire.
78. Each Director shall hold office until the expiration of his term and until his successor shall have been elected and qualified.
79. The Board shall have power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy or as an addition to the Board. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.
80. The Company may by special resolution at any time remove for cause any Director (including an executive officer) before the expiration of his period of office notwithstanding anything in these Articles or in any agreement between the Company and such Director and may by ordinary resolution elect another person in his stead.
81. Nothing in Article 80 should be taken as depriving a Director removed under any provisions of that Article of compensation or damages payable to him in respect of the termination of his appointment as Director or of any other appointment or office as a result of the termination of his appointment as Director or as derogatory from any power to remove a Director which may exist apart from the provision of that Article.
82. The Company shall keep at its office a register of directors and officers containing their names and addresses and occupations and any other particulars required by the Law and shall send to the Registrar of Companies of the Cayman Islands a copy of such register and shall from time to time notify to the Registrar of Companies of the Cayman Islands any change that takes place in relation to such Directors as required by the Law.
83. A Director need not hold any qualification shares. No Director shall be required to vacate office by reason only of his having attained any particular age.
ALTERNATE DIRECTORS AND PROXIES FOR DIRECTORS
84. A Director may at any time by notice in writing delivered to the registered office of the Company or at a meeting of the Board, appoint another Director to be his alternate Director in his place during his absence and may in like manner at any time determine such appointment. No more than two alternate Directors may attend any meeting of the Board.
85. The appointment of an alternate Director shall determine on the happening of any event which, were he a Director, would cause him to vacate such office or if his appointor ceases to be a Director.
86. An alternate Director shall be entitled to receive and waive (in lieu of his appointor) notices of meetings of the Directors and shall be entitled to attend and vote as a Director and be counted in the quorum at any such meeting at which the Director appointing him is not personally present and generally at such meeting to perform all the functions of his appointor as a Director and for the purposes of the proceedings at such meeting the provisions of these Articles shall apply as if he (instead of his appointor) were a Director. If he shall be himself a Director or shall attend any such meeting as an alternate for more than one Director his voting rights shall be cumulative and he need not use all his votes or cast all the votes he uses in the same way. To such extent as the Board may from time to time determine in relation to any committee of the Board, the foregoing provisions of this Article shall also apply mutatis mutandis to any meeting of any such committee of which his appointor is a member. An alternate Director shall not, save as aforesaid, have power to act as a Director nor shall he be deemed to be a Director for the purposes of these Articles.
87. An alternate Director shall be entitled to contract and be interested in and benefit from contracts or arrangements or transactions and to be repaid expenses and to be indemnified to the same extent mutatis mutandis as if he were a Director, but he shall not be entitled to receive from the Company in respect of his appointment as alternate Director any remuneration except only such part (if any) of the remuneration otherwise payable to his appointor as such appointor may by notice in writing to the Company from time to time direct.
88. In addition to the foregoing provisions of this Article, a Director may be represented at any meeting of the Board (or of any committee of the Board) by a proxy appointed by him, in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. A proxy must be a Director and the provisions of Articles 68 to 73 shall apply mutatis mutandis to the appointment of proxies by Directors save that an instrument appointing a proxy shall not become invalid after the expiration of twelve months from its date of execution but shall remain valid for such period as the instrument shall provide or, if no such provision is made in the instrument, until revoked in writing and save also that no more than two proxies may attend any meeting.
REMUNERATION OF DIRECTORS
89. The Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Company in general meeting or by the Board, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the
Company may be entitled by reason of such employment or office.
90. The Board may grant special remuneration to any Director, who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be agreed.
91. The remuneration of an Executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Board and may be by way of salary, commission, or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration shall be in addition to such remuneration as the recipient may be entitled to receive as a Director.
92. The Directors shall be entitled to be paid all expenses, including travel expenses, reasonably incurred by them in or in connection with the performance of their duties as Directors including their expenses of travelling to and from Board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors.
VACATION OF OFFICE OF DIRECTOR
93. The office of a Director shall be vacated:
(a) if he resigns his office by notice in writing to the Company at its registered office;
(b) if an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated;
(c) if, without leave, he is absent from meetings of the Board (unless an alternate Director or proxy appointed by him attends in his place) for a continuous period of 12 months, and the Board resolves that his office be vacated;
(d) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;
(e) if he ceases to be or is prohibited from being a Director by law or by virtue of any provisions in these Articles;
(f) if he shall be removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) then in office; or
(g) if he shall be removed from office by a special resolution of the members of the Company pursuant to Article 80.
INTERESTED DIRECTORS
94. No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in which any Director shall be a member or otherwise interested be capable on that account of being avoided, nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established, provided that such Director shall, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the Board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may subsequently be made by the Company.
95. Any Director may continue to be or become a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any other company in which the Company may be interested and (unless otherwise agreed between the Company and the Director) no such Director shall be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer or member of any such other company. The Directors may exercise the voting powers conferred by the shares in any other company held or owned by the Company, or exercisable by them as directors of such other company in such manner in all respects as they think fit (including the exercise thereof in favour of any resolution appointing themselves or any of them directors, managing directors, joint managing directors, deputy managing directors, executive directors, managers or other officers of such company) and any Director may vote in favour of the exercise of such voting rights in manner aforesaid notwithstanding that he may be, or is about to be, appointed a director, managing director, joint managing director, deputy managing director, executive director, manager or other officer of such a company, and that as such he is or may become interested in the exercise of such voting rights in the manner aforesaid.
96. A Director may hold any other office or place of profit with the Company (except that of Auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profit or otherwise) as the Board may determine, and such extra remuneration shall be in addition to any remuneration provided for by or pursuant to any other Article.
97. No person shall be disqualified from the office of Director or alternate Director or prevented by such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall any such contract or any contract or transaction entered into by or on behalf of the Company in which any Director or alternate Director shall be in any way interested be or be liable to be avoided, nor shall any Director or alternate Director so contracting or being so
interested be liable to account to the Company for any profit realised by any such contract or transaction by reason of such Director holding office or of the fiduciary relation thereby established. A Director (or his alternate Director in his absence) shall be at liberty to vote in respect of any contract or transaction in which he is so interested as aforesaid provided however that the nature of the interest of any Director or alternate Director in any such contract or transaction shall be disclosed by him or the alternate Director appointed by him at or prior to its consideration and any vote thereon.
98. A general notice or disclosure to the Directors or otherwise contained in the minutes of a Meeting or a written resolution of the Directors or any committee thereof that a Director or alternate Director is a shareholder of any specified firm or company and is to be regarded as interested in any transaction with such firm or company shall be sufficient disclosure under Article 97 and after such general notice it shall not be necessary to give special notice relating to any particular transaction.
EXECUTIVE OFFICERS
99. The Board may from time to time appoint one or more Chairman of the Board, President, Chief Executive Officer, Chief Financial Officer and such other officers as it considers necessary in the management of the business of the Company and as it may decide for such period and upon such terms as it thinks fit and upon such terms as to remuneration as it may decide in accordance with these Articles.
100. Every Director appointed to an office under Article 99 hereof shall, without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company, be liable to be dismissed or removed therefrom by the Board. A Director appointed to an office under Article 99 shall be subject to the same provisions as to removal as the other Directors of the Company, and he shall, without prejudice to any claim for damages that such Director may have against the Company or the Company may have against such Director for any breach of any contract of service between him and the Company, ipso facto and immediately cease to hold such office if he shall cease to hold the office of Director for any cause.
MANAGEMENT
101. (a) The management of the business of the Company shall be vested in the Board which, in addition to the powers and authorities by these Articles expressly conferred upon it, may exercise all such powers and do all such acts and things as may be exercised or done or approved by the Company and are not hereby or by the Law expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Law and of these Articles and to any regulation from time to time made by the Company in general meeting not being inconsistent with such provisions or these Articles, PROVIDED THAT no regulation so made shall invalidate any prior act of the Board which would have been valid if such regulation had not been made.
(b) The Board of Directors may authorize any officer, officers, agent or agents to enter
into any contract or agreement of any nature whatsoever, including, without limitation, any contract, deed, bond, mortgage, guarantee, agreement, or any other document or instrument of any nature whatsoever, and to execute and deliver any such contract, agreement, document or other instrument of any nature whatsoever for and in the name of and on behalf of the Company, and such authority may be general or confined to specific instances.
102. (a) Subject to the provisions of the Law and except as otherwise expressly provided in this Article, a special resolution of the shareholders shall be required to approve:
(i) any merger or consolidation of the Company or any subsidiary with (i) any Interested Shareholder (as hereinafter defined in this Article) or (ii) any other company or other entity (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder, or any Affiliate of any Interested Shareholder, of any assets of the Company or any subsidiary having an aggregate Fair Market Value (as hereinafter defined in this Article) equaling or exceeding twenty-five percent (25%) of the Fair Market Value of the combined assets immediately prior to such transfer of the Company and its subsidiaries; or
(iii) the issuance or transfer by the Company or any subsidiary (in one transaction or a series of transactions) to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof), of any securities of the Company or any subsidiary having an aggregate Fair Market Value equaling or exceeding twenty-five percent (25%) of the Fair Market Value of the combined assets immediately prior to such transfer of the Company and its subsidiaries except pursuant to an employee benefit plan of the Company or any subsidiary thereof; or
(iv) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of any Interested Shareholder or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities of the Company (including any reverse share split), recapitalization of the Company, merger or consolidation of the Company with any of its subsidiaries or other transaction (whether or not with or into or otherwise involving an Interested Shareholder), which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Company or any subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder (a "Disproportionate Transaction"); provided, however, that no such transaction shall be deemed a Disproportionate Transaction if the increase
in the proportionate ownership of the Interested Shareholder or Affiliate as a result of such transaction is no greater than the increase experienced by the other stockholders generally.
The term "Business Combination" as used in this Article shall mean any
transaction which is referred to in any one or more of paragraphs (i) through
(v) of Article 102 (a).
(b) The provisions of Article 102 (a) requiring a special resolution of shareholders shall not be applicable to any particular Business Combination, and such Business Combination shall require only such vote as is required by the Law or by these Articles of Association (other than Article 102 (c) (ii)), whichever is greater, if the Business Combination shall have been approved by a majority of the Disinterested Directors (as hereinafter defined in this Article).
(c) For the purposes of this Article:
(i) "Affiliate" means with respect to any person, any other person controlling or controlled by or under common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
(ii) "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Shareholder and who was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any director who is thereafter chosen to fill any vacancy on the Board of Directors or who is elected and who, in either event, is unaffiliated with the Interested Shareholder, and in connection with his or her initial assumption of office is recommended for appointment or election by a majority of Disinterested Directors then on the Board of Directors.
(iii) "Interested Shareholder" shall mean any person (other than the Company) and any holding company thereof who or which:
(1) is the beneficial owner directly or indirectly, of more than twenty per cent (20%) of the voting power of the outstanding shares of the Company; or
(2) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of twenty per cent (20%) or more of the voting power of the then-outstanding shares; or
(3) is an assignee of or has otherwise succeeded to any shares which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering.
A person shall not be deemed an Interested Shareholder if such person would become an Interested Shareholder solely as a result of a reduction of the number of shares of the Company outstanding, including repurchases of outstanding shares of the Company by the Company, which reduction increases the percentage of outstanding shares of the Company of which such person is the beneficial owner, until such person shall thereafter become the beneficial owner of any additional shares.
(iv) "Fair Market Value" means: (a) in the case of shares, the highest closing sale price of a share during the 30-day period immediately preceding the date in question of such share admitted to trading on an Exchange or any other system then in use, the Fair Market Value shall be the highest closing sale price reported by the Exchange or such other system during the 30-day period preceding the date in question, or, if no such quotations are available, the Fair Market Value on the date in question of such share as determined by the Board of Directors in good faith, in each case with respect to any class of share, appropriately adjusted for any dividend or distribution in shares or any combination or reclassification of outstanding shares of such share into a smaller number of shares, and (b) in the case of property other than cash or shares, the Fair Market Value of such property on the date in question as determined by the Board of Directors in good faith.
(d) A majority of the Disinterested Directors of the Company shall have the power and duty to determine for the purposes of this Article, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Shareholder; (b) the number of shares of which any person is the beneficial owner; (c) whether a Person is an Affiliate of another; and (d) whether the assets which are the subject of any Business Combination have, or any securities to be issued or transferred by the Company or any Subsidiary in any Business Combination have, an aggregate Fair Market Value equaling or exceeding twenty-five percent (25%) of the Fair Market Value of the combined assets immediately prior to such transfer of the Company and its subsidiaries. A majority of the Disinterested Directors shall have the further power to interpret all of the terms and provisions of this Article.
PROCEEDINGS OF DIRECTORS
103. The Board may meet together for the despatch of business, adjourn and otherwise regulate its meetings and proceedings as it thinks fit in any part of the world and may determine the
quorum necessary for the transaction of business. Unless otherwise determined two Directors shall be a quorum provided always that if there at any time be only a sole Director the quorum shall be one. For the purposes of this Article an alternate Director shall be counted in a quorum in place of the Director who appointed him and an alternate Director who is an alternate for more than one Director shall for quorum purposes be counted separately in respect of himself (if he is a Director) and in respect of each Director for whom he is an alternate (but so that nothing in this provision shall be construed as authorising a meeting to be constituted when only one person is physically present except if at any time there is only a sole Director where the quorum shall be one). A meeting of the Board or any committee of the Board may be held by means of a telephone or tele-conferencing or any other telecommunications facility provided that all participants are thereby able to communicate contemporaneously by voice with all other participants and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting.
104. The Chairman, President or a majority of the Directors may at any time summon a meeting of the Board. 24 hours notice thereof shall be given to each Director either in writing or by electronic transmission at the address or telephone, facsimile or telex number from time to time notified to the Company by such Director or in such other manner as the Board may from time to time determine.
105. Questions arising at any meeting of the Board shall be decided by a majority of votes, and in case of an equality of votes the Chairman shall have a second or casting vote.
106. The Chairman of the Board shall act as chairman of the meetings of the Board; but if no such Chairman is elected, or if at any meeting the Chairman is not present within 15 minutes after the time appointed for holding the same, the Directors present may choose one of their number to be Chairman of the meeting.
107. A meeting of the Board for the time being at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions by or under these Articles for the time being vested in or exercisable by the Board generally.
108. The Board may delegate any of its powers to committees consisting of such member or members of the Board (including alternate Directors in the absence of their appointers) as the Board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed upon it by the Board.
109. All acts done by any such committee in conformity with such regulations and in fulfilment of the purposes for which it is appointed, but not otherwise, shall have the like force and effect as if done by the Board, and the Board shall have power, with the consent of the Company in general meeting, to remunerate the members of any such committee, and charge such remuneration to the current expenses of the Company.
110. The meetings and proceedings of any such committee consisting of two or more members of
the Board shall be governed by the provisions herein contained for regulating the meetings and proceedings of the Board so far as the same are applicable thereto and are not replaced by any regulations imposed by the Board pursuant to Article 108.
111. The Board shall cause minutes to be made of:-
(a) all appointments of officers made by the Board;
(b) the names of the Directors present at each meeting of the Board and any of committees of the Board;
(c) all declarations made or notices given by any Director of his interest in any contract or proposed contract or of his holding of any office or property whereby any conflict of duty or interest may arise; and
(d) all resolutions and proceedings at all meetings of the Company and of the Board and of such committees.
112. Any such minutes shall be conclusive evidence of any such proceedings if they purport to be signed by the chairman of the meeting or by the chairman of the succeeding meeting.
113. All acts bona fide done by any meeting of the Board or by a committee of Directors or by any person acting as Director shall, notwithstanding that it shall be afterwards discovered that there was some defect in the appointment of such Director or persons acting as aforesaid or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director or member of such committee as the case may be.
114. The continuing Directors may act notwithstanding any vacancy in their body, but, if and so long as their number is reduced below the number fixed by or pursuant to these Articles as the necessary quorum of Directors, the continuing Director or Directors may act for the purpose of increasing the number of Directors to that number or of summoning a general meeting of the Company but for no other purpose.
115. A resolution in writing signed by each and every one of the Directors (or their respective alternates) shall be as valid and effectual as if it had been passed at a meeting of the Board duly convened and held and may consist of several documents in like form each signed by one or more of the Directors or alternate Directors.
SECRETARY
116. A Secretary may be appointed by the Board for such term, at such remuneration and upon such conditions as it may think fit, and any Secretary so appointed may be removed by the Board. Anything by the Law or these Articles required or authorised to be done by or to the Secretary, if the office is vacant or there is for any other reason no Secretary capable of acting, may be done by or to any assistant or deputy Secretary appointed by the Board, or if there is no assistant or deputy Secretary capable of acting, by or to any officer of the
Company authorised generally or specifically in that behalf by the Board.
117. A provision of the Law or of these Articles requiring or authorising a thing to be done by or to a Director and the Secretary shall not be satisfied by its being done by or to the same person acting both as Director and as or in place of the Secretary.
GENERAL MANAGEMENT AND USE OF SEAL
118. The Board shall provide for the safe custody of the seal which shall only be used by the authority of the Board or of a committee of the Board authorised by the Board in that behalf, and every instrument to which such seal shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by a second Director or by some other person appointed by the Board for the purpose. The securities seal which shall be a facsimile of the common seal with the word "Securities" engraved thereon shall be used exclusively for sealing securities issued by the Company and for sealing documents creating or evidencing securities so issued. The Board may either generally or in any particular case resolve that the securities seal or any signatures or any of them may be affixed to certificates for shares, warrants, debentures or any other form of security by facsimile or other mechanical means specified in such authority or that any such certificates sealed with the securities seal need not be signed by any person. Every instrument to which the seal is affixed as aforesaid shall, as regards all persons dealing in good faith with the Company, be deemed to have been affixed to that instrument with the authority of the Directors previously given.
119. The Company may have a duplicate seal as and where the Board shall determine, and the Company may by writing under the seal appoint any agents or agent, committees or committee abroad to be the agents of the Company for the purpose of affixing and using such duplicate seal and they may impose such restrictions on the use thereof as may be thought fit. Wherever in these Articles reference is made to the seal, the reference shall, when and so far as may be applicable, be deemed to include any such duplicate seal as aforesaid.
120. All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments, and all receipts for moneys paid to the Company shall be signed, drawn, accepted, indorsed or otherwise executed, as the case may be, in such manner as the Board shall from time to time by resolution determine. The Company's banking accounts shall be kept with such banker or bankers as the Board shall from time to time determine.
121. The Board may from time to time and at any time, by power of attorney under the seal or by document executed as a deed, appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Board, to be the attorney or attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board under these Articles) and for such period and subject to such conditions as it may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit, and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions vested in him.
122. The Company may, by writing under its seal or by document executed as a deed, empower any person, either generally or in respect of any specified matter, as its attorney to execute deeds and instruments on its behalf in any part of the world and to enter into contracts and sign the same on its behalf and every deed signed by such attorney on behalf of the Company and, if required, under his seal shall bind the Company and have the same effect as if it were under the seal of the Company.
PENSION FUNDS
123. The Board may establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or provident or superannuation funds or (with the sanction of an ordinary resolution) employee or executive share option schemes for the benefit of, or give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the wives, widows, families and dependents of any such persons. The Board may also establish and subsidise or subscribe to any institutions, associations, clubs or funds calculated to be for the benefit of or to advance the interests and well-being of the Company or of any such other company as aforesaid, and may make payments for or towards the insurance of any such persons as aforesaid, and subscribe or guarantee money for charitable or benevolent objects or for any exhibition or for any public, general or useful object. The Board may do any of the matters aforesaid, either alone or in conjunction with any such other company as aforesaid. Any Director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.
CAPITALISATION OF RESERVES
124. The Company in general meeting may upon the recommendation of the Board by ordinary resolution resolve that it is desirable to capitalise all or any part of the amount for the time being standing to the credit of any of the Company's reserve accounts or funds or to the credit of the profit and loss account or otherwise available for distribution (and not required for the payment or provision of dividend on any shares with a preferential right to dividend) and accordingly that such sums be set free for distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportion on condition that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares, debentures or other securities of the Company to be allotted and distributed credited as fully paid up to and amongst such members in proportion aforesaid or partly in one way and partly in the other, and the Board shall give effect to such resolution, provided that a share premium account and a capital redemption reserve and any reserve or fund representing unrealised profits may, for the purposes of this Article, only be applied in paying up unissued shares to be issued to members of the Company as fully paid
up shares or paying up calls or instalments due or payable on partly paid securities of the Company subject always to the provisions of the Law.
125. Wherever such a resolution as referred to in Article 124 shall have been passed the Board shall make all appropriations and applications of the undivided profits resolved to be capitalised thereby, and all allotments and issues of fully paid up shares, debentures or other securities, if any, and generally shall do all acts and things required to give effect thereto, with full power to the Board:
(a) to make such provision by the issue of fractional certificates or by payment in cash or otherwise (including provisions whereby, in whole or in part, fractional entitlements are aggregated and sold and the net proceeds distributed to those entitled, or are disregarded or rounded up or down or whereby the benefit of fractional entitlements accrues to the Company rather than to the members concerned) as they think fit in cases where shares, debentures or other securities become distributable in fractions;
(b) to exclude the right of participation or entitlement of any member with a registered address outside any territory where in the absence of a registration statement or other special or onerous formalities the circulation of an offer of such right or entitlement would or might be unlawful or where the Board consider the costs, expense or possible delays in ascertaining the existence or extent of the legal and other requirements applicable to such offer or the acceptance of such offer out of proportion to the benefits of the Company; and
(c) to authorise any person to enter on behalf of all members entitled thereto into an agreement with the Company providing for the allotment to them respectively, credited as fully paid up, of any further shares, debentures or other securities to which they may be entitled upon such capitalisation, or, as the case may require, for the payment up by the Company on their behalf, by the application thereto of their respective proportions of the profits resolved to be capitalised, of the amounts or any part of the amounts remaining unpaid on their existing shares, and any agreement made under such authority shall be effective and binding on all such members.
126. The Board may, in relation to any capitalisation sanctioned under these Articles in its absolute discretion specify that, and in such circumstances and if directed so to do by a member or members entitled to an allotment and distribution credited as fully paid up of unissued shares or debentures in the Company pursuant to such capitalisation, shall allot and distribute credited as fully paid up the unissued shares, debentures or other securities to which that member is entitled to such person or persons as that member may nominate by notice in writing to the Company, such notice to be received not later than the day for which the general meeting of the Company to sanction the capitalisation is convened.
DIVIDENDS, DISTRIBUTIONS AND RESERVE
127. Subject to the Law, the Directors may from time to time declare dividends (including interim dividends) and distributions on shares of the Company outstanding and authorise payment of the same out of the funds of the Company lawfully available therefor.
128. The Directors may, before declaring any dividends or distributions, set aside such sums as they think proper as a reserve or reserves which shall at the discretion of the Directors, be applicable for any purpose of the Company and pending such application may, at the like discretion, be employed in the business of the Company.
129. No dividend or distribution shall be payable except out of the profits of the Company, realised or unrealised, or out of the share premium account or as otherwise permitted by the Law.
130. Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends or distributions are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend or distribution as determined in accordance with these Articles but no amount paid or credited as paid on a share in advance of calls shall be treated for the purpose of this Article as paid on the share.
131. The Directors may deduct from any dividend or distribution payable to any member all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.
132. The Directors may declare that any dividend or distribution be paid wholly or partly by the distribution of specific assets and in particular of paid up shares, debentures, or debenture stock of any other company or in any one or more of such ways and where any difficulty arises in regard to such distribution, the Directors may settle the same as they think expedient and in particular may issue fractional certificates and fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all members and may vest any such specific assets in trustees as may seem expedient to the Directors.
133. Any dividend, distribution, interest or other monies payable in cash in respect of shares may be paid by cheque or warrant sent through the post directed to the registered address of the holder or, in the case of joint holders, to the holder who is first named on the register of Members or to such person and to such address as such holder or joint holders
may in writing direct. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent. Any one of two or more joint holders may give effectual receipts for any dividends, bonuses, or other monies payable in respect of the share held by them as joint holders.
134. No dividend or distribution shall bear interest against the Company.
DOCUMENT DESTRUCTION
135. The Company shall be entitled to destroy all instruments of transfer, probate, letters of administration, stop notices, powers of attorney, certificates of marriage or death and other documents relating to or affecting title to securities in or of the Company ("Registrable Documents") which have been registered at any time after the expiration of six years from the date of registration thereof and all dividend mandates and notifications of change of address at any time after the expiration of two years from the date of recording thereof and all share certificates which have been cancelled at any time after the expiration of one year from the date of the cancellation thereof and it shall conclusively be presumed in favour of the Company that every entry in the register if purporting to have been made on the basis of an instrument of transfer or Registrable Document so destroyed was duly and properly made and every instrument of transfer or Registrable Document so destroyed was a valid and effective instrument or document duly and properly registered and every share certificate so destroyed was a valid and effective certificate duly and properly cancelled and every other document hereinbefore mentioned so destroyed was a valid and effective document in accordance with the recorded particulars thereof in the books or records of the Company, provided always that:
(a) the provisions aforesaid shall apply only to the destruction of a document in good faith and without express notice of the Company of any claim (regardless of the parties thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as imposing upon the Company any liability in respect of the destruction of any such document earlier than as aforesaid or in any other circumstances which would not attach to the Company in the absence of this Article; and
(c) references herein to the destruction of any document include references to the disposal thereof in any manner.
ACCOUNTS
136. The books of account shall be kept at such place or places as the Board thinks fit and shall always be open to the inspection of the Directors.
137. The Board shall from time to time determine whether, to what extent, at what times and places and under what conditions or regulations, the accounts and books of the Company, or any of them, shall be open to the inspection of the members (other than officers of the Company) and no member shall have any right of inspecting any accounts or books or
documents of the Company except as conferred by the Law or any other relevant law or regulation or as authorised by the Board or by the Company in general meeting.
138. The Board shall, commencing with the first annual general meeting cause to be prepared and to be laid before the members of the Company at every annual general meeting a profit and loss account for the preceding financial year together with a balance sheet as at the last day of the preceding financial year and a report for the period covered by the profit and loss account and the state of the Company's affairs as at the end of such period, an Auditors' report on such accounts prepared pursuant to Article 137 and such other reports and accounts as may be required by law.
139. Printed copies of those documents to be laid before the members of the Company at an annual general meeting shall not less than 10 days before the date of the meeting be sent to every member of the Company and every holder of debentures of the Company, provided that the Company shall not be required to send printed copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.
AUDIT
140. The Auditors shall audit the profit and loss account and balance sheet of the Company in each year and shall prepare a report thereon to be annexed thereto. Such report shall be laid before the Company at its annual general meeting in each year and shall be open to inspection by any member. The Auditors shall at the next annual general meeting following their appointment and at any other time during their term of office, upon request of the Board or any general meeting of the members, make a report on the accounts of the Company in general meeting during their tenure of office.
141. The Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting. The remuneration of the Auditors shall be fixed by the Company at the annual general meeting at which they are appointed provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Board. No person may be appointed as the, or an, Auditor, unless he is independent of the Company. The Board may before the first annual general meeting appoint an auditor or auditors of the Company who shall hold office until the first annual general meeting unless previously removed by an ordinary resolution of the members in general meeting in which case the members at that meeting may appoint Auditors. The Board may fill any casual vacancy in the office of Auditor but while any such vacancy continues the surviving or continuing Auditor or Auditors, if any, may act. The remuneration of any Auditor appointed by the Board under this Article may be fixed by the Board.
142. Every statement of accounts audited by the Auditors and presented by the Board at an annual general meeting shall after approval at such meeting be conclusive except as regards any error discovered therein within three months of the approval thereof. Whenever any such error is discovered within that period, it shall forthwith be corrected, and the statement of account amended in respect of the error shall be conclusive.
AUDIT COMMITTEE
143. For so long as the shares of the Company are quoted on the Exchange, it shall establish and maintain an Audit Committee as a committee of the Board PROVIDED ALWAYS THAT unless otherwise permitted by the rules of the Exchange there shall be a minimum of three members of the Audit Committee and all of the members of the Audit Committee shall be Independent Directors. The Audit Committee shall comply with the rules or regulations of the Exchange as promulgated from time to time so long as the shares of the Company are listed on the Exchange. The responsibilities of the Audit Committee shall include:
(a) to recommend annually to the Directors the appointment of the independent auditors of the Company, discuss and review in advance the scope and the fees of the annual audit and review the results thereof with the independent auditors, review and approve non-audit services of the independent auditors, review compliance with existing major accounting and financial reporting policies of the Company, review the adequacy of the financial organisation of the Company, and review management's procedures and policies relating to the adequacy of the Company's internal accounting controls and compliance with applicable laws relating to accounting practices; and
(b) reviewing potential conflict of interest situations.
SERVICE OF NOTICES AND OTHER DOCUMENTS
144. Any notice or other document may be served on or delivered to any member by the Company either personally or by sending it through the post in a prepaid letter addressed to such member at his registered address as appearing in the principal register or by delivering it to or leaving it at such registered address addressed as aforesaid. In the case of joint holders of a share, service or delivery of any notice or other document on or to one of the joint holders shall for all purposes be deemed a sufficient service on or delivery to all the joint holders.
145. Any such notice or other document, if sent by post, shall be deemed to have been served or delivered on the day after the day when it was put in the post (if sent to an address in the same country) and on the fifth day after the day when it was put in the post (if sent from one country or territory to an address in another country), and in proving such service or delivery it shall be sufficient to prove that the notice or document was properly addressed, stamped and put in the post. Any notice or other document delivered or left at a registered address otherwise than by post shall be deemed to have been served or delivered on the day it was so delivered or left.
146. Any notice or other document delivered or sent by post to or left at the registered address of any member in pursuance of these Articles shall, notwithstanding that such member is then dead or bankrupt or that any other event has occurred, and whether or not the Company has notice of the death or bankruptcy or other event, be deemed to have been duly served or delivered in respect of any share registered in the name of such member as sole or joint holder unless his name shall, at the time of the service or delivery of the notice or document, have been removed from the Register as the holder of the share and such service or delivery shall for all purposes be deemed a sufficient service or delivery of such notice or document on all persons interested
(whether jointly with or as claiming through or under him) in the share.
147. The signature to any notice to be given by the Company may be written or printed by means of facsimile.
INFORMATION
149. No member shall be entitled to require discovery of or any information in respect of any detail of the Company's trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Board would not be in the interests of the members or the Company to communicate to the public.
150. The Board shall be entitled to release or disclose any information in its possession, custody or control regarding the Company or its affairs to any of its members including, without limitation, information contained in the register of members and transfer books of the Company.
WINDING UP
151. If the Company shall be wound up (whether the liquidation is voluntary, under supervision or by the court) the liquidator may, with the authority of a special resolution of the Company and any other sanction required by the Law divide among the members in specie or kind the whole or any part of the assets of the Company (whether the assets shall consist of property of one kind or shall consist of properties of different kinds) and may for such purpose set such value as he deems fair upon any property to be divided and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority or sanction vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members as the liquidator, with the like authority or sanction and subject to the Law, shall think fit, and the liquidation of the Company may be closed and the Company dissolved, but so that no member shall be compelled to accept any assets, shares or other securities in respect of which there is a liability.
152. (a) The Company shall indemnify, to the full extent now or hereafter
permitted by law, any person (including his heirs, executors and
administrators) 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
(including, without limitation, an action by or in the right of the
Company), by reason of his acting as, or having in the past acted as,
a Director, officer, employee or agent of, or his acting in any other
capacity for or on behalf of, the Company, (including his serving
for, on behalf of or at the request of the Company as a Director,
officer employee or agent of another company, partnership, joint
venture, trust or other enterprise, or in a fiduciary or other
capacity with respect to any employee benefit plan maintained by the
Company) against any expense (including attorney's fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred
by such person (or his heirs, executors and administrators) in
respect thereof. The
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Company shall advance the expenses of defending any such action, suit or proceeding (including appeals) in accordance with and to the full extent now or hereafter permitted by law.
(b) The Board of Directors may, notwithstanding any interest of the
directors in such action, authorize the Company to purchase and
maintain insurance on behalf of any person described in Article 152
(a), against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or
not the Company would have the power to indemnify him against such
liability under the provisions of this Article 152.
(c) Directors of the Company shall have no personal liability to the Company or its members for monetary damages for breach of fiduciary or other duties as a director, except (i) for any breach of a director's duty of loyalty to the Company or its members, (ii) for act or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which a director derived an improper personal benefit.
(d) The provisions of this Article 152 shall be applicable to all actions, claims, suits or proceedings made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after its adoption. The provisions of this Article 152 shall be deemed to be a contract between the Company and each director, officer, employee or agent who serves in such capacity at any time while this Article and the relevant provisions of the law, if any, are in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts or any action, suit or proceeding then or theretofore existing, or any action, suit or proceeding thereafter brought or threatened based in whole or in part on any such state of facts. If any provision of this Article 152 shall be found to be invalid or limited in application by reason of any law or regulation, it shall not affect any other application of such provision or the validity of the remaining provisions hereof. The rights of indemnification and advancement of expenses provided in this Article shall neither be exclusive of, nor be deemed in limitation of, any rights to which any such officer, director, employee or agent may otherwise be entitled or permitted by contract, vote of members or directors or otherwise, or as a matter of law, both as to actions in his official capacity and actions in any other capacity while holding such office, it being the policy of the Company that indemnification of the specified individuals shall be made to the fullest extent permitted by law.
FINANCIAL YEAR
153. The financial year of the Company shall be as prescribed by the Board from time to time.
REGISTERED OFFICE
154. The registered office of the Company shall be at such place in the Cayman Islands as the Board shall from time to time appoint.
AMENDMENT OF MEMORANDUM AND ARTICLES
155. Subject to the Law, the Company may at any time and from time to time by special resolution alter or amend its Memorandum of Association and Articles of Association in whole or in part.
156. For the purpose of determining Members entitled to notice of or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend, or in order to make a determination of Members for any other proper purposes, the Directors of the Company may provide that the register of Members shall be closed for transfers for a stated period but not to exceed in any case forty days. If the register of Members shall be so closed for the purpose of determining Members entitled to notice of or to vote at a meeting of Members such register shall be so closed for at least ten days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the register of Members.
157. In lieu of or apart from closing the register of Members, the Directors may fix in advance a date as the record date for any such determination of Members entitled to notice of or to vote at a meeting of the Members and for the purpose of determining the Members entitled to receive payment of any dividend the Directors may, at or within 90 days prior to the date of declaration of such dividend fix a subsequent date as the record date for such determination.
158. If the register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of or to vote at a meeting of Members or Members entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of members has been made as provided in this section, such determination shall apply to any adjournment thereof.
DATED 24th day of July, 2000.
/s/ Rebecca Steller ____________________________________ Rebecca Steller PO Box 309, Grand Cayman /s/ Graham Lockington ____________________________________ Graham Lockington PO Box 309, Grand Cayman /s/ Diann Green ____________________________________ Witness to the above signatures |
I, Renda S. Cornwall, Asst. Registrar of Companies in and for the Cayman Islands HEREBY CERTIFY that this is a true and correct copy of the Articles of Association of this Company duly incorporated on the 24th day of July, 2000
/s/ Renda S. Cornwall
_____________________
Asst. Registrar of Companies
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EXHIBIT 10.1
Garmin Ltd.
2000 Equity Incentive Plan
Page
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Table of Contents
Article 1. Establishment, Objectives and Duration............................. 1
1.1. Establishment of the Plan............................................. 1
1.2. Objectives of the Plan................................................ 1
1.3. Duration of the Plan.................................................. 1
Article 2. Definitions........................................................ 1
Article 3. Administration..................................................... 7
3.1. Board and Committee................................................... 7
3.2. Powers of the Board................................................... 7
Article 4. Shares Subject to the Plan......................................... 9
4.1. Number of Shares Available............................................ 9
4.2. Adjustments in Authorized Shares......................................10
4.3. Newly Issued Shares or Treasury Shares................................10
Article 5. Eligibility and General Conditions of Awards.......................10
5.1. Eligibility...........................................................10
5.2. Grant Date............................................................10
5.3. Maximum Term..........................................................10
5.4. Award Agreement.......................................................10
5.5. Restrictions on Share Transferability.................................11
5.6. Termination of Affiliation............................................11
5.7. Nontransferability of Awards..........................................13
Article 6. Stock Options......................................................14
6.1. Grant of Options......................................................14
6.2. Award Agreement.......................................................14
6.3. Option Price..........................................................14
6.4. Grant of Incentive Stock Options......................................15
6.5. Exercise of Options...................................................16
Article 7. Stock Appreciation Rights..........................................16
7.1. Grant of SARs.........................................................16
7.2. Exercise of SARs......................................................17
7.3. Payment of SAR Benefit................................................17
Article 8. Restricted Shares..................................................17
8.1. Grant of Restricted Shares............................................17
8.2. Award Agreement.......................................................17
8.3. Consideration.........................................................17
8.4. Effect of Forfeiture..................................................17
8.5. Escrow; Legends.......................................................18
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Article 9. Performance Units and Performance Shares...........................18
9.1. Grant of Performance Units and Performance Shares.....................18
9.2. Value/Performance Goals...............................................18
9.3. Payment of Performance Units and Performance Shares...................18
9.4. Form and Timing of Payment of Performance Units and Performance
Shares..............................................................18
Article 10. Bonus Shares and Deferred Shares..................................19
10.1. Bonus Shares..........................................................19
10.2. Deferred Shares.......................................................19
Article 11. Beneficiary Designation...........................................19
Article 12. Deferrals.........................................................19
Article 13. Rights of Employees...............................................20
13.1. Employment............................................................20
13.2. Participation.........................................................20
Article 14. Amendment, Modification, and Termination..........................20
14.1. Amendment, Modification, and Termination..............................20
14.2. Adjustments Upon Certain Unusual or Nonrecurring Events...............20
14.3. Awards Previously Granted.............................................20
Article 15. Withholding.......................................................20
15.1. Mandatory Tax Withholding.............................................20
15.2. Notification under Code Section 83(b).................................21
Article 16. Equity Incentive Plans of Foreign Subsidiaries....................21
Article 17. Additional Provisions.............................................21
17.1. Successors............................................................21
17.2. Gender and Number.....................................................21
17.3. Severability..........................................................21
17.4. Requirements of Law...................................................21
17.5. Securities Law Compliance.............................................22
17.6. No Rights as a Shareholder............................................22
17.7. Nature of Payments....................................................22
17.8. Governing Law.........................................................22
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Garmin Ltd.
2000 Equity Incentive Plan
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Article 1. Establishment, Objectives and Duration
1.1. Establishment of the Plan. Garmin Ltd., a Cayman Islands corporation (the "Company"), hereby establishes an incentive compensation plan to be known as the Garmin Ltd. 2000 Equity Incentive Plan (the "Plan"). The Plan was adopted by the Board of Directors of the Company (the "Board"), on October 20, 2000, and was approved by the shareholders of the Company on October 24, 2000. The Plan is effective as of November 1, 2000 (the "Effective Date").
1.2. Objectives of the Plan. The Plan is intended to allow employees of the Company and its Subsidiaries to acquire or increase equity ownership in the Company, or to be compensated under the Plan based on growth in the Company's equity value, thereby strengthening their commitment to the success of the Company and stimulating their efforts on behalf of the Company, and to assist the Company and its Subsidiaries in attracting new employees and retaining existing employees. The Plan is also intended to optimize the profitability and growth of the Company through incentives which are consistent with the Company's goals; to provide incentives for excellence in individual performance; and to promote teamwork.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Article 14 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth below:
2.1. "Article" means an Article of the Plan.
2.2. "Award" means Options, Restricted Shares, Bonus Shares, Deferred Shares, SARs, Performance Units or Performance Shares granted under the Plan.
2.3. "Award Agreement" means a written agreement by which an Award is evidenced.
2.4. "Beneficial Owner" has the meaning specified in Rule 13d-3 of the SEC under the Exchange Act.
2.5. "Board" has the meaning set forth in Section 1.1.
2.6. "Bonus Shares" means Shares that are awarded to a Grantee without cost and without restrictions in recognition of past performance (whether determined by reference to another employee benefit plan of the Company or otherwise) or as an incentive to become an employee of the Company or a Subsidiary.
2.7. "Cause" means, unless otherwise defined in an Award Agreement,
(a) a Grantee's conviction of, plea of guilty to, or plea of nolo contendere to a felony or other crime that involves fraud, dishonesty or moral turpitude,
(b) any willful action or omission by a Grantee which would constitute grounds for immediate dismissal under the employment policies of the Company or the Subsidiary by which Grantee is employed, including but not limited to intoxication with alcohol or illegal drugs while on the premises of the Company or any Subsidiary, or violation of sexual harassment laws or the internal sexual harassment policy of the Company or the Subsidiary by which Grantee is employed,
(c) a Grantee's habitual neglect of duties, including but not limited to repeated absences from work without reasonable excuse, or
(d) a Grantee's willful and intentional material misconduct in the performance of his duties that results in financial detriment to the Company or any Subsidiary;
provided, however, that for purposes of clauses (b), (c) and (d), Cause shall not include any one or more of the following: bad judgment, negligence or any act or omission believed by the Grantee in good faith to have been in or not opposed to the interest of the Company (without intent of the Grantee to gain, directly or indirectly, a profit to which the Grantee was not legally entitled). A Grantee who agrees to resign his from affiliation with the Company or a Subsidiary in lieu of being terminated for Cause may be deemed to have been terminated for Cause for purposes of this Plan.
2.8. "Change of Control" means, unless otherwise defined in an Award Agreement, any one or more of the following:
(a) any Person other than (i) a Subsidiary, (ii) any employee benefit
plan (or any related trust) of the Company or any of its Subsidiaries or
(iii) any Excluded Person, becomes the Beneficial Owner of 25% or more of
the common shares of the Company or of Voting Securities representing 25%
or more of the combined voting power of the Company (such a person or
group, a "25% Owner"), except that (i) no Change of Control shall be deemed
to have occurred solely by reason of such beneficial ownership by a
corporation with respect to which both more than 70% of the common shares
of such corporation and Voting Securities representing more than 70% of the
aggregate voting power of such corporation are then owned, directly or
indirectly, by the persons who were the direct or indirect owners of the
common shares and Voting Securities of the Company immediately before such
acquisition in substantially the same proportions as their ownership,
immediately before such acquisition, of the common shares and Voting
Securities of the Company, as the case may be and (ii) such corporation
shall not be deemed a 25% Owner; or
(b) the Incumbent Directors (determined using the Effective Date as the baseline date) cease for any reason to constitute at least a majority of the directors of the Company then serving; or
(c) approval by the shareholders of the Company of a merger, reorganization, consolidation, or similar transaction, or a plan or agreement for the sale or other disposition of all or substantially all of the consolidated assets of the Company or a plan of liquidation of the Company (any of the foregoing transactions, a "Reorganization Transaction") which, based on information included in the proxy and other written materials distributed to the Company's stockholders in connection with the solicitation by the Company of such shareholder approval, is not expected to qualify as an Exempt Reorganization Transaction; or
(d) the consummation by the Company of a Reorganization Transaction that for any reason fails to qualify as an Exempt Reorganization Transaction as of the date of such consummation, notwithstanding the fact that such Reorganization Transaction was expected to so qualify as of the date of such shareholder approval.
The definition of "Change of Control" may be amended at any time prior to the occurrence of a Change of Control, and such amended definition shall be applied to all Awards granted under the Plan whether or not outstanding at the time such definition is amended, without requiring the consent of any Grantee. Notwithstanding the occurrence of any of the foregoing events, (a) a Change of Control shall be deemed not to have occurred with respect to any Section 16 Person if such Section 16 Person is, by agreement (written or otherwise), a participant on such Section 16 Person's own behalf in a transaction which causes the Change of Control to occur, (b) an IPO shall not be deemed to be a Change of Control, and (c) a Change of Control shall not occur with respect to a Grantee if, in advance of such event, the Grantee agrees in writing that such event shall not constitute a Change of Control.
2.9. "Change of Control Value" means the Fair Market Value of a Share on the date of a Change of Control.
2.10. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and regulations and rulings thereunder. References to a particular section of the Code include references to successor provisions of the Code or any successor statute.
2.11. "Committee" has the meaning set forth in Article 3.
2.12. "Company" has the meaning set forth in Section 1.1.
2.13. "Deferred Shares" means Shares that are awarded to a Grantee on a deferred basis pursuant to Section 10.2.
2.14. "Disability" means a permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Board in good faith, upon receipt of medical advice from one or more individuals, selected by the Board, who are qualified to give professional medical advice.
2.15. "Effective Date" has the meaning set forth in Section 1.1.
2.16. "Eligible Person" means any employee (including any officer) of the Company or any Subsidiary, including any such employee who is on an approved leave of absence or has been subject to a disability which does not qualify as a Disability.
2.17. "Exchange Act" means the Securities Exchange Act of 1934, as amended. References to a particular section of the Exchange Act include references to successor provisions.
2.18. "Excluded Person" means any Person who, along with such Person's Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) is the Beneficial Owner of 15% or more of the Shares outstanding as of the Effective Date.
2.19. "Exempt Reorganization Transaction" means a Reorganization Transaction which results in the Persons who were the direct or indirect owners of the outstanding common shares and Voting Securities of the Company immediately before such Reorganization Transaction becoming, immediately after the consummation of such Reorganization Transaction, the direct or indirect owners of both more than 70% of the then-outstanding common shares of the Surviving Corporation and Voting Securities representing more than 70% of the aggregate voting power of the Surviving Corporation, in substantially the same respective proportions as such Persons' ownership of the common shares and Voting Securities of the Company immediately before such Reorganization Transaction.
2.20. "Fair Market Value" means (A) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Board, and (B) with respect to Shares, as of any date other than the IPO Date, the average of the high and low trading prices on such date on the NASDAQ National Market System (or, if no sale of Shares was reported for such date, on the next preceding date on which a sale of Shares was reported), (i) if the Shares are not listed on the NASDAQ NMS, the average of the high and low trading prices of the Shares on such date on the New York Stock Exchange Composite Transactions Tape (or, if no sale of Shares was reported for such date, on the next preceding date on which a sale of Shares was reported), (ii) if the Shares are not listed on the NASDAQ NMS or the New York Stock Exchange, the average of the high and low trading prices of the Shares on such other national exchange on which the Shares are principally traded or as reported by the NASDAQ Stock Market, or similar organization, or if no such quotations are available, the average of the high bid and low asked quotations in the over-the-counter market; in either case for such date (or if no such transactions in Shares were reported for such date, on the next preceding date on which a sale of Shares was reported); or (iii) in the event that there shall be no public market for the Shares, the fair market value of the Shares as determined by the Board. Solely as of the IPO Date, Fair Market Value of a Share is the price to the public pursuant to the form of final prospectus used in connection with the IPO, as indicated on the cover page of such prospectus or otherwise.
2.21. "Freestanding SAR" means an SAR that is granted independently of any other Award.
2.22. "Good Reason" means any action by the Company or the Subsidiary employing a Grantee which results in any of the following without the Grantee's consent: (a) a material
diminution or other material adverse change in the Grantee's position, authority or duties, (b) requiring the Grantee to be based at any office or location more than 50 miles from the location where he or she was previously based; (c) a material diminution in the Grantee's compensation in the aggregate, other than a diminution applicable to all similarly situated employees.
2.23. "Grant Date" has the meaning set forth in Section 5.2.
2.24. "Grantee" means an individual who has been granted an Award.
2.25. "including" or "includes" mean "including, without limitation," or "includes, without limitation", respectively.
2.26. "Incumbent Directors" means, as of any specified baseline date,
individuals then serving as members of the Board who were members of the Board
as of the date immediately preceding such baseline date; provided that any
subsequently-appointed or elected member of the Board whose election, or
nomination for election by shareholders of the Company or the Surviving
Corporation, as applicable, was approved by a vote or written consent of a
majority of the directors then comprising the Incumbent Directors shall also
thereafter be considered an Incumbent Director, unless the initial assumption of
office of such subsequently-elected or appointed director was in connection with
(i) an actual or threatened election contest, including a consent solicitation,
relating to the election or removal of one or more members of the Board, (ii) a
"tender offer" (as such term is used in Section 14(d) of the Exchange Act), or
(iii) a proposed Reorganization Transaction.
2.27. "IPO" means an initial public offering of Shares as contemplated in the registration statement on Form S-1 filed by the Company with the Securities and Exchange Commission on September 11, 2000.
2.28. "IPO Date" means the effective date of the underwriting agreement between the Company and the underwriters of the IPO.
2.29. "Option" means an option granted under Article 6 of the Plan, including an incentive stock option.
2.30. "Option Price" means the price at which a Share may be purchased by a Grantee pursuant to an Option.
2.31. "Option Term" means the period beginning on the Grant Date of an Option and ending on the expiration date of such Option, as specified in the Award Agreement for such Option and as may, consistent with the provisions of the Plan, be extended from time to time by the Board prior to the expiration date of such Option then in effect.
2.32. "Performance Period" has the meaning set forth in Section 9.2.
2.33. "Performance Share" or "Performance Unit" has the meaning set forth in Article 9.
2.34. "Period of Restriction" means the period during which the transfer of Restricted Shares is limited in some way (based on the passage of time, the achievement of performance
goals, or upon the occurrence of other events as determined by the Board) or the Shares are subject to a substantial risk of forfeiture, as provided in Article 8.
2.35. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.36. "Plan" has the meaning set forth in Section 1.1.
2.37. "Reorganization Transaction" has the meaning set forth in Section 2.7(c).
2.38. "Required Withholding" has the meaning set forth in Article 15.
2.39. "Restricted Shares" means Shares that are subject to transfer restrictions and are subject to forfeiture if conditions specified in the Award Agreement applicable to such Shares are not satisfied.
2.40. "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange Act, together with any successor rule, as in effect from time to time.
2.41. "SAR" means a stock appreciation right.
2.42. "SEC" means the United States Securities and Exchange Commission, or any successor thereto.
2.43. "Section" means, unless the context otherwise requires, a Section of the Plan.
2.44. "Section 16 Person" means a person who is subject to obligations under Section 16 of the Exchange Act with respect to transactions involving equity securities of the Company.
2.45. "Share" means a common share, $0.01 par value, of the Company.
2.46. "Strike Price" of any SAR shall equal, for any Tandem SAR (whether granted at the same time as or after the grant of the related Option), the Option Price of such Option, or for any other SAR, 100% of the Fair Market Value of a Share on the Grant Date of such SAR; provided that the Board may specify a higher Strike Price in the Award Agreement.
2.47. "Subsidiary" means with respect to any Person (a) any corporation of which more than 50% of the Voting Securities are at the time, directly or indirectly, owned by such Person, and (b) any partnership or limited liability company in which such Person has a direct or indirect interest (whether in the form of voting power or participation in profits or capital contribution) of more than 50%.
2.48. "Substitute Option" has the meaning set forth in Section 6.3.
2.49. "Surviving Corporation" means the corporation resulting from a Reorganization Transaction or, if Voting Securities representing at least 50% of the aggregate voting power of
such resulting corporation are directly or indirectly owned by another corporation, such other corporation.
2.50. "Tandem SAR" means an SAR that is granted in connection with a related Option, the exercise of which shall require cancellation of the right to purchase a Share under the related Option (and when a Share is purchased under the related Option, the Tandem SAR shall similarly be canceled).
2.51. "Termination of Affiliation" occurs on the first day on which an individual is for any reason no longer providing services to the Company or any Subsidiary in the capacity of an employee, or with respect to an individual who is an employee of a Subsidiary, the first day on which such Subsidiary ceases to be a Subsidiary.
2.52. "Voting Securities" of a corporation means securities of such corporation that are entitled to vote generally in the election of directors, but not including any other class of securities of such corporation that may have voting power by reason of the occurrence of a contingency.
Article 3. Administration
3.1. Board and Committee. Subject to Article 14, and to Section 3.2, the
Plan shall be administered by the Board, or a committee of the Board appointed
by the Board to administer the Plan ("Plan Committee"). To the extent the Board
considers it desirable for transactions relating to Awards to be eligible to
qualify for an exemption under Rule 16b-3 after the IPO, the Plan Committee
shall consist of two or more directors of the Company, all of whom qualify as
"non-employee directors" within the meaning of Rule 16b-3. To the extent the
Board considers it desirable for compensation delivered pursuant to Awards to be
eligible to qualify for an exemption from the limit on tax deductibility of
compensation under Section 162(m) of the Code after the IPO, the Plan Committee
shall consist of two or more directors of the Company, all of whom shall qualify
as "outside directors" within the meaning of Code Section 162(m). The number of
members of the Plan Committee shall from time to time be increased or decreased,
and shall be subject to such conditions, including, but not limited to having
exclusive authority to make certain grants of Awards or to perform such other
acts, in each case as the Board deems appropriate to permit transactions in
Shares pursuant to the Plan to satisfy such conditions of Rule 16b-3 or Code
Section 162(m) as then in effect.
Any references herein to "Board" are, except as the context requires otherwise, references to the Board or the Plan Committee, as applicable.
3.2. Powers of the Board. Subject to the express provisions of the Plan, the Board has full and final authority and sole discretion as follows:
(a) taking into consideration the reasonable recommendations of management, to determine when, to whom and in what types and amounts Awards should be granted and the terms and conditions applicable to each Award, including the Option Price, the Option Term, the benefit payable under any SAR, Performance Unit or Performance Share, and whether or not specific Awards shall be granted in connection with other specific Awards,
and if so whether they shall be exercisable cumulatively with, or alternatively to, such other specific Awards;
(b) to determine the amount, if any, that a Grantee shall pay for Restricted Shares, whether and on what terms to permit or require the payment of cash dividends thereon to be deferred, when Restricted Shares (including Restricted Shares acquired upon the exercise of an Option) shall be forfeited and whether such shares shall be held in escrow;
(c) to construe and interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan;
(d) to make, amend, and rescind rules relating to the Plan, including rules with respect to the exercisability and nonforfeitability of Awards upon the Termination of Affiliation of a Grantee;
(e) to determine the terms and conditions of all Award Agreements (which need not be identical) and, with the consent of the Grantee, to amend any such Award Agreement at any time, among other things, to permit transfers of such Awards to the extent permitted by the Plan; provided that the consent of the Grantee shall not be required for any amendment which (A) does not adversely affect the rights of the Grantee, or (B) is necessary or advisable (as determined by the Board) to carry out the purpose of the Award as a result of any new or change in existing applicable law;
(f) to cancel, with the consent of the Grantee, outstanding Awards and to grant new Awards in substitution therefor;
(g) to accelerate the exercisability (including exercisability within a period of less than six months after the Grant Date) of, and to accelerate or waive any or all of the terms and conditions applicable to, any Award or any group of Awards for any reason and at any time, including in connection with a Termination of Affiliation;
(h) subject to Section 5.3, to extend the time during which any Award or group of Awards may be exercised;
(i) to make such adjustments or modifications to Awards to Grantees who are working outside the United States as are advisable to fulfill the purposes of the Plan or to comply with applicable local law, and to authorize foreign Subsidiaries to adopt plans as provided in Article 16;
(j) to delegate to any member of the Board or committee of Board members such of its powers as it deems appropriate, including the power to sub-delegate, except that only a member of the Board of Directors of the Company (or a committee thereof) may grant Awards from time to time to specified categories of Eligible Persons in amounts and on terms to be specified by the Board; provided that after the IPO, no such grants shall be made other than by the Board of Directors of the Company or the Committee to individuals who are then Section 16 Persons or other than by the Committee to individuals who are then or are deemed likely to become a "covered employee" within the meaning of Code Section 162(m);
(k) to delegate to officers, employees or independent contractors of the Company matters involving the routine administration of the Plan and which are not specifically required by any provision of this Plan of to be performed by the Board of Directors of the Company;
(l) to delegate its duties and responsibilities under the Plan with respect to foreign Subsidiary plans, except its duties and responsibilities with respect to Section 16 Persons, and (A) the acts of such delegates shall be treated hereunder as acts of the Board and (B) such delegates shall report to the Board regarding the delegated duties and responsibilities;
(m) to impose such additional terms and conditions upon the grant, exercise or retention of Awards as the Board may, before or concurrently with the grant thereof, deem appropriate, including limiting the percentage of Awards which may from time to time be exercised by a Grantee; and
(n) to take any other action with respect to any matters relating to the Plan for which it is responsible.
All determinations on any matter relating to the Plan or any Award Agreement may be made in the sole and absolute discretion of the Board, and all such determinations of the Board shall be final, conclusive and binding on all Persons. No member of the Board shall be liable for any action or determination made with respect to the Plan or any Award.
Article 4. Shares Subject to the Plan
4.1. Number of Shares Available.
(a) Plan Limit. Subject to Section 4.3 and to adjustment as provided in
Section 4.2, the number of Shares hereby reserved for delivery under the Plan is
3,500,000. The number of Shares over which SARs may be granted is 350,000. The
number of Shares over which Performance Units may be granted is 175,000. The
maximum number of Shares that may be delivered as Restricted Shares is 35,000,
and the maximum number of Bonus Shares that may be awarded is 35,000. If any
Shares subject to an Award granted hereunder are forfeited or an Award or any
portion thereof otherwise terminates or is settled without the issuance of
Shares, or in the case of SARs and Performance Units, without the payment of
cash, the Shares subject to such Award, to the extent of any such forfeiture,
termination or settlement, shall again be available for grant under the Plan. If
any Shares are withheld for the payment of taxes related to an Award, such
Shares, to the extent of any such withholding, shall again be available or shall
increase the number of Shares available, as applicable, for grant under the
Plan. The Board may from time to time determine the appropriate methodology for
calculating the number of Shares issued pursuant to the Plan.
(b) Individual Limit. No Grantee may be granted Options, Restricted Shares, Bonus Stock or Deferred Shares, Performance Units or Performance Shares in Shares, or any combination thereof, an aggregate number of Shares under the Plan that exceeds 400,000 shares in any 5-year period. In any 5-year period, no Grantee may receive SARs, Performance Units or Performance
Shares relating to more than 100,000 Shares under the Plan. If a previously granted Option, SAR, Performance Unit or Performance Share is forfeited, canceled or repriced, such forfeited, canceled or repriced Option, SAR, Performance Share or Performance Unit, as the case may be, shall continue to be counted against the maximum number of Shares, SARs, Performance Units or Performance Shares that may be delivered to any Grantee over the life of the Plan.
4.2. Adjustments in Authorized Shares. In the event that the Board determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, share split, reverse share split, subdivision, consolidation or reduction of capital, reorganization, merger, scheme of arrangement, split-up, spin-off or combination involving the Company or repurchase or exchange of Shares or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event that occurs at any time after the IPO Date affects the Shares such that any adjustment is determined by the Board to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Board shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property of the Company or any Person that is a party to a Reorganization Transaction with the Company) with respect to which Awards may be granted, (ii) the number and type of Shares (or other securities or property of the Company or any Person that is a party to a Reorganization Transaction with the Company) subject to outstanding Awards, and (iii) the grant or exercise price with respect to any Award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award or the substitution of other property for Shares subject to an outstanding Award; provided, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.
4.3. Newly Issued Shares or Treasury Shares. Shares delivered in connection with Awards may be newly issued or may be treasury shares.
Article 5. Eligibility and General Conditions of Awards
5.1. Eligibility. The Board may grant Awards to any Eligible Person, whether or not he or she has previously received an Award.
5.2. Grant Date. The Grant Date of an Award shall be the date on which the Board grants the Award or such later date as specified by the Board in the Award Agreement.
5.3. Maximum Term. Subject to the following proviso, the Option Term or other period during which an Award may be outstanding shall not extend more than 10 years after the Grant Date, and shall be subject to earlier termination as herein specified; provided, that any deferral of a cash payment or of the delivery of Shares that is permitted or required by the Board pursuant to Article 12 may, if so permitted or required by the Board, extend more than 10 years after the Grant Date of the Award to which the deferral relates.
5.4. Award Agreement. To the extent not set forth in the Plan, the terms and conditions of each Award (which need not be the same for each grant or for each Grantee) shall be set forth in an Award Agreement.
5.5. Restrictions on Share Transferability. The Board may include in the Award Agreement such restrictions on any Shares acquired pursuant to the exercise or vesting of an Award as it may deem advisable, including restrictions under applicable federal securities laws.
5.6. Termination of Affiliation. Except as otherwise provided in an Award
Agreement (including an Award Agreement as amended by the Board pursuant to
Section 3.2), and subject to the provisions of Section 14.1, the extent to which
the Grantee shall have the right to exercise, vest in, or receive payment in
respect of an Award following Termination of Affiliation shall be determined in
accordance with the following provisions of this Section 5.6.
(a) For Cause. If a Grantee has a Termination of Affiliation for Cause:
(i) the Grantee's Restricted Shares and Deferred Shares that are forfeitable immediately before such Termination of Affiliation shall automatically be forfeited on such date, subject in the case of Restricted Shares to the provisions of Section 8.4 regarding repayment of certain amounts to the Grantee;
(ii) the Grantee's Deferred Shares that were vested immediately before such Termination of Affiliation shall promptly be settled by delivery to such Grantee of a number of unrestricted Shares equal to the aggregate number of such vested Deferred Shares, and
(iii) any unexercised Option or SAR, and any Performance Share or Performance Unit with respect to which the Performance Period has not ended immediately before such Termination of Affiliation, shall terminate effective immediately upon such Termination of Affiliation.
(b) On Account of Death or Disability. If a Grantee has a Termination of Affiliation on account of death or Disability:
(i) the Grantee's Restricted Shares that were forfeitable immediately before such Termination of Affiliation shall thereupon become nonforfeitable;
(ii) the Grantee's Deferred Shares that were forfeitable immediately before such Termination of Affiliation shall thereupon become nonforfeitable and the Company shall, unless otherwise provided in an Award Agreement, promptly settle all Deferred Shares, whether or not forfeitable, by delivery to the Grantee (or, after his or her death, to his or her personal representative or beneficiary designated in accordance with Article 11) of a number of unrestricted Shares equal to the aggregate number of the Grantee's Deferred Shares;
(iii) any unexercised Option or SAR, whether or not exercisable immediately before such Termination of Affiliation, shall be fully exercisable and may be exercised, in whole or in part, at any time up to one year after such Termination of Affiliation (but only during the Option Term) by the Grantee or, after his or her death, by (A) his or her personal representative or the person to whom the Option or SAR, as applicable, is transferred by will or the applicable laws of descent and distribution, or (B) the Grantee's beneficiary designated in accordance with Article 11; and
(iv) the benefit payable with respect to any Performance Share or Performance Unit with respect to which the Performance Period has not ended immediately before such Termination of Affiliation on account of death or Disability shall be equal to the product of the Fair Market Value of a Share as of the date of such Termination of Affiliation or the value of the Performance Unit specified in the Award Agreement (determined as of the date of such Termination of Affiliation), as applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of months (including as a whole month any partial month) that have elapsed since the beginning of such Performance Period until the date of such Termination of Affiliation and the denominator of which is the number of months (including as a whole month any partial month) in the Performance Period; and
(2) a percentage determined by the Committee that would be earned under the terms of the applicable Award Agreement assuming that the rate at which the performance goals have been achieved as of the date of such Termination of Affiliation would continue until the end of the Performance Period, or, if the Board elects to compute the benefit after the end of the Performance Period, the Performance Percentage, as determined by the Board, attained during the Performance Period.
(c) Change of Control Period. If a Grantee has a Termination of Affiliation during the period ("Change of Control Period") commencing on a Change of Control and ending on the first anniversary of the Change of Control, which Termination of Affiliation is initiated by the Company or a Subsidiary other than for Cause, or initiated by the Grantee for Good Reason, then
(i) the Grantee's Restricted Shares that were forfeitable shall thereupon become nonforfeitable;
(ii) the Grantee's Deferred Shares that were forfeitable shall thereupon become nonforfeitable and the Company shall immediately settle all Deferred Shares, whether or not previously forfeitable, by delivery to such Grantee of a number of unrestricted Shares equal to the aggregate number of the Grantee's Deferred Shares;
(iii) any unexercised Option or SAR, whether or not exercisable on the date of such Termination of Affiliation, shall thereupon be fully exercisable and may be exercised, in whole or in part for three months following such Termination of Affiliation; and
(iv) the Company shall immediately pay to the Grantee, with respect to any Performance Share or Performance Unit with respect to which the Performance Period has not ended as of the date of such Termination of Affiliation, a cash payment equal to the product of (A) in the case of a Performance Share, the Change of Control Value or (B) in the case of a Performance Unit, the value of the Performance
Unit specified in the Award Agreement, as applicable, multiplied successively by each of the following:
(1) a fraction, the numerator of which is the number of whole and partial months that have elapsed between the beginning of such Performance Period and the date of such Termination of Affiliation and the denominator of which is the number of whole and partial months in the Performance Period; and
(2) a percentage equal to a greater of (x) the target percentage, if any, specified in the applicable Award Agreement or (y) the maximum percentage, if any, that would be earned under the terms of the applicable Award Agreement assuming that the rate at which the performance goals have been achieved as of the date of such Termination of Affiliation would continue until the end of the Performance Period.
(d) Any Other Reason. If a Grantee has a Termination of Affiliation for any reason other than for Cause, death or Disability, and other than under the circumstances described in Section 5.6(c), then:
(i) the Grantee's Restricted Shares and Deferred Shares, to the extent forfeitable immediately before such Termination of Affiliation, shall thereupon automatically be forfeited, subject in the case of Restricted Shares to the provisions of Section 8.4 regarding repayment of certain amounts to the Grantee;
(ii) the Grantee's Deferred Shares that were not forfeitable immediately before such Termination of Affiliation shall promptly be settled by delivery to the Grantee of a number of unrestricted Shares equal to the aggregate number of the Grantee's vested Deferred Shares;
(iii) any unexercised Option or SAR, to the extent exercisable immediately before such Termination of Affiliation, shall remain exercisable in whole or in part for three months after such Termination of Affiliation (but only during the Option Term) by the Grantee or, after his or her death, by (A) his or her personal representative or the person to whom the Option or SAR, as applicable, is transferred by will or the applicable laws of descent and distribution, or (B) the Grantee's beneficiary designated in accordance with Article 11; and
(iv) any Performance Shares or Performance Units with respect to which the Performance Period has not ended as of the date of such Termination of Affiliation shall terminate immediately upon such Termination of Affiliation.
5.7. Nontransferability of Awards.
(a) Except as provided in Section 5.7(c) below, each Award, and each right under any Award, shall be exercisable only by the Grantee during the Grantee's lifetime, or, if permissible under applicable law, by the Grantee's guardian or legal representative.
(b) Except as provided in Section 5.7(c) below, no Award (prior to the time, if applicable, Shares are issued in respect of such Award), and no right under any Award, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Grantee otherwise than by will or by the laws of descent and distribution (or in the case of Restricted Shares, to the Company) and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Subsidiary; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Board, and subject to such terms and conditions as may be prescribed by the Board, a Grantee may transfer an Award to (a) a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother- in-law, or sister-in-law of the Grantee, (including adoptive relationships), (b) any person sharing the Grantee's household (other than a tenant or employee), (c) a trust in which persons described in (a) or (b) have more than 50% of the beneficial interest, (d) a foundation in which persons described in (a) or (b) or the Grantee own more than 50% of the voting interests; provided such transfer is not for value. The following shall not be considered transfers for value: (i) a transfer under a domestic relations order in settlement of marital property rights; and (ii) a transfer to an entity in which more than 50% of the voting interests are owned by persons described in (a) or (b) above or the Grantee, in exchange for an interest in that entity.
Article 6. Stock Options
6.1. Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to any Eligible Person in such number, and upon such terms, and at any time and from time to time as shall be determined by the Board. Without limiting the generality of the foregoing, the Board may grant to any Eligible Person, or permit any Eligible Person to elect to receive, an Option in lieu of or in substitution for any other compensation (whether payable currently or on a deferred basis, and whether payable under this Plan or otherwise) which such Eligible Person may be eligible to receive from the Company or a Subsidiary, which Option may have a value (as determined by the Board under Black-Scholes or any other option valuation method) that is equal to or greater than the amount of such other compensation.
6.2. Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the Option Term, the number of shares to which the Option pertains, the time or times at which such Option shall be exercisable and such other provisions as the Board shall determine.
6.3. Option Price. The Option Price of an Option under this Plan shall be determined by the Board, and shall be no less than 100% of the Fair Market Value of a Share on the Grant Date; provided, however, that any Option ("Substitute Option") that is (x) granted to a Grantee in connection with the acquisition ("Acquisition"), however effected, by the Company of another corporation or entity ("Acquired Entity") or the assets thereof, (y) associated with an option to purchase shares of stock or other equity interest of the Acquired Entity or an affiliate thereof ("Acquired Entity Option") held by such Grantee immediately prior to such Acquisition, and
(z) intended to preserve for the Grantee the economic value of all or a portion of such Acquired Entity Option, may be granted with such Option Price as the Board determines to be necessary to achieve such preservation of economic value.
6.4. Grant of Incentive Stock Options.
(a) At the time of the grant of any Option to an Eligible Person who is an employee of the Company or a Subsidiary, the Board may designate that such option shall be made subject to additional restrictions to permit it to qualify as an "incentive stock option" under the requirements of Section 422 of the Code. Any option designated as an incentive stock option:
(i) shall not be granted to a person who owns shares (including shares treated as owned under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of shares of the Company;
(ii) shall be for a term of not more than 10 years from the Grant Date, and shall be subject to earlier termination as provided herein or in the applicable Award Agreement;
(iii) shall not have an aggregate Fair Market Value (determined for
each incentive stock option at its Grant Date) of Shares with respect to
which incentive stock options are exercisable for the first time by such
Grantee during any calendar year (under the Plan and any other employee
stock option plan of the Grantee's employer or any parent or Subsidiary
thereof ("Other Plans")), determined in accordance with the provisions of
Section 422 of the Code, which exceeds $100,000 (the "$100,000 Limit");
(iv) shall, if the aggregate Fair Market Value of a Share (determined on the Grant Date) with respect to the portion of such grant which is exercisable for the first time during any calendar year ("Current Grant") and all incentive stock options previously granted under the Plan and any Other Plans which are exercisable for the first time during a calendar year ("Prior Grants") would exceed the $100,000 Limit, be exercisable as follows:
(A) the portion of the Current Grant which would, when added to any Prior Grants, be exercisable with respect to Shares which would have an aggregate Fair Market Value (determined as of the respective Grant Date for such options) in excess of the $100,000 Limit shall, notwithstanding the terms of the Current Grant, be exercisable for the first time by the Grantee in the first subsequent calendar year or years in which it could be exercisable for the first time by the Grantee when added to all Prior Grants without exceeding the $100,000 Limit; and
(B) if, viewed as of the date of the Current Grant, any portion of a Current Grant could not be exercised under the preceding provisions of this Subsection (iv) during any calendar year commencing with the calendar year in which it is first exercisable through and including the last calendar year in which it may by its terms be exercised, such portion of the Current Grant shall not be an incentive stock option, but shall be exercisable as a separate Option at such date or dates as are provided in the Current Grant;
(v) shall be granted within 10 years from the earlier of the date the Plan is adopted or the date the Plan is approved by the shareholders of the Company;
(vi) shall require the Grantee to notify the Board of any disposition of any Shares issued pursuant to the exercise of the incentive stock option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition; and
(vii) shall by its terms not be assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Grantee's lifetime, only by the Grantee; provided, however, that the Grantee may, to the extent provided in the Plan in any manner specified by the Board, designate in writing a beneficiary to exercise his incentive stock option after the Grantee's death.
Notwithstanding the foregoing, the Board may, without the consent of the Grantee, at any time before the exercise of an option (whether or not an incentive stock option), take any action necessary to prevent such option from being treated as an incentive stock option.
6.5. Exercise of Options. Options shall be exercised by the delivery of a written notice of exercise to the Manager of Benefits of the Company or the Subsidiary by whom the Grantee is or was most recently employed, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares made by cash, personal check or wire transfer or, subject to the approval of the Board pursuant to procedures approved by the Board, (i) through the sale of the Shares acquired on exercise of the Option through a broker-dealer to whom the Grantee has submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay for such Shares, together with, if requested by the Company, the amount of federal, state, local or foreign withholding taxes payable by Grantee by reason of such exercise, or (ii) through simultaneous sale through a broker of Shares acquired on exercise, as permitted under Regulation T of the Federal Reserve Board.
The exercise of an Option shall require cancellation of a number of related Tandem SARs equal to the number of Shares with respect to which the Option is exercised.
Article 7. Stock Appreciation Rights
7.1. Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to any Eligible Person at any time and from time to time as shall be determined by the Board. The Board may grant Freestanding SARs, Tandem SARs, or any combination thereof. Each grant of an SAR shall be evidenced by an Award Agreement, which shall specify the number of SARs granted to each Grantee (subject to Article 4), the Strike Price thereof, and, consistent with the other provisions of this Article 7 and of the Plan, such other terms and conditions pertaining to such SARs as the Board may determine. Tandem SARs shall expire no later than the expiration of the underlying Option.
7.2. Exercise of SARs. SARs shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares over which the SAR is to be exercised. Tandem SARs (a) may be exercised with respect to all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option; (b) may be exercised only with respect to the Shares for which its related Option is then exercisable; and (c) may be exercised only when the Fair Market Value of the Shares subject to the Option exceeds the Option Price of the Option. The value of the payment with respect to the Tandem SAR may be no more than 100% of the difference between the Option Price of the underlying Option and the Fair Market Value of the Shares subject to the underlying Option at the time the Tandem SAR is exercised.
7.3. Payment of SAR Benefit. Upon exercise of an SAR, the Grantee shall be entitled to receive payment from the Company in an amount determined by multiplying:
(a) the excess of the Fair Market Value of a Share on the date of exercise over the Strike Price;
by
(b) the number of Shares with respect to which the SAR is exercised;
provided that the Board may provide in the Award Agreement that the benefit payable on exercise of an SAR shall not exceed such percentage of the Fair Market Value of a Share on the Grant Date as the Board shall specify. As determined by the Board, the payment upon SAR exercise may be in cash, in Shares which have an aggregate Fair Market Value (as of the date of exercise of the SAR) equal to the amount of the payment, or in some combination thereof, as set forth in the Award Agreement.
Article 8. Restricted Shares
8.1. Grant of Restricted Shares. Subject to the terms and provisions of the Plan, the Board, at any time and from time to time, may grant Restricted Shares to any Eligible Person in such amounts as the Board shall determine.
8.2. Award Agreement. Each grant of Restricted Shares shall be evidenced by an Award Agreement, which shall specify the Period(s) of Restriction, the number of Restricted Shares granted, and such other provisions as the Board shall determine. The Board may impose such conditions or restrictions on any Restricted Shares as it may deem advisable, including restrictions based upon the achievement of specific performance goals (Company-wide, divisional, Subsidiary or individual), time-based restrictions on vesting or restrictions under applicable securities laws.
8.3. Consideration. The Board shall determine the amount, if any, that a Grantee shall pay for Restricted Shares. Such payment shall be made in full by the Grantee before the delivery of the shares and in any event no later than 10 business days after the Grant Date for such shares.
8.4. Effect of Forfeiture. If Restricted Shares are forfeited, and if the Grantee was required to pay for such shares or acquired such Restricted Shares upon the exercise of an Option,
the Grantee shall be deemed to have resold such Restricted Shares to the Company at a price equal to the lesser of (x) the amount paid by the Grantee for such Restricted Shares, or (y) the Fair Market Value of a Share on the date of such forfeiture. The Company shall pay to the Grantee the required amount as soon as is administratively practical. Such Restricted Shares shall cease to be outstanding, and shall no longer confer on the Grantee thereof any rights as a shareholder of the Company, from and after the date of the event causing the forfeiture, whether or not the Grantee accepts the Company's tender of payment for such Restricted Shares.
8.5. Escrow; Legends. The Board may provide that the certificates for any Restricted Shares (x) shall be held (together with a stock power executed in blank by the Grantee) in escrow by the Secretary of the Company until such Restricted Shares become nonforfeitable or are forfeited or (y) shall bear an appropriate legend restricting the transfer of such Restricted Shares. If any Restricted Shares become nonforfeitable, the Company shall cause certificates for such shares to be issued without such legend.
Article 9. Performance Units and Performance Shares
9.1. Grant of Performance Units and Performance Shares. Subject to the terms of the Plan, Performance Units or Performance Shares may be granted to any Eligible Person in such amounts and upon such terms, and at any time and from time to time, as the Board shall determine. Each grant of Performance Units or Performance Shares shall be evidenced by an Award Agreement which shall specify the terms and conditions applicable to the Performance Units or Performance Shares, as the Board determines.
9.2. Value/Performance Goals. Each Performance Unit shall have an initial value that is established by the Board at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Board shall set performance goals which, depending on the extent to which they are met, will determine the number or value of Performance Units or Performance Shares that will be paid to the Grantee. For purposes of this Article 9, the time period during which the performance goals must be met shall be called a "Performance Period."
9.3. Payment of Performance Units and Performance Shares. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of Performance Units or Performance Shares shall be entitled to receive a payment based on the number and value of Performance Units or Performance Shares earned by the Grantee over the Performance Period, determined as a function of the extent to which the corresponding performance goals have been achieved.
If a Grantee is promoted, demoted or transferred to a different business unit of the Company during a Performance Period, then, to the extent the Board determines appropriate, the Board may adjust, change or eliminate the performance goals or the applicable Performance Period as it deems appropriate in order to make them appropriate and comparable to the initial performance goals or Performance Period.
9.4. Form and Timing of Payment of Performance Units and Performance Shares. Payment of earned Performance Units or Performance Shares shall be made in a lump sum
following the close of the applicable Performance Period. The Board may cause earned Performance Units or Performance Shares to be paid in cash or in Shares (or in a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Units or Performance Shares at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions deemed appropriate by the Board. The form of payout of such Awards shall be set forth in the Award Agreement pertaining to the grant of the Award.
As determined by the Board, a Grantee may be entitled to receive any dividends declared with respect to Shares which have been earned in connection with grants of Performance Units or Performance Shares but not yet distributed to the Grantee. In addition, a Grantee may, as determined by the Board, be entitled to exercise his or her voting rights with respect to such Shares.
Article 10. Bonus Shares and Deferred Shares
10.1. Bonus Shares. Subject to the terms of the Plan, the Board may grant Bonus Shares to any Eligible Person, in such amount and upon such terms and at any time and from time to time as shall be determined by the Board.
10.2. Deferred Shares. Subject to the terms and provisions of the Plan, Deferred Shares may be granted to any Eligible Person in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Board. The Board may impose such conditions or restrictions on any Deferred Shares as it may deem advisable, including time-vesting restrictions and deferred payment features. The Board may cause the Company to establish a grantor trust to hold Shares subject to Deferred Share Awards. Without limiting the generality of the foregoing, the Board may grant to any Eligible Person, or permit any Eligible Person to elect to receive, Deferred Shares in lieu of or in substitution for any other compensation (whether payable currently or on a deferred basis, and whether payable under this Plan or otherwise) which such Eligible Person may be eligible to receive from the Company or a Subsidiary.
Article 11. Beneficiary Designation
Each Grantee under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of the Grantee's death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Grantee, shall be in a form prescribed by the Company, and will be effective only when filed by the Grantee in writing with the Company during the Grantee's lifetime. In the absence of any such designation, benefits remaining unpaid at the Grantee's death shall be paid to the Grantee's estate.
Article 12. Deferrals
The Board may permit or require a Grantee to defer receipt of the payment of cash or the delivery of Shares that would otherwise be due by virtue of the exercise of an Option or SAR, the lapse or waiver of restrictions with respect to Restricted Shares, the satisfaction of any requirements or goals with respect to Performance Units or Performance Shares, the grant of
Bonus Shares or the expiration of the deferral period for Deferred Shares. If any such deferral is required or permitted, the Board shall establish rules and procedures for such deferrals.
Article 13. Rights of Employees
13.1. Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Grantee's employment at any time, nor confer upon any Grantee the right to continue in the employ of the Company.
13.2. Participation. No employee shall have the right to be selected to receive an Award, or, having been so selected, to be selected to receive a future Award.
Article 14. Amendment, Modification, and Termination
14.1. Amendment, Modification, and Termination. Subject to the terms of the Plan, the Board of Directors of the Company may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part without the approval of the Company's shareholders, except to the extent the Board of Directors of the Company determines it is desirable to obtain approval of the Company's shareholders, to retain eligibility for exemption from the limitations of Code Section 162(m), to have available the ability for Options to qualify as ISOs, to comply with the requirements for listing on any exchange where the Company's Shares are listed, or for any other purpose the Board of Directors of the Company deems appropriate.
14.2. Adjustments Upon Certain Unusual or Nonrecurring Events. The Board may make adjustments in the terms and conditions of Awards in recognition of unusual or nonrecurring events (including the events described in Section 4.2) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Board determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
14.3. Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary (but subject to Section 2.8 and Section 14.2), no termination, amendment or modification of the Plan shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Grantee of such Award.
Article 15. Withholding
15.1. Mandatory Tax Withholding.
(a) Whenever under the Plan, Shares are to be delivered upon exercise or payment of an Award or upon Restricted Shares becoming nonforfeitable, or any other event with respect to rights and benefits hereunder, the Company shall be entitled to require (x) that the Grantee remit an amount in cash sufficient to satisfy all federal, state, local and foreign tax withholding requirements related thereto ("Required Withholding"), (y) the withholding of such Required Withholding from compensation otherwise due to the Grantee or from any Shares or other payment due to the Grantee under the Plan or (z) any combination of the foregoing.
(b) Any Grantee who makes a disqualifying disposition of an incentive stock option granted under the Plan or who makes an election under Section 83(b) of the Code shall remit to the Company an amount sufficient to satisfy all resulting Required Withholding; provided that, in lieu of or in addition to the foregoing, the Company shall have the right to withhold such Required Withholding from compensation otherwise due to the Grantee or from any Shares or other payment due to the Grantee under the Plan.
15.2. Notification under Code Section 83(b). If the Grantee, in connection with the exercise of any Option, or the grant of Restricted Shares, makes the election permitted under Section 83(b) of the Code to include in such Grantee's gross income in the year of transfer the amounts specified in Section 83(b) of the Code, then such Grantee shall notify the Company of such election within 10 days of filing the notice of the election with the Internal Revenue Service, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code. The Board may, in connection with the grant of an Award or at any time thereafter prior to such an election being made, prohibit a Grantee from making the election described above.
Article 16. Equity Incentive Plans of Foreign Subsidiaries
The Board may authorize any foreign Subsidiary to adopt a plan for granting Awards ("Foreign Equity Incentive Plan"). All awards granted under such Foreign Equity Incentive Plans shall be treated as grants under the Plan. Such Foreign Equity Incentive Plans shall have such terms and provisions as the Board permits not inconsistent with the provisions of the Plan and which may be more restrictive than those contained in the Plan. Awards granted under such Foreign Equity Incentive Plans shall be governed by the terms of the Plan except to the extent that the provisions of the Foreign Equity Incentive Plans are more restrictive than the terms of the Plan, in which case such terms of the Foreign Equity Incentive Plans shall control.
Article 17. Additional Provisions
17.1. Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the business or assets of the Company.
17.2. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
17.3. Severability. If any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
17.4. Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or stock exchanges as may be required. Notwithstanding any provision of the Plan or any Award, Grantees shall not be entitled to exercise, or receive benefits under, any Award, and the Company shall not be obligated to deliver any Shares or other benefits to a Grantee, if such exercise or delivery would constitute a violation by the Grantee or the Company of any applicable law or regulation.
17.5. Securities Law Compliance.
(a) If the Board deems it necessary to comply with any applicable securities law, or the requirements of any stock exchange upon which Shares may be listed, the Board may impose any restriction on Shares acquired pursuant to Awards under the Plan as it may deem advisable. All certificates for Shares delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the SEC, any stock exchange upon which Shares are then listed, any applicable securities law, and the Board may cause a legend or legends to be placed on any such certificates to refer to such restrictions. If so requested by the Company, the Grantee shall represent to the Company in writing that he or she will not sell or offer to sell any Shares unless a registration statement shall be in effect with respect to such Shares under the Securities Act of 1993 or unless he or she shall have furnished to the Company evidence satisfactory to the Company that such registration is not required.
(b) If the Board determines that the exercise of, or delivery of benefits pursuant to, any Award would violate any applicable provision of securities laws or the listing requirements of any stock exchange upon which any of the Company's equity securities are then listed, then the Board may postpone any such exercise or delivery, as applicable, but the Company shall use all reasonable efforts to cause such exercise or delivery to comply with all such provisions at the earliest practicable date.
17.6. No Rights as a Shareholder. A Grantee shall not have any rights as a shareholder with respect to the Shares (other than Restricted Shares) which may be deliverable upon exercise or payment of such Award until such shares have been delivered to him or her. Restricted Shares, whether held by a Grantee or in escrow by the Secretary of the Company, shall confer on the Grantee all rights of a shareholder of the Company, except as otherwise provided in the Plan or Award Agreement. Unless otherwise determined by the Board at the time of a grant of Restricted Shares, any cash dividends that become payable on Restricted Shares shall be deferred and, if the Board so determines, reinvested in additional Restricted Shares. Except as otherwise provided in an Award Agreement, any share dividends and deferred cash dividends issued with respect to Restricted Shares shall be subject to the same restrictions and other terms as apply to the Restricted Shares with respect to which such dividends are issued. The Board may provide for payment of interest on deferred cash dividends.
17.7. Nature of Payments. Awards shall be special incentive payments to the Grantee and shall not be taken into account in computing the amount of salary or compensation of the Grantee for purposes of determining any pension, retirement, death or other benefit under (a) any pension, retirement, profit- sharing, bonus, insurance or other employee benefit plan of the
Company or any Subsidiary or (b) any agreement between (i) the Company or any Subsidiary and (ii) the Grantee, except as such plan or agreement shall otherwise expressly provide.
17.8. Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Kansas other than its laws respecting choice of law.
EXHIBIT 10.2
Garmin Ltd.
2000 Non-Employee Directors'
Option Plan
Effective November 1, 2000
Garmin Ltd.
2000 Non-Employee Directors' Option Plan
Article 1. Establishment, Objectives and Duration
1.1. Establishment of the Plan. Garmin Ltd., a Cayman Islands corporation (the "Company") hereby establishes the Garmin Ltd. 2000 Non-Employee Directors' Option Plan (the "Plan"), effective November 1, 2000 (the "Effective Date") which was duly approved by the Board of Directors of the Company (the "Board") on October 20, 2000 and approved by the Company's shareholders on October 24, 2000.
1.2. Objectives of the Plan. The Plan is intended to allow Eligible Directors of the Company to acquire or increase equity ownership in the Company, thereby strengthening their commitment to the success of the Company, aligning their interests with those of the shareholders of the Company, and to assist the Company in attracting and retaining experienced and knowledgeable individuals to serve as directors.
1.3. Duration of the Plan. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Article 8 hereof, until the earlier of (a) the 10 year anniversary of the Effective Date and (b) the date all Shares subject to the Plan shall have been delivered according to the Plan's provisions; provided that the Plan shall remain in effect with respect to and shall govern any grants made hereunder including any amounts deferred in connection with such grants.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set forth below:
2.1. "Annual Meeting of Shareholders" means the regularly scheduled annual meeting of the Company's shareholders.
2.2. "Annual Option Grant" shall mean that portion of the Retainer payable to an Eligible Director in Options.
2.3. "Article" means an Article of the Plan.
2.4. "Beneficial Owner" has the meaning specified in Rule 13d-3 of the SEC under the Exchange Act.
2.5. "Board" has the meaning set forth in Section 1.1.
2.6. "Cause" means, (i) an Eligible Director's conviction of a felony or other crime involving fraud, dishonesty or moral turpitude; (ii) willful or reckless material misconduct in an Eligible Director's performance of his or her duties as a Director; or (iii) an Eligible Director's habitual neglect of duties; provided, that an Eligible Director who agrees to resign his position on the Board in lieu of being removed for Cause, may be deemed to have been removed for Cause for purposes of this Plan.
2.7. "Change of Control" means, unless otherwise defined in an Option Agreement, any one or more of the following:
(a) any Person other than (i) a Subsidiary, (ii) any employee benefit
plan (or any related trust) of the Company or any of its Subsidiaries or
(iii) any Excluded Person, becomes the Beneficial Owner of 25% or more of
the Shares of the Company or of Voting Securities representing 25% or more
of the combined voting power of the Company (such a person or group, a "25%
Owner"), except that (i) no Change of Control shall be deemed to have
occurred solely by reason of such beneficial ownership by a corporation
with respect to which both more than 70% of the common stock of such
corporation and Voting Securities representing more than 70% of the
aggregate voting power of such corporation are then owned, directly or
indirectly, by the persons who were the direct or indirect owners of the
Shares and Voting Securities of the Company immediately before such
acquisition in substantially the same proportions as their ownership,
immediately before such acquisition, of the Shares and Voting Securities of
the Company, as the case may be and (ii) such corporation shall not be
deemed a 25% Owner; or
(b) the Incumbent Directors cease for any reason to constitute at least a majority of the directors of the Company then serving; or
(c) approval by the shareholders of the Company of a merger, reorganization, consolidation, or similar transaction, or a plan or agreement for the sale or other disposition of all or substantially all of the consolidated assets of the Company or a plan of liquidation of the Company (any of the foregoing transactions, a "Reorganization Transaction") which, based on information included in the proxy and other written materials distributed to the Company's shareholders in connection with the solicitation by the Company of such shareholder approval, is not expected to qualify as an Exempt Reorganization Transaction; or
(d) the consummation by the Company of a Reorganization Transaction that for any reason fails to qualify as an Exempt Reorganization Transaction as of the date of such consummation, notwithstanding the fact that such Reorganization Transaction was expected to so qualify as of the date of such shareholder approval.
The definition of "Change of Control" may be amended at any time prior to the occurrence of a Change of Control in order to prevent an event or transaction from being a Change of Control, and such amended definition shall be applied to all Awards granted under the Plan whether or not outstanding at the time such definition is amended, without requiring the consent of any person holding an option. Notwithstanding the occurrence of any of the foregoing events, (a) a Change of Control shall not occur with respect to an Eligible Director if, in advance of such event, the Eligible Director agrees in writing that such event shall not constitute a Change of Control, and (b) an IPO shall not be a Change of Control.
2.8. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and regulations and rulings thereunder. References to a particular section of the Code include references to successor provisions of the Code or any successor statute.
2.9. "Committee" has the meaning set forth in Article 3.
2.10. "Company" has the meaning set forth in Section 1.1.
2.11. "Disability" means a physical or mental condition which, with or without reasonable accommodations and as determined by the Committee in good faith, upon receipt of such medical advice as the Committee deems appropriate, renders an individual unable or incompetent to perform the duties or responsibilities of a director which condition has existed for 180 days and which is expected to be permanent or of indefinite duration.
2.12. "Effective Date" has the meaning set forth in Section 1.1.
2.13. "Eligible Director" means (i) any individual serving as a director on the Board immediately following the Annual Meeting of Shareholders of the Company and (ii) any individual elected or appointed to serve as a director on the Board at some time other than the Annual Meeting of Shareholders; provided, that a director who is an officer of the Company or a Subsidiary or otherwise employed by the Company or a Subsidiary shall not be an Eligible Director.
2.14. "Exchange Act" means the Securities Exchange Act of 1934, as amended. References to a particular section of the Exchange Act include references to successor provisions.
2.15. "Excluded Person" means any Person who, along with such Person's Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the Exchange Act) is the Beneficial Owner of 15% or more of the Shares outstanding as of the Effective Date.
2.16. "Exempt Reorganization Transaction" means a Reorganization Transaction which results in the Persons who were the direct or indirect owners of the outstanding Shares and Voting Securities of the Company immediately before such Reorganization Transaction becoming, immediately after the consummation of such Reorganization Transaction, the direct or indirect owners of both more than 70% of the then-outstanding common stock of the Surviving Corporation and Voting Securities representing more than 70% of the aggregate voting power of the Surviving Corporation, in substantially the same respective proportions as such Persons' ownership of the Shares and Voting Securities of the Company immediately before such Reorganization Transaction.
2.17. "Fair Market Value" means (a) with respect to any property other
than Shares, the fair market value of such property determined by such methods
or procedures as shall be established from time to time by the Committee, and
(b) with respect to Shares, as of any date other than the IPO Date, (i) the
average of the high and low trading prices of the Shares on such date on the
NASDAQ National Market System (or, if no sale of Shares was reported for such
date, on the next preceding date on which a sale of Shares was reported), (ii)
if the Shares are not listed on the NASDAQ NMS, the average of the high and low
trading prices of the Shares on such other national exchange on which the Shares
are principally traded or as reported by the NASDAQ Stock Market, or similar
organization, or if no such quotations are available, the average of the high
bid and low asked quotations in the over-the-counter market; or (iii) in the
event that there shall be no public market for the Shares, the fair market value
of the Shares as
determined by the Committee. Solely as of the IPO Date, Fair Market Value of a Share is the price to the public pursuant to the form of final prospectus used in connection with the IPO, as indicated on the cover page of such prospectus or otherwise.
2.18. "Grant Date" has the meaning set forth in Section 5.1.
2.19. "including" or "includes" mean "including, without limitation," or "includes, without limitation," respectively.
2.20. "Incumbent Directors" means, as of any date, individuals then serving as members of the Board who were members of the Board as of the Effective Date; provided that any subsequently-appointed or elected member of the Board whose election, or nomination for election by shareholders of the Company or the Surviving Corporation, as applicable, was approved by a vote or written consent of at least a majority of the directors then comprising the Incumbent Directors shall also thereafter be considered an Incumbent Director, unless the initial assumption of office of such subsequently-elected or appointed director was in connection with (i) an actual or threatened election contest, including a consent solicitation, relating to the election or removal of one or more members of the Board, (ii) a "tender offer" (as such term is used in Section 14(d) of the Exchange Act), or (iii) a proposed Reorganization Transaction.
2.21. "IPO" means an initial public offering of Shares as contemplated in the registration statement on Form S-1 filed by the Company with the Securities and Exchange Commission on September 11, 2000.
2.22. "IPO Date" means the effective date of the underwriting agreement between the Company and the underwriters of the IPO.
2.23. "Mandatory Retirement Age" means the age for mandatory retirement according to the policy of the Board, if any, in place from time to time.
2.24. "Option" means an option to purchase Shares.
2.25. "Option Agreement" means a written agreement by which an Option is evidenced.
2.26. "Option Price" means the price at which a Share may be purchased by an Eligible Director pursuant to an Option.
2.27. "Option Term" means the period beginning on the Grant Date of an Option and ending on the expiration date of such Option, as specified in the Option Agreement for such Option.
2.28. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d) thereof.
2.29. "Plan" has the meaning set forth in Section 1.1.
2.30. "Reorganization Transaction" has the meaning set forth in Section 2.8(c).
2.31. "Rule 16b-3" means Rule 16b-3 promulgated by the SEC under the Exchange Act, together with any successor rule, as in effect from time to time.
2.32. "SEC" means the United States Securities and Exchange Commission, or any successor thereto.
2.33. "Section" means, unless the context otherwise requires, a Section of the Plan.
2.34. "Share" means a common share, $0.01 par value, of the Company.
2.35. "Subsidiary" means (a) any corporation of which more than 50% of the Voting Securities are at the time, directly or indirectly, owned by the Company, and (b) any partnership or limited liability company in which the Company has a direct or indirect interest (whether in the form of voting power or participation in profits or capital contribution) of more than 50%.
2.36. "Substitute Options" has the meaning set forth in Section 8.2.
2.37. "Surviving Corporation" means the corporation resulting from a Reorganization Transaction or, if Voting Securities representing at least 50% of the aggregate voting power of such resulting corporation are directly or indirectly owned by another corporation, such other corporation.
2.38. "Termination of Affiliation" occurs on the first day on which an individual is for any reason no longer serving as a Director of the Company.
2.39. "Voting Securities" of a corporation means securities of such corporation that are entitled to vote generally in the election of directors, but not including any other class of securities of such corporation that may have voting power by reason of the occurrence of a contingency.
Article 3. Administration
3.1. Committee. Subject to Article 9, and to Section 3.2, the Plan shall be administered by the Board, or a committee of the Board appointed by the Board to administer the Plan ("Plan Committee"). The number of members of the Plan Committee shall from time to time be increased or decreased, and shall be subject to such conditions, in each case as the Board deems appropriate to permit transactions in Shares pursuant to the Plan to satisfy such conditions of applicable securities or other laws then in effect. Any references herein to "Committee" are references to the Board or the Plan Committee, as applicable.
3.2. Powers of Committee. Subject to the express provisions of the Plan, the Committee has full and final authority and sole discretion as follows:
(a) to determine the terms and conditions applicable to each Option, including, but not limited to, the Option Price and the Option Term;
(b) to construe and interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan;
(c) to make, amend, and rescind rules relating to the Plan, including rules with respect to the exercisability and nonforfeitability of Options upon the Termination of Affiliation of an Eligible Director;
(d) to determine the terms and conditions of all Option Agreements
and, with the consent of the Eligible Director, to amend any such Option
Agreement at any time, among other things, to permit transfers of Options
to the extent permitted by the Plan; provided that the consent of the
Eligible Director shall not be required for any amendment which (i) does
not materially adversely affect the rights of the Eligible Director, or
(ii) is necessary or advisable (as determined by the Committee) to carry
out the purpose of the grant Options as a result of any new or change in
existing applicable law;
(e) to accelerate the exercisability (including exercisability within a period of less than six months after the Grant Date) of, and to accelerate or waive any or all of the terms and conditions applicable to, any Option or any group of other benefit hereunder for any reason and at any time, including in connection with a Termination of Affiliation;
(f) subject to Sections 1.3 and 5.2, to extend the time during which any Option or other benefit may be exercised;
(g) to delegate to officers, employees or independent contractors of the Company matters involving the routine administration of the Plan and which are not specifically required by any provision of this Plan to be performed by the Committee;
(h) to impose such additional terms and conditions upon the grant, exercise or retention of Options and other grants as the Committee may, before or concurrently with the grant thereof, deem appropriate; and
(i) to take any other action with respect to any matters relating to the Plan for which it is responsible.
All determinations on any matter relating to the Plan, any Option Agreement or other agreement under the Plan may be made in the sole and absolute discretion of the Committee, and all such determinations of the Committee shall be final, conclusive and binding on all Persons. No member of the Committee shall be liable for any action or determination made with respect to the Plan or any Annual Option Grant.
3.3. Majority Rule. A majority of the members of the Committee shall constitute a quorum, and any action taken by a majority present at a meeting at which a quorum is present or any action taken without a meeting evidenced by a writing executed by a majority of the whole Committee shall constitute the action of the Committee.
3.4. Company Assistance. The Company shall supply full and timely information to the Committee on all matters relating to Eligible Directors and such pertinent facts related thereto as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties.
3.5. Plan Operation in Compliance with Rule 16b-3 of the 1934 Act. The Plan shall be interpreted and administered to comply with Rule 16b-3 promulgated under the 1934 Act, as then applicable to the Company's employee benefit plans.
Article 4. Shares Subject to the Plan
4.1. Number of Shares Available. Subject to adjustment as provided in
Section 4.2, the number of Shares hereby reserved for delivery under the Plan is
50,000 Shares. Such Shares may be newly issued Shares or treasury shares. The
Committee may from time to time determine the appropriate methodology for
calculating the number of Shares issued pursuant to the Plan.
4.2. Adjustments in Authorized Shares. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, subdivision, consolidation or reduction of capital, reorganization, merger, scheme of arrangement, split-up, spin-off or combination involving the Company or repurchase or exchange of Shares or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event that occurs at any time after the IPO Date affects the Shares such that any adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property of the Company or any Person that is a party to a Reorganization Transaction with the Company) with respect to which Options or Shares may be granted, (ii) the number and type of Shares (or other securities or property of the Company or any Person that is a party to a Reorganization Transaction with the Company) subject to outstanding Options, and (iii) the grant or exercise price with respect to any Option or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option or the substitution of other property for Shares subject to an outstanding Option; provided, that the number of Shares subject to any Option denominated in Shares shall always be a whole number.
Article 5. General Conditions of Options
5.1. Grant Date. The Grant Date of Options received pursuant to an Annual Option Grant shall be the date of the Annual Meeting of Shareholders in the calendar year to which such grant relates or such later date as specified by the Committee in the Option Agreement. In the case of an Eligible Director who is initially appointed or elected on a date other than the date of an Annual Meeting of Shareholders, the Grant Date of such initial (prorata) Annual Option Grant shall be the first day such Eligible Director becomes an Eligible Director.
5.2. Term. The Option Term shall be 10 years from the Grant Date, and shall be subject to earlier termination as herein specified; provided, that any deferral of the delivery of Shares with respect to an Option that is exercised within 10 years of the Grant Date may, if so permitted, extend more than 10 years after the Grant Date of the Annual Option Grant to which the deferral relates.
5.3. Option Agreement. The terms and conditions of each Option shall be set forth in an Option Agreement.
5.4. Option Price. The Option Price of an Option under this Plan shall be 100% of the Fair Market Value of a Share on the Grant Date; provided, however, that any Option granted as a Substitute Option pursuant to Section 8.2 may be granted at such Option Price as the Committee determines to be necessary to achieve preservation of economic value as provided in Section 8.2.
5.5. Restrictions on Share Transferability. The Committee may include in the Option Agreement such restrictions on any Shares acquired pursuant to the exercise or vesting of an Option as it may deem advisable, including restrictions under applicable federal securities laws.
5.6. Exercise. Unless otherwise specified in the Option Agreement, Options
shall become exercisable in accordance with the following table, or if sooner,
shall become fully exercisable on the earliest of the first to occur of the
Eligible Director's (a) death, (b) Termination of Affiliation on account of
Disability, (c) mandatory retirement upon attaining Mandatory Retirement Age,
(d) Termination of Affiliation after a Change of Control under the conditions
described in Section 8.1, and (e) involuntary Termination of Affiliation as
described in Section 5.8(c).
Time Elapsed After Grant Date Percentage of Option Exercisable ----------------------------- --------------------------------- Less than 1 year 0% 1 year but less than 2 years 33-1/3% 2 years but less than 3 years 66-2/3% 3 years or more 100% |
5.7. Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares made by cash, personal check or wire transfer or, subject to the approval of the Committee, pursuant to procedures approved by the Committee, (a) through the sale of the Shares acquired on exercise of the Option through a broker-dealer to whom the Eligible Director has submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale or loan proceeds sufficient to pay for such Shares; (b) through simultaneous sale through a broker of Shares acquired on exercise, as permitted under Regulation T of the Federal Reserve Board.
5.8. Termination of Affiliation. Except as otherwise provided in an Option Agreement (including an Option Agreement as amended by the Committee), and subject to the provisions of Section 8.1, the extent to which the Eligible Director shall have the right to exercise, an Option following Termination of Affiliation shall be determined in accordance with this Section 5.8.
(a) For Cause. If an Eligible Director has a Termination of Affiliation for Cause any unexercised Option shall terminate effective immediately upon such Termination of Affiliation for Cause.
(b) On Account of Death, Disability, Retirement or Mandatory Retirement. If an Eligible Director has a Termination of Affiliation on account of death, Disability, or retirement upon attaining Mandatory Retirement Age, any unexercised Option, whether or not exercisable immediately before such Termination of Affiliation, may be exercised, in whole or in part, for a period of one year after such Termination of Affiliation (but only during the Option Term) by the Eligible Director or, after his or her death, by (i) his or her personal representative or the person to whom the Option is transferred by will or the applicable laws of descent and distribution, or (ii) the Eligible Director's beneficiary designated in accordance with Article 7.
(c) Involuntary Removal. If an Eligible Director is removed by the Company other than for Cause including, but not limited to, the Company's decision not to slate such Eligible Director for reelection, any unexercised Option whether or not exercisable immediately before such Termination of Affiliation, may be exercised in whole or in part, at any time within the first twelve (12) months following such Termination of Affiliation (but only during the Option Term) by the Eligible Director or, after his death or her death, by (i) his or her personal representative or the person to whom the Option is transferred by will or the applicable laws of descent or distribution, or (ii) the Eligible Director's beneficiary designated in accordance with Article 7.
(d) Any Other Reason. If an Eligible Director has a Termination of Affiliation for any other reason including, but not limited to, failure to be reelected to the Board or voluntary resignation including failure to run for reelection, any unexercised Option to the extent exercisable immediately before such Termination of Affiliation, shall remain exercisable in whole or in part for six (6) months after such Termination of Affiliation (but only during the Option Term) by the Eligible Director or, after his or her death, by (i) his or her personal representative or the person to whom the Option is transferred by will or the applicable laws of descent and distribution, or (ii) the Eligible Director's beneficiary designated in accordance with Article 7.
5.9. Nontransferability of Option Grants.
(a) Except as provided in Section 5.9(c) below, each Option shall be exercisable only by the Eligible Director during the Eligible Director's lifetime, or, if permissible under applicable law, by the Eligible Director's guardian or legal representative.
(b) Except as provided in Section 5.9(c) below, no Option (prior to the time Shares are issued) may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Eligible Director otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Subsidiary; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) To the extent and in the manner permitted by the Committee, and subject to such terms and conditions as may be prescribed by the Committee, an Eligible Director may transfer an Option to (a) a child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in- law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Eligible Director, (including adoptive relationships), (b) any person sharing the Eligible Director's household (other than a tenant or employee), (c) a trust in which persons described in (a) or (b) have more than 50% of the beneficial interest, (d) a foundation in which persons described in (a) or (b) or the Eligible Director own more than 50% of the voting interests; provided such transfer is not for value. The following shall not be considered transfers for value: (i) a transfer under a domestic relations order in settlement of marital property rights; and (ii) a transfer to an entity in which more than 50% of the voting interests are owned by persons described in (a) or (b) above or the Eligible Director, in exchange for an interest in that entity.
Article 6. Annual Option Grants
6.1. Subject to the terms and provisions of this Plan, commencing on the Effective Date and thereafter immediately following the Annual Meeting of Shareholders in each subsequent year, each Eligible Director shall automatically receive an Option to purchase a number of Shares equal to (a) divided by (b) where: (a) equals four (4) times the dollar amount of the Eligible Director's annual retainer for service on the Board and (b) equals the Fair Market Value of Shares as of the date of the Annual Meeting of Shareholders; provided, that fractional Shares shall be rounded up to the next larger whole number of Shares. An Eligible Director who is not initially elected at the Annual Meeting of Shareholders (including any Eligible Director who is first elected or appointed after the IPO and prior to the first Annual Meeting of Shareholders that occurs after the IPO) shall, within ten (10) days of becoming an Eligible Director, receive a pro rata Annual Option Grant for the year of such initial election or appointment. Such pro rata Annual Option Grant shall be (a) for an Eligible Director who is initially appointed after the first Annual Meeting of Shareholders that occurs after the IPO, for a number of Shares equal to four (4) times the dollar amount of the full annual retainer for an Eligible Director, divided by the Fair Market Value of a Share as of the Grant Date multiplied by a fraction, the numerator of which is 365 minus the number of days elapsed after the most recent prior Annual Meeting of Shareholders and before the Eligible Director's election or appointment and the denominator of which is 365 and (b) for an Eligible Director who is initially appointed prior to the first Annual Meeting of Shareholders after the IPO, for a number of Shares equal to four (4) times the dollar amount of the retainer payable for the period from the date of the initial appointment or election of the Eligible Director until (but not including) the date on which the first Annual Meeting of Shareholders after the IPO is expected to occur, divided by the Fair Market Value of a Share as of the Grant Date; provided that in either case fractional Shares shall be rounded up to the next larger whole number of Shares.
Article 7. Beneficiary Designation
Each Eligible Director under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Eligible Director, shall be in a form prescribed by the Company, and will be effective only when filed by the Eligible Director in writing with the Company during the Eligible Director's lifetime. In the absence of
any such designation, benefits remaining unpaid at the Eligible Director's death shall be paid to the Eligible Director's estate.
Article 8. Change of Control and Certain Corporate Transactions
8.1. Change of Control. If an Eligible Director, upon a Change of Control
or within 1 year thereafter, (a) is removed by the Company other than for Cause,
or (b) fails to be reelected to the board after being slated for reelection, or
(c) is not slated for reelection, having expressed a willingness to be so
slated, and if such Eligible Director has not reached Mandatory Retirement Age
as of the date of such termination, and would not have reached Mandatory
Retirement Age during his or her ensuing term as a director if he or she were to
be elected, then any unexercised Option, whether or not exercisable on the date
of such termination, shall become fully exercisable and may be exercised, in
whole or in part for the balance of its original term.
8.2. Substituting Options in Certain Corporate Transactions. In connection with the Company's acquisition, however effected, of another corporation or entity (the "Acquired Entity") or the assets thereof, the Committee may, at its discretion, grant Options ("Substitute Options") to a person who becomes an Eligible Director in connection with such acquisition and who held options or other equity interests in such Acquired Entity ("Acquired Entity Option") immediately prior to such Acquisition in order to preserve for such Eligible Director the economic value of all or a portion of such Acquired Entity Option at such price as the Committee determines necessary to achieve preservation of economic value. Any Shares delivered pursuant to substitute options under this section shall be in addition to the Shares under Section 4.1 hereof.
Article 9. Amendment, Modification, and Termination
9.1. Amendment, Modification, and Termination. Subject to the terms of the Plan, the Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part without the approval of the Company's shareholders.
9.2. Adjustments Upon Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of Options in recognition of unusual or nonrecurring events (including the events described in Section 4.2) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
9.3. Options Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment or modification of the Plan shall adversely affect in any material way any Option previously granted under the Plan, without the written consent of the Eligible Director who holds such Option, provided that to the extent any Option shall be adversely affected by any amendment or restatement to the Plan, the provisions of the Plan in effect as of the Grant Date of such Option shall prevail.
Article 10. Additional Provisions
10.1. Successors. All obligations of the Company under the Plan with respect to benefits granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise of all or substantially all of the business or assets of the Company.
10.2. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.
10.3. Severability. If any part of the Plan is declared by any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity shall not invalidate any other part of the Plan. Any Section or part of a Section so declared to be unlawful or invalid shall, if possible, be construed in a manner which will give effect to the terms of such Section or part of a Section to the fullest extent possible while remaining lawful and valid.
10.4. Requirements of Law. The granting of Options and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or stock exchanges as may be required. Notwithstanding any provision of the Plan or any Option Agreement, Eligible Directors shall not be entitled to exercise and the Company shall not be obligated to deliver any Shares or other benefits to an Eligible Director, if such exercise or delivery would constitute a violation by the Eligible Director or the Company of any applicable law or regulation.
10.5. Securities Law Compliance.
(a) If the Committee deems it necessary to comply with any applicable securities law, or the requirements of any stock exchange upon which Shares may be listed, the Committee may impose any restriction on Shares acquired pursuant to grants hereunder as it may deem advisable. All certificates for Shares delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the SEC, any stock exchange upon which Shares are then listed, any applicable securities law, and the Committee may cause a legend or legends to be placed on any such certificates to refer to such restrictions. If so requested by the Company, the Eligible Director shall represent to the Company in writing that he or she will not sell or offer to sell any Shares unless a registration statement shall be in effect with respect to such Shares under the Securities Act of 1933 or unless he or she shall have furnished to the Company evidence satisfactory to the Company that such registration is not required.
(b) If the Committee determines that the exercise of, or delivery of Shares would violate any applicable provision of securities laws or the listing requirements of any stock exchange upon which any of the Company's equity securities are then listed, then the Committee may postpone any such exercise or delivery, as applicable, but the Company shall use all reasonable efforts to cause such exercise or delivery to comply with all such provisions at the earliest practicable date.
10.6. No Rights as a Shareholder. An Eligible Director shall not have any rights as a shareholder with respect to the Shares which may be deliverable until such shares have been delivered to him or her.
10.7. Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Kansas other than its laws respecting choice of law.
Exhibit 10.3
GARMIN LTD.
EMPLOYEE STOCK PURCHASE PLAN
Page
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I. Purpose and Effective Date...................................................... 1
II. Definitions..................................................................... 1
III. Administration.................................................................. 3
IV. Number of Shares................................................................ 4
V. Eligibility Requirements........................................................ 5
VI. Enrollment...................................................................... 5
VII. Grant of Options on Enrollment.................................................. 6
VIII. Payroll Deductions.............................................................. 6
IX. Purchase of Shares.............................................................. 7
X. Withdrawal From the Plan; Termination of Employment; Leave of Absence; Death.... 9
XI. Miscellaneous................................................................... 10
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GARMIN LTD.
EMPLOYEE STOCK PURCHASE PLAN
1.1 The purpose of the Garmin Ltd. Employee Stock Purchase Plan is to
provide an opportunity for eligible employees to acquire a proprietary interest
in Garmin Ltd. through accumulated payroll deductions. It is the intent of the
Company to have the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code. The provisions of the Plan shall be construed to extend
and limit participation in a manner consistent with the requirements of Section
423 of the Code.
1.2 The Plan shall be effective on the Effective Date stated below, subject to the approval of the Company's stockholders within one year before or one year after the date the Plan is approved by the Board of Directors of the Company. No option shall be granted under the Plan after the date as of which the Plan is terminated by the Board in accordance with Section 11.7 of the Plan.
The following words and phrases, when used in this Plan, unless their context clearly indicates otherwise, shall have the following respective meanings:
(a) if the security is listed on the National Association of Securities Dealers Inc.'s NASDAQ National Market ("NASDAQ/NMS"), the closing price, regular way, of the security on such exchange or if no such reported sale of the security shall have occurred on such date, on the latest preceding date on which there was such a reported sale, or
(b) if the security is not listed on the NASDAQ/NMS, but is listed on the New York Stock Exchange, the closing price, regular way, of the security on such exchange, or if no such reported sale of the security shall have occurred on such date, on the latest preceding date on which there was such a reported sale, or
(c) if the security is not listed on the New York Stock Exchange or NASDAQ/NMS, the closing price, regular way, on such other national exchange on which the security is listed and principally traded, or if no such reported sale of the security shall have occurred on such date, on the latest preceding date on which there was such a reported sale, or
(d) if the security is not listed for trading on a national securities exchange or authorized for quotation on NASDAQ/NMS, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or, if no such prices shall have been so reported for such date, on the latest preceding date for which such prices were so reported, or
(e) if the security is not listed for trading on a national securities exchange or is not authorized for quotation on NASDAQ/NMS or NASDAQ, the fair market value of the security as determined in good faith by the Board.
Notwithstanding the above, for purposes of determining the number of Shares under Section 7.3 and purchase price under Section 9.4, Fair Market Value on the Effective Date shall
mean the price to the public pursuant to the form of final prospectus used in connection with the IPO as indicated on the cover page of such prospectus, or otherwise.
3.1 Subject to Section 11.7, the Plan shall be administered by the Board, or committee ("Committee") appointed by the Board. The Committee shall consist of at least one Board member, but may additionally consist of individuals who are not members of the Board. The Committee shall serve at the pleasure of the Board. If the Board does not so appoint a
Committee, the Board shall administer the Plan. Any references herein to "Administrator" are, except as the context requires otherwise, references to the Board or the Committee, as applicable.
3.2 If appointed under Section 3.1, the Committee may select one of its members as chairman and may appoint a secretary. The Committee shall make such rules and regulations for the conduct of its business as it shall deem advisable; provided, however, that all determinations of the Committee shall be made by a majority of its members.
3.3 The Administrator shall have the power, in addition to the powers set forth elsewhere in the Plan, and subject to and within the limits of the express provisions of the Plan, to construe and interpret the Plan and options granted under it; to establish, amend and revoke rules and regulations for administration of the Plan; to determine all questions of policy and expediency that may arise in the administration of the Plan; to allocate and delegate such of its powers as it deems desirable to facilitate the administration and operation of the Plan; and, generally, to exercise such powers and perform such acts as it deems necessary or expedient to promote the best interests of the Company. The Administrator's determinations as to the interpretation and operation of this Plan shall be final and conclusive.
The Board may designate from time to time which Subsidiaries of the Company shall be Participating Subsidiaries. Without amending the Plan, the Board may adopt special or different rules for the operation of the Plan which allow employees of any foreign Subsidiary to participate in the purposes of the Plan. In furtherance of such purposes, the Board may approve such modifications, procedures, rules or sub-plans as it deems necessary or desirable, including those deemed necessary or desirable to comply with any foreign laws or to realize tax benefits under foreign law. Any such different or special rules for employees of any foreign Subsidiary shall not be subject to Code Section 423 and for purposes of the Code shall be treated as separate and apart from the balance of the Plan.
3.4 This Article III relating to the administration of the Plan may be amended by the Board from time to time as may be desirable to satisfy any requirements of or under the federal securities and/or other applicable laws of the United States, or to obtain any exemption under such laws.
4.1 One million (1,000,000) Shares are reserved for sales and authorized for issuance pursuant to the Plan. Shares sold under the Plan may be newly- issued Shares, outstanding Shares reacquired in private transactions or open market purchases, or any combination of the foregoing. If any option granted under the Plan shall for any reason terminate without having been exercised, the Shares not purchased under such option shall again become available for the Plan.
4.2 In the event of any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, merger, consolidation, acquisition of property or shares, separation, asset spin-off, stock rights offering, liquidation or other similar change in the capital structure of the Company which occurs after the IPO Date, the Board shall make such adjustment, if any, as it deems appropriate in the number, kind and purchase price of the Shares available for purchase under the Plan. In the event that, at a time when options are outstanding hereunder, there occurs a dissolution or liquidation of the Company, except pursuant to a
transaction to which Section 424(a) of the Code applies, each option to purchase Shares shall terminate, but the Participant holding such option shall have the right to exercise his or her option prior to such termination of the option upon the dissolution or liquidation. The Company reserves the right to reduce the number of Shares which Employees may purchase pursuant to their enrollment in the Plan.
5.1 Except as provided in Section 5.2, each individual who is an Eligible Employee of the Company or a Participating Subsidiary on the applicable Cut-Off Date shall become eligible to participate in the Plan in accordance with Article VI as of the first Enrollment Date following the date the individual becomes an Employee of the Company or a Participating Subsidiary, provided that the individual remains an Eligible Employee on the first day of the Accumulation Period associated with such Enrollment Date. Participation in the Plan is entirely voluntary.
5.2 Employees meeting any of the following restrictions are not eligible to participate in the Plan:
(a) Employees who, immediately upon enrollment in the Plan or upon grant of an Option would own directly or indirectly, or hold options or rights to acquire, an aggregate of 5% or more of the total combined voting power or value of all outstanding shares of all classes of stock of the Company or any Subsidiary (and for purposes of this paragraph, the rules of Code Section 424(d) shall apply, and stock which the Employee may purchase under outstanding options shall be treated as stock owned by the Employee);
(b) Employees who are customarily employed by the Company or a Participating Subsidiary for less than 20 hours per week; or
(c) Employees who are customarily employed by the Company or a Participating Subsidiary for not more than five (5) months in any calendar year.
5.3 The Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the options shall be granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and the options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.
6.1 Eligible Employees will be automatically enrolled in the Plan on the first day of each Accumulation Period. Any Eligible Employee may consent to enrollment in the Plan for an Accumulation Period by completing and signing an enrollment form (which authorizes payroll deductions during such Accumulation Period in accordance with Section 8.1) and submitting such enrollment form to the Company or the Participating Subsidiary on or before the Cut-Off Date specified by the Administrator. Payroll deductions pursuant to the enrollment form shall be effective as of the first payroll period with a pay day after the Enrollment Date for the
Accumulation Period to which the enrollment form relates, and shall continue in effect until the earliest of:
(a) the end of the last payroll period with a payday in the Accumulation Period;
(b) the date during the Accumulation Period as of which the Employee elects to cease his or her enrollment in accordance with Section 8.3; and
(c) the date during the Accumulation Period as of which the Employee withdraws from the Plan or has a termination of employment in accordance with Article X.
Notwithstanding anything in the Plan to the contrary, for the initial Accumulation Period the Administrator may upon notice to Eligible Employees give effect to payroll deductions as of a payroll period with a pay date after the Cut-Off Date for the Accumulation Period, with such deductions effective as to all or a portion of Base Earnings either payable or earned on or after the Effective Date.
7.1 The automatic enrollment by an Eligible Employee in the Plan as of an Enrollment Date will constitute the grant as of such Enrollment Date by the Company to such Participant of an option to purchase Shares from the Company pursuant to the Plan.
7.2 An option granted to a Participant pursuant to this Plan shall expire, if not terminated earlier for any reason, on the earliest to occur of: (a) the end of the Purchase Date with respect to the Accumulation Period in which such option was granted; (b) the completion of the purchase of Shares under the option under Article IX; or (c) the date on which participation of such Participant in the Plan terminates for any reason.
7.3 As of each Enrollment Date, each Participant shall automatically be granted an option to purchase, subject to the terms of the Plan, the number of whole Shares equal to the quotient of $25,000 divided by the Fair Market Value of a Share on the Enrollment Date.
Notwithstanding any other provision of this Plan, no Employee may be granted an option which permits his or her rights to purchase Shares under the Plan and any other Code Section 423 employee stock purchase plan of the Company or any of its Subsidiaries or parent companies to accrue (when the option first becomes exercisable) at a rate which exceeds $25,000 of Fair Market Value of such Shares (determined at the time such option is granted) for each calendar year in which such option is outstanding at any time.
8.1 An Employee who files an enrollment form pursuant to Article VI shall elect and authorize in such form to have deductions made from his or her pay on each payday he or she receives a paycheck during the Accumulation Period to which the enrollment form relates, and he or she shall designate in such form the percentage (in whole percentages) of Base Earnings to be deducted each payday during such Accumulation Period. The minimum an Employee may
elect and authorize to have deducted is 1% of his or her Base Earnings paid per pay period in such Accumulation Period, and the maximum is 10% of his or her Base Earnings paid per pay period in such Accumulation Period (or such larger or smaller percentage as the Administrator may designate from time to time).
8.2 Except as provided in the last paragraph of Section 6.1, deductions from a Participant's Base Earnings shall commence upon the first payday on or after the commencement of the Accumulation Period, and shall continue until the date on which such authorization ceases to be effective in accordance with Article VI. The amount of each deduction made for a Participant shall be credited to the Participant's Account. All payroll deductions received or held by the Company or a Participating Subsidiary may be, but are not required to be, used by the Company or Participating Subsidiary for any corporate purpose, and the Company or Participating Subsidiary shall not be obligated to segregate such payroll deductions, but may do so at the discretion of the Board.
8.3 As of the last day of any month during an Accumulation Period, a Participant may elect to cease (but not to increase or decrease) payroll deductions made on his or her behalf for the remainder of such Accumulation Period by filing the applicable election with the Company or Participating Subsidiary in such form and manner and at such time as may be permitted by the Administrator. A Participant who has ceased payroll deductions may have the amount which was credited to his or her Account prior to such cessation applied to the purchase of Shares as of the Purchase Date, in accordance with Section 9.1, and receive the balance of the Account with respect to which the enrollment is ceased, if any, in cash. A Participant who has ceased payroll deductions may also voluntarily withdraw from the Plan pursuant to Section 10.1. Any Participant who ceases payroll deductions for an Accumulation Period may re- enroll in the Plan on the next subsequent Enrollment Date following the cessation in accordance with the provisions of Article VI. A Participant who ceases to be employed by the Company or any Participating Subsidiary will cease to be a Participant in accordance with Section 10.2.
8.4 A Participant may not make any separate or additional contributions to his Account under the Plan. Neither the Company nor any Participating Subsidiary shall make separate or additional contributions to any Participant's Account under the Plan.
9.1 Subject to Section 9.2, any option held by the Participant which was granted under this Plan and which remains outstanding as of a Purchase Date shall be deemed to have been exercised on such Purchase Date for the purchase of the number of whole Shares which the funds accumulated in his or her Account as of the Purchase Date will purchase at the applicable purchase price (but not in excess of the number of Shares for which options have been granted to the Participant pursuant to Section 7.3). No Shares will be purchased on behalf of any Participant who fails to file an enrollment form authorizing payroll deductions for an Accumulation Period.
9.2 A Participant who holds an outstanding option as of a Purchase Date shall not be deemed to have exercised such option if the Participant elected not to exercise the option by withdrawing from the Plan in accordance with Section 10.1.
9.3 If, after a Participant's exercise of an option under Section 9.1, an amount remains credited to the Participant's Account as of a Purchase Date, then the remaining amount shall be distributed to the Participant in cash as soon as administratively practical after such Purchase Date.
9.4 Except as otherwise set forth in this Section 9.4, the purchase price for each Share purchased under any option shall be 85% of the lower of:
(a) the Fair Market Value of a Share on the Enrollment Date on which such option is granted; or
(b) the Fair Market Value of a Share on the Purchase Date.
Notwithstanding the above, the Board may establish a different purchase price for each Share purchased under any option provided that such purchase price is determined at least thirty (30) days prior to the Accumulation Period for which it is applicable and provided that such purchase price may not be less than the purchase price set forth above.
9.5 If Shares are purchased by a Participant pursuant to Section 9.1, then such Shares shall be held in non-certificated form at a bank or other appropriate institution selected by the Administrator until the earlier of the Participant's termination of employment or the time a Participant requests delivery of certificates representing such shares. If any law governing corporate or securities matters, or any applicable regulation of the Securities and Exchange Commission or other body having jurisdiction with respect to such matters, shall require that the Company or the Participant take any action in connection with the Shares being purchased under the option, delivery of the certificate or certificates for such Shares shall be postponed until the necessary action shall have been completed, which action shall be taken by the Company at its own expense, without unreasonable delay.
Certificates delivered pursuant to this Section 9.5 shall be registered in the name of the Participant or, if the Participant so elects, in the names of the Participant and one or more such other persons as may be designated by the Participant in joint tenancy with rights of survivorship or in tenancy by the entireties or as spousal community property, or in such forms of trust as may be approved by the Administrator, to the extent permitted by law.
9.6 In the case of Participants employed by a Participating Subsidiary, the Board may provide for Shares to be sold through the Subsidiary to such Participants, to the extent consistent with and governed by Section 423 of the Code.
9.7 If the total number of Shares for which an option is exercised on any Purchase Date in accordance with this Article IX, when aggregated with all Shares previously granted under this Plan, exceeds the maximum number of Shares reserved in Section 4.1, the Administrator shall make a pro rata allocation of the Shares available for delivery and distribution in as nearly a uniform manner as shall be practicable and as it shall determine to be equitable, and the balance of the cash amount credited to the Account of each Participant under the Plan shall be returned to him or her as promptly as administratively practical.
9.8 If a Participant or former Participant sells, transfers, or otherwise makes a disposition of Shares purchased pursuant to an option granted under the Plan within two years
after the date such option is granted or within one year after the Purchase Date to which such option relates, or if the Participant or former Participant otherwise has a taxable event relating to Shares purchased under the Plan, and if such Participant or former Participant is subject to U.S. federal income tax, then such Participant or former Participant shall notify the Company or Participating Subsidiary in writing of any such sale, transfer or other disposition within 10 days of the consummation of such sale, transfer or other disposition, and shall remit to the Company or Participating Subsidiary or authorize the Company or Participating Subsidiary to withhold from other sources such amount as the Company may determine to be necessary to satisfy any federal, state or local tax withholding obligations of the Company or Participating Subsidiary. A Participant must reply to a written request, within 10 days of the receipt of such written request, from the Company, Participating Subsidiary, or Administrator regarding whether such a sale, transfer or other disposition has occurred.
The Administrator may from time to time establish rules and procedures (including but not limited to postponing delivery of Shares until the earlier of the expiration of the two-year or one-year period or the disposition of such Shares by the Participant) to cause the withholding requirements to be satisfied.
shall pay to the Participant or legal representative all amounts accumulated in the Participant's Account and held by the Participating Subsidiary at the time of termination of participation.
brokerage fees on the sale price applicable to participation in the Plan after the initial purchase of the Shares on the Purchase Date shall be charged to the Account or brokerage account of such Participant.
If the Plan is terminated, the Board may elect to terminate all outstanding options either prior to their expiration or upon completion of the purchase of Shares on the next Purchase Date, or may elect to permit options to expire in accordance with the terms of this Plan (and participation to continue through such expiration dates). If the options are terminated prior to expiration, all funds accumulated in Participants' Accounts as of the date the options are terminated shall be returned to the Participants as soon as administratively feasible.
any other law or are otherwise in the best interests of the Company. Any determination by the Company or its counsel in connection with any of the foregoing shall be final and binding on all parties.
If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares issued under the Plan is no longer required in order to comply with applicable securities or other laws, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing a like number of shares lacking such legend.
The Company may, but shall not be obligated to, register or qualify any securities covered by the Plan. The Company shall not be obligated to take any other affirmative action in order to cause the grant or exercise of any right or the issuance, sale, or deliver of Shares pursuant to the exercise of any right to comply with any law.
Executed this 30th day of October, 2000.
GARMIN LTD.
By: /s/ Min H. Kao
------------------------
Min H. Kao
Co-Chairman and Co-CEO
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GARMIN LTD.
EMPLOYEE STOCK PURCHASE PLAN
ADDENDUM FOR GARMIN (EUROPE) LTD. - UNITED KINGDOM
This Addendum to the Garmin Ltd. Employee Stock Purchase Plan (the "Plan") applies solely with respect to Garmin (Europe) Ltd. as a Participating Subsidiary in the Plan. To the extent the provisions of this Addendum are inconsistent with the provisions of the Plan, the provisions of this Addendum shall be deemed to constitute an amendment to the Plan solely as it applies to Garmin (Europe) Ltd. and its employees.
The provisions of this Addendum are as follows:
1. Eligibility to Participate. The exclusion provided in Section 5.2(b) shall not apply.
2. Exchange Rate. The amounts held in a Participant's account shall be converted from the British pound to United States dollars for the purpose of purchasing Common Stock pursuant to the exchange rate published in the Wall
Street Journal on the Purchase Date.
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Summary Consolidated Financial and Other Data," "Selected Consolidated Financial and Other Data" and "Experts" and to the use of our reports dated February 26, 2000 (except for Note 1, as to which the date is September 22, 2000, and Note 13, as to which the date is _______), in Amendment No. 2 to the Registration Statement (Form S-1 No. 333-45514) and related Prospectus of Garmin Ltd. dated November 2, 2000.
Ernst & Young LLP
Kansas City, Missouri
The foregoing consent is in the form that will be signed upon the completion of the 1.12379256 for 1 common stock split as described in Note 13 to the consolidated financial statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
November 1, 2000
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