<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
SIGMA CIRCUITS, INC.
(Name of Subject Company)
SIGMA CIRCUITS, INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class of Securities)
826559106
(CUSIP Number of Class of Securities)
------------------------
B. KEVIN KELLY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
(408) 727-9169
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person filing statement)
COPIES TO:
MARK P. TANOURY
COOLEY GODWARD LLP
3000 SAND HILL ROAD
BUILDING 3, SUITE 230
MENLO PARK, CALIFORNIA 94025
(650) 843-5000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Sigma Circuits, Inc., a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 393 Mathew Street, Santa Clara, California 95050. The title of
the class of equity securities to which this statement relates is the Company's
Common Stock, par value $.001 per share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer (the "Offer") described in the
Tender Offer Statement on Schedule 14D-1, dated June 5, 1998 (as amended or
supplemented, the "Schedule 14D-1"), filed by Tyco International Ltd., a Bermuda
company ("Tyco"), and its indirect wholly owned subsidiary, T10 Acquisition
Corp., a Delaware corporation (the "Purchaser"), with the Securities and
Exchange Commission (the "Commission"), relating to an offer by the Purchaser to
purchase all the issued and outstanding Shares at a price of $10.50 per Share,
net to the seller in cash, without interest thereon (the "Offer Price"), upon
the terms and subject to the conditions set forth in the Purchaser's Offer to
Purchase, dated June 5, 1998, and the related Letter of Transmittal (together
the "Offer Documents").
The Offer Documents indicate that the principal executive offices of the
Purchaser are located at One Tyco Park, Exeter, New Hampshire 03833, and of Tyco
are located at The Gibbons Building, 10 Queens Street, Suite 301, Hamilton,
Bermuda HM11. The Offer is being made pursuant to the Agreement and Plan of
Merger, dated as of June 1, 1998 (the "Merger Agreement"), among the Company,
Tyco and the Purchaser. A copy of the Merger Agreement is filed as Exhibit 2 to
this Schedule 14D-9, and is incorporated herein by reference in its entirety.
Pursuant to the Merger Agreement, as soon as practicable following the
consummation of the Offer and the satisfaction or waiver of certain conditions,
the Purchaser will be merged with and into the Company (the "Merger"), with the
Company continuing as the surviving corporation (the "Surviving Corporation").
In the Merger, each Share outstanding at the Effective Time (as defined below)
(other than Shares held in the treasury of the Company, Shares owned by Tyco,
the Purchaser or any other subsidiary of Tyco or shares held by stockholders who
properly exercise their dissenters' rights under the Delaware General
Corporation Law ("Delaware Law" or "DGCL")) will, by virtue of the Merger and
without any action by the holder thereof, be converted into the right to receive
$10.50 per Share, net to the Seller in cash, without interest thereon (the
"Merger Consideration"), upon the surrender of the certificate formerly
representing such Share ("Certificate"). The Merger Agreement is summarized in
Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors
or affiliates are described in the Company's Proxy Statement for the 1997 Annual
Meeting of Stockholders filed as Exhibit 1 to this Schedule 14D-9 under the
headings "Security Ownership of Certain Beneficial Owners and Management,"
"Executive Compensation," "Stock Option Grants and Exercises," "Option Grants in
Last Fiscal Year," "Change-in-Control Severance Agreements," and "Certain
Transactions."
The Company also maintains a bonus program for its executive officers based
on achievement of annual financial performance targets and other management
objectives established annually, but subject to adjustment by the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee"). During fiscal 1998 the Company has paid out approximately $215,000
in bonuses to the Company's executive officers and may pay out an additional
$120,000 in the remainder of fiscal 1998 ending June 27, 1998.
1
<PAGE>
On December 19, 1997, the Compensation Committee granted to B. Kevin Kelly,
President, Chief Executive Officer and a Director of the Company, and Philip
Bushnell, Senior Vice President, Finance and Administration, Secretary, CFO and
a Director of the Company, options to purchase 100,000 and 50,000 shares,
respectively, of the Company's common stock for $6.875 per share (the fair
market value of the common stock on the date of grant) under the Company's
Amended and Restated 1997 Stock Option Plan (the "1997 Plan").
Under the terms of the Company Option Plans, all unvested options
outstanding upon a Change in Control of the Company (as defined in the Company
Option Plans) will become fully exercisable unless they are assumed by the
person acquiring control of the Company. Under the terms of the Merger, none of
the options outstanding under the Company Option Plans will be assumed by the
Purchaser or Tyco. As such, all such unvested options will be immediately and
fully vested upon effectiveness of the Merger.
In May 1998 the Board of Directors approved forgiveness of the principal and
accrued interest on certain loans extended to Mr. Kelly and Mr. Hardwick in
connection with their hiring, in the amounts of approximately $60,000 and
$50,000, respectively. Such forgiveness is contingent on the closing of the
Merger.
THE MERGER AGREEMENT
The following summary of the Merger Agreement is qualified in its entirety
by reference to the Merger Agreement, a copy of which is filed as Exhibit 2 to
this Schedule 14D-9. The Merger Agreement should be read in its entirety for a
more complete description of the matters summarized below. Capitalized terms
used in the following summary and not otherwise defined in this Schedule 14D-9
shall have the meanings set forth in the Merger Agreement.
THE OFFER. Pursuant to the Merger Agreement, the Purchaser has made the
Offer to purchase all outstanding Shares at $10.50 per Share in cash, without
interest, upon the terms and subject to the conditions set forth in the Offer
Documents. The Merger Agreement provides that the Purchaser will commence the
Offer and that, upon the terms and subject to the prior satisfaction or waiver
of the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The Merger Agreement provides that, without the
prior written consent of the Company, the Purchaser will not (i) impose
conditions to the Offer in addition to the Offer Conditions, (ii) modify or
amend the Offer Conditions or any other term of the Offer in a manner adverse to
the holders of Shares, (iii) waive or amend the Minimum Condition, (iv) reduce
the number of Shares subject to the Offer, (v) reduce the Per Share Amount, (vi)
except as provided in the following sentences, extend the Offer, if all of the
Offer Conditions are satisfied or waived, or (vii) change the form of
consideration payable in the Offer. The Merger Agreement provides that the
Purchaser may extend the Offer at any time, and from time to time, without the
consent of the Company (i) if at the then scheduled expiration date of the Offer
any of the conditions to the Purchaser's obligation to accept for payment and
pay for Shares shall not have been satisfied or waived, until such time as such
conditions are satisfied or waived; (ii) for any period required by any rule,
regulation, interpretation or position of the Commission or its staff applicable
to the Offer; or (iii), if all Offer Conditions are satisfied or waived but the
number of Shares tendered is less than 90% of the then outstanding number of
Shares, for an aggregate period of not more than 10 business days (for all such
extensions) beyond the latest expiration date that would be permitted under
clause (i) or (ii) of this sentence.
CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer or the
Merger Agreement, the Purchaser shall not be required to accept for payment or
pay for, subject to any applicable rules and regulations of the Commission,
including Rule 14e-1(c) of the Exchange Act, any Shares not theretofore accepted
for payment or paid for and may terminate or amend the Offer as to such Shares,
unless (i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer that number of Shares which would represent at least a
majority of the outstanding Shares on a fully diluted basis (the
2
<PAGE>
"Minimum Condition"), and (ii) any waiting period under the HSR Act applicable
to the purchase of Shares pursuant to the Offer shall have expired or been
terminated; PROVIDED, HOWEVER, that Tyco and Purchaser shall extend the
expiration date of the Offer from time to time until July 31, 1998 if, when and
as necessary to satisfy any request for additional information by the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
or the Federal Trade Commission (the "FTC") pursuant to the HSR Act.
Furthermore, notwithstanding any other term of the Offer of the Merger
Agreement, the Purchaser shall not be required to accept for payment or, subject
as aforesaid, to pay for any Shares not theretofore accepted for payment or paid
for, and may terminate or amend the Offer, if at any time on or after the date
of the Merger Agreement and before the acceptance of such Shares for payment or
the payment therefor, any of the following conditions exist or shall occur and
remain in effect:
(a) there shall have been instituted, pending or threatened any action
or proceeding by any court or other Governmental Entity, which (i) seeks to
challenge the acquisition by Tyco or the Purchaser (or any of its
affiliates) of Shares pursuant to the Offer, restrain, prohibit or delay the
making or consummation of the Offer or the Merger, or obtain damages in
connection therewith in an amount which would reasonably be expected to have
a Material Adverse Effect, (ii) seeks to make the purchase of or payment for
some or all of the Shares pursuant to the Offer or the Merger illegal, (iii)
seeks to impose limitations on the ability of Tyco (or any of its
affiliates) effectively to acquire or hold, or to require Tyco or the
Company or any of their respective affiliates or subsidiaries to dispose of
or hold separate, any portion of the assets or the business of Tyco and its
affiliates or any material portion of the assets or the business of the
Company, (iv) seeks to impose material limitations on the ability of Tyco
(or its affiliates) to exercise full rights of ownership of the Shares
purchased by it, including, without limitation, the right to vote the Shares
purchased by it on all matters properly presented to the stockholders of the
Company, or (v) seeks to restrict any future business activity by Tyco (or
any of its affiliates) in the United States electronic interconnect
industry, including, without limitation, requiring the prior consent of any
person or entity (including any Governmental Entity) to future transactions
by Tyco (or any of its affiliates); or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer of the Merger, by any statute, rule,
regulation, judgment, decree, order or injunction, that is reasonably likely
to directly or indirectly result in any of the consequences referred to
clauses (i) through (v) of subsection (a) above; or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
(d) any of the representations and warranties made by the Company in the
Merger Agreement (1) shall not have been true and correct in all material
respects when made, or (2) other than where the failure to be true and
correct will not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect, shall thereafter have ceased to be true
and correct in all material respects as if made as of such later date (other
than representations and warranties made as of a specified date), or the
Company shall not in all material respects have performed in a timely manner
each obligation and agreement and complied in a timely manner with each
covenant to be performed and complied with by it under the Merger Agreement;
or
(e) the Company's Board of Directors shall have modified or amended its
recommendation of the Offer in any manner adverse to Tyco or shall have
withdrawn its recommendation of the Offer, or shall have recommended
acceptance of any Acquisition Proposals or shall have resolved to do any of
the foregoing; or
(f) (i) any corporation, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) (a "person"), other than Tyco and the
Purchaser, shall have acquired beneficial ownership of more than 20% of the
outstanding Shares, or shall have been granted any options or rights,
conditional or otherwise, to acquire a total of more than 20% of the
outstanding Shares; (ii) any new group shall have been formed which
beneficially owns more than 20% of the outstanding Shares; or (iii) any
3
<PAGE>
person (other than Tyco or one or more of its affiliates) shall have entered
into an agreement in principle or definitive agreement with the Company with
respect to a tender or exchange offer for any Shares or a merger,
consolidation or other business combination with or involving the Company;
or
(g) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange, the American Stock Exchange or The Nasdaq Stock Market, (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (iii) a
commencement or escalation of a war, armed hostility or other international
or national calamity directly involving the United States, (iv) any material
limitation (whether or not mandatory) by any Governmental Equity on, or any
other event that is reasonably likely materially and adversely to affect the
extension of credit by banks or other lending institutions in the United
States, (v) any decline in either the Dow Jones Industrial Average or the
Standard and Poor's 500 Index by an amount in excess of 15% measured from
the close of business on the date of the Merger Agreement, or (vi) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof; or
(h) any change, development, effect or circumstance shall have occurred
or be threatened that would reasonably be expected to have a Material
Adverse Effect; or
(i) the Company shall commence a case under any chapter of Title XI of
the United States Code or any similar law or regulation; or a petition under
any chapter of Title XI of the United States Code or any similar law or
regulation is filed against the Company which is not dismissed within 10
business days.
Notwithstanding anything to the contrary contained in this section or any
other provision of the Offer, the Purchaser shall pay for or return tendered
Shares promptly after expiration, termination or withdrawal of the Offer, and
the occurrence or continuation of any of the circumstances referred to in the
conditions described in this section following such expiration, termination or
withdrawal shall not affect the obligation of the Purchaser promptly to pay for
or return all Shares duly tendered and not theretofore withdrawn in accordance
with the terms of the Offer.
The foregoing conditions are for the sole benefit of Tyco and the Purchaser
and may be asserted by Tyco or the Purchaser regardless of the circumstances
giving rise to any such condition and may be waived by Tyco or the Purchaser, in
whole or in part, at any time and from time to time, in the sole discretion of
Tyco. The failure by Tyco or the Purchaser at any time to exercise any of the
foregoing rights will not be deemed a waiver of any right, the waiver of such
right with respect to any particular facts or circumstances will not be deemed a
waiver with respect to any other facts or circumstances, and each right will be
deemed an ongoing right which may be asserted at any time and from time to time.
THE MERGER. The Merger Agreement provides that, upon the terms and subject
to the conditions of the Merger Agreement, and in accordance with the DGCL, the
Purchaser shall be merged with and into the Company. Following the Merger, the
separate corporate existence of the Purchaser will cease and the Company will
continue as the Surviving Corporation and will succeed to and assume all the
rights and obligations of the Purchaser in accordance with the DGCL. Unless
otherwise determined by Tyco prior to the Effective Time, the Certificate of
Incorporation and Bylaws of the Purchaser, as in effect immediately prior to the
Effective Time, will be the Certificate of Incorporation and Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
CONVERSION OF SHARES. At the Effective Time, each Share issued and
outstanding immediately prior thereto (other than Shares held by the Company as
treasury Shares, Shares owned by Tyco, the Purchaser or any wholly owned
subsidiary of Tyco and Dissenting Shares) will be converted into the right to
receive from Tyco the Merger Consideration upon the surrender of the certificate
formerly representing such Share. Each Share so converted will no longer be
outstanding and will automatically be cancelled and retired.
4
<PAGE>
STOCK OPTIONS, WARRANTS AND NOTES. Each option outstanding at the Effective
Time to purchase Shares (a "Stock Option") granted under the Company's (i)
Amended and Restated 1997 Stock Option Plan, (ii) 1994 Non-employee Director's
Stock Option Plan, and (iii) any other option plan or agreement (collectively,
the "Company Option Plans") shall be converted into the right to receive, upon
the exercise of such Stock Option in accordance with the terms thereof,
including the provisions providing for full vesting of all unvested shares in
the event that such options are not assumed following a Change-in-Control (as
defined in the Company Option Plans), an amount of cash equal to the Merger
Consideration multiplied by such number of shares of Common Stock underlying
such option.
The warrant expiring June 10, 1999 to purchase 200,000 Shares at a price of
$3.30 per share (the "Warrant") shall be exercisable, from and after the
Effective Time and in accordance with the terms thereof, for an amount of cash
equal to the Merger Consideration multiplied by 200,000.
The $1.8 million 10.0% convertible subordinated note due 2001 (the "Note")
shall be convertible, from and after the Effective Time and pursuant to the
terms thereof, for an amount of cash equal to the Merger Consideration
multiplied by such number of Shares as the Note was convertible into prior to
the Effective Time assuming that the Note was fully convertible at that time.
DISSENTING SHARES. The Merger Agreement provides that, if required by the
DGCL, Dissenting Shares will not be exchangeable for the right to receive the
Merger Consideration, and holders of such Dissenting Shares will be entitled to
receive payment of the appraised value of such Dissenting Shares in accordance
with the provisions of Section 262 of the DGCL unless and until such holders
fail to perfect or effectively withdraw or lose their rights to appraisal and
payment under the DGCL. If, after the Effective Time, any holder fails to
perfect or effectively withdraws or loses such right, such Dissenting Shares
will thereupon be treated as if they had been converted into and have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon.
SHORT-FORM MERGER. The Merger Agreement provides that in the event that the
Purchaser, or any other direct or indirect subsidiary of Tyco, acquires at least
90% of the outstanding Shares, Tyco, the Purchaser and the Company will take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Tyco and the
Purchaser relating to the Company including, among other things, organization
and qualification, Certificate of Incorporation and Bylaws, capitalization,
authority relative to the Merger Agreement, contracts, the absence of conflicts,
required filings and consents, premises, compliance with law, filings with the
Commission, financial statements, absence of certain changes or events,
undisclosed liabilities, litigation, employee benefit matters, labor matters,
limitation on business conduct, title to property, real property, taxes,
environmental matter, intellectual property, insurance, accounts receivable,
customers, interested party transactions, the absence of certain payments, the
applicability of the Delaware takeover statute, the opinion of J.C. Bradford,
brokers and full disclosure.
Tyco and the Purchaser have also made customary representations and
warranties to the Company relating to Tyco and the Purchaser, including, without
limitation, organization and qualification, authority relative to the Merger
Agreement, the absence of conflicts, required filings and consent, brokers, the
activities of Purchaser, the availability of sufficient funds to consummate the
Offer and the Merger and full disclosure.
COVENANTS RELATING TO THE CONDUCT OF BUSINESS. Pursuant to the Merger
Agreement, the Company has agreed that, except as otherwise expressly
contemplated by the Merger Agreement or consented to in advance by Tyco (which
consent is in writing or subsequently confirmed in writing), which consent shall
not be unreasonably withheld, it will in all material respects, carry on its
business in, and not enter into any
5
<PAGE>
material transaction other than in accordance with, the regular and ordinary
course and, to the extent consistent therewith, use its reasonable best efforts
to preserve intact its current business organization, keep available the
services of its current officers and employees and preserve its relationships
with customers, suppliers and others having business dealings with it.
The Company has agreed that except as expressly contemplated by the Merger
Agreement it will not, without the prior consent of Tyco (which consent is in
writing or subsequently confirmed in writing), which consent shall not be
unreasonably withheld: (a) (i) declare, set aside or pay any dividends on, or
make any other actual, constructive or deemed distributions in respect of, any
of its capital stock, or otherwise make any payments to stockholders of the
Company in their capacity as such, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities; (b) issue, deliver, sell, pledge,
dispose of or otherwise encumber any shares of its capital stock, any other
voting securities or equity equivalent or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible securities or equity equivalent (other than the issuance of
Shares during the period from the date of the Merger Agreement through the
Effective Time upon the exercise of options or warrants or other rights to
purchase Shares outstanding on the date of the Merger Agreement in accordance
with their current terms); (c) amend or change its Certificate of Incorporation
or Bylaws; (d) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets, in each case that are material, individually or in the
aggregate, to the Company (e) sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets that are material,
individually or in the aggregate, to the Company; (f) make any commitment or
enter into any contract or agreement except (i) in the ordinary course of
business consistent with past practice or (ii) for capital expenditures to be
made in fiscal 1998 as identified in a capital expenditure budget previously
delivered to Tyco; (g) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except in the ordinary course of business consistent with
past practice under financing arrangements in existence on the date of the
Merger Agreement, or make any loans, advances or capital contributions to, or
investments in, any other person, other than in the ordinary course of business
consistent with past practice; (h) except as may be required as a result of a
change in law or pursuant to generally accepted accounting principles, change
any of the accounting principles or practices used by the Company; (i) make any
tax election or settle or compromise any material income tax liability; (j) pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities reflected or reserved against in, or contemplated
by, the financial statements (or the notes thereto) of the Company or incurred
in the ordinary course of business consistent with past practice; (k) increase
in any manner the compensation or fringe benefits of any directors, officers or
other key employees of the Company or pay any pension or retirement allowance
not required by an existing plan or agreement to any such employees, or become a
party to, amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee, other than increases in the compensation of employees
who are not officers or directors of the Company made in the ordinary course of
business consistent with past practice, or (except pursuant to the terms of
preexisting plans or agreements) accelerate the vesting of any compensation or
benefit; (l) except in connection with the exercise of its fiduciary duties by
the Board of Directors of the Company, waive, amend or allow to lapse any term
or condition of any confidentiality or "standstill" agreement to which the
Company or any subsidiary is a party; or (m) take, or agree to take, any of the
foregoing actions or any action which would make any of the
6
<PAGE>
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect at or prior to the Effective Time of the Merger.
COMPANY STOCKHOLDER APPROVAL. Pursuant to the Merger Agreement, the Company
will, if required by applicable law, call a meeting of its stockholders (the
"Stockholder Meeting") as soon as practicable following the purchase of Shares
pursuant to the Offer for the purpose of voting upon the Merger. The Company
will recommend to its stockholders the approval of the Merger through its Board
of Directors and will use its reasonable best efforts to obtain stockholder
approval of the Merger. In addition, if required by applicable law, the Company
has agreed to prepare and file with the Commission, as soon as practicable
following the expiration of the Offer, a proxy statement to be sent to the
stockholders of the Company in connection with the Stockholders Meeting, or, if
applicable, an information statement, satisfying all requirement under the
Exchange Act.
ACQUISITION PROPOSALS. The Company has agreed in the Merger Agreement, from
the date of the Merger Agreement and prior to the Effective Time, (a) the
Company will not, and the Company will direct and use its reasonable best
efforts to cause its officers, directors, employees and authorized agents and
representatives (including any investment banker, attorney or accountant
retained by it) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including any proposal or offer to its stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of,
any equity securities (except pursuant to the exercise of outstanding opinions,
warrants or other rights) or all or any significant portion of the assets of,
the Company (any such proposal or offer being referred to as an "Acquisition
Proposal") or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person or entity
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any person or entity conducted previously with
respect to any of the foregoing and will take the necessary steps to inform the
person or entity referred to above of the obligations undertaken pursuant to
this provision; and (c) that it will notify Tyco immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, the Company (but the Company shall not be required to disclose the
identity of the other party or the terms of its proposals); provided, however,
that the foregoing provisions will not prohibit the Board of Directors of the
Company from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal in writing to engage in an Acquisition Proposal transaction which the
Board of Directors of the Company in good faith determines represents a
financially superior transaction for the stockholders of the Company as compared
to the Offer and the Merger if, and only to the extent that, (A) the Board of
Directors determines, after consultation with outside counsel of national
reputation (which may be the Company's regularly engaged counsel) in corporate
and securities matters as the Company shall select ("Company Counsel"), that
failure to take such action would be inconsistent with the compliance by the
Board of Directors with its fiduciary duties to stockholders imposed by law, (B)
prior to or concurrently with furnishing such information to, or entering into
discussions or negotiations with, such a person or entity, the Company provides
written notice to Tyco to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such a person or entity, and (C)
the Company keeps Tyco informed of the status (excluding, however, the identity
of such person or entity) of any such discussions or negotiations; and (ii) to
the extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal. Nothing contained in the foregoing
provisions will (x) permit the Company to terminate the Merger Agreement (except
as provided below under "Termination"), (y) permit the Company to enter into any
agreement with respect to an Acquisition Proposal during the term of the Merger
Agreement, or (z) affect any other obligation of any party under the Merger
Agreement.
7
<PAGE>
ANNUAL MEETING. The Company has agreed pursuant to the Merger Agreement
that it will defer and/or postpone the holding of its 1998 annual meeting of
stockholders indefinitely pending the consummation of the Merger, unless the
Company is otherwise required to hold such meeting by an order from a court of
competent jurisdiction.
STOCK PLANS AND WARRANTS. The Company has agreed pursuant to the Merger
Agreement that, prior to the Effective Time, it will take all such actions as
shall be necessary to effect the provisions of the Merger Agreement relating to
the Company Option Plans, the Warrant and the Note. The Company has also agreed
to take such action as is necessary to cause the ending date of the then current
offering period under the Company's 1994 Employee Stock Purchase Plan to be
prior to the Effective Time and to terminate such plan as of the Effective Time.
The Company also agreed to give written notice of the Merger to the holder of
the Warrant at least 20 days prior to the Effective Time or by such other time
required pursuant to the terms thereof.
REASONABLE BEST EFFORTS. Upon the terms and subject to the conditions set
forth in the Merger Agreement, each of the parties thereto has agreed to use its
reasonable best efforts to take, or cause to be taken, all actions (including
entering into transactions), and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger, and the other transactions contemplated by the Merger
Agreement, including (a) making its respective filings (including under the HSR
Act) and thereafter making any other required submission with respect to the
Offer and the Merger, (b) obtaining all additional necessary actions or
non-actions, waivers, consents and approvals from any applicable Governmental
Entity and making all necessary registrations and filings (including filings
with Governmental Entities) and taking all reasonable steps as may be necessary
to obtain an approval or waiver from any Governmental Entity, (c) obtaining all
necessary consents, approvals or waivers from third parties, (d) defending any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging the Merger Agreement or the consummation of the transactions
contemplated thereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity vacated or
reversed, and (e) executing and delivering any additional instruments necessary
to consummate the transactions contemplated by the Merger Agreement. Neither
Tyco, Purchaser nor the Company, however, will be required to take any action
pursuant to clauses (b), (c), (d) or (e) above that would in any event have a
Material Adverse Effect, in the case of the Company, or any similar effect on
Tyco and/or its subsidiaries. In addition, neither Tyco, Purchaser nor any of
their affiliates will be required to enter into any transaction or take any
other action that would require a waiver of, or that is inconsistent with
satisfaction of, the conditions of the Offer set forth in clauses (a)(iii), (iv)
or (v) of the section above entitled "Conditions of the Offer."
PUBLIC ANNOUNCEMENTS. The Merger Agreement provides that Tyco, the
Purchaser and the Company will consult with each other before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated by the Merger Agreement, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by applicable law or by obligations pursuant to any
listing agreement with any national securities exchange.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that, from and
after the Effective Time, the Surviving Corporation will indemnify and hold
harmless all past and present officers and directors (the "Indemnified Parties")
of the Company and of its subsidiaries to the full extent such persons may be
indemnified by the Company pursuant to Delaware law, the Company's Certificate
of Incorporation and Bylaws as in effect from time to time for acts and
omissions occurring at or prior to the Effective Time and has agreed to advance
reasonable litigation expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that such
persons provide the requisite affirmations and undertaking, as set forth in
Section 145(e) of the DGCL. Tyco has agreed to provide, or cause the Surviving
Corporation to provide, for a period of not less than six years after the
8
<PAGE>
Effective Time, the Company's current directors and officers an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the Effective Time (the "D&O Insurance") that is no less favorable than the
Company's existing policy or, if substantially equivalent insurance coverage is
unavailable, the best available coverage; PROVIDED, HOWEVER, that Tyco and the
Surviving Corporation will not be required to pay an annual premium for the D&O
Insurance in excess of 200% of the annual premium currently paid by the Company
for such insurance, but in such case will purchase as much coverage as possible
for such amount. Tyco has agreed to absolutely and unconditionally guarantee the
performance of the Surviving Corporation under these provisions.
BOARD REPRESENTATION. The Merger Agreement provides that, promptly upon the
purchase of Shares pursuant to the Offer, Tyco will be entitled to designate
such number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Tyco, subject to compliance with Section
14(f) of the Exchange Act, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of Shares purchased by the Purchaser bears to the
number of Shares outstanding. The Company has agreed that, upon request by Tyco,
it will promptly increase the size of the Board of Directors and/or exercise its
reasonable best efforts to secure the resignations of such number of directors
as is necessary to enable Tyco's designees to be elected to the Board of
Directors and will cause Tyco's designees to be so elected. The Company has
agreed to take, at its expense, all actions required by Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder to effect any such election
and shall include in the Schedule 14D-9 or otherwise timely mail to its
stockholders the information required to be disclosed pursuant thereto. Tyco
will supply to the Company in writing and be solely responsible for any
information with respect to itself and its nominees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1.
Pursuant to the Merger Agreement, following the election of designees of the
Purchaser, prior to the Effective Time, any amendment of the Merger Agreement or
the Certificate of Incorporation or Bylaws of the Company, any termination of
the Merger Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or other acts of Tyco or the
Purchaser or waiver of any of the Company's rights or obligations under the
Merger Agreement will require the concurrence of a majority of the directors of
the Company then in office who were directors as of the date of the Merger
Agreement or persons designated by such directors and neither were designated by
Tyco nor are employees of the Company ("Continuing Directors"). Prior to the
Effective Time, the Company and Tyco will use all reasonable efforts to ensure
that the Company's Board of Directors at all times includes at least three
Continuing Directors.
If the Purchaser acquires at least a majority of the Shares, it will have
sufficient voting power to approve the Merger, even if no other stockholder
votes in favor of the Merger.
CONDITIONS PRECEDENT TO MERGER. The respective obligations of Tyco, the
Purchaser and the Company to effect the Merger are subject to the fulfillment at
or prior to the Effective Time of the following conditions: (a) if required by
applicable law, the Merger Agreement shall have been approved by the requisite
vote of the stockholders of the Company; and (b) no court or other Governmental
Entity shall have enacted, issued, promulgated, enforced or entered any law,
rule, regulation, executive order, decree or injunction which prohibits or has
the effect of prohibiting the consummation of the Merger; PROVIDED, HOWEVER, the
Company, Tyco and the Purchaser have agreed that, prior to invoking this
provision, they shall use their reasonable best efforts (subject to the other
terms and conditions of the Merger Agreement) to have any such order, decree or
injunction vacated.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after any approval by the stockholders of
the Company:
A. by mutual written consent of Tyco and the Company;
9
<PAGE>
B. by the Company if: (i) the Offer has not been timely commenced
(except as a result of actions or omissions by the Company); or (ii) there
is an Acquisition Proposal which the Board of Directors of the Company in
good faith determines represents a financially superior transaction for the
stockholders of the Company as compared to the Offer and the Merger, and the
Board of Directors of the Company determines, after consultation with
Company Counsel, that failure to terminate the Merger Agreement would be
inconsistent with the compliance by the Board of Directors with its
fiduciary duties to stockholders imposed by law; PROVIDED, HOWEVER, that
such right to terminate the Merger Agreement shall not be available (1) if
the Company has breached in any material respect its obligations concerning
Acquisition Proposals or (2) if, prior to or concurrently with any purported
termination pursuant to this clause, the Company shall not have paid the
fees and expenses contemplated under the provisions set forth below under
"Fees and Expenses"; or (iii) any representation or warranty of Tyco or the
Purchaser shall not have been true and correct in all material respects as
if made at such later date; or (iv) Tyco or the Purchaser fails to comply in
any material respect with any of its material obligations or covenants
contained in the Merger Agreement, including the obligation of the Purchaser
to purchase Shares pursuant to the Offer;
C. by Tyco if (i) the Board of Directors of the Company shall have
failed to recommend, or shall have withdrawn, modified or amended in any
material respect its approval or recommendations of the Offer or the Merger
or shall have resolved to do any of the foregoing; or (ii) any
representation or warranty of the Company shall not have been true and
correct (1) in all material respects when made or (2) other than where the
failure to be true and correct would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect, shall
have ceased at any later date to be true and correct in all material
respects as if made at such later date, except that the right to terminate
the Merger Agreement pursuant to this clause shall not be available to Tyco
if the Purchaser or any affiliate of the Purchaser shall acquire Shares
pursuant to the Offer; or (iii) the Company shall have failed to comply in
any material respect with any of its material obligations or covenants
contained in the Merger Agreement, except that the right to terminate the
Merger Agreement pursuant to this clause shall not be available to Tyco if
the Purchaser or any affiliate of the Purchaser shall acquire Shares
pursuant to the Offer; or
D. by either Tyco or the Company if: (i) either (x) as the result of the
failure of the Minimum Condition or any of the other Offer Conditions, the
Offer shall have terminated or expired in accordance with its terms without
Purchaser having purchased any Shares, or (y) the Offer shall not have been
consummated on or before October 31, 1998; PROVIDED, HOWEVER, that the right
to terminate this Agreement pursuant to this clause shall not be available
to any party whose failure to fulfill any of its obligations under this
Agreement results in the failure of any such condition; or (ii) any court of
competent jurisdiction or any governmental, administrative or regulatory
authority, agency or body shall have issued an order, decree or ruling or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
nonappealable.
FEES AND EXPENSES. Except as described in the following sentences, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with the Merger Agreement and the transactions contemplated thereby shall be
paid by the party incurring such costs and expenses. The Company has agreed in
the Merger Agreement that, if the Merger Agreement is terminated pursuant to:
(i) clause D(i) set forth above under "Termination" and at the time of such
termination (1)(x) the Offer has remained open for a minimum of 20 business
days, (y) the Minimum Condition has not been satisfied and (z) an Acquisition
Proposal existed during such 20 day period, or (2) at the time of such
termination any person, entity or group (as defined in Section 13(d)(3) of the
Exchange Act) (other than Tyco or any of its affiliates) shall have become the
beneficial owner of more than 20% of the outstanding Shares and such person,
entity or group (or any affiliate of such person, entity or group) thereafter
(x) shall make an Acquisition Proposal at a price per share of at least $10.50,
and, in the case of a consensual transaction
10
<PAGE>
with the Company, shall substantially have negotiated the terms thereof, at any
time on or prior to the date which is six months after such termination of the
Merger Agreement, and (y) shall consummate such Acquisition Proposal at any time
on or prior to the date which is one year after termination of Merger Agreement,
in the case of a consensual transaction, or six months after termination of the
Merger Agreement, in the case of a non-consensual transaction, in each case with
a value per share of Common Stock of at least $10.50 (with appropriate
adjustments for reclassification of capital stock, stock dividends, stock
splits, reverse stock splits and similar events); (ii) clause B(ii) set forth
above under "Termination"; (iii) clause C(i) set forth above under
"Termination"; or (iv) clause C(iii) set forth above under "Termination," the
Company will pay to Tyco (such payment, with respect to clause (iv) above only,
to be Tyco's sole and exclusive remedy), the sum of (a) $2.0 million, plus (b)
the amount of all documented out-of-pocket costs and expenses incurred by Tyco,
the Purchaser or their affiliates in connection with the Merger Agreement or the
transactions contemplated thereby in an aggregate amount not to exceed $150,000.
Such payment will be made as promptly as practicable but in no event later than
five business days following termination of the Merger Agreement pursuant to the
immediately preceding sentence, or, in the case of clause (v) of the immediately
preceding sentence, upon consummation of such Acquisition Proposal and will be
made by wire transfer of immediately available funds to an account designated by
Tyco. The Company further agrees that if the Merger Agreement is terminated
pursuant to clause C(ii)(1) set forth above under "Termination," the Company
shall pay to Tyco the amount of all documented out-of-pocket costs and expenses
incurred by Tyco, the Purchaser or their affiliates in an aggregate amount not
to exceed $150,000 in connection with the Merger Agreement or the transactions
contemplated hereby.
THE STOCKHOLDER AGREEMENT
As an inducement to Tyco and the Purchaser entering into the Merger
Agreement with the Company, certain executive officers and directors of the
Company (the "Stockholders"), who beneficially own 458,146 issued and
outstanding Shares, constituting approximately 7.2% of the Shares on a fully
diluted basis (approximately 21.9% of the Shares on a fully diluted basis
including 942,219 Shares issuable to them upon the exercise of options and other
rights to acquire Shares) and other rights to acquire Shares, have entered into
a Stockholder Agreement (the "Stockholder Agreement") with Tyco and the
Purchaser, pursuant to which they have agreed to tender their Shares in the
Offer.
The following summary of certain provisions of the Stockholder Agreement, a
copy of which is filed as an exhibit to this Schedule 14D-9, is qualified in its
entirety by reference to the text of the Stockholder Agreement.
AGREEMENT TO TENDER. Each of the Stockholders has agreed to tender its
Shares, whether held now or acquired any time prior to the expiration or
termination of the Offer, in the Offer and not to withdraw any Shares so
tendered unless the Offer (i) is withdrawn in accordance with the terms of the
Merger Agreement or (ii) expires without such Shareholder's Shares being
purchased and the conditions set forth in Section 15 have not been satisfied or
waived by Tyco or the Purchaser. In connection therewith, the Company has agreed
with, and covenanted to, Tyco that the Company will not register the transfer of
any certificate or agreement representing any Stockholder's Shares, unless such
transfer is made to Tyco or the Purchaser or otherwise in compliance with the
Stockholder Agreement.
GRANT OF IRREVOCABLE PROXY. Each of the Stockholders has irrevocably
granted to, and appointed, Tyco and individuals designated by Tyco as such
Stockholder's proxy and attorney-in-fact, to vote such Stockholders' Shares, or
grant a consent or approval in respect of such Shares, at any meeting of
stockholders of the Company or at any adjournment thereof or in any other
circumstances upon which such Stockholders' vote, consent or other approval is
sought, against (i) any merger agreement or merger (other than the Merger
Agreement and the Merger), consolidation, combination, sale of substantial
assets, reorganization, joint venture, recapitalization, dissolution,
liquidation or winding up of or by the Company and (ii) any amendment of the
Company's Certificate of Incorporation or Bylaws or other proposal or
transaction (including any consent solicitation to remove or elect any directors
of the Company) involving the
11
<PAGE>
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify, or result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Company under or with respect to, the Offer, the Merger, the
Merger Agreement or any of the other transactions contemplated by the Merger
Agreement.
REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER AGREEMENTS. Each of the
Stockholders has made certain representations and warranties in the Stockholder
Agreement, including with respect to (i) ownership of his Shares, (ii) the
absence of liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or any other encumbrances on or in
respect of his Shares, and (iii) an acknowledgement of Tyco's reliance upon such
Stockholders' execution of the Stockholder Agreement in entering into, and
causing the Purchaser to enter into, the Merger Agreement. In addition, each of
the Stockholders has agreed not to (i) transfer, or consent to any transfer of,
any or all of such Stockholder's Shares or any interest therein (except as
contemplated by the Stockholder Agreement and except for certain charitable
contributions), (ii) enter into any contract, option or other agreement or
understanding with respect to any transfer of any or all of such Shares or any
interest therein, (iii) grant any proxy, power-of-attorney or other
authorization or consent in or with respect to such Shares, (iv) deposit such
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to such Shares or (v) take any other action that would in any way
restrict, limit or interfere with the performance of his obligations under the
Stockholder Agreement or the transactions contemplated thereby. The Stockholders
have also agreed not to, directly or indirectly, (i) solicit, initiate or
encourage the submission of any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, provided that the foregoing restrictions shall not
be applicable in any case to the extent that, pursuant to the Merger Agreement,
such restrictions would not be applicable to the Company.
TERMINATION. The Stockholder Agreement, and all rights and obligations
thereunder and the proxy provided therein, shall terminate upon the earlier of
(i) the date upon which the Merger Agreement is terminated in accordance with
its terms, (ii) with respect to each Stockholder, the date that Tyco or the
Purchaser shall have purchased and paid for the Shares of such Stockholder
pursuant to the terms of the Stockholder Agreement, or (iii) the date of the
termination or expiration of the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) The Company's Board of Directors has determined unanimously that the
Offer and the Merger are fair to and in the best interests of the stockholders
of the Company and recommends that all stockholders of the Company accept the
Offer and tender all their Shares pursuant to the Offer. This recommendation is
based in part upon an opinion (the "Fairness Opinion") received by the Company
from J.C. Bradford & Co., L.L.C. ("J.C. Bradford") that the consideration to be
received by the Company's stockholders in the Offer and the Merger is fair to
the stockholders from a financial point of view. No limitations were imposed by
the Board of Directors or management of the Company on J.C. Bradford with
respect to the investigations made, or the procedures followed by it, in
rendering the Fairness Opinion. For purposes of its opinion, J.C. Bradford
relied, without independent investigation, on the accuracy, completeness and
fairness of all financial and other information reviewed by it. The Fairness
Opinion contains a description of the factors considered the assumptions made
and the scope of review undertaken by J.C. Bradford in rendering its opinion.
THE FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY THE COMPANY FROM J.C. BRADFORD
IS ATTACHED AS SCHEDULE 1 TO THIS SCHEDULE 14D-9.
STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer at least that
number of Shares which would constitute a majority of the
12
<PAGE>
total number of outstanding Shares on a fully diluted basis (the "Minimum
Condition"). Pursuant to the Stockholder Agreement described above, beneficial
owners of approximately 7.2% of the shares on a fully diluted basis (21.9% on a
fully diluted basis, including 942,219 shares issuable to them upon the exercise
of options and other rights to acquire shares) of the total outstanding Shares
have agreed to tender all of their Shares pursuant to this Offer. Under Delaware
Law, the approval of the Board and the affirmative vote of the holders of a
majority of the outstanding Shares are required to approve the Merger.
Accordingly, if the Minimum condition is satisfied, the Purchaser will have
sufficient voting power to cause the approval of the Merger without the
affirmative vote of any other stockholder.
The Offer is scheduled to expire at 12:00 Midnight, New York City time on
July 2, 1998, unless the Purchaser, subject to certain limitations, elects to
extend the period of time for which the Offer is open. A copy of the press
release issued jointly by the Company and the Purchaser on June 2, 1998
announcing the Merger and the Offer is filed as Exhibit 5 to this Schedule 14D-9
and is incorporated herein by reference in its entirety.
(b) Since its initial public offering in early June 1994 (the "IPO"), the
Company has regularly reviewed acquisition prospects that would augment or
complement the Company's operations or offer significant growth opportunities.
In addition, the Company's Board of Directors and senior management have
reviewed the Company's strategic position in the electronic interconnect
industry, near and longer term prospects for that industry and the Company's
potential in it and strategic alternatives available to the Company, with a view
to maximizing stockholder value. As part of that review, the Company had
periodic discussions with representatives of J.C. Bradford, the Company's
financial advisor.
Among other discussions, representatives of senior management asked J.C.
Bradford to informally inquire as to whether any potential purchasers would be
interested in a possible acquisition of the Company. J.C. Bradford identified a
list of the most likely potential acquirers of the Company. Since June 1996,
either the Company or J.C. Bradford, or both, has contacted approximately 10
participants in the electronics industry to assess their interest in pursuing a
potential transaction with the Company.
In late March 1998, management of Tyco's Printed Circuit Group contacted the
Company to solicit its interest in a possible acquisition of the Company by
Tyco. On March 26, 1998, Tyco and the Company executed a confidentiality
agreement regarding the furnishing of non-public information concerning the
Company to Tyco. At the beginning of April 1998, representatives of Tyco visited
the Company's facilities and met with senior management to preliminarily review
the Company's operations. Several days later, Tyco conducted a preliminary
review of the Company's environmental compliance.
On April 24, 1998, representatives of Tyco met with the Company and J.C.
Bradford and presented a non-binding offer to acquire the Company in an all cash
transaction at a price of $12.50 per Share, subject to the negotiation of
definitive documentation, regulatory approvals and the approval of the
transaction by the Tyco Board. The offer was also subject to satisfactory
conclusion of Tyco's due diligence investigation of the Company's operations,
facilities and management. The Company responded with a counter offer to Tyco on
the afternoon of April 24, 1998, and, on April 27, 1998, Tyco offered an
increased price of $12.75 per Share, subject to the conditions of its offer of
April 24, 1998. On May 5, 1998, the Company granted to Tyco the exclusive right
through May 28, 1998, to negotiate for the acquisition of the Company.
From May 11 through May 14, 1998, representatives of Tyco met with the
Company's management and conducted a diligence review of the Company. This
review included discussion of the Company's results of operations for April and
the forecast for the balance of the Company's fourth quarter, both of which were
below the Company's projections previously furnished to Tyco.
At a meeting of the Board of Directors of Tyco held on May 18, 1998, Tyco
management made a presentation concerning the acquisition of the Company based
on the results of the completed due diligence investigation. The Board approved
the acquisition and authorized management to complete the transaction on terms
that in management's view were consistent with the results of due diligence.
13
<PAGE>
Based upon the results of Tyco's due diligence efforts and its review of the
Company's recent operating results and revised forecasts, on May 20, 1998, Tyco
called the Company and J.C. Bradford and proposed to acquire the Company for
$10.50 per Share in a cash tender offer followed by a merger at the same cash
price.
On May 22, 1998, the Board of Directors of the Company met to consider the
Tyco offer. J.C. Bradford delivered its preliminary oral opinion to the
Company's Board that, as of such date, the consideration proposed to be paid to
the stockholders of the Company pursuant to the Tyco offer was fair to the
stockholders from a financial point of view. Thereafter, the Company's Board of
Directors authorized the Company's officers and legal counsel to enter into
negotiations concerning a definitive merger agreement.
Representatives of Tyco and the Company and their respective counsel
conducted negotiations concerning the Merger Agreement during the week of May
26, 1998 and concluded such negotiations on June 1, 1998.
On May 29, 1998, the Company's Board of Directors met to consider the Tyco
offer and discuss the changes made to Merger Agreement from the draft previously
discussed by the Board. J.C. Bradford reconfirmed its oral opinion to the
Company's Board (subsequently confirmed in writing) that as of such date, the
consideration proposed to be paid to the stockholders of the Company pursuant to
the Tyco offer was fair to the stockholders from a financial point of view.
Thereafter, the Company's Board of Directors unanimously approved the Offer and
the Merger, determined to recommend the Offer and the Merger to the Company's
stockholders and authorized the officers of the Company to finalize and execute
definitive documentation for the transaction. A representative of the Company
then contacted Tyco to inform it of the Board's determination.
The Merger Agreement and the Stockholder Agreement were executed by the
respective parties on June 1, 1998. A joint press release announcing the
execution of the Merger Agreement was released by the parties prior to the
opening of the U.S. financial markets on June 2, 1998.
In arriving at its decision to approve the Offer and Merger and recommend
that the Company's stockholders accept the Offer and tender their shares, the
Board of Directors of the Company considered a number of factors, including,
without limitation, the following:
(i) the financial and other terms and conditions of the Offer and Merger
Agreement, including, without limitation, that the Company's fourth quarter
financial results, which are expected to be below prior projections, would
not, by the terms of the Merger Agreement, result in a Material Adverse
Effect that might otherwise permit Tyco to terminate the Offer;
(ii) the fact that the $10.50 per Share to be received by the Company's
stockholders in both the Offer and the Merger represents a substantial
premium over the historical trading prices for the Shares since the
Company's June 3, 1994 initial public offering of $2.75 per share (adjusted
for a subsequent stock split), including a premium over the closing market
price of $8.75 on the last full trading day prior to the approval and
execution of the Merger Agreement;
(iii) the written opinion of J.C. Bradford that the consideration to be
received by the Company's stockholders pursuant to the Offer and the Merger
is fair to such stockholders from a financial point of view. J.C. Bradford's
written opinion is attached to this Schedule 14D-9 as Schedule 1 and is
incorporated herein by reference. Such opinion should be read in its
entirety for a description of the procedures followed, assumptions and
qualification made, matters considered and limitations of the review
conducted by J.C. Bradford;
(iv) the presentation of J.C. Bradford to the Board of directors at its
meeting on May 22, 1998, as to various financial and other matters deemed
relevant to the Board of Directors consideration, including, among other
things, (a) an analysis of the Company's historical and projected operating
14
<PAGE>
performance, (b) a review of public information with respect to certain
other companies in the electronics interconnect business, (c) a review of
the historical stock prices and trading volumes of Shares, (d) a
hypothetical public market valuation of the Company, (e) an analysis of the
Offer Price as a multiple of various measures of the Company's operating
performance, and (f) the terms of the recent comparable business
combinations in the electronics interconnect industry in comparison with the
terms of the proposed transaction;
(v) the results of the process undertaken by the Company and J. C.
Bradford to identify and solicit indications of interest with respect to a
possible purchase of the Company, including the fact that no other potential
strategic partner expressed an interest in engaging in a business
combination or other strategic transaction that would likely be on terms as
favorable to the Company's stockholders as those of the Offer and Merger;
(vi) the fact that, to the extent required by fiduciary obligations of
the Board of Directors of the Company to the stockholders under Delaware
Law, the Company may terminate the Merger Agreement in order to approve a
tender offer or exchange offer for the Shares or other proposed business
combination by a third party on terms more favorable to the Company's
stockholders than the Offer and the Merger taken together, upon the payment
of a $2.0 million termination fee plus documented fees and expenses of Tyco
and the Purchaser up to $150,000 (see "Fees and Expenses" under the
description of the Merger Agreement above);
(vii) the effect of the Offer and the Merger on the Company's
relationships with its employees and customers;
(viii) the advice of the Company's legal advisors with respect to the
terms and conditions of the Merger Agreement, the Offer and the Merger; and
(ix) the Board of Directors' knowledge of the Company's business,
operations, prospects and competitive position and current trends in the
electronic interconnect industry, including the advantages in a competitive
environment of strategically aligning with a large, well-capitalized
company.
The Board of Directors recognized that consummation of the Offer and the
Merger will deprive current stockholders of the Company of the opportunity to
participate in future growth prospects of the Company and, therefore, in
reaching its conclusion to approve the Offer and the Merger, determined that
historical results of operations and future prospects of the Company are
adequately reflected in the $10.50 price per Share.
In light of all the factors set forth above, the Board of Directors approved
the Offer and the Merger. In view of the variety of factors considered in
connection with its evaluation, the Board of Directors did not assign relative
weight to the specific factors in reaching its decision or determine that any
factor was of particular importance. Rather, the Board of Directors viewed its
position and recommendations as being based on the totality of the information
presented to it and considered by it.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained J.C. Bradford to provide the Fairness Opinion in
connection with the proposed Offer and Merger. Pursuant to a letter agreement,
dated November 25, 1996, between the Company and J.C. Bradford, the Company has
agreed to pay J.C. Bradford a fee of $150,000 upon delivery of the Fairness
Opinion. In the even that J.C. Bradford is requested to deliver an updated
Fairness Opinion, the Company has agreed to pay an additional fee of $50,000. In
addition, upon the closing of the Merger, J.C. Bradford shall be paid a
transaction fee equal to $430,000. The fees paid in relation to the Fairness
Opinion will be credited against the transaction fee. The Company has also
agreed to indemnify J.C. Bradford and its directors, offices, agents, employees
and controlling persons for certain costs, expenses and liabilities to which it
may be subjected arising out of or related to its engagement.
15
<PAGE>
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past sixty (60) days, no transactions in the Shares have been
effected by the Company or, to the best of the Company's knowledge, by any
executive officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of the Stockholders (see
Item 3, "Identity and Background--The Stockholder Agreement," above) and all of
the Company's other executive officers and directors who own Shares of Common
Stock currently intend to tender all of their Shares pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary thereof; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth herein, there is no transaction, board resolution,
agreement in principle or signed contract in response to the Offer that relates
to, or would result in, one or more of the events referred to in Item 7(a)
above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The information contained in Exhibits 1-6 referred to in Item 9 below is
incorporated herein by reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------------
<C> <S>
1 The Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, held on December 16, 1997
2 Agreement and Plan of Merger, dated as of June 1, 1998, among Tyco, the Purchaser and the Company
3 Stockholder Agreement, dated June 1, 1998, among Tyco, the Purchaser and the Stockholders identified
therein
4 Letter to Stockholders, dated June 5, 1998, from B. Kevin Kelly, Chief Executive Officer and President
of the Company*
5 Joint press release issued by the Company and Tyco on June 2, 1998
6 Fairness Opinion of J.C. Bradford dated May 29, 1998*
</TABLE>
- ------------------------
<TABLE>
<C> <S>
* Included in a Schedule to the 14D-9
</TABLE>
[SIGNATURE PAGE FOLLOWS]
16
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
June 5, 1998
<TABLE>
<S> <C> <C>
SIGMA CIRCUITS, INC.
By: /s/ B. KEVIN KELLY
------------------------------------------
B. Kevin Kelly
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
17
<PAGE>
SCHEDULE I
J. C. BRADFORD & CO.
CORPORATE FINANCE
330 COMMERCE STREET
NASHVILLE, TN 37201
May 29, 1998
The Board of Directors
Sigma Circuits, Inc.
393 Matthew Street
Santa Clara, CA 95050
Gentlemen:
Sigma Circuits, Inc. (the "Company"), Tyco International Ltd. ("Tyco") and
T10 Acquisition Corp., an indirect wholly-owned subsidiary of Tyco (the "Sub"),
propose to enter into an Agreement and Plan of Merger (the "Merger Agreement").
The Merger Agreement provides for the commencement by the Sub of a tender offer
(the "Offer") for all of the outstanding shares of Common Stock of the Company,
par value $0.001 per share (the "Shares"), at a price of $10.50 per Share, net
to the seller in cash, followed by a merger (the "Merger") of Sub with and into
the Company pursuant to which each outstanding Share (other than Shares held in
the treasury of the Company or by any wholly-owned subsidiary of the Company and
any shares owned by Tyco, Sub or any other wholly-owned subsidiary of Tyco) will
be converted into the right to receive $10.50 in cash.
You have asked us whether, in our opinion, the cash consideration to be
received by the stockholders of the Company in the Offer and the Merger is fair
to such stockholders from a financial point of view.
J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Board of Directors
of the Company in connection with the proposed Offer and Merger and will receive
a fee from the Company for our services, a significant portion of which is
contingent upon consummation of the Offer.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) the historical and
current financial position and results of operations of the Company; (iii)
certain internal financial analyses and forecasts of the Company prepared by
senior management, and provided to us as reasonable forecasts appropriate for
use in rendering our opinion; (iv) certain financial, securities and research
data of certain other companies in businesses similar to the Company, the
securities of which are publicly traded; (v) prices and premiums paid in certain
other acquisitions and transactions that we believed to be relevant; (vi)
historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses and investigations as we deemed
appropriate for purposes of our opinion.
We also have held discussions with members of the senior management of the
Company regarding the past and current business operations, financial condition
and future prospects of the Company. With your permission, we have assumed that
financing for the Offer and the Merger has been irrevocably obtained, and that
the Merger Agreement has been executed and delivered by the parties thereto on
the terms contained in the most recent draft of the Merger Agreement supplied to
and reviewed by us.
I-1
<PAGE>
We have taken into account our assessment of general economic, market,
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industry in
which the Company operates generally. Our opinion is necessarily based upon the
information made available to us and conditions as they currently exist and can
be evaluated as of the date hereof. We have relied upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion and have not assumed any responsibility for, nor
undertaken an independent verification of, such information. With respect to the
internal operating data and financial analyses and forecasts supplied to us, we
have assumed that such data, analyses and forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's senior management as to the recent and likely future performance of
the Company. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based.
Our opinion does not address the relative merits of the proposed Offer and
Merger as compared to any alternative business strategies that might exist for
the Company or the effect of any other transactions in which the Company might
engage. Furthermore, we have not made an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
been furnished with any such evaluations or appraisals.
In the ordinary course of our business, we may actively trade the equity
securities of the Company and Tyco for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Offer and the Merger, does
not constitute a recommendation to any stockholder as to whether such
stockholder should tender shares pursuant to the Offer or vote to approve the
Merger, and is not to be quoted or referred to, in whole or in part, in any
proxy statement, nor shall this letter be used for any other purposes, without
our prior written consent.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the cash
consideration to be received by the stockholders of the Company in the Offer and
the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
J.C. BRADFORD & CO., L.L.C.
I-2
<PAGE>
SCHEDULE II
SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
INFORMATION PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
The following information is being furnished to holders of the common stock,
par value $.001 per share (the "Shares"), of Sigma Circuits, Inc., a Delaware
corporation (the "Company" or "Sigma"), in connection with the possible
designation by Tyco International Ltd., a Bermuda company ("Tyco"), of at least
a majority of the members of the Board of Directors of the Company pursuant to
the terms of an Agreement and Plan of Merger, dated as of June 1, 1998 (the
"Merger Agreement"), by and among the Company, Tyco and T10 Acquisition Corp.
("Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary of
Tyco. THIS INFORMATION IS BEING PROVIDED SOLELY FOR INFORMATIONAL PURPOSES AND
NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS.
The Merger Agreement provides that promptly following the purchase of any
Shares pursuant to the Offer, Tyco may request that the Company take all actions
necessary to cause persons designated by Tyco to become directors of the Company
(the "Tyco Designees") so that the total number of directorships held by such
persons is proportionate to the percentage calculated by dividing (i) the number
of Shares accepted for payment pursuant to the Offer plus Shares beneficially
owned by Tyco or any affiliate thereof by (ii) the total number of Shares
outstanding; provided that prior to the consummation of the Merger, the Board of
Directors of the Company (the "Board of Directors") shall always have at least
three members who are directors as of the date hereof or persons designated by
such directors and are neither employees of the Company nor designees of Tyco.
The Company has also agreed to increase the size of the Board of Directors or
exercise reasonable best efforts to secure the resignation of existing directors
so as to enable Tyco's designees to be elected to the Board of Directors in
accordance with such provisions.
The information contained in this Schedule II concerning Tyco and Purchaser
has been furnished to the Company by Tyco, and the Company assumes no
responsibility for the accuracy or completeness of any such information.
VOTING SECURITIES OF THE COMPANY
As of May 23, 1998, there were issued and outstanding 4,252,985 shares of
Common Stock, each of which entitles the holder to one vote.
II-1
<PAGE>
BOARD OF DIRECTORS, TYCO DESIGNEES
AND EXECUTIVE OFFICERS
BOARD BIOGRAPHICAL INFORMATION
The persons named below are the current members of the Board of Directors.
The following sets forth as to each director his age (as of June 6, 1998),
principal occupation and business experience, the period during which he has
served as a director and the expiration of his term as a director.
<TABLE>
<CAPTION>
EXPIRATION
OF TERM
AS A
NAME AGE DIRECTOR SINCE DIRECTOR
- ------------------------------------------------------------------------ ----- --------------------- ---------------
<S> <C> <C> <C>
B. Kevin Kelly.......................................................... 45 1992 1998
Robert P. Cummins (1)................................................... 44 1996 1998
Philip S. Bushnell...................................................... 47 1993 2000
Thomas J. Bernard (1)(2)................................................ 66 1995 1999
William H. Boyle (2).................................................... 64 1996 1999
Carl H.R. Brockl........................................................ 52 1997 2000
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
ROBERT P. CUMMINS
Mr. Cummins has been a Director since April 1986 and Chairman of the Board
since August 1992. Mr. Cummins is currently the President, Chief Executive
Officer and a Director of Cyberonics, Inc., a medical device company. He was a
general partner of Vista Partners, L.P., a venture capital partnership which he
joined in 1984 until December 1994. Mr. Cummins was also Vice President and a
director of Vista Ventures, Inc., a venture capital advisory firm.
B. KEVIN KELLY
Mr. Kelly has served as President and Chief Executive Officer and a Director
since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice
President of Operations at Lundahl Astro Circuits Inc., a high volume
manufacturer of printed circuit boards, from December 1991 to October 1992.
Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder
and President of Vitesse Engineering, a supplier of electrical test fixtures for
the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly
was Vice President of Sales and Operations at West Coast Circuits, Inc., a
quick-turn manufacturer of printed circuit boards.
PHILIP S. BUSHNELL
Mr. Bushnell has served as Senior Vice President, Finance and Administration
since January 1994. From August 1992 until January 1994, Mr. Bushnell served as
Vice President, Finance. He was elected Secretary and Chief Financial Officer in
October 1992 and has been a Director since June 1993. From July 1987 to August
1992, Mr. Bushnell was employed in various finance positions with the Company.
Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian
Associates, a diversified electronics company, from 1978 until 1986.
II-2
<PAGE>
THOMAS J. BERNARD
Mr. Bernard has been a Director since April 1995. Mr. Bernard is currently
Senior Vice President and General Manager of Wireless Infrastructure Products
with QUALCOMM Inc., a digital wireless communications company. From 1986 until
his temporary retirement in May 1994, Mr. Bernard served with QUALCOMM Inc. as
Senior Vice President and General Manager of OmniTRACS-TM-. Prior to that he
served as Executive Vice President and General Manager of the M/A-COM
Telecommunication Division of M/A-COM LINKABIT, a manufacturer of
telecommunications interconnects.
WILLIAM H. BOYLE
Mr. Boyle has been a Director since May 1996. Mr. Boyle is currently the
Chief Financial Officer of Cubic Corporation, an aerospace and defense
contractor and the largest manufacturer of automated revenue collection systems
for the mass transit industry. Prior to that he served as Vice President and
Treasurer of Wickes Corporation, from 1972 until 1983. Mr. Boyle currently
serves as a director of Cubic Corporation and the West Coast Advisory Board of
Protection Mutual Insurance Company.
CARL H.R. BROCKL
Mr. Brockl has been a Director since June 1997. From September 1995 until
June 1996, Mr. Brockl served as a General Manager at the Company. From their
founding in 1984 until their acquisition by the Company in September 1995, Mr.
Brockl was the President and a Director of Citation Circuits, Inc., Citation
Enterprises, Inc. and Citron, Inc.
INFORMATION CONCERNING TYCO DESIGNEES TO THE BOARD OF DIRECTORS
Tyco has informed the Company that it will select the Tyco Designees from
among L. Dennis Kozlowski (age 51), Joshua M. Berman (age 59), Jerry R. Boggess
(age 54), David B. Brownell (age 54), Irving Gutin (age 66), Robert P. Mead (age
47), Richard J. Meelia (age 48), M. Brian Moroze (age 54) and Mark H. Swartz
(age 37), each of whom is a director or executive officer of Tyco, certain
subsidiaries of Tyco or the Purchaser. Information concerning the Tyco Designees
is contained in Annex I and Annex II to the Offer to Purchase, a copy of which
is being mailed to the Company's stockholders with this Schedule 14D-9. The
information in such Annexes is incorporated herein by reference. In addition to
the information concerning Mr. Kozlowski in such Annexes, Mr. Kozlowski is a
director of Applied Power, Inc., Raytheon Company and RJR Nabisco Holdings Corp.
Tyco has also informed the Company that each of such directors and executive
officers has consented to act as a Director of the Company, if so designated. It
is expected that none of the Tyco Designees will receive any compensation for
services performed in his capacity as a Director of the Company.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1997(1) the Board of Directors held
six meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance, and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors, Messrs. Cummins and Boyle. It met once during such fiscal year.
- ------------------------
(1) The Company operates on thirteen week quarterly periods each ending on the
Saturday closest to the end of the calendar month. For purposes of
presentation, the Company has indicated its accounting year as ending on
June 30.
II-3
<PAGE>
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors,
Messrs. Cummins and Bernard. It met once during such fiscal year.
During the fiscal year ended June 30, 1997, each Board member attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
COMPENSATION OF DIRECTORS
In accordance with Company policy, all members of the Board of Directors are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings. In addition, each non-employee Director of the
Company received annual compensation of $5,000 for his service as a Board member
during fiscal 1997.
On December 31, 1996, Mr. Cummins, Mr. Bernard and Mr. Boyle, the only
non-employee directors incumbent at the time, were each automatically granted an
option to purchase 3,000 shares of the Company's Common Stock in accordance with
the Company's 1994 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Under the Directors' Plan, each non-employee director receives an option
for 3,000 shares of the Company's Common Stock each year. On June 9, 1997, the
date Mr. Brockl was first elected to the Board of Directors, Mr. Brockl was
granted an option to purchase 10,000 shares of the Company's Common Stock
pursuant to the Directors' Plan.
On July 1, 1995, the Company entered into a consulting agreement with Mr.
Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in
exchange for certain consulting services. The Company renewed such agreement for
one-year periods on July 1, 1996 and July 1, 1997.
After the consummation of the Merger, it is expected that the Company's
Board of Directors will act to appoint new members to the Audit and Compensation
Committees. To the Company's knowledge, no decision has been made by the Tyco
Designees regarding the membership of any such committees of the Board.
II-4
<PAGE>
EXECUTIVE OFFICERS
Executive officers serve at the discretion of the Board of Directors. The
following table sets forth certain information concerning the executive officers
of the Company (as of June 5, 1998) who are expected to serve in such capacity
until the consummation of the Merger (none of whom has a family relationship
with any other executive officer):
<TABLE>
<CAPTION>
NAME POSITION
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
B. Kevin Kelly.......................................... President and Chief Executive Officer
Philip S. Bushnell...................................... Senior Vice President, Finance and Administration, Chief
Financial Officer and Secretary
W. Kent Hardwick........................................ Senior Vice President, General Counsel and Secretary
</TABLE>
The following is a brief summary of the background of each executive officer
of the Company:
B. KEVIN KELLY
Mr. Kelly has served as President and Chief Executive Officer and a Director
since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice
President of Operations at Lundahl Astro Circuits Inc., a high volume
manufacturer of printed circuit boards, from December 1991 to October 1992.
Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder
and President of Vitesse Engineering, a supplier of electrical test fixtures for
the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly
was Vice President of Sales and Operations at West Coast Circuits, Inc., a
quick-turn manufacturer of printed circuit boards.
PHILIP S. BUSHNELL
Mr. Bushnell has served as Senior Vice President, Finance and Administration
since January 1994. From August 1992 until January 1994, Mr. Bushnell served as
Vice President, Finance. He was elected Secretary and Chief Financial Officer in
October 1992 and has been a Director since June 1993. From July 1987 to August
1992, Mr. Bushnell was employed in various finance positions with the Company.
Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian
Associates, a diversified electronics company, from 1978 until 1986.
W. KENT HARDWICK
Mr. Hardwick has served as Vice President, Sales and Marketing since March
1997. From 1996 until March 1997, Mr. Hardwick served as Vice President of
Business Development. From 1995 until 1996, Mr. Hardwick held the position of
Director of Business Development. From 1985 to 1994 he served as Southwestern
Regional Sales Manager. From 1983 to 1985 he served as a Customer Service
Representative.
II-5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of May 23, 1998 by (i) each director; (ii) each
of the executive officers named in the Summary Compensation Table employed by
the Company in that capacity on May 23, 1998; (iii) all executive officers and
directors of the Company as a group; and (iv) all those known by the Company to
be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
(1)
----------------------
NUMBER OF PERCENT OF
NAME SHARES TOTAL
- ------------------------------------------------------------------------ --------- -----------
<S> <C> <C>
Carl H. R. Brockl (2)................................................... 791,786 17.0%
Entities affiliated with Metropolitan Capital Advisors, Inc. (3)........ 257,800 6.1%
B. Kevin Kelly (4)...................................................... 355,814 7.7%
Philip S. Bushnell (5).................................................. 202,311 4.6%
W. Kent Hardwick (6).................................................... 95,186 2.2%
Robert P. Cummins (7)................................................... 50,454 1.2%
Thomas J. Bernard (8)................................................... 24,000 *
William H. Boyle (9).................................................... 16,000 *
All directors and officers as a group (7 persons)(10)................... 1,783,551 28.9%
</TABLE>
- ------------------------
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated in the footnotes to this
table and subject to the community property laws where applicable, each of
the shareholders named in this table has sole voting and investment power
with respect to the shares shown as beneficially owned by him. Percentage of
beneficial ownership is based on 4,252,985 shares of Common Stock
outstanding as of May 23, 1998, adjusted as required by rules promulgated by
the Commission.
(2) Includes 400,000 shares of Common Stock issuable to Carl and Linda Brockl
pursuant to the terms of a $1,800,000 Convertible Subordinated Note issued
to Carl and Linda Brockl as partial consideration for the purchase of
substantially all the assets and certain liabilities of Citation. Also
includes 13,000 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
(3) Based solely on information obtained from a filing made on Schedule 13G with
the SEC. Includes 7,800 shares held by KJ Advisors, Inc. ("KJA") and 69,100
shares held by Metropolitan Capital III, Inc. ("MC III"). Jeffrey E. Schwarz
and Karen Finerman are directors and officers of Metropolitan Capital
Advisors, Inc., KJA and MC III.
(4) Represents 355,814 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
(5) Includes (i) 450 shares held by the Philip S. Bushnell Trust and (ii)
152,951 shares issuable upon the exercise of options, as such options are
immediately exercisable upon completion of the Merger.
(6) Includes 90,000 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
(7) Includes 20,454 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
(8) Includes 19,000 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
II-6
<PAGE>
(9) Represents 16,000 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
(10) Includes 1,067,219 shares issuable upon the exercise of options, as such
options are immediately exercisable upon completion of the Merger.
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ending June 30, 1997, 1996
and 1995, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer and its three other most highly compensated executive officers
whose salary and bonus compensation exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ SECURITIES
BONUS ALL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION($)(2) OPTIONS(3)
- ----------------------------------------------- --------- ---------- --------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
B. Kevin Kelly................................. 1997 $ 211,538 $ -- $ 9,160 --
President, Chief Executive 1996 199,039 75,872 9,150 80,000
Officer and Director 1995 175,006 15,500 8,766 53,526
Philip S. Bushnell............................. 1997 $ 150,000 $ -- $ 9,160 --
Senior Vice President, 1996 143,500 57,110 9,150 60,000
Finance and Administration, 1995 125,000 7,750 8,838 41,268
Chief Financial Officer,
Secretary and Director
W. Kent Hardwick............................... 1997 $ 153,846 $ 46,476 $ 9,160 70,000
Vice President, Sales and 1996 106,014 15,354 9,150 10,000
Marketing 1995 74,574 11,885 8,838 306
Douglas B. Crerar.............................. 1997 $ 136,964 $ -- $ 5,325 --
Former Vice President, 1996 81,346 16,250 5,250 75,000
Sales and Marketing 1995 -- -- -- --
</TABLE>
- ------------------------
(1) Bonuses awarded to Messrs. Kelly and Bushnell in fiscal 1995 were paid in
the first quarter of fiscal 1996.
(2) Consists of automobile allowance and premiums for health insurance benefits.
(3) These options become exercisable in 54 equal monthly installments beginning
with the seventh month from the date of grant.
STOCK OPTION GRANTS AND EXERCISES
The Company has granted options to its executive officers under its 1988
Stock Option Plan (the "1988 Plan"), adopted in May 1988 and amended in October
1993, March 1994, June 1995 and September 1995.
At June 30, 1997, options (net of canceled or expired options) covering an
aggregate of 952,720 shares of the Company's Common Stock were outstanding under
the 1988 Plan, and only 199,483 shares (plus any shares that might in the future
be returned to the 1988 Plan as a result of cancellations or expiration of
options) remained available for future grant under the 1988 Plan. The Board of
Directors voted in October 1997 to amend and restate the 1988 Plan as the 1997
Stock Option Plan (the "Option Plan"),
II-7
<PAGE>
subject to stockholder approval, to increase the number of shares of Common
Stock authorized for issuance under the Option Plan by 200,000, bringing the
total shares authorized for issuance under the Option Plan to 1,500,000, and to
make certain other changes.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1997 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL
RATES OF
INDIVIDUAL STOCK
GRANTS PRICE
------------- APPRECIATION
NUMBER OF PERCENTAGE OF FOR
SECURITIES TOTAL OPTIONS OPTION
UNDERLYING GRANTED IN EXERCISE MARKET TERM($)(3)
OPTIONS FISCAL PRICE PRICE EXPIRATION ---------
NAME (1) GRANTED(1) 1997(2) ($/SH) ($/SH) DATE 5%
- -------------------------------------------- ------------- --------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Kent Hardwick............................ 70,000 28.23 6.1875 6.1875 10/13/2006 272,390
<CAPTION>
NAME (1) 10%
- -------------------------------------------- ----------
<S> <C>
W. Kent Hardwick............................ 690,290
</TABLE>
- ------------------------
(1) These options become exercisable in 54 equal monthly installments beginning
with the seventh month from the date of grant.
(2) Based on a total of 248,000 options granted to employees during the fiscal
year ended June 30, 1997.
(3) The potential realizable value is based on the term of the option at the
time of grant (ten years). Assumed stock price appreciation of five percent
and ten percent used pursuant to rules promulgated by the Commission. The
potential realizable value is calculated by assuming that the market price
per share appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
The following tables show for the fiscal year ended June 30, 1997, certain
information regarding options granted to, exercised by and held at year end by
the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND JUNE 30, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
--------------------------
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, IN-THE-MONEY OPTIONS AT
SHARES VALUE 1997(#) JUNE 30, 1997($)(2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B. Kevin Kelly............................. -- -- 152,898 126,916 527,270 234,561
Philip S. Bushnell......................... 6,000 27,533 39,614 81,930 83,693 117,298
W. Kent Hardwick........................... -- -- 13,910 76,090 40,305 17,481
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock on the dates of
exercise minus the exercise price.
(2) Based on the closing price of the Company's Common Stock on June 30, 1997
($4.875 per share) minus the exercise price.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
II-8
<PAGE>
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
CHANGE-IN-CONTROL SEVERANCE AGREEMENTS
In October 1995, the Company entered into change-in-control severance
agreements (the "Severance Agreements") with Mr. Kelly and Mr. Bushnell.
Pursuant to the Severance Agreements, if the employment of Mr. Kelly or Mr.
Bushnell is either involuntarily terminated by the Company without cause, or
voluntarily terminated by resignation of Mr. Kelly or Mr. Bushnell for good
reason within 12 months following a change-in-control, then the terminated
executive will be entitled to severance compensation and benefits, including a
lump sum payment of 18 months of base salary for Mr. Kelly and 12 months of base
salary for Mr. Bushnell (an aggregate amount equal to $300,000 for Mr. Kelly and
$150,000 for Mr. Bushnell, subject to salary adjustments), payment of health
benefit premiums for 18 months for Mr. Kelly and 12 months for Mr. Bushnell, a
severance bonus (equal to the bonus that would have been payable had the
executive worked the entire year, pro rated by the number of days worked), and
acceleration of vesting of all outstanding stock options. As set forth in more
detail in the Severance Agreements, a "change-in-control" transaction is defined
as any capital transaction or reorganization in which ownership of more than 50%
of the Company's voting shares changes; "cause" is defined as conviction of a
crime or participation in fraud against the Company or gross unfitness to serve
as determined by the Board of Directors; and "good reason" is a reduction in
compensation, benefits or responsibilities.
In October 1997, the Company entered into a change-in-control severance
agreement (the "Severance Agreement") with Mr. Hardwick. Pursuant to the
Severance Agreement, if the employment of Mr. Hardwick is either involuntarily
terminated by the Company without cause, or voluntarily terminated by
resignation of Mr. Hardwick for good reason within 13 months following a
change-in-control, then Mr. Hardwick will be entitled to severance compensation
and benefits, including a lump sum payment of 13 months of base salary (an
aggregate amount equal to $173,334, subject to salary adjustments), payment of
health benefit premiums for 13 months, a severance bonus (equal to the bonus
that would have been payable had the executive worked the entire year, pro rated
by the number of days worked), and acceleration of vesting of all outstanding
stock options.
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION (1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Messrs. Bernard and Cummins, neither of whom has been an officer or
employee of the Company. The Committee is responsible for establishing the
Company's compensation programs for executive officers.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of the Company and to establish an appropriate relationship
between executive compensation and the creation of long-term stockholder value.
To meet
- ------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"1993 Act"), or the Securities Exchange Act of 1934 (the "1934 Act"),
whether made before or after the date hereof and irrespective of any general
incorporation language contained in any such filing.
II-9
<PAGE>
these goals, the Committee has adopted a mix among the compensation elements of
salary, bonus and stock options, with a bias toward stock options to emphasize
the link between executive incentives and the creation of stockholder value as
measured by the equity markets.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices. In general, the salaries of executive
officers are not determined by the Company's achievement of specific corporate
performance criteria. Instead the Committee determines the salaries for
executive officers based upon a review of salary surveys of other publicly
traded electronics manufacturing companies with capitalizations similar to that
of the Company. Based upon such surveys, the executive officers' salaries are in
the middle of the range established by comparable companies in the electronics
manufacturing industry.
BONUS. The Company adopted a formal bonus program in fiscal 1995 and
continued such program in 1996 and 1997. The bonus program is a variable pay
program through which executive officers and key managers of the Company may
earn additional compensation. It is the Committee's philosophy that bonuses when
combined with salaries create total compensation which is competitive with other
similar electronics manufacturing companies. Bonus awards depend on the extent
to which Company and individual performance objectives are achieved. The
Company's performance objectives include operating, strategic and financial
goals considered critical to the Company's fundamental long-term goal of
building stockholder value. In fiscal 1997, the Compensation Committee adopted a
formula for awarding executive bonuses. Based on the Company's performance in
fiscal 1997, bonuses were not awarded under the bonus program in any quarter.
The Company did award a relocation bonus to Mr. Hardwick in connection with his
relocation to Northern California. For fiscal 1998, the primary objective of the
bonus program is the attainment of certain levels of pre-tax income and earnings
per share.
OPTION PLAN. The Option Plan offered by the Company has been established to
provide all employees of the Company with an opportunity to share, along with
stockholders of the Company, in the long-term performance of the Company.
Periodic grants of stock options are generally made to all eligible
employees, with additional grants being made to certain employees upon
commencement of employment and occasionally following a significant change in
job responsibilities, scope or title. Stock options granted generally have a
five-year vesting schedule and expire ten years from the date of grant. The
exercise price of options granted under the stock option plans is usually 100%
of fair market value of the underlying stock on the date of grant.
Guidelines for the number of stock options for each participant in the
periodic grant program generally are determined by a formula established by the
Committee whereby several factors are applied to the salary and performance
level of each participant and then related to the approximate market price of
the stock at the time of grant. In awarding stock options, the Committee
considers individual performance, overall contribution to the Company, officer
retention, the number of unvested stock options and the total number of stock
options to be awarded. After considering the criteria relating to awarding stock
options, the Committee awarded options to the Named Executive Officers in
October 1993 (fiscal 1994), September 1994 (fiscal 1995) and September 1995
(fiscal 1996). Only Mr. Hardwick was granted an option during fiscal 1997 in
connection with his appointment as Vice President, Sales and Marketing. No other
executive officers were awarded stock options during fiscal 1997.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The stockholders approved an
amendment to the Option Plan which allows compensation recognized as a result of
stock options granted under the plan with an
II-10
<PAGE>
exercise price at least equal to the fair market value of the Company's common
stock on the date of grant to be treated as "performance-based compensation" and
thus deductible by the Company.
CEO COMPENSATION
The Committee uses the same procedures described above in setting the annual
salary, bonus and stock option awards for the CEO. The CEO's salary is
determined based on comparisons with other public electronics manufacturing
companies as described above and is set in the middle of the range established
by those companies. In awarding stock options, the Committee considers the CEO's
performance, overall contribution to the Company, retention, the number of
unvested options and the total number of options to be granted. The CEO's salary
was not increased during fiscal 1997. The CEO was awarded stock options in
October 1993 (fiscal 1994), September 1994 (fiscal 1995) and November 1995
(fiscal 1996). The CEO was not awarded stock options in fiscal 1997. The CEO was
not granted a bonus in fiscal 1997 as the Company did not meet the criteria of
the bonus program described above. As described above, in determining where the
CEO's total compensation is set within the middle of the ranges and in light of
the considerations described above, the Committee by necessity makes certain
subjective evaluations. Compared to other companies surveyed by the Company, the
CEO's salary, bonus and stock options are in the mid-range.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and the CEO's and the other executive officers'
compensation are contingent on Company performance, and realization of benefits
by the CEO and the other executive officers is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation.
COMPENSATION COMMITTEE
Thomas J. Bernard, Chairman
Robert P. Cummins
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee. See "Certain Transactions" for a description of
transactions between the Company and entities affiliated with members of the
Compensation Committee.
II-11
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON (1)
The following chart shows the value of an investment of $100 on June 3, 1994
(the date of the Company's initial public offering) in cash of (i) the Company's
Common Stock, (ii) the Nasdaq Stock market index, and (iii) an index based on
companies in a group of public companies in the Company's industry (Standard
Industrial Classification Code 3670--Electronic Components). All values assume
reinvestment of the full amount of all dividends and are calculated as of June
30, 1997.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SIGMA NASDAQ 3670
<S> <C> <C> <C>
June 3, 1994 $100.00 $100.00 $100.00
June 30, 1994 $90.91 $96.34 $94.40
June 30, 1995 $109.09 $128.60 $194.58
June 30, 1996 $236.36 $165.11 $205.72
June 30, 1997 $177.27 $200.78 $337.44
</TABLE>
DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SIGMA NASDAQ 3670
--------- ----------- ---------
<S> <C> <C> <C>
June 3, 1994..................................................................... $ 100.00 $ 100.00 $ 100.00
June 30, 1994.................................................................... $ 90.91 $ 96.34 $ 94.40
June 30, 1995.................................................................... $ 109.09 $ 128.60 $ 194.58
June 30, 1996.................................................................... $ 236.36 $ 165.11 $ 205.72
June 30, 1997.................................................................... $ 177.27 $ 200.78 $ 337.44
</TABLE>
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
II-12
<PAGE>
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company shall indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
not prohibited by Delaware law. The Company is also empowered under its Bylaws
to enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, the Company has entered into indemnity
agreements with each of its directors and executive officers.
In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company or its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
any transaction from which the director derived an improper personal benefit and
for improper distributions to stockholders. This provision also does not affect
a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
On July 1, 1995, the Company entered into a consulting agreement with Mr.
Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in
exchange for certain consulting services. The Company has renewed such agreement
for one year periods on July 1, 1996 and July 1, 1997.
On September 30, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of Citation Circuits, Inc., Citation
Enterprises, Inc. and Citron, Inc. (collectively, the "Citation Companies"), all
of which were owned by Mr. Brockl. The purchase price for the Citation Companies
included two 12% subordinated notes totaling $4,092,000, of which $1,500,000 was
convertible to 200,000 shares of Common Stock. On May 21, 1997, in connection
with a debt refinancing (including unpaid interest), the Company paid to Mr.
Brockl $3,025,906 of the $4,825,906 and issued a four-year $1,800,000
convertible subordinated note for the balance due (the "Note"). This
subordinated note is convertible into a maximum of 400,000 shares of the
Company's Common Stock at $4.50 per share at the option of Mr. Brockl based upon
certain defined criteria. The maximum number of shares that may be converted is
200,000 in each of the two-year periods of the note's contractual term. The
Company can repay Brockl $900,000 prior to the two year period (it has the
option to avoid conversion on 200,000 shares which are convertible after May 21,
1999). The Note bears interest of 10% per annum paid monthly in arrears. In
connection with the issuance of the $1,800,000 convertible subordinated note,
the Company paid to Mr. Brockl an $18,000 loan fee equal to 1% of the principal
amount.
In connection with the Acquisition of the Citation Companies, Mr. Brockl
became an employee of the Company. Mr. Brockl is no longer an employee of the
Company. Mr. Brockl's annual salary was $150,000 as an employee of Sigma and he
received an option to purchase 60,000 shares of Common Stock at an exercise
price of $6.875 per share. Upon termination of Mr. Brockl's employment, he was
granted severance pay equal to three months salary. Mr. Brockl also entered into
a noncompetition agreement with the Company pursuant to which Mr. Brockl has
agreed not to compete with the Company for a period of two years from the date
of his termination as either an employee of, or consultant to, the Company.
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy these transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the disinterested members of the
Board of Directors, will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.
II-13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------- -------------------------------------------------------------------------------------------------------
<C> <S>
1 The Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, held on December 16, 1997
2 Agreement and Plan of Merger, dated as of June 1, 1998, among Tyco, the Purchaser and the Company
3 Stockholder Agreement, dated June 1, 1998, among Tyco, the Purchaser and the Stockholders identified
therein
4 Letter to Stockholders, dated June 5, 1998, from B. Kevin Kelly, Chief Executive Officer and President
of the Company
5 Joint Press Release issued by the Company and Tyco on June 2, 1998
6 Fairness Opinion of J.C. Bradford dated May 29, 1998
</TABLE>
<PAGE>
SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 16, 1997
------------------------
TO THE STOCKHOLDERS OF SIGMA CIRCUITS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of SIGMA
CIRCUITS, INC., a Delaware corporation (the "Company"), will be held on Tuesday,
December 16, 1997 at 10:00 a.m. local time at the principal executive offices of
the Company, 393 Mathew Street, Santa Clara, California 95050, for the following
purpose:
1. To elect two directors to hold office until the 2000 Annual Meeting of
Stockholders and until their successors are elected.
2. To approve the Company's Amended and Restated 1997 Stock Option Plan,
including provisions for (i) the transferability of Supplemental Stock
Options, (ii) acceleration of vesting and exercisability of options for
employees involuntarily terminated without cause within thirteen months
after a change in control, (iii) extension of the term of the plan until
October 2007, and (iv) an increase in the number of shares of Common
Stock authorized for issuance under such plan by 200,000 shares.
3. To approve the Company's Employee Stock Purchase Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 159,092 shares.
4. To ratify the selection of Deloitte & Touche LLP as independent auditors
of the Company for its fiscal year ending June 30, 1998.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 24, 1997,
as the record date for the determination of stockholders entitled to notice of
and to vote at this Annual Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
[SIGNATURE]
Philip S. Bushnell
SECRETARY
Santa Clara, California
November 6, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
---------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
------------------------
DECEMBER 16, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of SIGMA
CIRCUITS, INC., a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on Tuesday, December 16, 1997, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting. The Annual Meeting will be held at the executive offices of the
Company, 393 Mathew Street, Santa Clara, California 95050. The Company intends
to mail this proxy statement and accompanying proxy card on or about November 6,
1997, to all stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicita-tion materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common Stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of Common Stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on October
24, 1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on October 24, 1997, the Company had outstanding and entitled
to vote 4,143,565 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 393 Mathew
Street, Santa Clara, California 95050, a written notice of revocation or a duly
<PAGE>
executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than July 8, 1998, in order to be included in the proxy statement and proxy
relating to that Annual Meeting. Stockholders are also advised to review the
Company's Bylaws, which contain additional requirements with respect to advance
notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation and Bylaws provide that
the Board of Directors shall be divided into three classes, each class
consisting, as nearly as possible, of one-third of the total number of
directors, with each class having a three-year term. Vacancies on the Board may
be filled only by persons elected by a majority of the remaining directors. A
director elected by the Board to fill a vacancy (including a vacancy created by
an increase in the Board of Directors) shall serve for the remainder of the full
term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1997. Each of the
nominees for election to this class is currently a director of the Company. Mr.
Bushnell was previously elected by the stockholders while Mr. Brockl was elected
to the Board by the Board of Directors to fill a vacancy created by an increase
in the Board of Directors during the previous year. If elected at the Annual
Meeting, each of the nominees would serve until the 2000 annual meeting and
until his successor is elected and has qualified, or until such director's
earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting.
Set forth below is biographical information for each person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM
EXPIRING AT THE 2000 ANNUAL MEETING
Mr. Bushnell has served as Senior Vice President, Finance and Administration
since January 1994. From August 1992 until January 1994, Mr. Bushnell served as
Vice President, Finance. He was elected Secretary and Chief Financial Officer in
October 1992 and has been a Director since June 1993. From July 1987 to August
1992, Mr. Bushnell was employed in various finance positions with the Company.
Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian
Associates, a diversified electronics company from 1978 until 1986. Mr. Bushnell
is 46 years old.
Mr. Brockl has been a Director since June 1997. From September 1995 until
June 1996, Mr. Brockl served as a General Manager at the Company. From their
founding in 1984 until their acquisition by the Company in September 1995, Mr.
Brockl was the President and a Director of Citation Circuits, Inc., Citation
Enterprises, Inc. and Citron, Inc. Mr. Brockl is 51 years old.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
2
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
Mr. Kelly has served as President and Chief Executive Officer and a Director
since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice
President of Operations at Lundahl Astro Circuits Inc., a high volume
manufacturer of printed circuit boards, from December 1991 to October 1992.
Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder
and President of Vitesse Engineering, a supplier of electrical test fixtures for
the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly
was Vice President of Sales and Operations at West Coast Circuits, Inc., a
quick-turn manufacturer of printed circuit boards. Mr. Kelly is 44 years old.
Mr. Cummins has been a Director since April 1986 and Chairman of the Board
since August 1992. Mr. Cummins is currently the President, Chief Executive
Officer and a Director of Cyberonics, Inc., a medical device company. He was a
general partner of Vista Partners, L.P., a venture capital partnership which he
joined in 1984 until December 1994. Mr. Cummins was also Vice President and a
director of Vista Ventures, Inc., a venture capital advisory firm. Mr. Cummins
is 43 years old.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
Mr. Bernard has been a Director since April 1995. Mr. Bernard is currently
Senior Vice President and General Manager of Wireless Infrastructure Products
with QUALCOMM Inc., a digital wireless communications company. From 1986 until
his temporary retirement in May 1994, Mr. Bernard served with QUALCOMM Inc. as
Senior Vice President and General Manager of OmniTRACS-TM-. Prior to that he
served as Executive Vice President and General Manager of the M/A-COM
Telecommunication Division of M/A-COM LINKABIT, a manufacturer of
telecommunications interconnects. Mr. Bernard is 65 years old.
Mr. Boyle has been a Director since May 1996. Mr. Boyle is currently the
Chief Financial Officer of Cubic Corporation, an aerospace and defense
contractor and the largest manufacturer of automated revenue collection systems
for the mass transit industry. Prior to that he served as Vice President and
Treasurer of Wickes Corporation, from 1972 until 1983. Mr. Boyle currently
serves as a director of Cubic Corporation and the West Coast Advisory Board of
Protection Mutual Insurance Company. Mr. Boyle is 63 years old.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1997(1) the Board of Directors held
six meetings. The Board has an Audit Committee and a Compensation Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Messrs. Cummins and Boyle. It met once during such fiscal year.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of two non-employee directors:
Messrs. Cummins and Bernard. It met once during such fiscal year.
During the fiscal year ended June 30, 1997, each Board member attended 75%
or more of the aggregate of the meetings of the Board and of the committees on
which he served, held during the period for which he was a director or committee
member, respectively.
- ------------------------
(1) The Company operates on thirteen week quarterly periods each ending on the
Saturday closest to the end of the calendar month. For purposes of
presentation, the Company has indicated its accounting years as ending on
June 30.
3
<PAGE>
PROPOSAL 2
APPROVAL OF THE AMENDED AND RESTATED 1997 STOCK OPTION PLAN
In May 1988 the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1988 Stock Option Plan (the "1988 Plan").
In October 1997 the Board adopted the Amended and Restated 1997 Stock Option
Plan (the "Option Plan") as an amendment and restatement of the 1988 Plan,
extended the term of the Option Plan from May 1998 to October 2007, included
provisions for the transferability of supplemental stock options and for an
acceleration of the vesting and exercisability of options after a change in
control and reserved an additional 200,000 shares of the Company's Common Stock
for issuance under the Option Plan. The Board adopted the Option Plan to ensure
that the Company can continue to grant stock options to eligible recipients at
levels determined appropriate by the Board.
As a result of a series of amendments, at October 2, 1997 there were
1,500,000 shares of the Company's Common Stock authorized for issuance under the
Option Plan.
At June 30, 1997, options (net of canceled or expired options) covering an
aggregate of 952,720 shares of the Company's Common Stock were outstanding under
the Option Plan, and only 199,483 shares (plus any shares that might in the
future be returned to the plans as a result of cancellations or expiration of
options) remained available for future grant under the Option Plan. During the
last fiscal year, under the Option Plan, the Company has granted to one
executive officer an option to receive 70,000 shares at an exercise price of
$6.1875 per share and to all employees (excluding executive officers) as a group
options to receive 178,000 shares at exercise prices of $3.625 to $6.875 per
share.
Stockholders are requested in this Proposal to approve the amendment and
restatement of the 1988 Plan as the Option Plan and to reserve for issuance an
additional 200,000 shares of Common Stock. If the stockholders fail to approve
this Proposal, the 1988 Plan will continue in the form prior to amendment and
restatement as the Option Plan, and will expire in May 1998.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting will be
required to approve the Option Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the Option Plan are outlined below:
GENERAL
The Option Plan provides for the grant or issuance of incentive stock
options to employees and supplemental stock options to employees and
consultants. Incentive stock options granted under the Option Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Supplemental stock
options granted under the Option Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of the various options included in the Option
Plan.
PURPOSE
The Option Plan was adopted to provide a means by which selected employees
of and consultants to the Company and its affiliates could be given an
opportunity to receive stock in the Company, to secure and retain the services
of persons capable of filling such positions, to assist in retaining the
services of
4
<PAGE>
employees holding key positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company.
FORMS OF BENEFIT
The Option Plan provides for incentive stock options and supplemental stock
options (collectively "options").
ADMINISTRATION
The Option Plan is administered by the Board unless and until the Board
delegates administration to a committee composed of one or more members of the
Board. If administration is delegated to a committee, such committee will have,
in connection with the administration of the Option Plan, the powers possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Option Plan, as may be adopted from time to time by the Board.
The Board or the committee may delegate to a committee of one or more members of
the Board the authority to grant options to eligible persons who are not then
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and/or who are either (i) not then employees covered by Section
162(m) of the Code and are not expected to be covered by Section 162(m) of the
Code at the time of recognition of income resulting from such option, or (ii)
not persons with respect to whom the Company wishes to avoid the application of
Section 162(m) of the Code. The Board may abolish such committee at any time and
revest in the Board the administration of the Option Plan.
The Board has the power to construe and interpret the Option Plan and,
subject to the provisions of the Option Plan, to determine the persons to whom
and the dates on which options will be granted, what type of option will be
granted, the number of shares to be subject to each option, the time or times
during the term of each option within which all or a portion of such option may
be exercised, the exercise price, the type of consideration and other terms of
the option.
SHARES SUBJECT TO THE PLAN
The common stock that may be sold pursuant to options under the Option Plan
will not exceed in the aggregate one million five hundred thousand (1,500,000)
shares of the Company's common stock. If any option expires or terminates, in
whole or in part, without having been exercised in full, the stock not purchased
under such option will revert to and again become available for issuance under
the Option Plan. The common stock subject to the Option Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees. Supplemental stock
options may be granted to employees and consultants.
No person is eligible for the grant of an incentive stock option if, at the
time of grant, such person owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company unless
the exercise price of such option is at least one hundred ten percent (110%) of
the fair market value of such common stock subject to the option at the date of
grant and the option is not exercisable after the expiration of five (5) years
from the date of grant. No person will be eligible to be granted options
covering more than one hundred thousand (100,000) shares of the Company's common
stock in any calendar year (the "per-employee limitation").
TERM AND TERMINATION
No option is exercisable after the expiration of ten (10) years from the
date it was granted.
5
<PAGE>
In the event an optionee's service with the Company or an affiliate (as an
employee, director or consultant) is terminated, the optionee may exercise his
or her option (to the extent that the optionee was entitled to exercise it at
the time of termination) but only within the earlier of (i) the date three (3)
months after the termination of the optionee's service or (ii) the expiration of
the term of the option as set forth in the option agreement. The optionee's
service will not be deemed to have terminated merely because of a change in the
capacity in which the optionee renders service to the Company or an affiliate or
a change in the entity to which the optionee renders such service, provided that
there is no interruption or termination of the optionee's service.
In the event an optionee's service terminates as a result of the optionee's
death or disability, the optionee (or such optionee's estate, heirs or
beneficiaries) may exercise his or her option, but only within the period ending
on the earlier of (i) twelve (12) months following such termination (or such
longer or shorter period as specified in the option agreement) or (ii) the
expiration of the term of the option as set forth in the option agreement.
In the event an optionee's service is involuntarily terminated at any time
without cause either at the time of or within thirteen (13) months following a
change in control, then the time during which such optionee's option may be
exercised immediately will be accelerated. "Cause" means misconduct, including
but not limited to: (i) conviction of any felony or any crime involving moral
turpitude or dishonesty, (ii) participation in a fraud or act of dishonesty
against the Company, (iii) conduct by the optionee which based upon a good faith
and reasonable factual investigation and determination by the Board demonstrates
gross unfitness to serve, or (iv) intentional, material violation by the
optionee of any contract between the optionee and the Company or any statutory
duty of the optionee to the Company that is not corrected within thirty (30)
days after written notice to the optionee. Physical or mental disability will
not constitute "cause."
In the event an optionee voluntarily terminates the optionee's service for
good reason either at the time of or within thirteen (13) months following a
change in control, then the time during which such optionee's option may be
exercised immediately will be accelerated. "Good reason" means (i) reduction of
the optionee's rate of compensation as in effect immediately prior to the change
in control, (ii) failure to provide a package of welfare benefit plans which,
taken as a whole, provides substantially similar benefits to those in which the
optionee is entitled to participate immediately prior to the change in control
(except that employee contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the Company which would
adversely affect the optionee's participation or reduce the optionee's benefits
under any of such plans, (iii) change in the optionee's responsibilities,
authority, title or office resulting in diminution of position, excluding for
this purpose an isolated, insubstantial and inadvertent action not taken in bad
faith which is remedied by the Company promptly after notice thereof is given by
the optionee, (iv) request that the optionee relocate to a worksite that is more
than thirty-five (35) miles from the optionee's prior worksite, unless the
optionee accepts such relocation opportunity, (v) failure or refusal of a
successor to the Company to assume the Company's obligations under the
optionee's option, or (vi) material breach by the Company or any successor to
the Company of any of the material provisions of the optionee's option.
EXERCISE PRICE
The exercise price of each incentive stock option will not be less than one
hundred percent (100%) of the fair market value of the Company's Common Stock on
the date of grant. The exercise price of each supplemental stock option will not
be less than eighty-five percent (85%) of the fair market value on the date of
grant.
6
<PAGE>
CONSIDERATION
The purchase price of stock acquired pursuant to an option is paid either in
cash, by deferred payment, by delivery to the Company of other common stock of
the Company or in any other form of legal consideration that may be acceptable
to the Board. The form of consideration must be stated in the option agreement
for an incentive stock option. In the case of any deferred payment arrangement,
interest will be payable at least annually and will be charged at the minimum
rate of interest necessary to avoid the treatment as interest of amounts that
are not stated to be interest.
TRANSFERABILITY
An incentive stock option will not be transferable except by will or by the
laws of descent and distribution, and will be exercisable during the lifetime of
the person to whom the incentive stock option is granted only by such person. A
supplemental stock option generally will not be transferable except by will or
by the laws of descent and distribution or pursuant to a domestic relations
order. Some supplemental stock option agreements may provide for very limited
transferability.
VESTING
The total number of shares of stock subject to an option may, but need not,
be allotted in periodic installments. The option agreement may provide that from
time to time during each of such installment periods, the option may become
exercisable ("vest") with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the shares allotted
to such period and/or any prior period as to which the option became vested but
was not fully exercised. The option agreement may also provide that an optionee
may exercise an option prior to full vesting, provided that the Company may have
a repurchase right with respect to any unvested shares.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the Option Plan, or
subject to any option, without receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the class(es) and maximum number of shares subject to the Option
Plan, the per-employee limitation applicable under the Option Plan and the
class(es) and number of shares and price per share of stock subject to
outstanding options will be appropriately adjusted.
In the event of a merger, consolidation, liquidation, dissolution or the
sale of substantially all of the Company's assets, a reverse merger in which the
Company is the surviving corporation but the shares of the Company's Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, or the acquisition by any person, entity or group within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of directors (collectively, a "change in control"), any surviving
corporation will assume any options outstanding under the Option Plan or will
substitute similar options for those outstanding under the Option Plan or such
options will continue in full force and effect. In the event a surviving
corporation refuses to assume such options or substitute similar options, then,
with respect to options held by persons then performing services as employees,
directors or consultants, the time during which such options may be exercised
will be accelerated prior to completion of such transaction and such options
terminated if not exercised prior to such transaction.
7
<PAGE>
AMENDMENT OF THE OPTION PLAN
The Board at any time, and from time to time, may amend the Option Plan.
However, no amendment will be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will increase the number of shares reserved for
issuance under the Option Plan, modify the requirements as to eligibility for
participation or in any other way if such modification requires stockholder
approval in order for the Option Plan to satisfy the requirements of Section 422
of the Code, Rule 16b-3, or any Nasdaq or securities exchange requirements. The
Board may in its sole discretion submit any other amendment to the Option Plan
for stockholder approval.
TERMINATION OR SUSPENSION OF THE OPTION PLAN
The Board may suspend or terminate the Option Plan at any time. Unless
sooner terminated, the Option Plan will terminate on October 1, 2007. No options
may be granted under the Option Plan while the Option Plan is suspended or after
it is terminated.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Option Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two years from the date on which the option is granted and
at least one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionee will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionee's
actual gain, if any, on the purchase and sale. The optionee's additional gain,
or any loss, upon the disqualifying disposition will be a capital gain or loss,
which will be long-term or short-term depending on how long the optionee holds
the stock. Capital gains are generally subject to lower tax rates than ordinary
income. Slightly different rules may apply to optionees who acquire stock
subject to certain repurchase options.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
SUPPLEMENTAL STOCK OPTIONS. Supplemental stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a supplemental stock option. Upon exercise of a supplemental stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness and the satisfaction of a reporting obligation, the Company will
generally be entitled to a business expense deduction equal to the taxable
ordinary income realized by the optionee. Upon disposition of the stock, the
optionee will recognize a capital gain or loss equal to the difference between
the selling price and the sum of the amount paid for such stock plus any
8
<PAGE>
amount recognized as ordinary income upon exercise of the option. Such gain or
loss will be long or short-term depending on how long the optionee holds the
stock. Slightly different rules may apply to optionees who acquire stock subject
to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. In 1993, the U.S. Congress
amended the Code to add Section 162(m) which denies a deduction to any publicly
held corporation for compensation paid to certain employees in a taxable year to
the extent that compensation exceeds $1 million for a covered employee. It is
possible that compensation attributable to options granted in the future under
the Option Plan, when combined with all other types of compensation received by
a covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the Option Plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
9
<PAGE>
PROPOSAL 3
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
In March 1994, the Board of Directors adopted the Employee Stock Purchase
Plan (the "Purchase Plan") authorizing the issuance of 290,908 shares of the
Company's Common Stock. In October 1997, the Board of Directors of the Company
adopted an amendment to the Purchase Plan to increase the number of shares
authorized for issuance under the Purchase Plan by 159,092 to 450,000 shares.
This amendment is intended to ensure that the Company can continue to provide
such incentives at levels determined appropriate by the Board. During the last
fiscal year, shares were purchased in the amounts and at the weighted average
prices per share under the Purchase Plan as follows: Mr. Bushnell 3,493 shares
($4.13), Mr. Hardwick 3,602 shares ($4.12), all current executive officers as a
group 7,095 shares ($4.13), and all employees (excluding executive officers) as
a group 87,992 shares ($4.14).
Stockholders are requested in this Proposal to approve the Purchase Plan, as
amended. The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to approve the Purchase Plan, as amended. Abstentions will be counted
toward the tabulation of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3
The essential features of the Purchase Plan, as amended, are outlined below:
PURPOSE
The purpose of the Purchase Plan is to provide a means by which employees of
the Company (and any parent or subsidiary of the Company designated by the Board
of Directors to participate in the Purchase Plan) may be given an opportunity to
purchase Common Stock of the Company through payroll deductions, to assist the
Company in retaining the services of its employees, to secure and retain the
services of new employees, and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
The rights to purchase Common Stock granted under the Purchase Plan are
intended to qualify as options issued under an "employee stock purchase plan" as
that term is defined in Section 423(b) of the Code.
ADMINISTRATION
The Purchase Plan is administered by the Board of Directors, which has the
final power to construe and interpret the Purchase Plan and the rights granted
under it. The Board has the power, subject to the provisions of the Purchase
Plan, to determine when and how rights to purchase Common Stock of the Company
will be granted, the provisions of each offering of such rights (which need not
be identical), and whether any parent or subsidiary of the Company shall be
eligible to participate in such plan. The Board has the power, which it has not
exercised, to delegate administration of such plan to a committee of not less
than two Board members. The Board may abolish any such committee at any time and
revest in the Board the administration of the Purchase Plan.
OFFERINGS
The Purchase Plan is implemented by offerings of rights to all eligible
employees from time to time by the Board. Generally, each such offering is of
six months in duration.
10
<PAGE>
ELIGIBILITY
Any person who is customarily employed at least 20 hours per week and five
months per calendar year by the Company (or by any parent or subsidiary of the
Company designated from time to time by the Board) on the first day of an
offering period is eligible to participate in that offering under the Purchase
Plan, provided such employee has been in the continuous employ of the Company
for at least three months preceding the first day of the offering period.
Notwithstanding the foregoing, no employee is eligible for the grant of any
rights under the Purchase Plan if, immediately after such grant, the employee
would own, directly or indirectly, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of any
parent or subsidiary of the Company (including any stock which such employee may
purchase under all outstanding rights and options), nor will any employee be
granted rights that would permit him to buy more than $25,000 worth of stock
(determined at the fair market value of the shares at the time such rights are
granted) under all employee stock purchase plans of the Company in any calendar
year.
PARTICIPATION IN THE PLAN
Eligible employees become participants in the Purchase Plan by delivering to
the Company, prior to the date selected by the Board as the offering date for
the offering, an agreement authorizing payroll deductions of up to 10% of such
employees' earnings during the purchase period.
PURCHASE PRICE
The purchase price per share at which shares are sold in an offering under
the Purchase Plan is the lower of (a) 85% of the fair market value of a share of
Common Stock on the date of commencement of the offering, or (b) 85% of the fair
market value of a share of Common Stock on the last day of the purchase period.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions over
the offering period. At any time during the purchase period, a participant may
reduce or terminate his or her payroll deductions. A participant may not
increase or begin such payroll deductions after the beginning of any purchase
period, except, if the Board provides, in the case of an employee who first
becomes eligible to participate as of a date specified during the purchase
period. All payroll deductions made for a participant are credited to his or her
account under the Purchase Plan and deposited with the general funds of the
Company. A participant may not make any additional payments into such account.
PURCHASE OF STOCK
By executing an agreement to participate in the Purchase Plan, the employee
is entitled to purchase shares under such plan. In connection with offerings
made under the Purchase Plan, the Board specifies a maximum number of shares any
employee may be granted the right to purchase and the maximum aggregate number
of shares which may be purchased pursuant to such offering by all participants.
If the aggregate number of shares to be purchased upon exercise of rights
granted in the offering would exceed the maximum aggregate number, the Board
would make a pro rata allocation of shares available in a uniform and equitable
manner. Unless the employee's participation is discontinued, his right to
purchase shares is exercised automatically at the end of the purchase period at
the applicable price. See "Withdrawal" below.
11
<PAGE>
WITHDRAWAL
While each participant in the Purchase Plan is required to sign an agreement
authorizing payroll deductions, the participant may withdraw from a given
offering by terminating his or her payroll deductions and by delivering to the
Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be
elected at any time prior to the end of the applicable offering period.
Upon any withdrawal from an offering by the employee, the Company will
distribute to the employee his or her accumulated payroll deductions without
interest, less any accumulated deductions previously applied to the purchase of
stock on the employee's behalf during such offering, and such employee's
interest in the offering will be automatically terminated. The employee is not
entitled to again participate in such offering. An employee's withdrawal from an
offering will not have any effect upon such employee's eligibility to
participate in subsequent offerings under the Purchase Plan.
TERMINATION OF EMPLOYMENT
Rights granted pursuant to any offering under the Purchase Plan terminate
immediately upon cessation of an employee's employment for any reason, and the
Company will distribute to such employee all of his or her accumulated payroll
deductions, without interest.
RESTRICTIONS ON TRANSFER
Rights granted under the Purchase Plan are not transferable and may be
exercised only by the person to whom such rights are granted.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Purchase Plan at any time. Unless
terminated earlier, such plan will terminate in December 2004.
The Board may amend the Purchase Plan at any time. Any amendment of the
Purchase Plan must be approved by the stockholders within 12 months of its
adoption by the Board if the amendment would (a) increase the number of shares
of Common Stock reserved for issuance under the Purchase Plan, (b) modify the
requirements relating to eligibility for participation in the Purchase Plan, or
(c) modify any other provision of the Purchase Plan in a manner that would
materially increase the benefits accruing to participants under the Purchase
Plan, if such approval is required in order to comply with the requirements of
Rule 16b-3 under the Exchange Act.
Rights granted before amendment or termination of the Purchase Plan will not
be altered or impaired by any amendment or termination of such plan without
consent of the person to whom such rights were granted.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a dissolution, liquidation or specified type of merger of
the Company, the surviving corporation either will assume the rights under the
Purchase Plan or substitute similar rights, or the exercise date of any ongoing
offering will be accelerated such that the outstanding rights may be exercised
immediately prior to, or concurrent with, any such event.
STOCK SUBJECT TO PURCHASE PLAN
If rights granted under the Purchase Plan expire, lapse or otherwise
terminate without being exercised, the Common Stock not purchased under such
rights again becomes available for issuance under such plan.
12
<PAGE>
FEDERAL INCOME TAX INFORMATION
Rights granted under the Purchase Plan are intended to qualify for favorable
federal income tax treatment associated with rights granted under an employee
stock purchase plan which qualifies under provisions of Section 423 of the Code.
A participant will be taxed on amounts withheld for the purchase of shares
as if such amounts were actually received. Other than this, no income will be
taxable to a participant until disposition of the shares acquired, and the
method of taxation will depend upon the holding period of the purchase shares.
If the stock is disposed of at least two years after the beginning of the
offering period and at least one year after the stock is transferred to the
participant, then the lesser of (a) the excess of the fair market value of the
stock at the time of such disposition over the exercise price or (b) the excess
of the fair market value of the stock as of the beginning of the offering period
over the exercise price (determined as of the beginning of the offering period)
will be treated as ordinary income. Any further gain or any loss will be taxed
as a capital gain or loss, which will be long-term or short-term depending on
how long the optionee holds the stock. Long-term capital gains currently are
generally subject to lower tax rates than short-term capital gains or ordinary
income.
If the stock is sold or disposed of before the expiration of either of the
holding periods described above, then the excess of the fair market value of the
stock on the exercise date over the exercise price will be treated as ordinary
income at the time of such disposition, and the Company may, in the future, be
required to withhold income taxes relating to such ordinary income from other
payments made to the participant. The balance of any gain will be treated as
capital gain. Even if the stock is later disposed of for less than its fair
market value on the exercise date, the same amount of ordinary income is
attributed to the participant, and a capital loss is recognized equal to the
difference between the sales price and the fair market value of the stock on
such exercise date. Any capital gain or loss will be long-term or short-term
depending on how long the optionee has held the stock.
There are no federal income tax consequences to the Company by reason of the
grant or exercise of rights under the Purchase Plan. The Company is entitled to
a deduction to the extent amounts are taxed as ordinary income to a participant
(subject to the requirement of reasonableness, the provisions of Section 162(m)
of the Code and the satisfaction of a tax reporting obligation).
13
<PAGE>
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP as the Company's
independent auditors for the fiscal year ending June 30, 1998 and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Deloitte & Touche LLP
has audited the Company's financial statements since 1983. Representatives of
Deloitte & Touche LLP are expected to be present at the Annual Meeting, will
have an opportunity to make a statement if they so desire and will be available
to respond to appropriate questions.
Stockholder ratification of the selection of Deloitte & Touche LLP as the
Company's independent auditors is not required by the Company's Bylaws or
otherwise. However, the Board is submitting the selection of Deloitte & Touche
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4
14
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of September 12, 1997 by: (i) each director and
nominee for director; (ii) each of the executive officers named in the Summary
Compensation Table employed by the Company in that capacity on September 12,
1997; (iii) all executive officers and directors of the Company as a group; and
(iv) all those known by the Company to be beneficial owners of more than five
percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME SHARES TOTAL
- ---------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Carl H. R. Brockl(2).................................................. 582,952 13.4%
1950 W. Fremont Street
Stockton, CA 94023
Entities affiliated with Metropolitan Capital Advisors, Inc.(3)....... 248,000 6.0%
B. Kevin Kelly(4)..................................................... 184,824 4.3%
Philip S. Bushnell(5)................................................. 104,411 2.5%
W. Kent Hardwick(6)................................................... 26,340 *
Robert P. Cummins(7).................................................. 46,954 1.1%
Thomas J. Bernard(8).................................................. 20,500 *
William H. Boyle(9)................................................... 12,500 *
All directors and officers as a group (7 persons)(10)................. 978,481 22.1%
</TABLE>
- ------------------------
* Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal shareholders. Unless otherwise indicated in the footnotes to this
table and subject to the community property laws where applicable, each of
the shareholders named in this table has sole voting and investment power
with respect to the shares shown as beneficially owned by him. Percentage
of beneficial ownership is based on 4,138,030 shares of Common Stock
outstanding as of September 12, 1997, adjusted as required by rules
promulgated by the SEC.
(2) Includes 200,000 shares of Common Stock issuable to Carl and Linda Brockl
pursuant to the terms of a $1,800,000 Convertible Subordinated Note issued
to Carl and Linda Brockl as partial consideration for the purchase of
substantially all of the assets and certain liabilities of Citation. Also,
includes 4,166 shares issuable upon exercise of options exercisable within
60 days of September 12, 1997.
(3) Based solely on information obtained from a filing made on Schedule 13G
with the SEC. Includes 18,700 shares held by KJ Advisors, Inc. ("KJA") and
44,300 shares held by Metropolitan Capital III, Inc. ("MC III"). Jeffrey E.
Schwarz and Karen Finerman are directors and officers of Metropolitan
Capital Advisors, Inc., KJA and MC III.
(4) Includes 176,510 shares issuable upon exercise of options exercisable
within 60 days of September 12, 1997.
(5) Includes 53,405 shares issuable upon exercise of options exercisable within
60 days of September 12, 1997.
(6) Includes 20,399 shares issuable upon the exercise of options exercisable
within 60 days of September 12, 1997.
(7) Includes 16,954 shares issuable upon exercise of options exercisable within
60 days of September 12, 1997.
(8) Includes 15,500 shares issuable upon exercise of options exercisable within
60 days of September 12, 1997.
(9) Represents 12,500 shares issuable upon the exercise of options exercisable
within 60 days of September 12, 1997.
(10) Includes 299,434 shares issuable upon exercise of options exercisable
within 60 days of September 12, 1997.
15
<PAGE>
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the SEC initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
In accordance with Company policy, all members of the Board of Directors are
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings. In addition, each non-employee director of the
Company received annual compensation of $5,000 for their service as Board
members during fiscal 1997.
On December 31, 1996, Mr. Cummins, Mr. Bernard and Mr. Boyle, the only
non-employee directors incumbent at the time, were each automatically granted an
option to purchase 3,000 shares of the Company's Common Stock in accordance with
the Company's 1994 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). On June 9, 1997, the date Mr. Brockl was first elected to the Board of
Directors, Mr. Brockl was automatically granted an option to purchase 10,000
shares of the Company's Common Stock pursuant to the Directors' Plan.
On July 1, 1995, the Company entered into a consulting agreement with Mr.
Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in
exchange for certain consulting services. The Company has renewed such agreement
for one year periods on July 1, 1996 and July 1, 1997.
16
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the fiscal years ending June 30, 1997, 1996
and 1995, compensation awarded or paid to, or earned by the Company's Chief
Executive Officer and its three other most highly compensated executive officers
whose salary and bonus compensation exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------- SECURITIES
BONUS ALL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION ($)(2) OPTIONS(3)
- --------------------------------------------- --------- ---------- ----------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
B. Kevin Kelly 1997 $ 211,538 $ -- $ 9,160 --
President, Chief Executive 1996 199,039 75,872 9,150 80,000
Officer and Director 1995 175,006 15,500 8,766 53,526
Philip S. Bushnell 1997 $ 150,000 $ -- $ 9,160 --
Senior Vice President, 1996 143,500 57,110 9,150 60,000
Finance and Administration, 1995 125,000 7,750 8,838 41,268
Chief Financial Officer,
Secretary and Director
W. Kent Hardwick 1997 $ 153,846 $ 46,476 $ 9,160 70,000
Vice President, Sales and 1996 106,014 15,354 9,150 10,000
Marketing 1995 74,574 11,885 8,838 306
Douglas B. Crerar 1997 $ 136,964 $ -- $ 5,325 --
Former Vice President, 1996 81,346 16,250 5,250 75,000
Sales and Marketing 1995 -- -- -- --
</TABLE>
- ------------------------
(1) Bonuses awarded to Messrs. Kelly and Bushnell in fiscal 1995 were paid in
the first quarter of fiscal 1996.
(2) Consists of automobile allowance and premiums for health insurance benefits.
(3) These options become exercisable in 54 equal monthly installments beginning
with the seventh month from the date of grant.
STOCK OPTION GRANTS AND EXERCISES
The Company has granted options to its executive officers under its 1988
Stock Option Plan (the "1988 Plan"), adopted in May 1988 and amended in October
1993, March 1994, June 1995, September 1995.
At June 30, 1997, options (net of canceled or expired options) covering an
aggregate of 952,720 shares of the Company's Common Stock were outstanding under
the 1988 Plan, and only 199,483 shares (plus any shares that might in the future
be returned to the 1988 Plan as a result of cancellations or expiration of
options) remained available for future grant under the 1988 Plan. The Board of
Directors voted in October 1997 to amend and restate the 1988 Plan as the 1997
Stock Option Plan (the "Option Plan"), subject to stockholder approval, to
increase the number of shares of Common Stock authorized for issuance under the
Option Plan by 200,000, bringing the total shares authorized for issuance under
the Option Plan to 1,500,000, and to make certain other changes. See Proposal 2.
17
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended June 30, 1997 to each of the Named Executive Officers:
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS VALUE AT ASSUMED
------------- ANNUAL RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED IN EXERCISE MARKET OPTION TERM ($)(3)
OPTIONS FISCAL PRICE PRICE EXPIRATION --------------------
NAME(1) GRANTED(1) 1997(2) ($/SH) ($/SH) DATE 5% 10%
- ------------------------------- ------------- ------------- ----------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Kent Hardwick............... 70,000 28.23 6.1875 6.1875 10/13/2006 272,390 690,290
</TABLE>
- ------------------------
(1) These options become exercisable in 54 equal monthly installments beginning
with the seventh month from the date of grant.
(2) Based on a total of 248,000 options granted to employees during the fiscal
year ended June 30, 1997.
(3) The potential realizable value is based on the term of the option at the
time of grant (ten years). Assumed stock price appreciation of five percent
and ten percent used pursuant to rules promulgated by the Commission. The
potential realizable value is calculated by assuming that the market price
per share appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
The following tables show for the fiscal year ended June 30, 1997, certain
information regarding options granted to, exercised by and held at year end by
the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND JUNE 30, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
----------------------------------------------------------------------------------
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, IN-THE-MONEY OPTIONS AT
SHARES VALUE 1997(#) JUNE 30, 1997($)(2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B. Kevin Kelly..................... -- -- 152,898 126,916 527,270 234,561
Philip S. Bushnell................. 6,000 27,533 39,614 81,930 83,693 117,298
W. Kent Hardwick................... -- -- 13,910 76,090 40,305 17,481
</TABLE>
- ------------------------
(1) Based on the fair market value of the Company's Common Stock on the dates of
exercise minus the exercise price.
(2) Based on the closing price of the Company's Common Stock on June 30, 1997
($4.875 per share) minus the exercise price.
CHANGE-IN-CONTROL SEVERANCE AGREEMENTS
In October 1995, the Company entered into change-in-control severance
agreements (the "Severance Agreements") with Mr. Kelly and Mr. Bushnell.
Pursuant to the Severance Agreements, if the employment of Mr. Kelly or Mr.
Bushnell is either involuntarily terminated by the Company without cause, or
voluntarily terminated by resignation of Mr. Kelly or Mr. Bushnell for good
reason within 12 months following a change-in-control, then the terminated
executive will be entitled to severance compensation and benefits, including a
lump sum payment of 18 months of base salary for Mr. Kelly and 12 months of base
salary for Mr. Bushnell (an aggregate amount equal to $300,000 for Mr. Kelly and
$150,000 for Mr. Bushnell, subject to salary adjustments), payment of health
benefit premiums for 18 months for
18
<PAGE>
Mr. Kelly and 12 months for Mr. Bushnell, a severance bonus (equal to the bonus
that would have been payable had the executive worked the entire year, pro rated
by the number of days worked), and acceleration of vesting of all outstanding
stock options. As set forth in more detail in the Severance Agreements: a
"change-in-control" transaction is defined as any capital transaction or
reorganization in which ownership of more than 50% of the Company's voting
shares changes; "cause" is defined as conviction of a crime or participation in
fraud against the Company or gross unfitness to serve as determined by the Board
of Directors. "Good reason" is a reduction in compensation, benefits or
responsibilities.
In October 1997, the Company entered into a change-in-control severance
agreement (the "Severance Agreement") with Mr. Hardwick. Pursuant to the
Severance Agreement, if the employment of Mr. Hardwick is either involuntarily
terminated by the Company without cause, or voluntarily terminated by
resignation of Mr. Hardwick for good reason within 13 months following a
change-in-control, then Mr. Hardwick will be entitled to severance compensation
and benefits, including a lump sum payment of 13 months of base salary (an
aggregate amount equal to $173,334, subject to salary adjustments), payment of
health benefit premiums for 13 months, a severance bonus (equal to the bonus
that would have been payable had the executive worked the entire year, pro rated
by the number of days worked), and acceleration of vesting of all outstanding
stock options
19
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of Messrs. Bernard and Cummins, none of whom has been an officer or
employee of the Company. The Committee is responsible for establishing the
Company's compensation programs for executive officers.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance and to enable the Company to attract, retain
and reward executive officers and other key employees who contribute to the
long-term success of the Company and to establish an appropriate relationship
between executive compensation and the creation of long-term stockholder value.
To meet these goals, the Committee has adopted a mix among the compensation
elements of salary, bonus and stock options, with a bias toward stock options to
emphasize the link between executive incentives and the creation of stockholder
value as measured by the equity markets.
BASE SALARY. The Committee annually reviews each executive officer's base
salary. When reviewing base salaries, the Committee considers individual and
corporate performance, levels of responsibility, prior experience, breadth of
knowledge and competitive pay practices. In general, the salaries of executive
officers are not determined by the Company's achievement of specific corporate
performance criteria. Instead the Committee determines the salaries for
executive officers based upon a review of salary surveys of other publicly
traded electronics manufacturing companies with capitalizations similar to that
of the Company. Based upon such surveys, the executive officers' salaries are in
the middle of the range established by comparable companies in the electronics
manufacturing industry.
BONUS. The Company adopted a formal bonus program in fiscal 1995 and
continued such program in 1996 and 1997. The bonus program is a variable pay
program through which executive officers and key managers of the Company may
earn additional compensation. It is the Committee's philosophy that bonuses when
combined with salaries create total compensation which is competitive with other
similar electronics manufacturing companies. Bonus awards depend on the extent
to which Company and individual performance objectives are achieved. The
Company's performance objectives include operating, strategic and financial
goals considered critical to the Company's fundamental long-term goal of
building stockholder value. In fiscal 1997, the Compensation Committee adopted a
formula for awarding executive bonuses. Based on the Company's performance in
fiscal 1997, bonuses were not awarded under the bonus program in any quarter.
The Company did award a relocation bonus to Mr. Hardwick in connection with his
relocation to Northern California. For fiscal 1998, the primary objective of the
bonus program is the attainment of certain levels of pre-tax income and earnings
per share.
OPTION PLAN. The Option Plan offered by the Company has been established to
provide all employees of the Company with an opportunity to share, along with
stockholders of the Company, in the long-term performance of the Company.
Periodic grants of stock options are generally made to all eligible
employees, with additional grants being made to certain employees upon
commencement of employment and occasionally following a significant change in
job responsibilities, scope or title. Stock options granted generally have a
five-year
- ------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"1993 Act"), or the Securities Exchange Act of 1934 (the "1934 Act"),
whether made before or after the date hereof and irrespective of any general
incorporation language contained in any such filing.
20
<PAGE>
vesting schedule and expire ten years from the date of grant. The exercise price
of options granted under the stock option plans is usually 100% of fair market
value of the underlying stock on the date of grant.
Guidelines for the number of stock options for each participant in the
periodic grant program generally are determined by a formula established by the
Committee whereby several factors are applied to the salary and performance
level of each participant and then related to the approximate market price of
the stock at the time of grant. In awarding stock options, the Committee
considers individual performance, overall contribution to the Company, officer
retention, the number of unvested stock options and the total number of stock
options to be awarded. After considering the criteria relating to awarding stock
options, the Committee awarded options to the Named Executive Officers in
October 1993 (fiscal 1994), September 1994 (fiscal 1995) and September 1995
(fiscal 1996). Only Mr. Hardwick was granted an option during fiscal 1997 in
connection with his appointment as Vice President, Sales and Marketing. No other
executive officers were awarded stock options during fiscal 1997.
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain Named Executive Officers in a taxable year.
Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The stockholders approved an
amendment to the Option Plan which allows compensation recognized as a result of
stock options granted under the plan with an exercise price at least equal to
the fair market value of the Company's common stock on the date of grant to be
treated as "performance-based compensation" and thus deductible by the Company.
CEO COMPENSATION
The Committee uses the same procedures described above in setting the annual
salary, bonus and stock option awards for the CEO. The CEO's salary is
determined based on comparisons with other public electronics manufacturing
companies as described above and is set in the middle of the range established
by those companies. In awarding stock options, the Committee considers the CEO's
performance, overall contribution to the Company, retention, the number of
unvested options and the total number of options to be granted. The CEO's salary
was not increased during fiscal 1997. The CEO was awarded stock options in
October 1993 (fiscal 1994), September 1994 (fiscal 1995) and November 1995
(fiscal 1996). The CEO was not awarded stock options in fiscal 1997. The CEO was
not granted a bonus in fiscal 1997 as the Company did not meet the criteria of
the bonus program described above. As described above, in determining where the
CEO's total compensation is set within the middle of the ranges and in light of
the considerations described above, the Committee by necessity makes certain
subjective evaluations. Compared to other companies surveyed by the Company, the
CEO's salary, bonus and stock options are in the mid-range.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and the CEO's and the other executive officers'
compensation are contingent on Company performance, and realization of benefits
by the CEO and the other executive officers is closely linked to increases in
long-term stockholder value. The Company remains committed to this philosophy of
pay for performance, recognizing that the competitive market for talented
executives and the volatility of the Company's business may result in highly
variable compensation.
COMPENSATION COMMITTEE
Thomas J. Bernard, Chairman
Robert P. Cummins
21
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Company serves as a member of
the board of directors or compensation committee of any entity that has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee. See "Certain Transactions" for a description of
transactions between the Company and entities affiliated with members of the
Compensation Committee.
PERFORMANCE MEASUREMENT COMPARISON(1)
The following chart shows the value of an investment of $100 on June 3, 1994
(the date of the Company's initial public offering) in cash of (i) the Company's
Common Stock, (ii) the Nasdaq Stock market index, and (iii) an index based on
companies in a group of public companies in the Company's industry (Standard
Industrial Classification--Electronic Components). All values assume
reinvestment of the full amount of all dividends and are calculated as of June
30, 1997.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SIGMA NASDAQ 3670
<S> <C> <C> <C>
June 3, 1994 $100.00 $100.00 $100.00
June 30, 1994 $90.91 $96.34 $94.40
June 30, 1995 $109.09 $128.60 $194.58
June 30, 1996 $236.36 $165.11 $205.72
June 30, 1997 $177.27 $200.78 $337.44
</TABLE>
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the 1933 Act or the 1934 Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
22
<PAGE>
CERTAIN TRANSACTIONS
The Company's Bylaws provide that the Company shall indemnify its directors
and may indemnify its officers, employees and other agents to the fullest extent
not prohibited by Delaware law. The Company is also empowered under its Bylaws
to enter into indemnification contracts with its directors and officers and to
purchase insurance on behalf of any person it is required or permitted to
indemnify. Pursuant to this provision, the Company has entered into indemnity
agreements with each of its directors and executive officers.
In addition, the Company's Certificate of Incorporation provides that, to
the fullest extent permitted by Delaware law, the Company's directors will not
be liable for monetary damages for breach of the directors' fiduciary duty of
care to the Company or its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
any transaction from which the director derived an improper personal benefit and
for improper distributions to stockholders. This provision also does not affect
a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
On July 1, 1995, the Company entered into a consulting agreement with Mr.
Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in
exchange for certain consulting services. The Company has renewed such agreement
for one year periods on July 1, 1996 and July 1, 1997.
On September 30, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of Citation Circuits, Inc., Citation
Enterprises, Inc. and Citron Inc. (collectively, the "Citation Companies"), all
of which were owned by Mr. Brockl. The purchase price for the Citation Companies
included two 12% subordinated notes totaling $4,092,000, of which $1,500,000 was
convertible to 200,000 shares of Common Stock. On May 21, 1997, in connection
with a debt refinancing (including unpaid interest), the Company paid to Mr.
Brockl $3,025,906 of the $4,825,906 and issued a four year $1,800,000
convertible subordinated note for the balance due (the "Note"). This
subordinated note is convertible into a maximum of 400,000 shares of the
Company's Common Stock at $4.50 per share at the option of Mr. Brockl based upon
certain defined criteria. The maximum number of shares that may be converted are
200,000 in each of the two year periods of the note's contractual term. The
Company can repay Brockl $900,000 prior to the two year period (it has the
option to avoid conversion on 200,000 shares which are convertible after May 21,
1999). The Note bears interest of 10% per annum paid monthly in arrears. In
connection with the issuance of the $1,800,000 convertible subordinated note,
the Company paid to Mr. Brockl an $18,000 loan fee equal to 1% of the principal
amount.
In connection with the Citation Acquisition, Mr. Brockl became an employee
of the Company. Mr. Brockl is no longer an employee of the Company. Mr. Brockl's
annual salary was $150,000 as an employee of Sigma and he received an option to
purchase 60,000 shares of Common Stock at an exercise price of $6.875 per share.
Upon termination of Mr. Brockl's employment, he was granted severance pay equal
to three months salary. Mr. Brockl also entered into a noncompetition agreement
with the Company pursuant to which Mr. Brockl has agreed not to compete with the
Company for a period of two years from the date of his termination as either an
employee of, or consultant to, the Company.
The Company believes that the foregoing transactions were in its best
interests. As a matter of policy these transactions were, and all future
transactions between the Company and any of its officers, directors or principal
stockholders will be, approved by a majority of the disinterested members of the
Board of Directors, will be on terms no less favorable to the Company than could
be obtained from unaffiliated third parties and will be in connection with bona
fide business purposes of the Company.
23
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
[SIGNATURE]
Philip S. Bushnell
SECRETARY
November 6, 1997
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, SIGMA CIRCUITS,
INC., 393 MATHEW STREET, SANTA CLARA, CALIFORNIA 95050.
24
<PAGE>
------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
TYCO INTERNATIONAL LTD.,
T10 ACQUISITION CORP.
AND
SIGMA CIRCUITS, INC.
DATED AS OF JUNE 1, 1998
------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE OFFER
Section 1.1 The Offer.................................................... 1
Section 1.2 Company Actions.............................................. 3
ARTICLE II THE MERGER
Section 2.1 The Merger....................................................4
Section 2.2 Effective Time................................................4
Section 2.3 Effects of the Merger.........................................4
Section 2.4 Certificate of Incorporation and Bylaws; Directors
and Officers..................................................4
Section 2.5 Conversion of Securities......................................5
Section 2.6 Payment of Certificates.......................................6
Section 2.7 Dissenting Shares.............................................7
Section 2.8 Merger Without Meeting of Stockholders........................7
Section 2.9 No Further Ownership Rights in Common Stock...................7
Section 2.10 Closing of Company Transfer Books............................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 3.1 Organization and Qualification...............................8
Section 3.2 Authority Relative to this Agreement.........................8
Section 3.3 No Conflict; Required Filings and Consents...................8
Section 3.4 Brokers......................................................9
Section 3.5 Ownership of Sub; No Prior Activities........................9
Section 3.6 Financing....................................................9
Section 3.7 Full Disclosure.............................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization and Qualification; Subsidiaries................10
Section 4.2 Certificate of Incorporation and Bylaws.....................10
Section 4.3 Capitalization..............................................10
Section 4.4 Authority Relative to this Agreement........................11
Section 4.5 Contracts; No Conflict; Required Filings and Consents.......11
Section 4.6 Compliance; Permits.........................................12
Section 4.7 SEC Filings; Financial Statements...........................13
Section 4.8 Absence of Certain Changes or Events........................13
Section 4.9 No Undisclosed Liabilities..................................13
Section 4.10 Absence of Litigation.......................................14
Section 4.11 Employee Benefit Plans; Employment Agreements...............14
Section 4.12 Labor Matters...............................................17
Section 4.13 Limitation on Business Conduct..............................17
Section 4.14 Title to Property...........................................17
Section 4.15 Real Property; Leased Premises..............................18
Section 4.16 Taxes.......................................................18
i
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.17 Environmental Matters.......................................20
Section 4.18 Intellectual Property.......................................21
Section 4.19 Insurance...................................................22
Section 4.20 Accounts Receivable.........................................22
Section 4.21 Customers...................................................22
Section 4.22 Interested Party Transactions...............................22
Section 4.23 Absence of Certain Payments.................................22
Section 4.24 Takeover Statute............................................23
Section 4.25 Opinion of Financial Advisor................................23
Section 4.26 Brokers.....................................................23
Section 4.27 Full Disclosure.............................................23
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business by the Company Pending the Merger....... 23
Section 5.2 Acquisition Proposals........................................25
Section 5.3 Annual Meeting of Stockholders...............................26
Section 5.4 Conduct of Business of Sub Pending the Merger................26
ARTICLE VI ADDITIONAL AGREEMENTS
Section 6.1 Company Stockholder Approval; Proxy Statement................27
Section 6.2 Access to Information; Confidentiality.......................28
Section 6.3 Fees and Expenses............................................28
Section 6.4 Stock Plans and Warrants.....................................29
Section 6.5 Reasonable Best Efforts......................................29
Section 6.6 Public Announcements.........................................30
Section 6.7 Indemnification; Directors and Officers Insurance............30
Section 6.8 Board Representation.........................................31
Section 6.9 Notification of Certain Matters..............................31
ARTICLE VII CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger.......................................................32
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination..................................................32
Section 8.2 Effect of Termination........................................34
Section 8.3 Amendment....................................................34
Section 8.4 Waiver.......................................................34
ARTICLE IX GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties...............34
Section 9.2 Notices......................................................35
Section 9.3 Interpretation...............................................36
Section 9.4 Counterparts.................................................36
Section 9.5 Entire Agreement; No Third-Party Beneficiaries...............36
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9.6 Governing Law................................................36
Section 9.7 Assignment...................................................36
Section 9.8 Severability.................................................36
Section 9.9 Enforcement of this Agreement; Attorneys Fees................36
Section 9.10 Material Adverse Effect......................................37
EXHIBIT A Conditions of the Offer
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 1, 1998 (this "Agreement"),
among Tyco International Ltd., a Bermuda company ("Parent"), T10 Acquisition
Corp., a Delaware corporation ("Sub") and an indirect, wholly owned subsidiary
of Parent, and Sigma Circuits, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
each have approved the acquisition of the Company by Parent pursuant to a tender
offer (the "Offer") by Sub for all of the outstanding shares of Common Stock,
par value $.001 per share ("Common Stock"), of the Company at a price of $10.50
per share (the "Per Share Amount"), net to the seller in cash, without interest,
followed by a merger (the "Merger") of Sub with and into the Company, all upon
the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has adopted resolutions
approving the Offer and the Merger and recommending that the Company's
stockholders accept the Offer; and
WHEREAS, pursuant to the Merger, each issued and outstanding share of Common
Stock not owned directly or indirectly by Parent or the Company, except shares
of Common Stock held by holders who comply with the provisions of Delaware law
regarding the right of stockholders to dissent from the Merger and require
appraisal of their shares of Common Stock, will be converted into the right to
receive the per share consideration paid pursuant to the Offer.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, Parent, Sub and the
Company hereby agree as follows:
ARTICLE I
THE OFFER
Section 1.1 The Offer. (a) Subject to the provisions of this Agreement,
within five business days after the first public announcement of this Agreement,
Sub shall, and Parent shall cause Sub to, commence, within the meaning of Rule
14d-2 under the Securities Exchange Act of 1934, as amended (including the rules
and regulations promulgated thereunder, the "Exchange Act"), the Offer. The
obligation of Sub to, and of Parent to cause Sub to, commence the Offer and
accept for payment, and pay for, any shares of Common Stock tendered pursuant to
the Offer shall be subject to the conditions set forth in Exhibit A (the "Offer
Conditions"). The Offer shall initially expire twenty (20) business days after
the date of its commencement, unless this Agreement is terminated in accordance
<PAGE>
with Article VIII, in which case the Offer (whether or not previously extended
in accordance with the terms hereof) shall expire on such date of termination.
Without the prior written consent of the Company, Sub shall not (i) impose
conditions to the Offer in addition to the Offer Conditions, (ii) modify or
amend the Offer Conditions or any other term of the Offer in a manner adverse to
the holders of shares of Common Stock, (iii) waive or amend the Minimum
Condition (as defined in Exhibit A), (iv) reduce the number of shares of Common
Stock subject to the Offer, (v) reduce the Per Share Amount, (vi) except as
provided in the following sentence, extend the Offer, if all of the Offer
Conditions are satisfied or waived, or (vii) change the form of consideration
payable in the Offer. Notwithstanding the foregoing, Sub may, without the
consent of the Company, extend the Offer at any time, and from time to time, (i)
if at the then scheduled expiration date of the Offer any of the conditions to
Sub's obligation to accept for payment and pay for shares of Common Stock shall
not have been satisfied or waived, until such time as such conditions are
satisfied or waived; (ii) for any period required by any rule, regulation,
interpretation or position of the Securities and Exchange Commission (the "SEC")
or its staff applicable to the Offer; or (iii) if all Offer Conditions are
satisfied or waived but the number of shares of Common Stock tendered is less
than 90% of the then outstanding number of shares of Common Stock, for an
aggregate period of not more than 10 business days (for all such extensions)
beyond the latest expiration date that would be permitted under clause (i) or
(ii) of this sentence. So long as this Agreement is in effect and the Offer
Conditions have not been satisfied or waived, Sub shall, and Parent shall cause
Sub to, cause the Offer not to expire. Subject to the terms and conditions of
the Offer (but subject to the right of termination in accordance with Article
VIII), Sub shall, and Parent shall cause Sub to, pay for all shares of Common
Stock validly tendered and not withdrawn pursuant to the Offer as soon as
practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer, which shall contain an offer to purchase and a related
letter of transmittal (such Schedule 14D-1 and the documents therein
pursuant to which the Offer will be made, together with any supplements
or amendments thereto, the "Offer Documents"). The Company and its
counsel shall be given an opportunity to review and comment upon the
Offer Documents prior to the filing thereof with the SEC. The Offer
Documents shall comply as to form in all material respects with the
requirements of the Exchange Act, and, on the date filed with the SEC and
on the date first published, sent or given to the Company's stockholders,
the Offer Documents shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by Parent or Sub with respect to information
supplied by the Company in writing for inclusion in the Offer Documents.
Each of Parent, Sub and the Company agrees promptly to correct any
information provided by it for use in the Offer Documents if and to the
extent that such information shall have become false or misleading in any
material respect, and each of Parent and Sub further agrees to take all
steps necessary to cause the Offer Documents as so corrected to be filed
with the SEC and to be disseminated to holders of shares of Common Stock,
in each case as and to the extent required by applicable federal
securities laws. Parent and Sub agree to provide the Company
2
<PAGE>
and its counsel in writing with any comments Parent, Sub or their counsel
may receive from the SEC or its staff with respect to the Offer Documents
promptly upon receipt of such comments.
Section 1.2 Company Actions. (a) The Company hereby approves of and consents
to the Offer and represents that the Board of Directors of the Company at a
meeting duly called and held has duly adopted resolutions (i) approving this
Agreement, the Offer and the Merger, (ii) determining that the terms of the
Offer and Merger are fair to, and in the best interests of, the Company and its
stockholders, and (iii) recommending that the Company's stockholders accept the
Offer and tender their shares of Common Stock and approve the Merger and this
Agreement. The Company hereby consents to the inclusion in the Offer Documents
of such recommendation of the Board of Directors of the Company. The Company
represents that its Board of Directors has received the written opinion (the
"Fairness Opinion") of J.C. Bradford & Co. (the "Financial Advisor") that the
proposed consideration to be received by the holders of shares of Common Stock
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view. The Company has been authorized by the Financial Advisor to
permit, subject to the prior review and consent by the Financial Advisor (such
consent not to be unreasonably withheld), the inclusion of the Fairness Opinion
(or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as
hereinafter defined) and the Proxy Statement (as hereinafter defined).
Notwithstanding the foregoing, the Company may withdraw, modify or amend its
recommendation (and the Financial Advisor may withdraw, modify or amend its
Fairness Opinion) in accordance with the provisions of Section 5.2 of this
Agreement.
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement
on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as
amended from time to time, including the exhibits thereto, the "Schedule
14D-9") containing the recommendations described in paragraph (a) of
Section 1.2 above (subject to the provisions of Section 5.2 of this
Agreement) and shall mail the Schedule 14D-9 to the stockholders of the
Company as required by Rule 14D-9 promulgated under the Exchange Act.
Parent and its counsel shall be given an opportunity to review and
comment upon the Schedule 14D-9 prior to the filing thereof with the SEC.
The Schedule 14D-9 shall comply as to form in all material respects with
the requirements of the Exchange Act and, on the date filed with the SEC
and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to information
supplied by Parent or Sub in writing for inclusion in the Schedule 14D-9.
Each of the Company, Parent and Sub agrees promptly to correct any
information provided by it for use in the Schedule 14D-9 if and to the
extent that such information shall have become false or misleading in any
material respect, and the Company further agrees to take all steps
necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and disseminated to the holders of shares of Common Stock, in
each case as and to the extent required by applicable federal securities
laws. The Company agrees to provide Parent and Sub and their counsel in
writing with any comments the Company or its
3
<PAGE>
counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to promptly furnish Sub with a list, as of a recent date,
of the holders of Common Stock and mailing labels containing the names
and addresses of the record holders of Common Stock and of those persons
becoming record holders subsequent to such date, together with copies of
all lists of stockholders, security position listings (including shares
of Common Stock held by depositories) and computer files and all other
information in the Company's possession or control regarding the
beneficial owners of Common Stock, and shall furnish to Sub such
information and assistance (including updated lists of stockholders,
security position listings and computer files) as Sub may reasonably
request in communicating the Offer to the Company's stockholders.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the General Corporation Law of the State of Delaware, as
amended (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time (as hereinafter defined). Following the Merger, the separate
corporate existence of Sub shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Sub in accordance with the DGCL.
Section 2.2 Effective Time. The Merger shall become effective when the
Certificate of Merger or, if applicable, the Certificate of Ownership and Merger
(each, the "Certificate of Merger"), executed in accordance with the relevant
provisions of the DGCL, are accepted for record by the Secretary of State of the
State of Delaware. When used in this Agreement, the term "Effective Time" shall
mean the later of the date and time at which the Certificate of Merger is
accepted for record or such later time established by the Certificate of Merger.
The filing of the Certificate of Merger shall be made as soon as reasonably
practicable (but not later than the third business day) after the satisfaction
or waiver of the conditions to the Merger set forth herein.
Section 2.3 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL.
Section 2.4 Certificate of Incorporation and Bylaws; Directors and Officers.
Unless otherwise determined by Parent prior to the Effective Time, the
Certificate of Incorporation and Bylaws of Sub, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
4
<PAGE>
(a) The directors of Sub at the Effective Time shall, from and after
the Effective Time, be the directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal, in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
(b) The officers of the Company at the Effective Time and such other
persons as designated by Parent shall, from and after the Effective Time, be
the officers of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal, in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
Section 2.5 Conversion of Securities. As of the Effective Time, by virtue of
the Merger and without any action on the part of any stockholder of the Company:
(a) All shares of Common Stock that are held in the treasury of the
Company or by any wholly owned subsidiary of the Company and any shares of
Common Stock owned by Parent, Sub or any other wholly owned subsidiary of
Parent shall be canceled and no consideration shall be delivered in exchange
therefor.
(b) Each share of Common Stock issued and outstanding immediately prior
to the Effective Time (other than shares to be canceled in accordance with
Section 2.5(a) and other than Dissenting Shares (as defined in Section 2.7))
shall be converted into the right to receive from Parent in cash, without
interest, the Per Share Amount (the "Merger Consideration"). All such shares
of Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a certificate or
certificates (the "Certificates") representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration for such shares upon surrender of such Certificates.
(c) Each issued and outstanding share of the capital stock of Sub shall
be converted into and become one fully paid and nonassessable share of
Common Stock of the Surviving Corporation.
(d) Each option outstanding at the Effective Time to purchase shares of
Common Stock (a "Stock Option") granted under the Company's (i) Amended and
Restated 1997 Stock Option Plan, (ii) 1994 Non-employee Director's Stock
Option Plan, and (iii) any other option plan or agreement including stock
options granted outside the Company's stock option plans (collectively, the
"Company Option Plans") shall be converted into the right to receive, upon
the exercise of such Stock Option in accordance with the terms thereof
(including the provisions providing for full vesting of all unvested shares
in the event that such options are not assumed following a Change-in-Control
(as defined in the Company Option Plans)), an amount of cash equal to the
Merger Consideration multiplied by such number of shares of Common Stock
underlying such option.
5
<PAGE>
(e) The warrant expiring June 10, 1999 to purchase 200,000 shares of
Common Stock at a price of $3.30 per share (the "Warrant"), shall be
exercisable, from and after the Effective Time and in accordance with the
terms thereof, for an amount of cash equal to the Merger Consideration
multiplied by 200,000.
(f) The Company's $1.8 million 10.0% convertible subordinated note due
2001 (the "Note"), convertible into a maximum of 400,000 shares of Common
Stock, shall be convertible, from and after the Effective Time and in
accordance with the terms thereof, for an amount of cash equal to the Merger
Consideration multiplied by such number of shares of Common Stock as such
note was convertible into prior to the Effective Time assuming that the Note
was fully convertible at that time.
Section 2.6 Payment of Certificates. (a) Paying Agent. Prior to the
Effective Time, Parent shall appoint ChaseMellon Shareholder Services LLC or
such other commercial bank or trust company designated by Parent and reasonably
acceptable to the Company to act as paying agent hereunder (the "Paying Agent")
for the payment of the Merger Consideration upon surrender of Certificates. All
of the fees and expenses of the Paying Agent shall be borne by Parent.
(b) Surviving Corporation to Provide Funds. Parent shall take all steps
necessary to enable and cause the Surviving Corporation to provide the
Paying Agent with cash in amounts necessary to pay for all of the shares of
Common Stock pursuant to Section 2.5 (determined as though there are no
Dissenting Shares (as hereinafter defined)), when and as such amounts are
needed by the Paying Agent.
(c) Payment Procedures. As soon as practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of a Certificate,
other than Parent, the Company and any wholly owned subsidiary of Parent or
the Company, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon actual delivery of the Certificates to the Paying Agent and
shall be in a form and have such other provisions as Parent may reasonably
specify) and (ii) instructions for the use thereof in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such
other agent or agents as may be appointed by the Surviving Corporation,
together with such letter of transmittal, duly executed and completed in
accordance with the instructions thereto, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor the amount of cash into
which the shares of Common Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.5, and the Certificates so
surrendered shall forthwith be canceled. No interest will be paid or will
accrue on the cash payable upon the surrender of any Certificate. If payment
is to be made to a person other than the person in whose name the
Certificate so surrendered is registered, it shall be a condition of payment
that such Certificate shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the transfer of such
Certificate or establish to the satisfaction of
6
<PAGE>
the Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 2.6, each Certificate
(other than Certificates representing Dissenting Shares and Certificates
representing any shares of Common Stock owned by Parent or any wholly owned
subsidiary of Parent or held in the treasury of the Company or by any wholly
owned subsidiary of the Company) shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender
the amount of cash, without interest, into which the shares of Common Stock
theretofore represented by such Certificate shall have been converted
pursuant to Section 2.5. Notwithstanding the foregoing, none of the Paying
Agent, the Surviving Corporation or any party hereto shall be liable to a
former stockholder of the Company for any cash or interest delivered to a
public official pursuant to applicable abandoned property, escheat or
similar laws. In the event any Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the
payment of the Merger Consideration in respect of the shares represented by
such Certificate, require the owner of such lost, stolen or destroyed
Certificate to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Paying
Agent.
Section 2.7 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL (but only to the extent
required thereby), shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting Shares")
will not be exchangeable for the right to receive the Merger Consideration, and
holders of such shares of Common Stock will be entitled to receive payment of
the appraised value of such shares of Common Stock in accordance with the
provisions of such Section 262 unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such shares of Common Stock will
thereupon be treated as if they had been converted into and have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. The Company will give Parent prompt
notice of any demands received by the Company for appraisals of shares of Common
Stock, and Parent shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of Parent,
make any payment with respect to any demands for appraisal or offer to settle or
settle any such demands.
Section 2.8 Merger Without Meeting of Stockholders. Notwithstanding the
foregoing in this Article II, in the event that Sub, or any other direct or
indirect subsidiary of Parent, shall acquire at least 90 percent of the
outstanding shares of Common Stock, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
Section 2.9 No Further Ownership Rights in Common Stock. From and after the
Effective Time, the holders of shares of Common Stock which were outstanding
immediately
7
<PAGE>
prior to the Effective Time shall cease to have any rights with respect to such
shares of Common Stock except as otherwise provided in this Agreement or by
applicable law. All cash paid upon the surrender of Certificates in accordance
with the terms hereof shall be deemed to have been issued in full satisfaction
of all rights pertaining to the shares of Common Stock.
Section 2.10 Closing of Company Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company as follows:
Section 3.1 Organization and Qualification. Each of Parent and Sub is a
corporation duly organized and validly existing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority necessary to own, lease and operate the properties it purports to own,
operate or lease and to carry on its business as it is now being conducted,
except as would not reasonably be expected to prevent or delay consummation of
the Merger, or otherwise materially and adversely affect the ability of Parent
or Sub to perform their respective obligations under this Agreement.
Section 3.2 Authority Relative to this Agreement. Each of Parent and Sub has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and Sub and the consummation by Parent and Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Parent and Sub, and no other corporate
proceedings on the part of Parent or Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. The Board of
Directors of Parent has determined that it is advisable and in the best interest
of Parent's stockholders for Parent to enter into this Agreement and to
consummate, upon the terms and subject to the conditions of this Agreement, the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Parent and Sub and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of Parent and Sub.
Section 3.3 No Conflict; Required Filings and Consents. The execution and
delivery of this Agreement by Parent and Sub do not, and the performance of this
Agreement by Parent and Sub will not, (i) conflict with or violate Parent's
Memorandum of Association or Sub's Certificate of Incorporation or the Bylaws of
Parent or Sub, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or any of its subsidiaries or by which
its or their respective properties are bound or affected, or (iii) result
8
<PAGE>
in any breach of or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or impair Parent's or any of its
subsidiaries' rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of Parent or any of its subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
subsidiaries is a party or by which Parent or any of its subsidiaries or its or
any of their respective properties are bound or affected, except in any such
case for any such conflicts, violations, breaches, defaults or other occurrences
that would not reasonably be expected to prevent or delay consummation of the
Merger, or otherwise materially and adversely affect the ability of Parent or
Sub to perform their respective obligations under this Agreement.
(b) The execution and delivery of this Agreement by Parent and Sub does
not, and the performance of this Agreement by Parent and Sub will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange
Act, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder (the "HSR Act"), and the filing and recordation of
appropriate merger or other documents as required by the DGCL, and (ii)
where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not reasonably be
expected to prevent or delay consummation of the Merger, or otherwise
materially and adversely affect the ability of Parent or Sub to perform
their respective obligations under this Agreement.
Section 3.4 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Sub.
Section 3.5 Ownership of Sub; No Prior Activities. (a) Sub is an indirect,
wholly-owned subsidiary of Parent and was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and except
for this Agreement and any other agreements or arrangements contemplated by
this Agreement, Sub has not and will not have incurred, directly or
indirectly, through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind
whatsoever or entered into any agreements or arrangements with any person.
Section 3.6 Financing. Parent or Sub have sufficient funds available to
enable Sub to purchase all outstanding shares, on a fully diluted basis, of
Common Stock and to pay all fees and expenses related to the transactions
contemplated by this Agreement.
9
<PAGE>
Section 3.7 Full Disclosure. No statement contained in any certificate or
schedule furnished or to be furnished by Parent or Sub to the Company in, or
pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub as follows:
Section 4.1 Organization and Qualification; Subsidiaries. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being conducted, except where
the failure to be so organized, existing and in good standing or to have such
power and authority would not reasonably be expected to have a Material Adverse
Effect (as defined in Section 9.10 of this Agreement). The Company is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not reasonably be expected
to have a Material Adverse Effect. The Company does not have any subsidiaries.
Except as set forth in Section 4.1 of the written disclosure schedule previously
delivered by the Company to Parent (the "Disclosure Schedule") or the SEC
Reports (as defined below), the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity, with respect
to which interest the Company has invested or is required to invest $100,000 or
more, excluding securities in any publicly traded company held for investment by
the Company and comprising less than five percent of the outstanding stock of
such company.
Section 4.2 Certificate of Incorporation and Bylaws. The Company has
heretofore furnished to Parent a complete and correct copy of its Certificate of
Incorporation and Bylaws as most recently restated and subsequently amended to
date. Such Certificate of Incorporation and Bylaws are in full force and effect.
The Company is not in violation of any of the provisions of its Certificate of
Incorporation or Bylaws.
Section 4.3 Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock, par value $.001 per share (the "Preferred Stock"). As of May 23, 1998,
4,252,985 shares of Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable, and no shares were held in
treasury, (ii) no shares of Preferred Stock were outstanding or held in
treasury, (iii) 1,535,044 shares of Common Stock were reserved for
10
<PAGE>
future issuance pursuant to outstanding stock options granted under the
Company's Option Plans, (iv) 191,283 shares of Common Stock were reserved for
future issuance pursuant to the Company's 1994 Employee Stock Purchase Plan (the
"ESPP"), (v) 200,000 shares of Common Stock were reserved for future issuance
pursuant to the Warrant, and (vi) 400,000 shares of Common Stock were reserved
for future issuance pursuant to the Note. No material change in such
capitalization has occurred since May 23, 1998. Except as set forth in Section
4.1, this Section 4.3 or Section 4.11 or in Section 4.3 or Section 4.11 of the
Disclosure Schedule or the SEC Reports, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of the Company or obligating the Company to
issue or sell any shares of capital stock of, or other equity interests in, the
Company. All shares of Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable. Except as disclosed in Section 4.3 of the Disclosure Schedule
or the SEC Reports, there are no obligations, contingent or otherwise, of the
Company to repurchase, redeem or otherwise acquire any shares of Common Stock or
to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity.
Section 4.4 Authority Relative to this Agreement. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated (other than the
adoption of this Agreement by the holders of at least a majority of the
outstanding shares of Common Stock entitled to vote in accordance with the DGCL
and the Company's Certificate of Incorporation and Bylaws). The Board of
Directors of the Company has determined that it is advisable and in the best
interest of the Company's stockholders for the Company to enter into this
Agreement and to consummate, upon the terms and subject to the conditions of
this Agreement, the transaction contemplated hereby. This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by Parent and Sub, as applicable,
constitutes a legal, valid and binding obligation of the Company.
Section 4.5 Contracts; No Conflict; Required Filings and Consents. (a)
Section 4.5(a) of the Disclosure Schedule includes a list of (i) all loan
agreements, indentures, mortgages, pledges, conditional sale or title retention
agreements, security agreements, equipment obligations, guaranties, standby
letters of credit, equipment leases or lease purchase agreements, each in an
amount equal to or exceeding $100,000, to which the Company is a party or by
which any of them is bound; and (ii) all agreements which, as of the date
hereof, are required to be filed as "material contracts" pursuant to the
requirements of the Exchange Act, as amended, and the SEC's rules thereunder
(each of the foregoing and any contract or agreement of the Company with any
customer listed on Schedule 4.21 of the Disclosure Schedule, being referred to
as a "Material Contract"). Except as set forth in Section 4.5(a) of the
Disclosure Schedule, the Company is not in default or violation (and to
11
<PAGE>
the Company's best knowledge, no event has occurred which with notice or lapse
of time or both would constitute a default or violation) of any Material
Contract, nor, to the knowledge of the Company, is any other party to any
Material Contract in default or violation thereof (and no event has occurred
which with notice or lapse of time or both would constitute such a default or
violation), except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(b) Except as set forth in Section 4.5(b) of the Disclosure Schedule,
the execution and delivery of this Agreement by the Company does not, and
the performance of this Agreement by the Company will not, (i) conflict with
or violate the Certificate of Incorporation or Bylaws of the Company, (ii)
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or by which its properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default), or
impair the Company's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is
a party or by which the Company or its properties is bound or affected,
except for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(c) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange
Act, the pre-merger notification requirements of the HSR, and the filing and
recordation of appropriate merger or other documents as required by the
DGCL, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would
not reasonably be expected to prevent or delay consummation of the Merger,
or otherwise prevent or delay the Company from performing its obligations
under this Agreement, or would not otherwise reasonably be expected to have
a Material Adverse Effect.
Section 4.6 Compliance; Permits. (a) Except as disclosed in Section 4.6 of
the Disclosure Schedule, the Company is not in conflict with, or in default or
violation of, any law, rule, regulation, order, judgment or decree applicable to
the Company or by which its properties is bound or affected, except for any such
conflicts, defaults or violations which would not reasonably be expected to have
a Material Adverse Effect.
(b) Except as disclosed in Section 4.6 of the Disclosure Schedule or
the SEC Reports, the Company holds all franchises, grants, authorization,
permits, licenses, easements, variances, exemptions, consents, certificates,
orders and approvals which are material to the operation of the business of
the Company as it is now being conducted
12
<PAGE>
("Permits"). The Company is in compliance with the terms of the Permits,
except where the failure to so comply would not reasonably be expected to
have a Material Adverse Effect.
Section 4.7 SEC Filings; Financial Statements. (a) The Company has filed all
forms, reports and documents required to be filed with the SEC since July 1,
1995 and has made available to Parent (i) its Annual Reports on Form 10-K for
the fiscal years ended July 1, 1995, June 29, 1996 and June 28, 1997, (ii) all
proxy statements relating to the Company's meetings of stockholders (whether
annual or special) held since July 1, 1995, (iv) all other reports or
registration statements filed by the Company with the SEC since July 1, 1997,
and (v) all amendments and supplements to all such reports and registration
statements filed by the Company with the SEC ((i) - (v) collectively, the "SEC
Reports"). Except as disclosed in Section 4.7 of the Disclosure Schedule or the
SEC Reports, the SEC Reports (i) were prepared in all material respects in
accordance with the requirements of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, or the Exchange Act, as the
case may be, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the financial statements (including, in each case, any
related notes thereto) contained in the SEC Reports was prepared in
accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly in all material respects
presents the financial position of the Company as at the respective dates
thereof and the results of its operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
Section 4.8 Absence of Certain Changes or Events. Except as set forth in
Section 4.8 of the Disclosure Schedule or the SEC Reports, since March 31, 1998
the Company has conducted its business in the ordinary course and there has not
occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the
Certificate of Incorporation or Bylaws of the Company; (iii) any damage to,
destruction or loss of any asset of the Company (whether or not covered by
insurance) that would reasonably be expected to have a Material Adverse Effect;
(iv) any material change by the Company in its accounting methods, principles or
practices; (v) any material revaluation by the Company of any of its assets,
including writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any other action
or event that would have required the consent of Parent pursuant to Section 5.1
had such action or event occurred after the date of this Agreement; or (vii) any
sale of a material amount of property of the Company, except in the ordinary
course of business.
Section 4.9 No Undisclosed Liabilities. Except as set forth in Section 4.9
of the Disclosure Schedule or the SEC Reports, the Company does not have any
liabilities (absolute, accrued, contingent or otherwise). Since March 31, 1998,
the Company has not
13
<PAGE>
incurred any liabilities (absolute, accrued, contingent or otherwise) other than
those liabilities incurred in the ordinary course of business consistent with
past practice, incurred in connection with this Agreement or which would not
reasonably be expected to have a Material Adverse Effect.
Section 4.10 Absence of Litigation. Except as set forth in Section 4.10 of
the Disclosure Schedule or the SEC Reports, there are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
overtly threatened against the Company, or any properties or rights of the
Company, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that would reasonably be
expected to have a Material Adverse Effect. Except as set forth in Section 4.10
of the Disclosure Schedule or the SEC Reports, since August 27, 1993, there have
been no actions, suits or proceedings made or pending against the Company
alleging (x) any Environmental Claims (as defined in Section 4.17) or (y) any
breach by the Company of applicable standards of conduct in rendering any
engineering, construction, design, operation, maintenance, management,
assessment, cleanup or remediation services, except for such actions, suits or
proceedings which, in the case of either clause (x) or (y) above, would not
reasonably be expected to result in liability to the Company of $25,000, in any
individual case, or $100,000 in the aggregate.
Section 4.11 Employee Benefit Plans; Employment Agreements. (a) Section
4.11(a) of the Company Disclosure Schedule lists all employee pension benefit
plans (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), all employee welfare benefit plans (as defined
in Section 3(1) of ERISA, and all other bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar fringe or employee benefit plans, programs or arrangements, and any
employment, executive compensation or severance agreements, written or
otherwise, as amended, modified or supplemented, for the benefit of, or relating
to, any former or current employee, officer or consultant (or any of their
beneficiaries) of the Company or any other entity (whether or not incorporated)
which is a member of a controlled group including the Company or which is under
common control with the Company (an "ERISA Affiliate") within the meaning of
Sections 414(b), (c), (m) or (o) of the Code or Section 4001(a) (14) or (b) of
ERISA, as well as each plan with respect to which the Company or an ERISA
Affiliate could incur liability under Title IV of ERISA or Section 412 of the
Internal Revenue Code of 1986, as amended (the "Code") (together for the
purposes of this Section 4.11, the "Employee Plans"). Prior to the date of this
Agreement, the Company has provided to Parent copies of (i) each such written
Employee Plan (or a written description of any Employee Plan which is not
written) and all related trust agreements, insurance and other contracts
(including policies), summary plan descriptions, summaries of material
modifications and communications distributed to plan participants, (ii) the
three most recent annual reports on Form 5500 series, with accompanying
schedules and attachments, filed with respect to each Employee Plan required to
make such a filing, (iii) the most recent actuarial valuation for each Employee
Plan subject to Title IV of ERISA, (iv) the latest reports which have been filed
with the Department of Labor with respect to each Employee Plan required to make
such filing and (v) the most recent favorable determination letters issued for
each Employee Plan and related trust which is subject to Parts 1, 2 and 4 of
14
<PAGE>
the Subtitle B of Title I of ERISA (and, if an application for such
determination is pending, a copy of the application for such determination). For
purposes of this Section 4.11, the term "material," when used with respect to
(i) any Employee Plan, shall mean that the Company or an ERISA Affiliate has
incurred or may incur obligations in an amount exceeding $100,000 with respect
to such Employee Plan, and (ii) any liability, obligation, breach or
non-compliance, shall mean that the Company or an ERISA Affiliate has incurred
or may incur obligations in an amount exceeding $50,000, with respect to any one
such or series of related liabilities, obligations, breaches, defaults,
violations or instances of non-compliance.
(b) Except as set forth in Section 4.11(b) of the Company Disclosure
Schedule, (i) none of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, and none of the
Employee Plans is a "multiemployer plan" as such term is defined in Section
3(37) of ERISA; (ii) no party in interest or disqualified person (as defined
in Section 3(14) of ERISA and Section 4975 of the Code) has at any time
engaged in a transaction with respect to any Employee Plan which could
subject the Company or any ERISA Affiliate, directly or indirectly, to a
tax, penalty or other material liability for prohibited transactions under
ERISA or Section 4975 of the Code; (iii) no fiduciary of any Employee Plan
has breached any of the responsibilities or obligations imposed upon
fiduciaries under Title I of ERISA, which breach could result in any
material liability to the Company or any ERISA Affiliate; (iv) all Employee
Plans have been established and maintained substantially in accordance with
their terms and have operated in compliance in all material respects with
the requirements prescribed by any and all statutes (including ERISA and the
Code), orders, or governmental rules and regulations currently in effect
with respect thereto (including all applicable requirements for notification
to participants or the Department of Labor, Internal Revenue Service (the
"IRS") or Secretary of the Treasury), and may by their terms be amended
and/or terminated at any time subject to applicable law, and the Company has
performed all material obligations required to be performed by it under, is
not in any material respect in default under or violation of, and has no
knowledge of any default or violation by any other party to, any of the
Employee Plans; (v) each Employee Plan which is subject to Parts 1, 2 and 4
of Subtitle B of ERISA is the subject of a favorable determination letter
from the IRS, and nothing has occurred which may reasonably be expected to
impair such determination; (vi) all contributions required to be made with
respect to any Employee Plan pursuant to Section 412 of the Code, or the
terms of the Employee Plan or any collective bargaining agreement, have been
made on or before their due dates; (vii) with respect to each Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding
any such event for which the 30 day notice requirement has been waived under
the regulations to Section 4043 of ERISA) or any event described in Section
4062, 4063 or 4041 of ERISA has occurred for which there is any material
outstanding liability to the Company or any ERISA Affiliate nor would the
consummation of the transaction contemplated hereby (including the execution
of this agreement) constitute a reportable event for which the 30-day
requirement has not been waived; and (viii) neither the Company nor any
ERISA Affiliate has incurred or reasonably expects to incur any liability
under Title IV of ERISA (other than liability for premium payments to the
Pension Benefit Guaranty Corporation (the "PBGC") arising in the ordinary
course).
15
<PAGE>
(c) Section 4.11(c) of the Company Disclosure Schedule sets forth a
true and complete list of each current or former employee, officer or
director of the Company who holds (i) any option to purchase Company Common
Stock as of the date hereof, together with the number of shares of Company
Common Stock subject to such option, the option price of such option (to the
extent determined as of the date hereof), whether such option is intended to
qualify as an incentive stock option within the meaning of Section 422(b) of
the Code (an "ISO"), and the expiration date of such option; (ii) any shares
of Company Common Stock that are restricted; and (iii) any other right,
directly or indirectly, to receive Company Common Stock, together with the
number of shares of Company Common Stock subject to such right. Section
4.11(c) of the Company Disclosure Schedule also sets forth the total number
of any such ISOs and any such nonqualified options and other such rights.
(d) Section 4.11(d) of the Company Disclosure Schedule sets forth a
true and complete list of (i) all employment agreements with officers of the
Company; (ii) all agreements with consultants who are individuals obligating
the Company to make annual cash payments in an amount exceeding $50,000;
(iii) all agreements with respect to the services of independent contractors
or leased employees whether or not they participate in any of the Employee
Plans; (iv) all officers of the Company who have executed a non-competition
agreement with the Company; (v) all severance agreements, programs and
policies of the Company with or relating to its employees, in each case with
outstanding commitments exceeding $750,000, excluding programs and policies
required to be maintained by law; and (vi) all plans, programs, agreements
and other arrangements of Company which contain change in control
provisions.
(e) Except as set forth in Section 4.11(e) of the Company Disclosure
Schedule, no employee of the Company has participated in any employee
pension benefit plans (as defined in Section 3(2) of ERISA) maintained by or
on behalf of the Company. The PBGC has not instituted proceedings to
terminate any Employee Benefit Plan that is subject to Title IV of ERISA
(each, a "Defined Benefit Plan"). The Defined Benefit Plans have no
accumulated or waived funding deficiencies within the meaning of Section 412
of the Code nor have any extensions of any amortization period within the
meaning of Section 412 of the Code or 302 of ERISA been applied for with
respect thereto. The present value of the benefit liabilities (within the
meaning of Section 4041 of ERISA) of the Defined Benefit Plans, determined
on a termination basis using actuarial assumptions that would be used by the
PBGC does not exceed by more than $100,000 the value of the Plans' assets.
All applicable premiums required to be paid to the PBGC with respect to the
Defined Benefit Plans have been paid. No facts or circumstances exist with
respect to any Defined Benefit Plan which would give rise to a lien on the
assets of the Company under Section 4068 of ERISA or otherwise. All the
assets of the Defined Benefit Plans are readily marketable securities or
insurance contracts.
(f) Except as provided in Schedule 4.11(f) of the Company Disclosure
Schedule, (i) the Company has never maintained an employee stock ownership
plan (within the meaning of Section 4975(e)(7) of the Code) or any other
Employee Plan that invests in Company stock; (ii) the Company has not
proposed nor agreed to any increase in benefits under any Employee Plan (or
the creation of new benefits) or change in employee coverage
16
<PAGE>
which would increase the expense of maintaining any Employee Plan; (iii) the
consummation of the transactions contemplated by this Agreement will not
result in an increase in the amount of compensation or benefits or
accelerate the vesting or timing of payment of any benefits or compensation
payable in respect of any employee; (iv) no person will be entitled to any
severance benefits under the terms of any Employee Plan solely by reason of
the consummation of this transaction contemplated by this Agreement. All
actions required to be taken by a fiduciary of any Employee Plan in order to
effectuate the transactions contemplated by this Agreement shall comply with
the terms of such Plan, ERISA and all other applicable laws. All actions
required to be taken by a trustee of any Employee Plan that owns Company
stock shall have been duly authorized by the appropriate fiduciaries of such
Plan, and shall comply with the terms of Plan, ERISA and other applicable
laws.
(g) Each Employee Plan covering non-U.S. employees (an "International
Plan") has been maintained in substantial compliance with its terms and with
the requirements prescribed by any and all applicable Laws (including any
special provisions relating to registered or qualified plans where such
International Plan was intended to so qualify) and has been maintained in
good standing with applicable regulatory authorities. The fair market value
of the assets of each funded International Plan (or the liability of each
funded International Plan funded through insurance) is sufficient to procure
or provide for the benefits accrued thereunder through the Closing Date
according to the actuarial assumptions and valuations most recently used to
determine employer contributions to the International Plan.
(h) The Company has fiduciary liability insurance of at least
$1,000,000 in effect covering the fiduciaries of the Employee Plans
(including the Company) with respect to whom the Company may have liability.
Section 4.12 Labor Matters. Except as set forth in Section 4.12 of the
Disclosure Schedule or the SEC Reports, (i) there are no controversies pending
or, to the knowledge of the Company, threatened, between the Company and its
employees, which controversies would reasonably be expected to have a Material
Adverse Effect; (ii) the Company is not a party to any material collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company, nor does the Company know of any activities or
proceedings of any labor union to organize any such employees; and (iii) the
Company does not have any knowledge of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any employees of the Company
which would reasonably be expected to have a Material Adverse Effect.
Section 4.13 Limitation on Business Conduct. Except as set forth in Section
4.13 of the Disclosure Schedule or the SEC Reports, the Company is not a party
to, and has no obligation under, any contract or agreement, written or oral,
which contains any covenants currently or prospectively limiting in any material
respect the freedom of the Company to engage in any line of business or to
compete with any entity.
Section 4.14 Title to Property. Except as set forth in Section 4.14 of the
Disclosure Schedule or the SEC Reports, the Company owns the properties and
assets that it purports to
17
<PAGE>
own free and clear of all liens, charges, mortgages, security interests or
encumbrances of any kind ("Liens"), except for Liens which arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such properties or assets or Liens for taxes not yet due. With respect to the
property and assets it leases, the Company and to the best of the Company's
knowledge each of the other parties thereto, is in material compliance with such
leases and the Company holds a valid leasehold interest free of any Liens. The
rights, properties and assets presently owned, leased or licensed by the Company
include all rights, properties and assets necessary to permit the Company to
conduct its business in all material respects in the same manner as its
businesses has been conducted prior to the date hereof.
Section 4.15 Real Property; Leased Premises. (a) Each of the buildings,
improvements and structures located upon any real property and land owned by the
Company (collectively, the "Real Property"), and each of the buildings,
structures and premises leased by the Company (the "Leased Premises"), is in
reasonably good repair and operating condition, except as would not reasonably
be expected to have a Material Adverse Effect.
(b) Except as set forth in Section 4.15 of the Disclosure Schedule, the
Company has not received any notice of or writing referring to any
requirements by any insurance company that has issued a policy covering any
part of any Real Property or Leased Premises or by any board of fire
underwriters or other body exercising similar functions, requiring any
repairs or work to be done on any part of any Real Property or Leased
Premises, except as would not reasonably be expected to have a Material
Adverse Effect.
(c) Except as set forth in Section 4.15 of the Disclosure Schedule, all
public utilities used in the operation of each Real Property or Leased
Premises in the manner currently operated are installed and operating, and
all installation and connection charges have been paid in full or provided
for; and the plumbing, electrical, heating, air conditioning, ventilating,
septic and all other structural or material mechanical systems in the
buildings upon the Real Property and Leased Properties are in good working
order and working condition, so as to be adequate for the operation of the
business of the Company as heretofore conducted, except as would not
reasonably be expected to have a Material Adverse Effect.
Section 4.16 Taxes. (a) The Company has filed, or caused to be filed, all
material Tax Returns (as hereinafter defined) required to be filed by it, and
has paid, collected or withheld, or caused to be paid, collected or withheld,
all material amounts of Taxes (as hereinafter defined) required to be paid,
collected or withheld, other than such Taxes for which adequate reserves in the
Company Financial Statements have been established or which are being contested
in good faith. All such Tax Returns are complete and correct in all material
respects. There are no material claims or assessments pending against the
Company for any alleged deficiency in any Tax, there are no pending or, to the
Company's best knowledge, threatened audits or investigations for or relating to
any liability in respect of any Taxes, and the Company has not been notified in
writing of any proposed Tax claims or assessments against the Company (other
than in each case, claims or assessments that have been satisfied, claims or
assessments for which adequate reserves in the Company Financial
18
<PAGE>
Statements have been established or which are being contested in good faith or
are immaterial in amount). The Company has not executed any waivers or
extensions of any applicable statute of limitations to assess any material
amount of Taxes. There are no outstanding requests by the Company for any
extension of time within which to file any material Tax Return or within which
to pay any material amounts of Taxes shown to be due on any Tax Return. To the
best knowledge of the Company, there are no liens for material amounts of Taxes
on the assets of the Company except for statutory liens for current Taxes not
yet due and payable.
(b) For purposes of this Agreement, the term "Tax" shall mean any
federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, excise, franchise, employment, payroll,
alternative or add-on minimum, ad valorem, transfer or excise tax, or any
other tax, custom, duty, governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or penalty imposed by any
Governmental Authority. The term "Tax Return" shall mean a report, return or
other information (including any attached schedules or any amendments to
such report, return or other information) required to be supplied to or
filed with a governmental entity with respect to any Tax, including an
information return, claim for refund, amended return or declaration or
estimated Tax.
(c) Except as set forth in Section 4.16 of the Company's Disclosure
Schedule: (i) the Company has never been a member of an affiliated group
within the meaning of Section 1504 of the Code or filed or been included in
a combined, consolidated or unitary Tax Return; (ii) the Company is not
liable for Taxes of any other Person, nor is it currently under any
contractual obligation to indemnify any person with respect to Taxes (except
for customary agreements to indemnify lenders or security holders in respect
of taxes other than income taxes), nor is it a party to any tax sharing
agreement or any other agreement providing for payments by the Company with
respect to Taxes; (iii) the Company is not a party to any joint venture,
partnership or other arrangement or contract which could be treated as a
partnership for federal income tax purposes; (iv) the Company has not
entered into any sale leaseback or any leveraged lease transaction that
fails to satisfy the requirements of Revenue Procedure 75-21 (or similar
provisions of foreign law); (v) the Company has not agreed nor is it
required, as a result of a change in method of accounting or otherwise, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income; (vi) the
Company is not a party to any agreement, contract, arrangement or plan that
would result (taking into account the transactions contemplated by this
Agreement), separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code; (vii)
the Company is not liable with respect to any indebtedness the interest of
which is not deductible for applicable federal, foreign, state or local
income tax purposes; (viii) the Company is not a "consenting corporation"
under Section 341(F) of the Code or any corresponding provision of state,
local or foreign law; and (ix) none of the assets owned by the Company is
property that is required to be treated as owned by any other person
pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as
amended, as in effect immediately prior to the enactment of the Tax Reform
Act of 1986, or is "tax-exempt use property" within the meaning of Section
168(h) of the Code; provided that each of the
19
<PAGE>
statements made in clauses (i) through (ix) above shall be deemed true and
correct for purposes of this Agreement unless in any such case any failure
of such statement to be true or correct would reasonably be expected to
result in a Material Adverse Effect.
Section 4.17 Environmental Matters. (a) Except as set forth in Section 4.17
to the Company's Disclosure Schedule, the operations and properties of the
Company are in material compliance with the Environmental Laws (as hereinafter
defined), which compliance includes the possession by the Company of all permits
and governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof. The Company has not
received any communication (written or oral), whether from a governmental
authority, citizens group, employee or otherwise, that alleges that the Company
is not in such compliance, and, to the Company's best knowledge, there are no
circumstances or conditions related to the operations or properties of the
Company that may give rise to any such non-compliance in the future.
(b) Except as set forth in Section 4.17 of the Company's Disclosure
Schedule, there are no Environmental Claims (as hereinafter defined),
including claims based on "arranger liability," pending or, to the best
knowledge of the Company, threatened against the Company or against any
person or entity whose liability for any Environmental Claim the Company has
retained or assumed either contractually or by operation of law.
(c) To the Company's best knowledge, there are no past or present
actions, inactions, activities, circumstances, conditions, events or
incidents, including the release, emission, discharge, presence or disposal
of any Material of Environmental Concern (as hereinafter defined), that
would form the basis of any Environmental Claim against the Company or
against any person or entity whose liability for any Environmental Claim the
Company has retained or assumed either contractually or by operation of law,
except for such Environmental Claims that would not reasonably be expected
to have a Material Adverse Effect.
(d) No off-site locations where the Company has stored, disposed or
arranged for the disposal of Materials of Environmental Concern has been
listed on the National Priority List, CERCLIS, state Superfund site list or
state analog to CERCLIS, and the Company has not been notified that it is a
potentially responsible party at any such location; (ii) there are no
underground storage tanks located on property owned or leased by the
Company; (iii) to the Company's best knowledge, there is no asbestos
containing material contained in or forming part of any building, building
component, structure or office space owned, leased or operated by the
Company; and (iv) there are no polychlorinated biphenyls (PCB's) or
PCB-containing items contained in or forming part of any building, building
component, structure or office space owned, leased or operated by the
Company.
(e) For purposes of this Agreement:
(i) "Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any person or
entity alleging potential liability (including potential liability for
investigatory costs, cleanup costs, governmental response
20
<PAGE>
costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (x) the
presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned or operated
by the Company, or (y) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law.
(ii) "Environmental Laws" means all Federal, state, local and
foreign laws, regulations, codes, ordinances, any guidance or directive
relating to pollution or protection of human health and the environment
(including ambient air, surface water, ground water, land surface or
sub- surface strata), including laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern, including, but not
limited to CERCLA, RCRA, TSCA, OSHA, the Clean Air Act, the Clean Water
Act, each as amended or supplemented, and any applicable transfer
statutes or laws.
(iii) "Materials of Environmental Concern" means chemicals,
pollutants, contaminants, hazardous materials, hazardous substances and
hazardous wastes, toxic substances, petroleum and petroleum products,
asbestos-containing materials, poly chlorinated biphenyls, and any
other chemicals, pollutants or substances regulated under any
Environmental Law.
Section 4.18 Intellectual Property. (a) The Company owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or material that are used in the business
of the Company as currently conducted, except as would not reasonably be
expected to have a Material Adverse Effect.
(b) To the best knowledge of the Company, there are no valid grounds
for any bona fide claims (i) to the effect that the business of the Company
infringes on any copyright, patent, trademark, service mark or trade secret;
(ii) against the use by the Company, of any trademarks, trade names, trade
secrets, copyrights, patents, technology, know-how or computer software
programs and applications used in the business of the Company as currently
conducted; (iii) challenging the ownership, validity or effectiveness of any
of the patents, registered and material unregistered trademarks and service
marks, registered copyrights, trade names and any applications therefor
owned by the Company (the "Company Intellectual Property Rights") or other
trade secret material to the Company; or (iv) challenging the license or
legally enforceable right to use of any third-party patents, trademarks,
service marks and copyrights by the Company, except, in each case, for
claims that, if determined adversely to the Company, would not reasonably be
expected to have a Material Adverse Effect.
(c) To the best knowledge of the Company, all material patents,
registered trademarks, service marks and copyrights held by the Company are
valid and subsisting. Except as set forth in Section 4.18(c) of the
Disclosure Schedule or the SEC Reports, to the
21
<PAGE>
Company's knowledge, there is no material unauthorized use, infringement or
misappropriation of any of the Company Intellectual Property by any third
party, including any employee or former employee of the Company.
Section 4.19 Insurance. All material fire and casualty, general liability,
professional liability, business interruption, product liability and sprinkler
and water damage insurance policies maintained by the Company are with reputable
insurance carriers, are in full force and effect with no premium delinquencies,
provide full and adequate coverage for all normal risks incident to the business
of the Company and its properties and assets and are in character and amount at
least equivalent to that carried by persons engaged in similar businesses and
subject to the same or similar perils or hazards, except as would not reasonably
be expected to have a Material Adverse Effect.
Section 4.20 Accounts Receivable. The accounts receivable of the Company as
reflected in the most recent financial statements contained in the SEC Reports,
to the extent uncollected on the date hereof, and the accounts receivable
reflected on the books of the Company are valid and existing and represent
monies due, and the Company has made reserves reasonably considered adequate for
receivables not collectible in the ordinary course of business, and (subject to
the aforesaid reserves) are not subject to any refunds or other adjustments or
to any defenses, rights of set-off, assignments, restrictions, encumbrances or
conditions enforceable by third parties on or affecting any thereof, except for
such refunds, adjustments, defenses, rights of set-off, assignments,
restrictions, encumbrances or conditions as would not reasonably be expected to
have a Material Adverse Effect.
Section 4.21 Customers. Section 4.21 of the Disclosure Schedule sets forth a
list of the Company's twenty five (25) largest customers (detailed, in the case
of government agencies, by separate government agency) in terms of gross sales
for the fiscal year ended June 28, 1997. Except as set forth in Section 4.21 of
the Disclosure Schedule, since June 28, 1997 there have not been any adverse
changes in the business relationships of the Company with any of the customers
named therein that would constitute a Material Adverse Effect.
Section 4.22 Interested Party Transactions. Except as set forth in Section
4.22 of the Disclosure Schedule or the SEC Reports, since the date of the
Company's proxy statement dated November 6, 1997, no event has occurred that
would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC,
except for contracts entered into in the ordinary course of business of the
Company, on an arms-length basis, with terms no less favorable to the Company
than would reasonably be expected in a similar transaction with an unaffiliated
third party.
Section 4.23 Absence of Certain Payments. None of the Company or any of its
affiliates or any of their respective officers, directors, employees or agents
or other people acting on behalf of any of them have (i) engaged in any activity
prohibited by the United States Foreign Corrupt Practices Act of 1977 or any
other similar law, regulation, decree, directive or order of any other country
and (ii) without limiting the generality of the preceding clause (i), used any
corporate or other funds for unlawful contributions, payments,
22
<PAGE>
gifts or entertainment, or made any unlawful expenditures relating to political
activity to government officials or others. None of the Company or any of its
affiliates or any of their respective directors, officers, employees or agents
of other persons acting on behalf of any of them, has accepted or received any
unlawful contributions, payments, gifts or expenditures.
Section 4.24 Takeover Statute. The Board of Directors of the Company has
taken all appropriate action so that neither Parent nor Sub will be an
"interested stockholder" within the meaning of Section 203 of the DGCL.
Section 4.25 Opinion of Financial Advisor. The Company has been advised by
its financial advisor, J. C. Bradford & Co. that in its opinion, as of the date
hereof, the Merger Consideration is fair to the holders of the Common Stock.
Section 4.26 Brokers. No broker, finder or investment banker (other than J.
C. Bradford, the fees and expenses of whom will be paid by the Company) is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company. The Company has heretofore furnished to
Parent a complete and correct copy of all agreements between the Company and J.
C. Bradford & Co. pursuant to which such firm would be entitled to any payment
relating to the transactions contemplated hereunder.
Section 4.27 Full Disclosure. (i) No statement contained in any certificate
or schedule furnished or to be furnished by the Company to Parent or Sub in, or
pursuant to the provisions of, this Agreement and (ii) none of the monthly
consolidated financial statements for April, 1998 furnished by the Company to
Parent, including the accompanying commentary, contains or shall contain any
untrue statement of a material fact or omits to state any material fact
necessary, in the light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Conduct of Business by the Company Pending the Merger. Except as
otherwise expressly contemplated by this Agreement or consented to in advance by
Parent (which consent is in writing or subsequently confirmed in writing), which
consent shall not be unreasonably withheld, during the period from the date of
this Agreement through the earlier of the time that the change in composition of
the Board of Directors of the Company contemplated by Section 6.8 has occurred
and the Effective Time, the Company shall in all material respects carry on its
business in, and not enter into any material transaction other than in
accordance with, the regular and ordinary course and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact its current
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers and others
having business dealings with it. Without limiting the generality of the
foregoing, and except as otherwise expressly contemplated by this
23
<PAGE>
Agreement (including the time period specified above), the Company shall not,
without the prior consent of Parent (which consent is in writing or subsequently
confirmed in writing), which consent shall not be unreasonably withheld:
(a) (i) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the Company
in their capacity as such, (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of
the Company or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible
securities or equity equivalent (other than the issuance of Common Stock
during the period from the date of this Agreement through the Effective Time
upon the exercise of Stock Options or Warrants outstanding on the date of
this Agreement in accordance with their current terms);
(c) amend or change its Certificate of Incorporation or Bylaws;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets, in each case that are material, individually or
in the aggregate, to the Company;
(e) sell, lease or otherwise dispose of, or agree to sell, lease or
otherwise dispose of, any of its assets that are material, individually or
in the aggregate, to the Company;
(f) make any commitment or enter into any contract or agreement except
(i) in the ordinary course of business consistent with past practice or (ii)
for capital expenditures to be made in fiscal 1998 as identified in a
capital expenditure budget previously delivered to Parent;
(g) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice under financing
arrangements in existence on the date hereof, or make any loans, advances or
capital contributions to, or investments in, any other person, other than in
the ordinary course of business consistent with past practice;
24
<PAGE>
(h) except as may be required as a result of a change in law or
pursuant to GAAP, change any of the accounting principles or practices used
by it;
(i) make any tax election or settle or compromise any material income
tax liability;
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in, or contemplated by, the financial statements (or the
notes thereto) of the Company or incurred in the ordinary course of business
consistent with past practice;
(k) increase in any manner the compensation or fringe benefits of any
of its directors, officers and other key employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any
such employees, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee, other than
increases in the compensation of employees who are not officers or directors
of the Company made in the ordinary course of business consistent with past
practice, or (except pursuant to the terms of preexisting plans or
agreements) accelerate the vesting of any compensation or benefit;
(l) except in connection with the exercise of its fiduciary duties by
the Board of Directors of the Company as set forth in Section 5.2, waive,
amend or allow to lapse any term or condition of any confidentiality or
"standstill" agreement to which the Company is a party; or
(m) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of the representations
or warranties of the Company contained in this Agreement untrue or incorrect
at or prior to the Effective Time.
Section 5.2 Acquisition Proposals. From and after the date of this Agreement
and prior to the Effective Time, except as provided below, the Company agrees
(i) that the Company shall not, and the Company shall direct and use its
reasonable best efforts to cause its officers, directors, employees and
authorized agents and representatives (including any investment banker, attorney
or accountant retained by it) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of, any equity securities (except pursuant to the exercise of the
outstanding options, warrants or other rights set forth in Section 4.3 of this
Agreement, including, Section 4.3 of the Disclosure Schedule) or all or any
significant portion of the assets of, the Company (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with,
25
<PAGE>
any person or entity relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
(ii) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person or entity conducted
heretofore with respect to any of the foregoing and will take the necessary
steps to inform the person or entity referred to above of the obligations
undertaken in this Section 5.2; and (iii) that it will notify Parent immediately
if any such inquiries or proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it (but the Company shall not be required to
disclose the names of any party making or the terms of any such proposal);
provided, however, that nothing contained in this Section 5.2 shall prohibit the
Board of Directors of the Company from (x) furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide proposal in writing to engage in an Acquisition
Proposal transaction which the Board of Directors of the Company in good faith
determines represents a financially superior transaction for the stockholders of
the Company as compared to the Offer and the Merger if, and only to the extent
that, (A) the Board of Directors determines, after consultation with outside
counsel of national reputation (which may be the Company's regularly engaged
counsel) for its expertise in corporate and securities law matters as the
Company shall select ("Company Counsel"), that failure to take such action would
be inconsistent with the compliance by the Board of Directors with its fiduciary
duties to stockholders imposed by law, (B) prior to or concurrently with
furnishing such information to, or entering into discussions or negotiations
with, such a person or entity, the Company provides written notice to Parent to
the effect that it is furnishing information to, or entering into discussions or
negotiations with, such a person or entity, and (C) the Company keeps Parent
informed of the status (excluding, however, the identity of such person) of any
such discussions or negotiations; and (y) to the extent applicable, complying
with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal. Nothing in this Section 5.2 shall (t) permit the Company to terminate
this Agreement (except as contemplated by Section 8.1(b)(ii)), (u) permit the
Company to enter into any agreement with respect to an Acquisition Proposal
during the term of this Agreement, or (v) affect any other obligation of any
party under this Agreement.
Section 5.3 Annual Meeting of Stockholders. The Company shall defer and/or
postpone the holding of its 1998 Annual Meeting of Stockholders (the "Annual
Meeting") indefinitely pending consummation of the Merger unless the Company is
otherwise required to hold the Annual Meeting by an order from a court of
competent jurisdiction.
Section 5.4 Conduct of Business of Sub Pending the Merger. During the period
from the date of this Agreement through the Effective Time, Sub shall not engage
in any activities of any nature except as provided in or contemplated by this
Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
26
<PAGE>
Section 6.1 Company Stockholder Approval; Proxy Statement. (a) If approval
or action in respect of the Merger by the stockholders of the Company is
required by applicable law, the Company shall (i) if appropriate, call a meeting
of its stockholders (the "Stockholder Meeting") for the purpose of voting upon
the Merger and shall use its reasonable best efforts to obtain stockholder
approval of the Merger, (ii) hold the Stockholder Meeting as soon as practicable
following the purchase of shares of Common Stock pursuant to the Offer, (iii)
recommend to its stockholders the approval of the Merger through its Board of
Directors, and (iv) use its reasonable best efforts to obtain the necessary
approvals by its stockholders of the Merger, this Agreement and the transactions
contemplated hereby, but subject in each case to the fiduciary duties of its
Board of Directors under applicable law as determined by the Board of Directors
in good faith after consultation with Company Counsel. The record date for the
Stockholder Meeting shall be a date subsequent to the date Parent or Sub becomes
a record holder of Common Stock purchased pursuant to the Offer.
(b) If required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary version of the proxy statement to be sent to the stockholders of
the Company in connection with the Stockholders Meeting (the "Proxy
Statement"), or, if applicable, an information statement in lieu of a proxy
statement pursuant to Rule 14C under the Exchange Act (with all references
herein to the Proxy Statement being deemed to refer to such information
statement, to the extent applicable) with the SEC with respect to the
Stockholders Meeting and will use its reasonable best efforts to respond to
any comments of the SEC or its staff and to cause the Proxy Statement to be
cleared by the SEC. The Company will notify Parent of the receipt of any
comments from the SEC or its staff and of any request by the SEC or its
staff for amendments or supplements to the Proxy Statement or for additional
information and will supply Parent with copies of all correspondence between
the Company or any of its representatives, on the one hand, and the SEC or
its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel the opportunity to
review the Proxy Statement prior to its being filed with the SEC and shall
give Parent and its counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and Parent agrees to use its
reasonable best efforts, after consultation with the other parties hereto,
to respond promptly to all such comments of and requests by the SEC. As
promptly as practicable after the Proxy Statement has been cleared by the
SEC, the Company shall mail the Proxy Statement to the stockholders of the
Company. If at any time prior to the approval of this Agreement by the
Company's stockholders there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the Company will
prepare and mail to its stockholders such an amendment or supplement. The
Company represents and warrants to Parent and Sub that the Proxy Statement
(x) will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders, at the time of the
Stockholders Meeting, or at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading; and (y) will
comply in all material respects with the requirements of the Exchange Act.
Notwithstanding the foregoing, the Company makes
27
<PAGE>
no representation or warranty with respect to any information supplied by
Parent or Sub in writing for inclusion in the Proxy Statement.
(c) Parent agrees to cause all shares of Common Stock purchased
pursuant to the Offer and all other shares of Common Stock owned by Sub or
any other subsidiary or affiliate of Parent to be voted in favor of the
approval of the Merger.
(d) Parent and Sub represent and warrant to the Company that the
information supplied by Parent or Sub in writing for inclusion in the Proxy
Statement (or any amendment or supplement thereto) will not, on the date the
Proxy Statement is first mailed to stockholders, at the time of the
Stockholders Meeting or at the Effective Time contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Section 6.2 Access to Information; Confidentiality. The Company shall afford
to Parent, and to Parent's accountants, counsel, financial advisers and other
representatives, reasonable access and permit them to make such inspections as
they may reasonably require during normal business hours during the period from
the date of this Agreement through the Effective Time to all their respective
properties, books, contracts, commitments and records and, during such period,
the Company shall furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (ii)
all other information concerning its business, properties and personnel as
Parent may reasonably request.
Section 6.3 Fees and Expenses. (a) Except as provided in subsections (b) and
(c) below, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses.
(b) The Company agrees that if this Agreement is terminated pursuant
to:
(i) Section 8.1(d)(i) and
(I) (x) the Offer has remained open for a minimum of twenty
(20) business days, (y) the Minimum Condition has not been
satisfied and (z) an Acquisition Proposal existed during such
twenty day period; or
(II) at the time of such termination any person, entity or
group (as defined in Section 13(d)(3) of the Exchange Act)
(other than Parent or any of its affiliates) shall have
become the beneficial owner of more than 20% of the
outstanding shares of Common Stock and such person, entity or
group (or any affiliate of such person, entity or group)
thereafter (x) shall make an Acquisition Proposal at a price
per share of at least $10.50, and, in the case of a
consensual transaction with the Company, shall substantially
have negotiated the terms thereof, at any
28
<PAGE>
time on or prior to the date which is six months after such
termination of this Agreement, and (y) shall consummate such
Acquisition Proposal at any time on or prior to the date which
is one year after termination of this Agreement, in the case
of a consensual transaction, or six months after termination
of this Agreement, in the case of a non-consensual
transaction, in each case with a value per share of Common
Stock of at least $10.50 (with appropriate adjustments for
reclassifications of capital stock, stock dividends, stock
splits, reverse stock splits and similar events);
(ii) Section 8.1(b)(ii);
(iii) Section 8.1(c)(i); or
(iv) Section 8.1(c)(iii),
then the Company shall pay to Parent (such payment, with respect to clause (iv)
above only, to be Parent's sole and exclusive remedy) the sum of (a) $2 million,
plus (b) the amount of all documented out-of-pocket costs and expenses incurred
by Parent, Sub or their affiliates in an aggregate amount not to exceed $150,000
in connection with this Agreement or the transactions contemplated hereby. Such
payment shall be made as promptly as practicable but
in no event later than five business days following termination of this
Agreement pursuant to the immediately preceding sentence, or, in the case of
clause (i)(II) of the immediately preceding sentence, upon consummation of such
Acquisition Proposal, and shall be made by wire transfer of immediately
available funds to an account designated by Parent.
(c) The Company agrees that if this Agreement is terminated pursuant to
Section 8.1(c)(ii)(1), the Company shall pay to Parent the amount of all
documented out-of-pocket costs and expenses incurred by Parent, Sub or their
affiliates in an aggregate amount not to exceed $150,000 in connection with
this Agreement or the transactions contemplated hereby.
Section 6.4 Option Plans etc.. Prior to the Effective Time, the Company
shall take all such actions as shall be necessary to effectuate the provisions
of Sections 2.5(d), (e) and (f). The Company shall take such action as is
necessary to cause the ending date of the then current offering period under the
ESPP to be prior to the Effective Time and to terminate the ESPP as of the
Effective Time. The Company shall give written notice of the Merger to the
registered holder of the Warrant at least twenty (20) days prior to the
Effective Time or by such other time required pursuant to the terms thereof.
Section 6.5 Reasonable Best Efforts. Subject to Section 5.2 of this
Agreement, upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all actions (including entering into transactions),
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger, and the
other transactions
29
<PAGE>
contemplated by this Agreement, including (a) the prompt making of their
respective filings (including under the HSR Act) and thereafter the making of
any other required submission with respect to the Offer and the Merger, (b) the
obtaining of all additional necessary actions or non-actions, waivers, consents
and approvals from any applicable federal, state, foreign or supranational
court, commission, governmental body, regulatory or administrative agency,
authority or tribunal of competent jurisdiction (a "Governmental Entity") and
the making of all necessary registrations and filings (including filings with
Governmental Entities) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from any Governmental Entity, (c) the
obtaining of all necessary consents, approvals or waivers from third parties,
(d) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (e) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement; provided, however, that neither Parent, Sub nor the Company shall be
required to take any action pursuant to clauses (b), (c), (d) or (e) above that
would in any event have a Material Adverse Effect, in the case of the Company,
or any similar effect on Parent and/or its subsidiaries; and provided further
that neither Parent, Sub nor any of their affiliates shall be required to enter
into any transaction or take any other action that would require a waiver of, or
that is inconsistent with satisfaction of, the conditions of the Offer set forth
in clauses (a)(iii), (iv) or (v) in Exhibit A hereto.
Section 6.6 Public Announcements. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 6.7 Indemnification; Directors and Officers Insurance. (a) From and
after the Effective Time, the Surviving Corporation shall indemnify and hold
harmless all past and present officers and directors (the "Indemnified Parties")
of the Company to the full extent such persons may be indemnified by the Company
pursuant to Delaware law, the Company's Certificate of Incorporation and Bylaws
as in effect from time to time for acts and omissions occurring at or prior to
the Effective Time and shall advance reasonable litigation expenses incurred by
such persons in connection with defending any action arising out of such acts or
omissions, provided that such persons provide the requisite affirmations and
undertaking, as set forth in Section 145(e) of the DGCL.
(b) In addition, Parent will provide, or cause the Surviving
Corporation to provide, for a period of not less than six years after the
Effective Time, the Company's current directors and officers an insurance
and indemnification policy that provides coverage for events occurring at or
prior to the Effective Time (the "D&O Insurance") that is no less favorable
than the existing policy or, if substantially equivalent insurance coverage
is unavailable, the best available coverage; provided, however, that Parent
and the Surviving Corporation shall not be required to pay an annual premium
for the D&O Insurance in excess
30
<PAGE>
of 200% of the annual premium currently paid by the Company for such
insurance, but in such case shall purchase as much such coverage as
possible for such amount.
(c) This Section 6.7 is intended to benefit the Indemnified Parties and
shall be binding on all successors and assigns of Parent, Sub, the Company
and the Surviving Corporation. Parent hereby guarantees the performance by
the Surviving Corporation of the indemnified obligations pursuant to this
Section 6.7, which guaranty is absolute and unconditional and shall not be
affected by any circumstance whatsoever, including the bankruptcy or
insolvency of the Surviving Corporation or any other person. The Indemnified
Parties shall be intended third-party beneficiaries of this Section 6.7.
Section 6.8 Board Representation. (a) Promptly upon the purchase of shares
of Common Stock pursuant to the Offer, Parent shall be entitled to designate
such number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as will give Parent, subject to compliance with Section
14(f) of the Exchange Act, representation on the Board of Directors equal to the
product of (a) the total number of directors on the Board of Directors and (b)
the percentage that the number of shares of Common Stock purchased by Sub bears
to the number of shares of Common Stock outstanding, and the Company shall, upon
request by Parent, promptly increase the size of the Board of Directors and/or
exercise its reasonable best efforts to secure the resignations of such number
of directors as is necessary to enable Parent's designees to be elected to the
Board of Directors and shall cause Parent's designees to be so elected. The
Company shall take, at its expense, all action required pursuant to Section
14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.8
and shall include in the Schedule 14D-9 or otherwise timely mail to its
stockholders such information with respect to the Company and its officers and
directors as is required by Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 6.8. Parent will supply to the Company in writing
and be solely responsible for any information with respect to itself and its
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
(b) Following the election of designees of Parent pursuant to this
Section 6.8, prior to the Effective Time, any amendment of this Agreement or
the Certificate of Incorporation or Bylaws of the Company, any termination
of this Agreement by the Company, any extension by the Company of the time
for the performance of any of the obligations or other acts of Parent or Sub
or waiver of any of the Company's rights or obligations hereunder shall
require the concurrence of a majority of the directors of the Company then
in office who are directors as of the date hereof or persons designated by
such directors and neither were designated by Parent nor are employees of
the Company ("Continuing Directors"). Prior to the Effective Time, the
Company and Parent shall use all reasonable efforts to ensure that the
Company's Board of Directors at all times includes at least three Continuing
Directors.
Section 6.9 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Sub, and Parent and Sub shall give prompt notice to the
Company, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or
31
<PAGE>
inaccurate in any material respect at or prior to the Effective Time, or (ii)
any material failure of the Company, Parent or Sub, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 6.9 shall not cure such breach or non-compliance or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. If approval of the Merger by the holders of
the Common Stock is required by applicable law, the Merger shall have been
approved by the requisite vote of such holders.
(b) No Order. No court or other Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree or injunction which prohibits or has the effect of
prohibiting the consummation of the Merger; provided, however, that, prior
to invoking this provision, the Company, Parent and Sub shall use their
reasonable best efforts (subject to the other terms and conditions of this
Agreement) to have any such order, decree or injunction vacated.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after any approval by the stockholders
of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by the Company if:
(i) the Offer has not been timely commenced (except as a result of
actions or omissions by the Company) in accordance with Section 1.1(a);
or
(ii) there is an Acquisition Proposal which the Board of Directors
of the Company in good faith determines represents a financially
superior transaction for the stockholders of the Company as compared to
the Offer and the Merger, and the Board of Directors of the Company
determines, after
32
<PAGE>
consultation with Company Counsel, that failure to terminate this
Agreement would be inconsistent with the compliance by the Board of
Directors with its fiduciary duties to stockholders imposed by law;
provided, however, that the right to terminate this Agreement pursuant
to this clause shall not be available (x) if the Company has breached
in any material respect its obligations under Section 5.2, or (y) if,
prior to or concurrently with any purported termination pursuant to
this clause, the Company shall not have paid the fees and expenses
contemplated by Section 6.3(b); or
(iii) any representation or warranty of Parent or Sub shall not
have been true and correct in all material respects when made or shall
have ceased at any later date to be true and correct in all material
respects as if made at such later date; or
(iv) Parent or Sub fails to comply in any material respect with
any of its material obligations or covenants contained herein,
including the obligation of Sub to purchase shares of Common Stock
pursuant to the Offer;
(c) by Parent if:
(i) the Board of Directors of the Company shall have failed to
recommend, or shall have withdrawn, modified or amended in any material
respect its approval or recommendations of the Offer or the Merger or
shall have resolved to do any of the foregoing; or
(ii) any representation or warranty of the Company shall not have
been true and correct (1) in all material respects when made or (2)
other than where the failure to be true and correct would not
reasonably be expected, individually, or in the aggregate, to have a
Material Adverse Effect, shall have ceased at any later date to be true
and correct as if made at such later date; provided, however, that the
right to terminate this Agreement pursuant to this clause shall not be
available to Parent if Sub or any affiliate of Sub shall acquire shares
of Common Stock pursuant to the Offer; or
(iii) the Company shall have failed to comply in any material
respect with any of its material obligations or covenants contained
herein; provided, however, that the right to terminate this Agreement
pursuant to this clause shall not be available to Parent if Sub or any
affiliate of Sub shall acquire shares of Common Stock pursuant to the
Offer;
(d) by either Parent or the Company if:
(i) either (x) as the result of the failure of the Minimum
Condition or any of the other conditions set forth in Exhibit A hereto,
the Offer shall have terminated or expired in accordance with its terms
without Sub having purchased any shares of Common Stock pursuant to the
Offer, or (y) the Offer
33
<PAGE>
shall not have been consummated on or before October 31, 1998;
provided, however, that the right to terminate this Agreement pursuant
to this clause shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement results in the
failure of any such condition; or
(ii) any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability or further
obligation hereunder on the part of the Company, Parent or Sub or their
respective officers or directors (except for Section 6.3, which shall survive
the termination); provided, however, that nothing contained in this Section 8.2
shall relieve any party hereto from any liability for any willful and material
breach of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties hereto,
by or pursuant to action taken by their respective Boards of Directors, at any
time before or after any approval of the Merger by the stockholders of the
Company but, after the purchase of shares of Common Stock pursuant to the Offer,
no amendment shall be made which decreases the Merger Consideration or which in
any way materially adversely affects the rights of such stockholders, without
the further approval of such stockholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, the parties
hereto may (i) subject to Section 1.1 of this Agreement, extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto, or (iii) waive compliance
with any of the agreements or conditions contained herein which may legally be
waived. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the termination of this Agreement in
accordance with Article VIII or the Effective Time; provided, however, that
termination of this Agreement shall not
34
<PAGE>
relieve any party hereto from any liability for any willful and material breach
by such party of any such representations or warranties.
Section 9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by overnight
courier or telecopied (with a confirmatory copy sent by overnight courier) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or Sub, to:
Tyco International Ltd.
c/o Tyco International (US) Inc.
One Tyco Park
Exeter, New Hampshire 03833
Attn: General Counsel, Tyco International (US) Inc.
Fax: (603) 778-7700
Conf: (603) 778-9700
with a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Attn: Joshua M. Berman, Esq.
Fax: (212) 715-8000
Conf: (212) 715-9100
(b) if to the Company to:
Sigma Circuits, Inc.
393 Mathew Street
Santa Clara, CA 95050
Attn: Philip S. Bushnell
Fax: (408) 727-0319
Conf: (408) 727-9169
with a copy to:
Cooley Godward LLP
3000 Sand Hill Road
Menlo Park, California 94025
Attn: Mark P. Tanoury, Esq.
Fax: (650) 854-2691
Conf: (650) 843-5000
35
<PAGE>
Section 9.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." As used in this Agreement, (i) "business day"
shall have the meaning ascribed thereto in Rule 14d-1(c)(6) under the Exchange
Act, and (ii) "subsidiary" shall have the meaning ascribed thereto in Rule 12b-2
under the Exchange Act.
Section 9.4 Counterparts. This Agreement may be executed in counterparts,
each such counterpart being deemed to be an original instrument and all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
including the documents and instruments referred to herein, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except for the provisions of Section 6.7 is not intended to confer upon
any person other than the parties any rights or remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 9.8 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party.
Section 9.9 Enforcement of this Agreement; Attorneys Fees. (a) The parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and
36
<PAGE>
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
(b) The prevailing party in any judicial action shall be entitled to
receive from the other party reimbursement for the prevailing party's
reasonable attorneys' fees and disbursements, and court costs. The
provisions of this Section 9.9(b) shall survive the termination of this
Agreement in accordance with Article VIII.
Section 9.10 Material Adverse Effect. When used in this Agreement, the term
"Material Adverse Effect" means any change, effect or circumstance that is or is
reasonably likely to be materially adverse to the business, assets (including
intangible assets), financial condition, prospects or results of operations of
the Company; provided, however, that the following shall be excluded from the
definition of "Material Adverse Effect" and from any determination as to whether
a Material Adverse Effect has occurred or may occur with respect to the Company:
the effects of changes that are applicable to (i) the Company's results of
operations for the fiscal quarter ending June 27, 1998, (ii) the United States
electronic interconnect industry generally, (iii) the United States economy
generally or (iv) the United States securities markets generally.
[SIGNATURE PAGE FOLLOWS]
37
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
TYCO INTERNATIONAL LTD.
By: /s/ Mark H.. Swartz
-------------------------------
Name: Mark H. Swartz
Title: Executive Vice President
T10 ACQUISITION CORP.
By: /s/ Mark H. Swartz
-------------------------------
Name: Mark H. Swartz
Title: Vice President
SIGMA CIRCUITS, INC.
By: /s/ B. Kevin Kelly
-------------------------------
Name: B. Kevin Kelly
Title: President and Chief Executive Officer
38
<PAGE>
EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Sub shall not
be required to accept for payment or pay for, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) of the Exchange Act, any
shares of Common Stock not theretofore accepted for payment or paid for and may
terminate or amend the Offer as to such shares of Common Stock, unless (i) there
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer that number of shares of Common Stock which would represent at least a
majority of the outstanding shares of Common Stock on a fully diluted basis (the
"Minimum Condition"), and (ii) any waiting period under the HSR Act applicable
to the purchase of shares of Common Stock pursuant to the Offer shall have
expired or been terminated; provided, however, that Parent and Sub shall extend
the expiration date of the Offer from time to time until July 31, 1998 if, when
and as necessary to satisfy any request for additional information by the DOJ or
FTC pursuant to the HSR Act. Furthermore, notwithstanding any other term of the
Offer or this Agreement, Sub shall not be required to accept for payment or,
subject as aforesaid, to pay for any shares of Common Stock not theretofore
accepted for payment or paid for, and may terminate or amend the Offer if at any
time on or after the date of this Agreement and before the acceptance of such
shares of Common Stock for payment or the payment therefor, any of the following
conditions exist or shall occur and remain in effect:
(a) there shall have been instituted, pending or threatened any action
or proceeding by any court or other Governmental Entity, which (i) seeks to
challenge the acquisition by Parent or Sub (or any of its affiliates) of
shares of Common Stock pursuant to the Offer, restrain, prohibit or delay
the making or consummation of the Offer or the Merger, or obtain damages in
connection therewith in an amount which would reasonably be expected to have
a Material Adverse Effect, (ii) seeks to make the purchase of or payment for
some or all of the shares of Common Stock pursuant to the Offer or the
Merger illegal, (iii) seeks to impose limitations on the ability of Parent
(or any of its affiliates) effectively to acquire or hold, or to require
Parent or the Company or any of their respective affiliates or subsidiaries
to dispose of or hold separate, any portion of the assets or the business of
Parent and its affiliates or any material portion of the assets or the
business of the Company and its subsidiaries taken as a whole, (iv) seeks to
impose material limitations on the ability of Parent (or its affiliates) to
exercise full rights of ownership of the shares of Common Stock purchased by
it, including, without limitation, the right to vote the shares purchased by
it on all matters properly presented to the stockholders of the Company, or
(v) seeks to materially restrict any future business activity by Parent (or
any of its affiliates) in the United States electronic interconnect
industry, including, without limitation, requiring the prior consent of any
person or entity (including any Governmental Entity) to future transactions
by Parent (or any of its affiliates); or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any statute, rule,
regulation,
39
<PAGE>
judgment, decree, order or injunction, that is reasonably likely to
directly or indirectly result in any of the consequences referred to in
clauses (i) through (v) of subsection (a) above; or
(c) the Merger Agreement shall have been terminated in accordance with
its terms; or
(d) any of the representations and warranties made by the Company in
the Merger Agreement (1) shall not have been true and correct in all
material respects when made, or (2) other than where the failure to be true
and correct will not reasonably be expected, individually or in the
aggregate to have a Material Adverse Effect, shall thereafter have ceased to
be true and correct in all material respects as if made as of such later
date (other than representations and warranties made as of a specified
date), or the Company shall not in all material respects have performed in a
timely manner each material obligation and agreement and complied in a
timely manner with each covenant to be performed and complied with by it
under the Merger Agreement; or
(e) the Company's Board of Directors shall have modified or amended its
recommendation of the Offer in any manner adverse to Parent or shall have
withdrawn its recommendation of the Offer, or shall have recommended
acceptance of any Acquisition Proposal or shall have resolved to do any of
the foregoing; or
(f) (i) any corporation, entity or "group" (as defined in Section
13(d)(3) of the Exchange Act) ("person"), other than Parent and Sub, shall
have acquired beneficial ownership of more than 20% of the outstanding
shares of Common Stock, or shall have been granted any options or rights,
conditional or otherwise, to acquire a total of more than 20% of the
outstanding shares of Common Stock; (ii) any new group shall have been
formed which beneficially owns more than 20% of the outstanding shares of
Common Stock; or (iii) any person (other than Parent or one or more of its
affiliates) shall have entered into an agreement in principle or definitive
agreement with the Company with respect to a tender or exchange offer for
any shares of Common Stock or a merger, consolidation or other business
combination with or involving the Company; or
(g) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock
Exchange, the American Stock Exchange or The Nasdaq Stock Market, (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (iii) a
commencement or escalation of a war, armed hostilities or other inter
national or national calamity directly involving the United States (that
materially and adversely effect the Company and/or Parent's electronic
interconnect business, (iv) any material limitation (whether or not
mandatory) by any Governmental Entity on, or any other event that is
reasonably likely materially and adversely to affect the extension of credit
by banks or other lending institutions in the
40
<PAGE>
United States, (v) any decline in either the Dow Jones Industrial Average or
the Standard and Poor's 500 Index by an amount in excess of 15% measured
from the close of business on the date of this Agreement, or (vi) in the
case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof; or
(h) any change, development, effect or circumstance shall have occurred
or be threatened that would reasonably be expected to have a Material
Adverse Effect; or
(i) the Company shall commence a case under any chapter of Title XI of
the United States Code or any similar law or regulation; or a petition under
any chapter of Title XI of the United States Code or any similar law or
regulation is filed against the Company which is not dismissed within 10
business days.
The foregoing conditions are for the sole benefit of Parent and Sub and may
be asserted by Parent or Sub regardless of the circumstances giving rise to any
such condition and may be waived by Parent or Sub, in whole or in part, at any
time and from time to time, in the sole discretion of Parent. The failure by
Parent or Sub at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any right, the waiver of such right with respect to any
particular facts or circumstances shall not be deemed a waiver with respect to
any other facts or circumstances, and each right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions, all
tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the Paying Agent to the tendering stockholders.
41
<PAGE>
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT is made and entered into as of this 1st day of
June, 1998, among TYCO INTERNATIONAL LTD., a Bermuda company ("Parent"), T10
ACQUISITION CORP., a Delaware corporation and an indirect, wholly owned
subsidiary of Parent ("Purchaser"), and the other parties signatory hereto
(each, a "Stockholder").
WHEREAS each Stockholder desires that SIGMA CIRCUITS, INC., a Delaware
corporation (the "Company"), Parent and Purchaser enter into an Agreement and
Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") with respect to the merger of Purchaser
with and into the Company (the "Merger"); and
WHEREAS each Stockholder is executing this Agreement as an inducement to
Parent to enter into and execute, and to cause Purchaser to enter into and
execute, the Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by Parent and
Purchaser of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
SECTION 1. Representations and Warranties. Each Stockholder severally, and
not jointly, represents and warrants to Parent and Purchaser as follows:
(a) Such Stockholder (individually or together with such other Stockholders
as indicated on Schedule A hereto) is the record or beneficial owner of the
number of shares of Common Stock, par value $.001 per share, of the Company (the
"Company Common Stock") and options or rights to acquire shares of Company
Common Stock, set forth opposite such Stockholder's name in Schedule A hereto
(as may be adjusted from time to time pursuant to Section 5, such Stockholder's
"Securities"). Except for such Stockholder's Securities and any other securities
of the Company subject hereto, such Stockholder does not have dispositive or
voting power over any other securities of the Company.
(b) Such Stockholder's Securities and the certificates or agreements
representing such Securities are now and at all times during the term hereof
will be held by such Stockholder, or by a nominee or custodian for the benefit
of such Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, except for any such encumbrances or proxies
arising hereunder.
(c) Such Stockholder understands and acknowledges that Parent is entering
into, and causing Purchaser to enter into, the Merger Agreement in reliance upon
such Stockholder's execution and delivery of this Agreement. Such Stockholder
acknowledges that the irrevocable proxy set forth in Section 4 is granted in
consideration for the execution and delivery of the Merger Agreement by Parent
and Purchaser.
SECTION 2. Agreement to Tender. Each Stockholder hereby severally agrees
that it shall tender its all of its shares of Company Common Stock, whether now
held or acquired anytime prior to expiration or termination of the Offer, into
the Offer (as defined in the Merger Agreement) and that it shall not withdraw
any Securities so tendered unless the Offer (i) is terminated in accordance with
the terms of the Merger Agreement or (ii) expires without such Stockholder's
Securities being purchased
<PAGE>
SECTION 3. Covenants. Each Stockholder severally, and not jointly, agrees
with, and covenants to, Parent and Purchaser as follows:
(a) Such Stockholder shall not, except as contemplated by the terms of this
Agreement, (i) transfer (the term "transfer" shall include, without limitation,
for the purposes of this Agreement, any sale, gift, pledge or other
disposition), or consent to any transfer of, any or all of such Stockholder's
Securities or any interest therein, (ii) enter into any contract, option or
other agreement or understanding with respect to any transfer of any or all of
such Securities or any interest therein, (iii) grant any proxy,
power-of-attorney or other authorization or consent in or with respect to such
Securities, (iv) deposit such Securities into a voting trust or enter into a
voting agreement or arrangement with respect to such Securities or (v) take any
other action that would in any way restrict, limit or interfere with the
performance of its obligations hereunder or the transactions contemplated
hereby; provided, however, that nothing in this Agreement shall prohibit a
Stockholder from making charitable contributions of up to a total of 10% of the
number of shares of Company Common Stock set forth for such Stockholder on
Schedule A.
(b) Such Stockholder shall not, nor shall it permit any investment banker,
attorney or other adviser or representative of such Stockholder acting on its
behalf to, directly or indirectly, (i) solicit, initiate or encourage the
submission of, any Acquisition Proposal (as defined in the Merger Agreement) or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information with respect to, or take any other action to facilitate
any inquiries or the making of any proposal that constitutes, or may reasonably
be expected to lead to, any Acquisition Proposal, provided that the foregoing
restrictions shall not be applicable in any case to the extent that, pursuant to
the Merger Agreement, such restrictions would not be applicable to the Company.
SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy.
(a) Each Stockholder hereby irrevocably (except in accordance with the
provisions of Section 8) grants to, and appoints, Parent or its assignee and
Jeff Mattfolk, Brian Moroze and any other individual who shall hereafter be
designated by Parent or its assignee, such Stockholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of such Stockholder, to vote all of such Stockholder's Securities that
are voting securities, or grant a consent or approval in respect of such
Securities, at any meeting of stockholders of the Company or at any adjournment
thereof or in any other circumstances upon which their vote, consent or other
approval is sought, against (i) any merger agreement or merger (other than the
Merger Agreement and the Merger), consolidation, combination, sale of
substantial assets, reorganization, joint venture, recapitalization,
dissolution, liquidation or winding up of or by the Company and (ii) any
amendment of the Company's Certificate of Incorporation or By-laws or other
proposal or transaction (including any consent solicitation to remove or elect
any directors of the Company) involving the Company or any of its subsidiaries
which amendment or other proposal or transaction would in any manner impede,
frustrate, prevent or nullify, or result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under or with respect to, the Offer, the Merger, the Merger Agreement or any of
the other transactions contemplated by the Merger Agreement (each of the
foregoing in clause (i) or (ii) above, a "Competing Transaction").
(b) Such Stockholder represents that any proxies heretofore given in respect
of such Stockholder's Securities are not irrevocable, and that any such proxies
are hereby revoked.
(c) Such Stockholder hereby affirms that the irrevocable proxy set forth in
this Section 4 is given in connection with the execution of the Merger
Agreement, and that such irrevocable proxy is given to secure the performance of
the duties of the Stockholder under this Agreement. Such Stockholder hereby
further affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked (except in accordance with the provisions of
2
<PAGE>
Section 8). Such Stockholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such
irrevocable proxy is executed and intended to be irrevocable in accordance with
the provisions of Section 212 of the Delaware General Corporation Law (the
"DGCL").
SECTION 5. Certain Events. Each Stockholder agrees that this Agreement and
the obligations hereunder shall attach to such Stockholder's Securities and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Securities shall pass, whether by operation of law or
otherwise, including without limitation such Stockholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Company Common Stock, or the acquisition
of additional shares of Company Common Stock or other securities or rights of
the Company by any Stockholder, the number of Securities listed on Schedule A
beside the name of such Stockholder shall be adjusted appropriately and this
Agreement and the obligations hereunder shall attach to any additional shares of
Company Common Stock or other securities or rights of the Company issued to or
acquired by such Stockholder.
SECTION 6. Stop Transfer. The Company agrees with, and covenants to, Parent
that the Company shall not register the transfer of any certificate or agreement
representing any Stockholder's Securities, unless such transfer is made to
Parent or Purchaser or otherwise in compliance with this Agreement. Each
Stockholder acknowledges that its Securities will be placed by the Company on
the "stop-transfer list" maintained by the Company's transfer agent until this
Agreement is terminated pursuant to its terms.
SECTION 7. Further Assurances. Each Stockholder shall, upon request of
Parent or Purchaser execute and deliver any additional documents and take such
further actions as may reasonably be deemed by Parent or Purchaser to be
necessary or desirable to carry out the provisions hereof and to vest the power
to vote such Stockholder's Securities that are voting securities as contemplated
by Section 4 in Parent and the other irrevocable proxies described therein.
SECTION 8. Termination. This Agreement, and all rights and obligations of
the parties hereunder and the proxy provided in Section 4, shall terminate upon
the earlier of (a) the date upon which the Merger Agreement is terminated in
accordance with its terms, (b) with respect to each Stockholder, the date that
Parent or Purchaser shall have purchased and paid for the Company Common Stock
Securities of each Stockholder pursuant to Section 2 or (c) upon termination or
expiration of the Offer.
SECTION 9. Miscellaneous.
(a) Capitalized terms used and not otherwise defined in this Agreement shall
have the respective meanings assigned to such terms in the Merger Agreement.
(b) All notices, requests, claims, demands and other communications under
this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice): (i) if to Parent or Purchaser, to the
addresses set forth in Section 9.2 of the Merger Agreement; and (ii) if to a
Stockholder, to the address set forth on Schedule A hereto, or such other
address as may be specified in writing by such Stockholder.
(c) The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
3
<PAGE>
(d) This Agreement may be executed in two or more counterparts, all of which
shall be considered one and the same agreement, and shall become effective (even
without the signature of any other Stockholder) as to any Stockholder when one
or more counterparts have been signed by each of Parent, Purchaser and such
Stockholder and delivered to Parent, Purchaser and such Stockholder.
(e) This Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(f) This Agreement shall be governed by, and construed in accordance with,
the laws of the state of New York and, to the extent expressly provided herein,
the DGCL, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of law
or otherwise, by any of the parties without the prior written consent of the
other parties, except (i) by laws of descent and (ii) Parent may assign, in its
sole discretion, any and all of its rights, interests or obligations under this
Agreement to any entity controlling, controlled by or under common control with
Parent. Any assignment in violation of the foregoing shall be void.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any event, be held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions herein and the application
thereof to any other circumstances, shall remain in full force and effect, shall
not in any way be affected, impaired or invalidated, and shall be enforced to
the fullest extent permitted by law.
(i) Each Stockholder agrees that irreparable damage would occur and that
Parent and Purchaser would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
Parent and Purchaser shall be entitled to an injunction or injunctions to
prevent breaches by any Stockholder of this Agreement and to enforce
specifically the terms and provisions of this Agreement. Each of the parties
hereto (i) consents to submit such party to the personal jurisdiction of any
Federal court located in the State of New York in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that such party will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, (iii)
agrees that such party will not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than a Federal
court located in the State of New York. The prevailing party in any judicial
action shall be entitled to receive from the other party reimbursement for the
prevailing party's reasonable attorneys' fees and disbursements, and court
costs.
(j) No amendment, modification or waiver in respect of this Agreement shall
be effective against any party unless it shall be in writing and signed by such
party.
[The Remainder of this Page is Blank]
4
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
TYCO INTERNATIONAL LTD.
By: /s/ Mark H. Swartz
----------------------------
Name: Mark H. Swartz
Title: Executive Vice President
T10 ACQUISITION CORP.
By: /s/ Mark H. Swartz
----------------------------
Name: Mark H. Swartz
Title: Vice President
ACKNOWLEDGED AND AGREED
TO AS TO SECTION 6:
SIGMA CIRCUITS, INC.
By: /s/ B. Kevin Kelly
--------------------------
Name: B. Kevin Kelly
Title: President and Chief
Executive Officer
5
<PAGE>
Schedule A
<TABLE>
<CAPTION>
Number of Shares of Number of
Common Stock Options or other
Name, Address and Signature of Stockholder Owned Rights Owned
- ------------------------------------------ ----- ------------
<S> <C> <C>
Carl H.R. Brockl 378,786 413,000
Linda Brockl
1950 W. Fremont Street
Stockton, CA 94023
/s/ Carl H.R. Brockl
- -------------------------
CARL H.R. BROCKL
/s/ Linda Brockl
- -------------------------
LINDA BROCKL
/s/ Kevin Kelly
- -------------------------
B. Kevin Kelly 355,814
c/o Sigma Circuits, Inc.
/s/ Philip S. Bushnell
- -------------------------
Philip S. Bushnell 49,360 152,951
c/o Sigma Circuits, Inc.
/s/ Robert P. Cummins
- -------------------------
Robert P. Cummins 30,000 20,454
c/o Sigma Circuits, Inc.
</TABLE>
6
<PAGE>
[LOGO]
393 Mathew Street
Santa Clara, CA 95050
(408) 727-9169
June 5, 1998
DEAR SIGMA CIRCUITS, INC. STOCKHOLDER:
We are pleased to inform you that on June 1, 1998, Sigma Circuits, Inc.
("Sigma") entered into an agreement with Tyco International Ltd. ("Tyco") and
T10 Acquisition Corp., a wholly owned subsidiary of Tyco ("Purchaser"), which
provides for the acquisition of Sigma by means of a cash tender offer and a
subsequent merger.
As the first step of this acquisition, Purchaser is making a cash tender offer
for any and all outstanding shares of Sigma's common stock (the "Shares") at a
price of $10.50 per Share, net to the seller in cash. Subject to certain
conditions, Purchaser and Sigma will be merged subsequent to the completion of
the tender offer, and the remaining outstanding Shares will be converted into
the right to receive $10.50 per Share.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TENDER OFFER AND THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF SIGMA'S STOCKHOLDERS AND RECOMMENDS THAT
EVERY STOCKHOLDER OF THE COMPANY ACCEPT THE TENDER OFFER AND TENDER HIS OR HER
SHARES.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the Schedule 14D-9 that is being filed
today with the Securities and Exchange Commission, including the opinion of J.C.
Bradford & Co., L.L.C., the Company's financial advisor, to the effect that the
consideration to be received by the stockholders pursuant to the offer and the
merger is fair to such holders from a financial point of view.
In addition to the attached Schedule 14D-9, also enclosed with this letter is
the Purchaser's Offer to Purchase, dated June 5, 1998, together with related
materials, including a Letter of Transmittal to be used for tendering your
Shares. The Offer to Purchase and the Letter of Transmittal set forth in detail
the terms and conditions of the tender offer and provide instructions as to how
to tender your shares. I urge you to read the enclosed material carefully.
If you desire assistance in completing the Letter of Transmittal or tendering
your Shares, please call Morrow & Co., Inc., the Information Agent, collect at
(212) 754-8000 or call toll-free at (800) 566-9061.
Very truly yours,
[LOGO]
B. KEVIN KELLY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT 5
JOINT PRESS RELEASE OF TYCO AND THE COMPANY
CONTACT: CONTACT:
B. Kevin Kelly J. Brad McGee
President and Chief Executive Officer Senior Vice President
Sigma Circuits, Inc. Tyco International (US) Inc.
(408) 727-9169 (603) 778-9700
TYCO INTERNATIONAL TO ACQUIRE SIGMA CIRCUITS
HAMILTON, Bermuda and SANTA CLARA, Calif., June 2 (PR Newswire) -- Tyco
International Ltd. (NYSE: TYC, LSE: TYI, BSX: TYC)(Tyco), a diversified
manufacturing and service company, and Sigma Circuits, Inc. (Nasdaq: SIGA)
(Sigma), a leading manufacturer of electronic interconnect products,
announced today that they have entered into a definitive Merger Agreement
pursuant to which Tyco will purchase all of the outstanding common shares of
Sigma.
Under the Agreement, a subsidiary of Tyco will shortly commence a tender
offer to purchase all of Sigma's approximately 5.5 million shares of common
stock and common stock equivalents for $10.50 per share in cash. The offer is
conditioned on the tender of a majority of the outstanding shares of common
stock on a fully diluted basis, regulatory approvals, and certain other
conditions.
Sigma, with estimated fiscal 1998 revenues of approximately $94 million, is
headquartered in Santa Clara, California. They have four manufacturing
facilities in California, three in Santa Clara, and one in Stockton. Sigma is
a leading quick-turn manufacturer of specialized electronic interconnect
products, including multilayer rigid printed circuit boards, backplane
assemblies and subassemblies and flexible circuits. It will become part of
the Tyco Printed Circuit Group, headquartered in Stafford, CT, one of the
country's largest independent circuit board manufacturers.
"The Tyco Printed Circuit Group's significant organic growth over the last
three years has created a need for additional capacity. Sigma is an excellent
fit with the Tyco Printed Circuit Group as it provides us with the capacity
to expand our business organically. Sigma gives us west coast locations to
produce complex multilayer circuit boards, backplanes and flexible circuits
which readily complement the product lines and customer base of our printed
circuit operations," said L. Dennis Kozlowski, Tyco's Chairman and Chief
Executive Officer. Mr. Kozlowski also noted that the acquisition will provide
an immediate positive contribution to Tyco's earnings.
B. Kevin Kelly, President and Chief Executive Officer of Sigma stated, "This
transaction provides superior value to our shareholders. We are a natural
complement to the Tyco Printed Circuit Group, providing strategically located
manufacturing capacity through which the Tyco Printed Circuit Group can
continue its high rate of growth."
Tyco International Ltd., a diversified manufacturing and service company, is
the world's largest manufacturer and installer of fire protection systems,
the largest provider of electronic security services, and has strong
leadership positions in disposable medical products, packaging materials,
flow control products, electrical and electronic components and undersea
telecommunications systems. The company operates in more than 80 countries
around the world and has expected annual revenues in excess of $13 billion.
<PAGE>
SCHEDULE I
J. C. BRADFORD & CO.
CORPORATE FINANCE
330 COMMERCE STREET
NASHVILLE, TN 37201
May 29, 1998
The Board of Directors
Sigma Circuits, Inc.
393 Matthew Street
Santa Clara, CA 95050
Gentlemen:
Sigma Circuits, Inc. (the "Company"), Tyco International Ltd. ("Tyco") and
T10 Acquisition Corp., an indirect wholly-owned subsidiary of Tyco (the "Sub"),
propose to enter into an Agreement and Plan of Merger (the "Merger Agreement").
The Merger Agreement provides for the commencement by the Sub of a tender offer
(the "Offer") for all of the outstanding shares of Common Stock of the Company,
par value $0.001 per share (the "Shares"), at a price of $10.50 per Share, net
to the seller in cash, followed by a merger (the "Merger") of Sub with and into
the Company pursuant to which each outstanding Share (other than Shares held in
the treasury of the Company or by any wholly-owned subsidiary of the Company and
any shares owned by Tyco, Sub or any other wholly-owned subsidiary of Tyco) will
be converted into the right to receive $10.50 in cash.
You have asked us whether, in our opinion, the cash consideration to be
received by the stockholders of the Company in the Offer and the Merger is fair
to such stockholders from a financial point of view.
J.C. Bradford & Co., L.L.C., as part of its investment banking business,
engages in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for estate, corporate
and other purposes. We have acted as financial advisor to the Board of Directors
of the Company in connection with the proposed Offer and Merger and will receive
a fee from the Company for our services, a significant portion of which is
contingent upon consummation of the Offer.
In conducting our analysis and arriving at our opinion, we have considered
such financial and other information as we deemed appropriate including, among
other things, the following: (i) the Merger Agreement; (ii) the historical and
current financial position and results of operations of the Company; (iii)
certain internal financial analyses and forecasts of the Company prepared by
senior management, and provided to us as reasonable forecasts appropriate for
use in rendering our opinion; (iv) certain financial, securities and research
data of certain other companies in businesses similar to the Company, the
securities of which are publicly traded; (v) prices and premiums paid in certain
other acquisitions and transactions that we believed to be relevant; (vi)
historical and current price and trading activity for the Common Stock; and
(vii) such other financial studies, analyses and investigations as we deemed
appropriate for purposes of our opinion.
We also have held discussions with members of the senior management of the
Company regarding the past and current business operations, financial condition
and future prospects of the Company. With your permission, we have assumed that
financing for the Offer and the Merger has been irrevocably obtained, and that
the Merger Agreement has been executed and delivered by the parties thereto on
the terms contained in the most recent draft of the Merger Agreement supplied to
and reviewed by us.
I-1
<PAGE>
We have taken into account our assessment of general economic, market,
financial and other conditions and our experience in other transactions, as well
as our experience in securities valuation and our knowledge of the industry in
which the Company operates generally. Our opinion is necessarily based upon the
information made available to us and conditions as they currently exist and can
be evaluated as of the date hereof. We have relied upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of our opinion and have not assumed any responsibility for, nor
undertaken an independent verification of, such information. With respect to the
internal operating data and financial analyses and forecasts supplied to us, we
have assumed that such data, analyses and forecasts were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's senior management as to the recent and likely future performance of
the Company. Accordingly, we express no opinion with respect to such analyses or
forecasts or the assumptions on which they are based.
Our opinion does not address the relative merits of the proposed Offer and
Merger as compared to any alternative business strategies that might exist for
the Company or the effect of any other transactions in which the Company might
engage. Furthermore, we have not made an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Company, nor have we
been furnished with any such evaluations or appraisals.
In the ordinary course of our business, we may actively trade the equity
securities of the Company and Tyco for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Offer and the Merger, does
not constitute a recommendation to any stockholder as to whether such
stockholder should tender shares pursuant to the Offer or vote to approve the
Merger, and is not to be quoted or referred to, in whole or in part, in any
proxy statement, nor shall this letter be used for any other purposes, without
our prior written consent.
Based upon and subject to the foregoing, and based upon such other matters
as we consider relevant, it is our opinion that, as of the date hereof, the cash
consideration to be received by the stockholders of the Company in the Offer and
the Merger is fair to such stockholders from a financial point of view.
Very truly yours,
J.C. BRADFORD & CO., L.L.C.
I-2
