<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ADFlex Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
ADFlex Solutions, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------------------
(4) Date filed:
------------------------------------------------------------------------
<PAGE> 2
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO BE HELD APRIL 28, 1998
To the Stockholders of ADFlex Solutions, Inc.:
The Annual Meeting of Stockholders of ADFlex Solutions, Inc. (the
"Company") will be held at the Mesa Pavilion Hilton, 1011 West Holms Avenue,
Mesa, Arizona 85210 on Tuesday, April 28, 1998 at 2:00 p.m. MST for the
following purposes:
1. To elect five Directors to the Board of Directors;
2. To consider and act upon a proposal to ratify the appointment
of Ernst & Young LLP as the Company's independent auditors for
the year ending December 31, 1998; and
3. To transact such other business as may properly come before
the meeting.
Stockholders of record at the close of business on March 13, 1998 are
entitled to vote at the meeting and at any adjournment or postponement thereof.
Shares of Common Stock can be voted at the meeting only if the holder is present
or represented by proxy. A list of stockholders entitled to vote at the meeting
will be open for inspection at the Company's corporate headquarters for any
purpose germane to the meeting during ordinary business hours for 10 days prior
to the meeting.
A copy of the Company's Annual Report to Stockholders, which includes
certified financial statements, is enclosed.
By Order of the Board of Directors,
Donald E. Frederick, Secretary
Chandler, Arizona
March 26, 1998
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. PLEASE
COMPLETE, DATE, SIGN AND PROMPTLY MAIL THE ENCLOSED PROXY CARD IN THE
ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
ADFLEX SOLUTIONS, INC.
PROXY STATEMENT FOR THE ANNUAL STOCKHOLDERS' MEETING
TO BE HELD APRIL 28, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
GENERAL INFORMATION ................................................................................... 1
ELECTION OF DIRECTORS ................................................................................. 2
Nominees ..................................................................................... 2
Executive Officers ........................................................................... 3
Board Meetings and Committees of the Board of Directors ...................................... 3
Compensation of Directors .................................................................... 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ........................................ 4
EXECUTIVE COMPENSATION ................................................................................ 7
Summary Compensation ......................................................................... 7
Option Grants ................................................................................ 9
Aggregated Option Exercises and Fiscal Year-End Option Values ................................ 10
Information Regarding Repricing, Replacement or Cancellation and Regrant of Option Grants .... 10
Compensation Committee Report on 1997 Cancellations and Regrant of Options ................... 11
Compensation Committee Interlocks and Insider Participation .................................. 12
Employment Contracts, Termination of Employment and Change of Control ........................ 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION ............................................... 13
Compensation Philosophy ...................................................................... 13
Chief Executive Officer Compensation ......................................................... 15
COMPARISON OF STOCK PERFORMANCE ....................................................................... 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........................................................ 16
Certain Relationships ........................................................................ 16
Related Transactions ......................................................................... 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ............................................... 18
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR .................................................... 18
STOCKHOLDER PROPOSALS ................................................................................. 19
OTHER BUSINESS ........................................................................................ 19
</TABLE>
<PAGE> 4
PROXY STATEMENT
OF
ADFLEX SOLUTIONS, INC.
2001 WEST CHANDLER BOULEVARD
CHANDLER, ARIZONA 85224
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of ADFlex Solutions, Inc., a Delaware corporation (the
"Company"), of proxies for use at the Annual Meeting of Stockholders to be held
on April 28, 1998 at 2:00 p.m. MST or at any postponement or adjournment
thereof. The Annual Meeting will be held at the Mesa Pavilion Hilton, 1011 West
Holms Avenue, Mesa, Arizona 85210.
This Proxy Statement and the accompanying form of proxy are being first
mailed to stockholders on or about March 26, 1998. The stockholder giving the
proxy may revoke it at any time before it is exercised at the meeting by: (i)
delivering to the Secretary of the Company a written instrument of revocation
bearing a date later than the date of the proxy; or (ii) duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares; or
(iii) attending the meeting and voting in person (attendance at the meeting will
not in and of itself constitute revocation of a proxy). Any proxy which is not
revoked will be voted at the Annual Meeting in accordance with the stockholder's
instructions. If a stockholder returns a properly signed and dated proxy card
but does not mark any choices on one or more items, his or her shares will be
voted in accordance with the recommendations of the Board of Directors as to
such items. The proxy card gives authority to the proxies to vote shares in
their discretion on any other matter properly presented at the Annual Meeting.
Proxies will be solicited from the Company's stockholders by mail. The
Company will pay all expenses in connection with the solicitation, including
postage, printing and handling, and the expenses incurred by brokers,
custodians, nominees and fiduciaries in forwarding proxy material to beneficial
owners. Directors, officers and regular employees of the Company may make
further solicitation personally or by telephone, telegraph or mail.
Only holders (the "Stockholders") of the Company's common stock, par
value $0.01 per share (the "Common Stock"), at the close of business on March
13, 1998 (the "Record Date"), are entitled to notice of, and to vote at, the
Annual Meeting and any postponement or adjournment thereof. On the Record Date
there were 8,824,855 shares of Common Stock outstanding. Each share of Common
Stock is entitled to one vote on each matter to be considered at the Annual
Meeting. An affirmative vote of a plurality of the shares of Common Stock
represented and entitled to vote at the Annual Meeting is required for the
election of directors, and an affirmative vote of a majority of the shares of
Common Stock represented and entitled to vote at the Annual Meeting is required
for approval of all other items being submitted to the Stockholders for their
consideration. With regard to the election of directors, votes may be cast in
favor of or withheld from each nominee. Votes that are withheld will have the
effect of a negative vote. Abstentions may be specified on all proposals except
the election of directors. Abstentions are included in the determination of the
number of shares represented for a quorum. Abstentions will have the effect of a
negative vote on a proposal. Broker non-votes are not counted for purposes of
determining whether a quorum is present or whether a proposal has been approved.
Proxies will be tabulated by the Company's transfer agent. The Company will, in
advance of the Annual Meeting, appoint one or more Inspectors of Election to
count all votes and ballots at the Annual Meeting and make a written report
thereof.
The Annual Report of the Company for the year ended December 31, 1997
is being mailed to Stockholders with this Proxy Statement.
1
<PAGE> 5
ELECTION OF DIRECTORS
NOMINEES
The Board of Directors currently consists of five members. Directors
are elected by the Stockholders of the Company for one-year terms and hold
office until the next annual meeting of Stockholders and until their successors
are elected and qualified. The Board of Directors proposes that Rolando C.
Esteverena, Steve Sanghi, Richard P. Clark, William Kennedy Wilkie and Wade
Meyercord be elected to serve as directors. Each of the nominees is currently
serving as a director. A brief description of the business experience of each
nominee for the last five years is set forth below. UNLESS OTHERWISE INSTRUCTED,
THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL VOTE FOR THE ELECTION OF SUCH
NOMINEES. All of the nominees have consented to being named herein and have
indicated their intention to serve if elected. If for any reason any nominee
should become unable to serve as a director, the accompanying proxy may be voted
for the election of a substitute nominee designated by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE
<S> <C> <C>
Rolando C. Esteverena 55 Mr. Esteverena has served as President and
Chief Executive Officer and a Director since
the founding of the Company in June 1993 and
as the Chairman of the Board of Directors
since January 1996. From January 1990 until
March 1993, Mr. Esteverena was the President
and Chief Executive Officer of Digital F/X,
Inc., a manufacturer of multi-media editing
systems.
Steve Sanghi 42 Mr. Sanghi has been a Director of the
Company since June 1994. Mr. Sanghi is the
President, Chief Executive Officer and
Chairman of the Board of Directors of
Microchip Technology Incorporated
("Microchip"), a manufacturer of
programmable microcontrollers and related
specialty memory products. He has been
employed by Microchip since February 1990.
Mr. Sanghi also serves as Director of Vivid
Semiconductor, Inc.
Richard P. Clark 50 Mr. Clark has been a Director of the Company
since June 1994. For the past 28 years, Mr.
Clark has been employed by AMP Incorporated
("AMP"), an interconnect company. Since July
1995, Mr. Clark has been the President and
Chief Executive Officer of M/A-COM, an AMP
division that manufactures radio frequency
and microwave components. In addition, Mr.
Clark is Divisional Vice President of the
Global Wireless Products Group of AMP
Incorporated. From July 1989 through July
1995, Mr. Clark was the Associate Director
of Corporate Development of AMP. Mr. Clark
is also a Director of BroadBand
Technologies, Inc., a supplier of
telecommunications equipment.(1)
William Kennedy Wilkie 49 Mr. Wilkie has been a Director of the
Company since January 1996. Since November
1994, Mr. Wilkie has been the Chief
Executive and a Director of Havant
International Holdings Limited ("HIHL") and
its related subsidiaries. From June 1973
through November 1994, Mr. Wilkie was
employed by IBM United Kingdom Ltd. and held
executive positions in the IBM United
Kingdom Manufacturing Division.(2)
Wade Meyercord 57 Mr. Meyercord has been a Director of the
Company since December 1996. Mr. Meyercord
has been the President of Meyercord &
Associates, Inc., a management consulting
firm, since September 1987. He has also
served as Senior Vice President of Diamond
Multimedia Systems, Inc. since November
1997. Mr. Meyercord also is the Chairman and
a Director of California Micro Devices, a
semiconductor manufacturer.
</TABLE>
2
<PAGE> 6
(1) Mr. Clark was first nominated to the Board of Directors in 1994 pursuant to
an agreement with AMP, whereby the Company had agreed to nominate AMP's nominee
as a director and recommend to its Stockholders that they vote in favor of AMP's
nominee for election to the Board of Directors through March 1999. During this
same time period, certain of the Company's Stockholders agreed to vote all
shares of the Company's Common Stock then owned by them in favor of AMP's
nominee for election to the Board of Directors. The Company's agreement with AMP
expired effective September 27, 1994 upon the Company's initial public stock
offering. See "Certain Relationships and Related Transactions."
(2) Mr. Wilkie was first nominated to the Board of Directors in 1996 pursuant to
an agreement with HIHL, whereby the Company had agreed to nominate HIHL's
nominee as a director and recommend to its Stockholders that they vote in favor
of HIHL's nominee for election to the Board of Directors so long as HIHL owns at
least 500,000 shares of Common Stock (as adjusted for any stock dividend, stock
split or combination of shares, recapitalization, merger, consolidation or other
reorganization involving the Company). See "Certain Relationships and Related
Transactions."
EXECUTIVE OFFICERS
The executive officers of the Company serve until their successors have
been chosen or until their earlier resignation or removal. The executive
officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Rolando C. Esteverena 55 Chairman, President and Chief Executive Officer
Neil Dial 46 Executive Vice President Operations
Donald E. Frederick 43 Vice President, Chief Financial Officer and Secretary
R. Charles Furniss 52 Vice President Human Resources
Francisco F. Abril 50 Vice President and Senior Executive Mexico Operations
Vincent N. Poleo, Jr. 48 Vice President North American Operations
Eric H. Bert 33 Vice President Asia/Pacific Operations and Managing Director ADFlex (Thailand)
Ltd.
</TABLE>
Neil Dial has served as Executive Vice President of Operations since
October 1997. From May 1994 until joining the Company, he was President of
Alphatec's Bangkok operations. From 1991 to April 1994, Mr. Dial was Assistant
General Manager of Motorola's manufacturing facility in Kuala Lumpur, Malaysia.
Donald E. Frederick has served as the Vice President, Chief Financial
Officer and Secretary since June 1997. From May 1995 until joining the Company,
Mr. Frederick served as Vice President of Finance for Flextronics International,
based in San Jose, California. From January 1992 through May 1995, he was
Director of Finance for Sony Electronics.
R. Charles Furniss has served as the Vice President Human Resources of
the Company since November 1994. From July 1987 through June 1994, Mr. Furniss
was the Senior Vice President Human Resources of Calcomp Inc., a wholly-owned
subsidiary of Lockheed, Inc.
Francisco F. Abril has served as the Vice President and Senior
Executive Mexico Operations since January 1997. Mr. Abril has been with the
Company or its predecessor, Rogers Corporation, since 1975 serving in various
manufacturing and operations management positions.
Vincent N. Poleo, Jr. has served as the Vice President North American
Operations since October 1997. Mr. Poleo joined Rogers Corporation in 1980, and
has served the Company since then in positions of increased responsibility.
Eric H. Bert has served as Vice President Asia/Pacific Operations and
Managing Director ADFlex (Thailand), Ltd. ("ATL") since November 1997. Mr. Bert
joined the Company in May 1995 as a Business Unit Manager, and also has served
as a Program Manager and ATL Director. From November 1993 until joining the
Company, Mr. Bert served as Marketing Manager for Parlex Corporation, a flexible
circuit manufacturer.
BOARD MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
3
<PAGE> 7
During 1997, the Board of Directors met seven times. The Board of
Directors has established an Audit Committee and a Compensation Committee. The
Board does not have a Nominating Committee, and the entire Board is responsible
for the size and composition of the Board and for recommending nominees to serve
on the Board.
The Audit Committee, which is comprised of Richard P. Clark (Chairman),
Steve Sanghi and Wade Meyercord, is responsible for: (i) reviewing and
recommending the engagement each year of the Company's independent auditors;
(ii) consulting with independent auditors on the adequacy and effectiveness of
the Company's internal controls; (iii) reviewing, with the independent auditors,
the scope of the audit and audit procedures, the financial statements contained
in the annual report to Stockholders and the auditors' reports on the Company's
financial statements; (iv) reviewing accounting and financial human resources
and succession planning; and (v) taking such other steps as the Audit Committee
deems necessary to carry out the normal functions of an audit committee. The
Audit Committee held two meetings in 1997.
The Compensation Committee, which is comprised of Steve Sanghi
(Chairman), Richard P. Clark and William Kennedy Wilkie, is responsible for: (i)
determining the compensation of the Company's senior officers; (ii) reviewing
recommendations by management as to the compensation of other officers and key
personnel; and (iii) reviewing management's succession program. Further, the
Compensation Committee administers the Company's 1993 Equity Incentive Plan, the
1994 Stock Incentive Plan and 1994 Employee Stock Purchase Plan. The
Compensation Committee held four meetings in 1997.
COMPENSATION OF DIRECTORS
The Company compensates its eligible non-employee directors at the rate
of $10,000 per year plus $1,000 per meeting of the Board attended. There is no
compensation for telephonic Board meetings or committee meetings held on the
same day as Board meetings. Further, all directors are reimbursed for their
reasonable, out-of-pocket expenses incurred in connection with their attendance
at Board and committee meetings. Eligible non-employee directors also receive
automatic grants of options under the Company's 1994 Stock Incentive Plan. Both
the director fees and the automatic option grant program are limited to those
persons who serve as non-employee members of the Board and who do not
beneficially own, directly or indirectly, or represent any Stockholder that
beneficially owns, directly or indirectly, more than 5% of the Company's Common
Stock outstanding from time to time. Each eligible director is automatically
granted a nonqualified option to purchase 12,000 shares of Common Stock upon his
appointment to the Board. On the date of each annual meeting, each eligible
director is automatically granted a nonqualified option to purchase 3,000 shares
of Common Stock, provided that such person has served as a member of the Board
for at least six months. There is no limit on the number of automatic option
grants that any one eligible director may receive. All grants under the Stock
Incentive Plan have a maximum term of 10 years from the automatic grant date,
vest in a series of three equal installments, and have an exercise price equal
to the fair market value of the Company's Common Stock on the grant date. In the
event of certain changes of control, all outstanding director options
automatically vest and become fully exercisable and remain exercisable following
the change of control until the expiration or sooner termination of the option
term. Immediately following a change of control, the automatic option grant
program shall terminate.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 13, 1998 by (i) each person
known to the Company to own beneficially more than 5% of the outstanding Common
Stock, (ii) the Chief Executive Officer and the other executive officers of the
Company named in the Summary Compensation Table, (iii) each of the Company's
directors and nominees to become directors, and (iv) all directors, director
nominees and officers of the Company as a group. Except as otherwise indicated
below, to the knowledge of the Company, all persons listed below have sole
voting and investment power with respect to their shares of Common Stock, except
to the extent that authority is shared by spouses under applicable law. The
Company's Common Stock is the only outstanding class of equity securities of the
Company. As of March 13, 1998 there were 60 record holders of Common Stock.
4
<PAGE> 8
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF CLASS (1)
<S> <C> <C>
Rolando C. Esteverena(2) 193,311 2.2%
R. Charles Furniss(3) 5,936 *
Vincent N. Poleo, Jr. (4) 7,051 *
Francisco F. Abril(5) 5,770 *
Eric H. Bert(6) 5,136 *
Steve Sanghi(7) 26,000 *
Richard P. Clark(8) 9,000 *
William Kennedy Wilkie(9) 1,393,347 13.6%
P.O. Box 6
Langstone Road
Havant, Hampshire P09 1SA
Wade Meyercord 5,000 *
J. & W. Seligman & Co. Incorporated(10) 1,125,700 12.9%
100 Park Avenue
New York, NY 10017
Kopp Investment Advisors, Inc.(11) 862,638 9.8%
LeRoy C. Kopp
6600 France Avenue South, Suite 672
Edina, MN 55435
Havant International Holdings Limited(9) 1,392,347 13.6%
P.O. Box 6
Langstone Road
Havant, Hampshire P09 1SA
Executive officers and directors as a group
including those named above
eleven persons)(12) 1,650,551 16.0%
</TABLE>
* Less than 1% of the outstanding Common Stock.
(1) Shares of Common Stock subject to options which are currently
exercisable or exercisable within 60 days of March 13, 1998 are deemed
outstanding for computing the percentage of the person holding such
options but are not deemed outstanding for computing the percentage of
any other person. Percentage of ownership is based upon 8,824,855
shares of Common Stock outstanding on March 13, 1998.
(2) Includes options to acquire 30,830 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(3) Includes options to acquire 5,936 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(4) Includes options to acquire 6,291 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
5
<PAGE> 9
(5) Includes options to acquire 4,372 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(6) Includes options to acquire 4,747 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(7) Includes options to acquire 26,000 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(8) Includes options to acquire 8,000 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
(9) Includes 1,392,347 shares of Common Stock owned by HIHL. Mr. Wilkie is
the Chief Executive and a Director of HIHL. He disclaims beneficial
ownership of all shares held by HIHL.
(10) According to its Schedule 13G dated February 13, 1998, of the 1,125,700
shares, 900,000 shares are owned by Seligman Communications and
Information Fund, Inc., a registered investment company which is
managed by J & W. Seligman & Co. Incorporated ("JWS"), a registered
investment advisor. William C. Morris is the sole owner of JWS.
Accordingly, JWS and Mr. Morris may be deemed to beneficially own and
have shared voting power and shared dispositive power of such shares.
Of the remaining 225,700 shares, JWS and Mr. Morris beneficially own
and have shared voting power and shared dispositive power of such
shares.
(11) According to its Schedule 13G dated February 9, 1998, Kopp Investment
Advisors, Inc. ("KIA") is a registered investment advisor and a
subsidiary of Kopp Holding Company, a registered holding company. KIA
has the sole power to vote 60,000 shares and the sole power to dispose
of 5,000 of such shares. LeRoy C. Kopp is sole owner of both KIA and
Kopp Holding Company and they share the power to dispose of 862,638
such shares. As to the 862,638 shares, neither KIA nor Kopp Holding
Company nor Mr. Kopp vote the vast majority of such shares and neither
is the record owner of them. Such shares are held in a fiduciary or
representative capacity, and no person individually has an interest
that relates to more than 5% of the Common Stock.
(12) Includes options to acquire 86,176 shares of Common Stock currently
exercisable or exercisable within 60 days following March 13, 1998.
Also includes 1,392,347 shares of Common Stock held by HIHL of which
Mr. Wilkie disclaims beneficial ownership. See note (9) above.
6
<PAGE> 10
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation paid to the Chief
Executive Officer and the next four, most highly compensated executive officers
who were serving as such at December 31, 1997 for services rendered in all
capacities to the Company during the periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS COMPENSA-
POSITION YEAR(1) SALARY($)(2) BONUS($) COMPENSATION ($)(5) (# SHARES) (6) TION($)(7)
-------- ------- ------------ -------- ------------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rolando C. Esteverena, 1997 $238,518 $244,503 $ -- 20,000 $2,302
President and 1996 215,000 -- -- -- 2,133
Chief Executive Officer(3) 1995 213,654 130,720 -- -- 1,155
R. Charles Furniss, Vice 1997 $126,538 $ 89,763 $ -- 10,000 $ 930
President Human 1996 120,000 -- 69,306 -- 878
Resources(4) 1995 120,000 42,057 -- -- 462
Vincent N. Poleo, Jr., 1997 $146,926 $ 46,815 $185,390 2,000 $1,051
Vice President North 1996 131,096 -- 90,441 -- 970
American Operations(4) 1995 83,431 23,932 -- -- 486
Francisco F. Abril, Vice 1997 $111,308 $ 46,002 $ -- 6,000 $1,194
President and Senior 1996 98,654 -- -- -- 629
Executive Mexico 1995 91,852 26,203 -- -- 612
Operations(4)
Eric H. Bert, Vice 1997 $ 97,654 $ 53,953 $ 26,065 1,000 $ 616
President Asia/Pacific 1996 77,077 -- -- -- 359
Operations and Managing 1995 44,461 6,809 25,000 -- 94
Director ATL(4)
</TABLE>
(1) Mr. Bert joined the Company in May 1995, and no compensation
was earned by Mr. Bert from the Company prior to that time.
(2) Mr. Poleo's salary for 1997 and 1996 includes additional
compensation of $47,000 and $35,000 respectively, which
relates to a cost of living adjustment in effect during his
relocation to the United Kingdom.
7
<PAGE> 11
(3) All bonuses were paid to Mr. Esteverena under the Management
Bonus Plan. The 1997 and 1995 bonuses were paid in part during
the year earned and in part during the following year.
(4) Bonuses include $700 in 1997 and $1,257 in 1995 under the
Profit Sharing Bonus Plan for Mr. Furniss, Mr. Poleo and Mr.
Abril. Bonuses include $700 in 1997 and $904 in 1995 under the
Profit Sharing Bonus Plan for Mr. Bert. All other bonuses were
paid to Mr. Furniss, Mr. Poleo, Mr. Abril and Mr. Bert under
the Management Bonus Plan. The 1997 and 1995 bonuses under the
Management Bonus Plan were paid in part during the year earned
and in part during the following year.
(5) The amounts disclosed in this column primarily include
relocation expenses paid out by the Company and, in the case
of Mr. Poleo only, include amounts reimbursed for payment of
taxes due to Mr. Poleo's relocation to the United Kingdom. In
1997, Mr. Poleo was paid $55,386 and $119,819 for relocation
expenses and reimbursement for payment of taxes, respectively.
Relocation expenses paid by the company for the named
executive officers occurred in 1996 and were $69,306 and
$70,441 for Mr. Furniss and Mr. Poleo, respectively.
Relocation expenses were paid by the Company to Mr. Bert in
the amount of $26,065 in 1997 and $25,000 in 1995. Excluded
from this column are perquisites and other personal benefits,
which in no case in the aggregate exceeded the lesser of
either $50,000 or 10% of the total annual salary and bonus of
any named executive officer.
(6) Included in this column are number of shares that were
repriced for each named executive officer. See "Information
Regarding Repricing, Replacement or Cancellation and Regrant
of Option Grants".
(7) The amounts disclosed in this column include Company 401(k)
matching contributions and the dollar value of insurance
premiums paid by the Company for term life insurance. Company
401(k) matching contributions for the named executive officers
in 1997, 1996 and 1995, respectively, were as follows: Mr.
Esteverena, $1,187, $1,183, $1,155; Mr. Furniss, $483, $475,
$462; Mr. Poleo, $715, $684, $486; Mr. Abril, $837, $460,
$612; and Mr. Bert, $565, $330, $94. During 1997, term life
insurance premiums paid by the Company were $1,115, $446,
$337, $357 and $50 for Messrs. Esteverena, Furniss, Poleo,
Abril and Bert, respectively. During 1996, term life insurance
premiums paid by the Company were $950, $403, $285, $170 and
$30 for Messrs. Esteverena, Furniss, Poleo, Abril and Bert,
respectively. No term life insurance premiums were paid by the
Company in 1995.
8
<PAGE> 12
OPTION GRANTS
The following table provides information with respect to stock option
grants made to each of the named executive officers during the year ended
December 31, 1997. No stock appreciation rights were granted to these
individuals during 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(6)
- ---------------------------------------------------------------------------------------------------------------
NUMBER PERCENT OF
OF SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(5) DATE 5% 10%
- ---- -------------- ----------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Rolando C. 60,000(2) 15.0% $14.875 7/02/07 $ 561,300 $1,422,420
Esteverena
R. Charles 20,000(2) 5.0% 14.875 7/02/07 187,100 474,140
Furniss
Vincent N. 12,000(2) 3.0% 14.875 7/02/07 112,260 284,484
Poleo, Jr.
Francisco F. 5,000(3) 1.2% 12.50 1/16/07 39,300 99,600
Abril 11,000(4) 2.7% 14.875 7/02/07 102,905 260,777
Eric H. Bert 11,000(2) 2.7% 14.875 7/02/07 102,905 260,777
</TABLE>
(1) Options were granted pursuant to the 1994 Stock Incentive Plan,
as amended. All options begin vesting either one year or two
years from the date of grant and are fully vested on the fourth
anniversary of the date of grant.
(2) Options granted include 20,000, 10,000, 2,000 and 1,000 for Mr.
Esteverena, Mr. Furniss, Mr. Poleo and Mr. Bert, respectively, in
July 1997 in replacement of previously granted options (see
"Information Regarding Repricing, Replacement or Cancellation and
Regrant of Option Grants") which vest as to 25% of the shares
covered thereby on the first anniversary of the grant date and as
to the remaining 75% of the shares on a monthly basis thereafter
for a period of three years. All other options granted to the
executive officers will vest as to 1/24th of the shares covered
thereby on the second anniversary of the grant date and as to an
additional 1/24th of the shares per month thereafter, with the
options being fully vested on the fourth anniversary of the grant
date.
(3) Options granted will vest as to 25% of the shares covered thereby
on the first anniversary of the grant date and as to the
remaining 75% of the shares on a monthly basis thereafter for a
period of three years.
(4) Options granted include 6,000 shares granted in July 1997 (see
"Information Regarding Repricing, Replacement or Cancellation and
Regrant of Option Grants") in replacement of previously granted
options which vest as to 25% of the shares covered thereby on the
first anniversary of the grant date and as to the remaining 75%
of the shares on a monthly basis thereafter for a period of three
years. The remaining 5,000 shares granted will vest as to 1/24th
of the shares covered thereby on the second anniversary of the
grant date and as to an additional 1/24th of the shares per month
thereafter, with the options being fully vested on the fourth
anniversary of the grant date.
9
<PAGE> 13
(5) The exercise price was equal to the fair market value of the
shares of Common Stock underlying the options on the grant date
as determined by the Board of Directors pursuant to the 1994
Stock Incentive Plan, and may be paid in cash or in shares of the
Company's Common Stock valued at their fair market value on the
exercise date.
(6) The 5% and 10% assumed rates of compounded stock price
appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate
or projection of future Common Stock prices.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the exercise
of stock options by the named executive officers during 1997 and the number and
value of unexercised options held by the named executive officers at December
31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR-END FISCAL YEAR-END($)
ACQUIRED ON REALIZED (#) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ---- ------------ ------ ------------- ----------------
<S> <C> <C> <C> <C>
Rolando C. Esteverena 0 $ 0 26,143/88,857 $85,072/$228,053
R. Charles Furniss 13,000 185,688 3,207/32,793 10,060/86,502
Vincent N. Poleo, Jr. 1,291 13,233 5,916/23,793 32,930/23,784
Francisco F. Abril 25,406 358,494 15,509/23,585 225,835/75,614
Eric H. Bert 1,000 16,000 3,696/17,802 9,406/48,961
</TABLE>
- ----------
(1) The amounts shown were calculated based upon the difference between the
exercise price and the fair market value of the Company's Common Stock
as of the date of exercise.
(2) Calculated based upon the difference between the closing market price
per share for the Company's Common Stock on December 31, 1997 as
reported by the Nasdaq National Market and the exercise price.
INFORMATION REGARDING REPRICING, REPLACEMENT OR CANCELLATION AND REGRANT OF
OPTION GRANTS
In July 1997, the Compensation Committee unanimously agreed to reprice
certain options previously granted by providing employees new options to replace
previously granted options that were identical in all respects except that the
new options were subject to a new, four-year vesting schedule from the grant
date. No repricings of option grants took place prior to 1997 and no stock
appreciation rights were granted to these individuals during 1997. The following
sets forth certain information concerning the repricing, replacement or
cancellation and regrant of options, within the last ten fiscal years, of
options held by executive officers of the Company.
10
<PAGE> 14
INFORMATION REGARDING REPRICING, REPLACEMENT OR CANCELLATION AND REGRANT OF
OPTION GRANTS
<TABLE>
<CAPTION>
LENGTH OF
MARKET ORIGINAL
VALUE ON ORIGINAL NEW OPTION TERM
NUMBER OF DATE OF EXERCISE EXERCISE REMAINING AT
NAME AND PRINCIPAL DATE OF OPTIONS REPRICING PRICE PRICE DATE OF
POSITION REPRICING REPRICED (1) ($/SHARE) ($/SHARE) ($/SHARE) REPRICING
-------- --------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Rolando C. Esteverena, 7/2/97 20,000 $ 14.875 $27.25 $14.875 8 Years
President and Chief
Executive Officer
R. Charles Furniss, Vice 7/2/97 10,000 14.875 27.25 14.875 8 Years
President Human
Resources
Vincent N. Poleo, Jr., 7/2/97 2,000 14.875 27.25 14.875 8 Years
Vice President North
American Operations
Francisco F. Abril, Vice 7/2/97 6,000 14.875 27.25 14.875 8 Years
President and Senior
Executive Mexico
Operations
Eric H. Bert, Vice 7/2/97 1,000 14.875 27.25 14.875 8 Years
President Asia/Pacific
Operations and Managing
Director ATL
</TABLE>
- ----------
(1) Options were repriced pursuant to the 1994 Stock Incentive Plan,
as amended. All options vest as to 25% of the shares covered
thereby on the first anniversary of the new grant date and as to
the remaining 75% of the shares on a monthly basis thereafter for
a period of three years.
COMPENSATION COMMITTEE REPORT ON 1997 CANCELLATIONS AND REGRANT OF OPTIONS
On July 2, 1997 the Compensation Committee approved the cancellation of
all outstanding options with an original exercise price of $27.25 per share and
the regrant and replacement of these options with new options at an exercise
price per share of $14.875, the fair market value of the Company's Common Stock
on the date of the Committee's determination. Each optionee had the opportunity
to elect to retain his or her old options or accept a new option with an
exercise price of $14.875 per share. Each new option has a term of ten years and
becomes exerciseable for 25% of the option shares on July 2, 1998 and for the
balance of the shares in a series of equal monthly installments over the
36-month period thereafter, assuming continued employment with the Company or
one of its subsidiaries. All optionees holding old options agreed to the
cancellation of their old options in exchange for new options. The Compensation
Committee elected not to reprice any other outstanding options that were greater
than $14.875 per share at that time.
The Committee approved the cancellation-regrant program because it
believes that equity interests are a significant factor in the Company's ability
to attract and retain key employees who are critical to the Company's long-range
success. During the last fiscal year, the market value of the Common Stock had
fallen, in part, as a result of market factors that affected many stocks in the
industry in which the Company is engaged including the stock of the Company's
customers. As
11
<PAGE> 15
a result of the decrease in the fair market value of the Common Stock, the
Committee believed that the Company's ability to retain existing employees and
to attract talented individuals in the future would be impaired. Accordingly,
the Committee approved the cancellation-regrant program as a means to ensuring
that optionees have a meaningful equity interest in the Company.
Respectfully submitted,
Compensation Committee:
Steve Sanghi, Chairman
Richard P. Clark
William Kennedy Wilkie
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee currently consists of Steve Sanghi, Richard
P. Clark and William Kennedy Wilkie and is primarily responsible for approving
the Company's general compensation policies and setting compensation levels for
the Company's executive officers. The Compensation Committee also administers
the Company's 1993 Equity Incentive Plan, 1994 Stock Incentive Plan and 1994
Employee Stock Purchase Plan, as amended.
Richard P. Clark was first elected to the Board of Directors as of June
2, 1994 pursuant to certain contractual commitments with AMP, Incorporated
("AMP"), which commitments terminated effective September 27, 1994 upon the
Company's initial public stock offering. AMP has been an important supplier to
the Company in the past and is expected to continue as such. Purchases from AMP
for the years ended December 31, 1997, 1996 and 1995 were $4,514,000, $2,582,000
and $1,559,000, respectively.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
In January 1997, the Compensation Committee approved an agreement
outlining certain arrangements applicable to Mr. Esteverena that would be
effective upon a change in control of the Company. The term of the agreement is
for three years and will be automatically extended for successive one year
periods thereafter. Under the agreement, Mr. Esteverena would be entitled to
receive the following benefits if, within one year following a change in control
of the Company, Mr. Esteverena resigns for good reason or is terminated by the
Company:
(i) The Company would pay to Mr. Esteverena a lump sum amount (no later
than the 30th day following the date of termination) equal to his full base
salary through the date of termination at the greater of either the rate in
effect at the time of termination or the rate in effect immediately prior to the
change in control (collectively, the "Base Rate"). In addition, the Company will
pay an amount equal to 1.1 multiplied by the sum of (a) one year's base salary
at the Base Rate plus (b) the greater of either his target bonus in effect under
the Company's management bonus plan at the time of termination or the target
bonus in effect under the Company's management bonus plan immediately prior to
the change in control.
(ii) The Company would maintain for Mr. Esteverena and his eligible
beneficiaries the benefits pursuant to the Company-sponsored benefit plans,
programs or other arrangements Mr. Esteverena was entitled to participate
immediately prior to the change in control until either (a) his attainment of
comparable benefits upon alternate employment or (b) one year following the date
of termination, whichever occurs first.
(iii) The Company would use reasonable efforts to continue Mr.
Esteverena's insurance coverage or other provisions for indemnification and
defense of officers or directors of the Company which are in effect on the date
of the change in control.
(iv) Subject to Section 16 of the Securities and Exchange Act of 1934,
all stock options and other stock incentive awards which are not vested at the
date of termination shall vest immediately as of the date of termination and may
12
<PAGE> 16
be exercised by Mr. Esteverena in accordance with the terms of the plans and
agreements pursuant to which such options and other awards were issued.
(v) To the extent necessary to avoid the disallowance of the
deductibility of the payments to be made to Mr. Esteverena as described above,
all such payments would be limited by Section 280G of the Internal Revenue Code
of 1986.
As used in the agreement, "good reason" means any of the following
occurred without Mr. Esteverena's express prior written consent: certain
reductions in base salary, certain relocations, the assignment of duties
materially inconsistent with the duties prior to the change in control, or a
significant reduction in his position. A "change in control" includes the
acquisition of beneficial ownership by certain persons of securities possessing
more than 50% of the total combined voting power of the Company's outstanding
securities, a change in composition of the Board over a period of 36 consecutive
months or less such that the current Board members cease to constitute a
majority thereof (except that any new Board member approved by at least a
majority of the current Board is considered to be a member of the current
Board), or certain events relating to reorganizations, mergers, consolidations,
liquidations or sales of all or substantially all of the Company's assets.
Except as provided above, none of the Company's executive officers has
an employment contract with the Company, and their employment may be terminated
at any time at the discretion of the Board of Directors. However, the
Compensation Committee has the authority as administrator of the 1994 Stock
Incentive Plan to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options and other awards held by the Chief
Executive Officer and the Company's other executive officers on any unvested
shares actually held by those individuals under the 1994 Stock Incentive Plan,
in the event their employment were to be terminated (whether involuntarily or
through a forced resignation) following a hostile take-over of the Company
effected through a successful tender for more than 50% of the Company's
outstanding Common Stock or through a change in the majority of the Board as a
result of one or more contested elections for Board membership. In addition, all
executives will receive up to six months of severance pay in the event that
their employment is terminated without cause, whether or not in connection with
a change of control.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors makes this report
on executive compensation pursuant to Item 402 of Regulation S-K.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings,
including this Proxy Statement, in whole or in part, this report and the graph
which follows this report shall not be incorporated by reference into any such
filings, and such information shall be entitled to the benefits provided in Item
402(a)(9).
The Compensation Committee recommends the compensation of the Chief
Executive Officer to the Board and reviews and approves the design,
administration and effectiveness of compensation programs for other key
executive officers, including salary, cash bonus levels, other perquisites and
option grants and other awards under the Company's 1994 Stock Incentive Plan.
The Committee is currently comprised entirely of independent outside members of
the Company's Board of Directors.
COMPENSATION PHILOSOPHY
The objectives of the Company's executive compensation policies are to
attract, retain and reward executive officers who contribute to the Company's
success, to align the financial interests of executive officers with the
performance of the Company, to strengthen the relationship between executive pay
and stockholder value, to motivate executive officers to achieve the Company's
business objectives and to reward individual performance. During 1997, the
Company used base salary, the Management Bonus Plan and stock option grants
under the 1994 Stock Incentive Plan to achieve these objectives. In carrying out
these objectives, the Compensation Committee considers the following:
1. The level of compensation paid to executive officers in positions of
companies similarly situated. To ensure that pay is competitive, the Committee
from time to time compares the Company's executive compensation and benefits
packages to those offered by companies in the same or similar industries or with
other similar attributes such as size or
13
<PAGE> 17
capitalization. Compensation surveys used by the Company typically include
companies listed on the Nasdaq National Market and comprising the electronic
components index used for comparative purposes in the total return graph
following this report, as well as other public and private companies.
2. The individual performance of each executive officer. Individual
performance includes any specific accomplishments of such executive officer,
demonstration of job knowledge and skills, teamwork and demonstration of the
Company's core values.
3. Corporate performance. Corporate performance is evaluated both
subjectively and objectively. Subjectively, the Compensation Committee discusses
and makes its own determination of how the Company performed relative to the
opportunities and difficulties encountered during the year and relative to the
performance of competitors and business conditions. Objectively, corporate
performance is measured by predetermined operating and financial standards for
purposes of cash bonuses under applicable Management Bonus Plans as described
below.
4. The responsibility and authority of each position relative to the
other positions within the Company.
5. Incentives for executive officers to make decisions and take actions
which will increase the market value of the Company's Common Stock over the long
term and which encourage such officers to remain with the Company as long term
employees.
The Committee does not quantitatively weigh these factors but considers all
factors as a whole, using its discretion, best judgment and the experiences of
its members, in establishing executive compensation. The application given each
of these factors in establishing the components of executive compensation is as
follows:
BASE SALARY. In establishing base salaries, the Committee believes that
it tends to give greater weight to factors 1, 2 and 4 above. The Company seeks
to pay salaries to executive officers that are commensurate with their
qualifications, duties and responsibilities and that are competitive in the
market. In conducting annual salary reviews, the Committee considers each
individual executive officer's achievements during the prior fiscal year in
meeting the Company's financial and business objectives, as well as the
executive officer's performance of individual responsibilities and the Company's
financial position and overall performance. The Committee considers the low,
midpoint and upper ranges of base salaries published by compensation surveys,
and generally targets base salary to the mid point of the ranges.
PERFORMANCE BONUSES. In establishing performance bonuses, the Committee
believes that it tends to give greater weight to factors 2 and 3 above. It also
believes that performance bonuses are a key link between executive pay and
stockholder value. The Company has adopted a Management Bonus Plan. Up to
one-third of any bonus is based on pre-determined performance criteria for the
individual participant and the remainder is based upon the financial performance
of the Company. The criteria are set for three month periods and performance
against the Plan is measured four times each year. With respect to both aspects
of the Bonus Plan, a participant may earn up to 200% of an approved range of his
or her base salary based on his or her individual performance or the Company's
performance, as the case may be. For 1997, executive bonuses were targeted at
between 20% and 55% of the executive officers' base salaries if the goals were
achieved, with the more senior executive officers having a higher percentage of
total compensation from annual cash bonuses. The measures chosen by the
Committee to evaluate the Company's financial performance may vary from year to
year depending on the particular facts and circumstances at the time. For all
four quarters of 1997, the Committee determined to measure the Company's
financial performance by targeted levels of earnings per share. Individual
performance objectives for executives other than the Chief Executive Officer
were proposed by management and reviewed by the Committee. Individual
performance objectives for the Chief Executive Officer were determined by the
Committee and reviewed and approved by the Board of Directors.
OPTION GRANTS. In establishing option grants, the Committee believes it
tends to give greater weight to factor 5 above. The Committee believes that
equity ownership by executive officers provides incentives to build stockholder
value and aligns the interests of officers with the stockholders. The Committee
typically awards a grant under the Stock Incentive Plan upon hiring executive
officers, subject to a four-year vesting schedule. After the initial stock
option grant, the Committee considers awarding additional grants, usually on an
annual basis, under the 1994 Stock Incentive Plan. Options are granted at the
current market price for the Company's Common Stock, and, consequently, have
value only if the price of
14
<PAGE> 18
the Common Stock increases over the exercise price during the period in which
the option vests. The size of the initial grant is usually determined with
reference to the seniority of the officer, the contribution the officer is
expected to make to the Company and comparable equity compensation offered by
others in the industry. In determining the size of the periodic grants, the
Compensation Committee considers prior option grants to the officer, independent
of whether the options have been exercised, the executive's performance during
the year and his or her expected contributions in the succeeding year. The
Committee believes that periodic option grants provide incentives for executive
officers to remain with the Company.
The Revenue Reconciliation Act of 1993 (the "1993 Act") includes a
provision limiting the tax deductions for certain executive compensation in
excess of $1,000,000 for each executive. However, qualified performance based
compensation, payments made to tax qualified retirement plans and the payment of
excludable fringe benefits are not included in the deduction limit. The
Compensation Committee has analyzed the impact of the 1993 Act on the
compensation policies of the Company, has determined that historically the
effect of this provision on the taxes paid by the Company would not have been
significant, and has decided for the present not to modify the compensation
policies of the Company based on the 1993 Act. The Committee will periodically
reconsider its decision as circumstances warrant.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee reviews the performance of the Chief
Executive Officer and the other officers of the Company at least annually,
applying the compensation policies set forth above. During 1997, the
Compensation Committee increased Mr. Esteverena's base salary from the $215,000
level at which it was set during 1995 to $236,500 per year. For 1997, the
Committee established Mr. Esteverena's bonus target at 55% of base salary under
the Management Bonus Plan, and established his individual performance goals
under the Management Bonus Plan as follows: (i) to achieve certain revenue and
earnings growth targets, (ii) to continue implementation of strategies to
sustain long-term growth and diversify the source of revenues, and (iii) to
initiate programs to develop the infrastructure of the Company. In July 1997,
the Compensation Committee granted to Mr. Esteverena an option to acquire 60,000
shares of Common Stock at an exercise price of $14.875 per share, which was
equal to the fair market value on the date of grant. Of the 60,000 shares
granted to Mr. Esteverena, 20,000 shares (originally granted on July 25, 1995)
were repriced from $27.25 to $14.875 on July 2, 1997. The Committee considered
Mr. Esteverena's prior option grants in awarding these options.
In July 1997 and January 1998, the Committee met to determine bonuses
under the Management Bonus Plan and, in connection therewith, reviewed Mr.
Esteverena's achievement of his individual performance objectives for 1997. The
Committee determined that he had far exceeded all of the objectives, which led
the Committee to establish Mr. Esteverena's bonus for 1997 at $244,503.
Respectfully submitted,
Compensation Committee:
Steve Sanghi, Chairman
Richard P. Clark
William Kennedy Wilkie
15
<PAGE> 19
COMPARISON OF STOCK PERFORMANCE
The following graph compares the cumulative total returns for the
Company's Common Stock ("AFLX"), the Nasdaq National Market Index, and the
Nasdaq Electronic Components Index for the period September 27, 1994 through
December 31, 1997.(1)
<TABLE>
<CAPTION>
SEMI-ANNUALLY
9/27/94 12/31/94 6/30/95 12/31/95 6/30/96 12/31/96 6/30/97
<S> <C> <C> <C> <C> <C> <C> <C>
ADFlex Solutions, Inc. 100 449.5935 843.90244 1035.7724 578.45854 393.49593 561.78862
Nasdaq Stock Market Index (U.S. Only) 100 404.06534 668.0271 832.75921 925.86282 977.89978 1635.0576
Nasdaq Electronic Components 100 411.12703 858.56442 1175.439 1132.8355 1478.0837 1951.9329
</TABLE>
<TABLE>
<CAPTION>
SEMI-ANNUALLY
12/31/97
<S> <C>
ADFlex Solutions, Inc. 869.30732
Nasdaq Stock Market Index (U.S. Only) 3188.838
Nasdaq Electronic Components 2100.1357
</TABLE>
(1) The Company's initial public offering was on September 27, 1994. The
graph assumes that $100 was invested on September 27, 1994, at the
relevant closing prices on that date, and that any dividends were
reinvested. No cash dividends have been declared on the Company's
Common Stock. The stock price and index performance in the above graph
are not necessarily indicative of future results. As often occurs with
newly issued securities, the initial market prices of the Common Stock
in the days following the initial public offering were higher than the
trading prices at which the Common Stock traded in subsequent months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN RELATIONSHIPS
Acquisition from Havant International Holdings Limited. Effective
December 31, 1995, the Company completed its acquisition of the flexible circuit
division of Xyratex (subsequently renamed "ADFlex Solutions Limited"), a private
company located in England, engaged in the design, manufacture, assembly and
sale of flexible circuit products. In consideration for the outstanding shares
of the division, the Company delivered $12.4 million in cash, a $10 million
subordinated debenture and 1,242,347 shares of restricted Common Stock. The
debenture, dated January 7, 1996, was paid in full in June 1997.
The shares of Common Stock issued to HIHL at the closing were equal to
15% of the Company's outstanding capital stock after giving effect to their
issuance. HIHL has agreed not to sell or otherwise dispose of the shares for a
period of two years (the "Holding Period") except as security for borrowed money
or with the approval of the Company. The two year period expired in January
1998.
The parties executed a Registration Rights and Standstill Agreement
under which the Company granted to HIHL demand registration rights under the
Securities Act of 1933 generally effective at the conclusion of the Holding
Period; provided that, pursuant to the Share Sale and Purchase Agreement, an
HIHL nominee be elected to the Company's Board of Directors. In the event the
Stockholders fail to elect the HIHL nominee (subject to certain conditions), the
Holding Period shall be terminated. William Kennedy Wilkie was appointed to the
Board and is nominated for reelection pursuant to these contractual obligations.
The Company also granted HIHL the right, in the event of a "Qualified Stock
Offering" by the Company, to acquire additional shares such that would allow
HIHL to maintain its percentage ownership held immediately prior to the
commencement of the Qualified Stock Offering, subject to approval of the
Company's principal underwriter and other conditions. HIHL agreed to not
increase its ownership interest in the Company beyond 20.5%.
In connection with the acquisition, the parties entered into various
ancillary agreements, including the following:
SUPPLY AGREEMENT. An HIHL subsidiary granted the Company the right of
first refusal to supply flexible circuits for incorporation into its products
unless precluded from doing so by third party contractual commitments. The
Company supplied a certain minimum percent of the subsidiary's requirements
provided the Company offers terms as or more favorable than the best quotation
received by the subsidiary from a third party supplier. The Company also agreed
not to supply its products to other customers at terms more favorable than those
quoted to the subsidiary. The agreement, dated January 7, 1996, was terminated
in September 1997. During 1997, the Company supplied approximately $2.4 million
of flexible circuits to the HIHL subsidiary pursuant to this Agreement.
SERVICES AGREEMENT. An HIHL subsidiary provided to the Company certain
integral services necessary to operate the flex business, including personnel
services; health, safety and environmental services; purchasing, material and
quality
16
<PAGE> 20
support services; financial services; toolroom and engineering laboratory
services; information systems services; and building and administrative
services. The services were phased-out during 1997 as the Company completed the
transfer of its U.K. manufacturing operations to Thailand. The Company paid
approximately $.5 million pursuant to the services agreement in 1997, based upon
the actual cost to the subsidiary of providing the services to the Company.
LEASE. An HIHL subsidiary had leased the Company manufacturing space
through December 31, 2005 for the purpose of operating the ongoing flex business
of ADFlex Solutions Limited. In connection with the transfer of the Company's
U.K. manufacturing operations to Thailand, the Company and the HIHL subsidiary
have amended the lease to provide for its termination during 1997 and payment by
the Company of certain termination charges. The Company paid approximately $1.5
million on the lease during 1997.
RELATED TRANSACTIONS
The Company derived 1.1% and 1.9% of its net sales in 1997 and 1996,
respectively from sales to Xyratex, a major stockholder of the Company with
William Kennedy Wilkie as a representative who serves on the Company's Board of
Directors. Through September 30, 1997, the Company leased the ADFlex U.K.
manufacturing facility from Xyratex. Total lease payments made to Xyratex in
1997 and 1996 were $1.5 million and $2.6 million, respectively. In addition, $.5
million and $1.9 million were paid to Xyratex in 1997 and 1996, respectively,
for administrative services.
Richard P. Clark was first elected to the Board of Directors as of June
2, 1994 pursuant to certain contractual commitments with AMP, Incorporated
("AMP"), which commitments terminated effective September 27, 1994 upon the
Company's initial public stock offering. AMP has been an important supplier to
the Company in the past and is expected to continue as such. Purchases from AMP
for the years ended December 31, 1997, 1996 and 1995 were approximately $4.5
million, $2.6 million and $1.6 million, respectively. Richard P. Clark was first
elected to the Board of Directors as of June 2, 1994 pursuant to certain
contractual commitments with AMP, Incorporated ("AMP"), which commitments
terminated effective September 27, 1994 upon the Company's initial public stock
offering. AMP has been an important supplier to the Company in the past and is
expected to continue as such.
The Company's Certificate of Incorporation and By-laws provide for
indemnification of all Directors and officers. In addition, each Director of the
Company has entered into a separate indemnification agreement with the Company.
The Board of Directors has adopted a policy that all related party
transactions be on terms that are at least as favorable to the Company than
those that could have been negotiated with unrelated third parties.
17
<PAGE> 21
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's Directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file with the Securities and Exchange Commission ("SEC") and the
National Association of Securities Dealers initial reports of ownership and
reports of changes in ownership of shares of the Company's Common Stock.
Officers, directors and greater than 10% Stockholders are required by SEC
regulations to provide the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to the
Company's officers, directors and greater than 10% Stockholders were satisfied
during 1997, except that Eric H. Bert and Neil Dial each filed initial report
Form 3 late.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The Board of Directors, upon the recommendation of its Audit Committee,
has selected Ernst & Young LLP as independent public accountants to audit the
consolidated financial statements of the Company for the year ending December
31, 1998 and to perform other accounting services as requested by the Company.
Ernst & Young LLP has acted as independent auditors of the Company since its
appointment effective June 1, 1994.
Representatives of Ernst & Young LLP are expected to be present at the
1998 Annual Stockholders' Meeting, will be available to respond to appropriate
questions, and will have the opportunity to make a statement if they desire to
do so.
Although it is not required to do so, the Board of Directors has
submitted the selection of Ernst & Young LLP to the Stockholders for
ratification. Unless a contrary choice is specified, proxies will be voted for
ratification of the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
1998.
18
<PAGE> 22
STOCKHOLDER PROPOSALS
The Company welcomes comments or suggestions from its Stockholders. In
the event that a Stockholder desires to have a proposal formally considered at
the 1998 Annual Meeting of Stockholders, and evaluated by the Board for
inclusion in the Proxy Statement for that meeting, the proposal must be received
in writing by the Secretary of the Company at the address set forth on the first
page hereof on or before November 23, 1998.
OTHER BUSINESS
The Board of Directors is not aware of any other business to be
considered or acted upon at the Annual Meeting of Stockholders other than that
for which notice is provided. In the event other business requiring a vote of
Stockholders is properly presented at the meeting, proxies will be voted in
accordance with the judgment on such matters of the person or persons acting as
proxy. If any matter not appropriate for action at the meeting should be
presented, the holders of the proxies will vote against consideration thereof or
action thereon.
By Order of the Board of Directors,
/s/ Donald E. Frederick
------------------------------
Donald E. Frederick, Secretary
Chandler, Arizona
March 26, 1998
19
<PAGE> 23
AFX 162
DETACH HERE
PROXY
ADFLEX SOLUTIONS, INC.
2001 WEST CHANDLER BOULEVARD, CHANDLER, ARIZONA 85224
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Rolando C. Esteverena and Donald E.
Frederick, and each of them, as proxies, each with the power of substitution,
and authorizes them to represent and vote, as designated on the reverse side
hereof, all shares of Common Stock of ADFlex Solutions, Inc. held by the
undersigned on March 13, 1998 at the Annual Meeting of Stockholders to be held
on April 28, 1998 and at any adjournment or postponement of the meeting. In
their discretion, the proxies are authorized to vote such shares upon such other
business as may properly come before the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR EACH OF THE LISTED PROPOSALS.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE SEE REVERSE
SIDE SIDE
<PAGE> 24
AFX162
DETACH HERE
PLEASE MARK
/ X / VOTES AS IN
THIS EXAMPLE.
<TABLE>
<CAPTION>\
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE PROPOSALS LISTED BELOW.
<S> <C> <C> <C> <C> <C>
1. Election of Directors. FOR AGAINST ABSTAIN
NOMINEES: Rolando C. Esteverena, Richard P. Clark, 2. Ratification of the appointment of / / / / / /
Wade Meyercord, Steve Sanghi and Ernst & Young LLP as independent
William Kennedy Wilkie auditors.
FOR WITHHELD
ALL / / FROM ALL / /
NOMINEES NOMINEES
/ /
------------------------------------------------
For all nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
(PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.)
Please sign exactly as name appears at left. When shares are
held by joint tenants, both should sign. When signing as an
attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Signature: Date: Signature: Date:
------------------------------- ------------ ------------------------------- ------------
</TABLE>
