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>
[LOGO]
ADFLEX
NOTICE OF ANNUAL STOCKHOLDERS' MEETING
TO BE HELD JULY 28, 1999
To the Stockholders of ADFlex Solutions, Inc.:
The Annual Meeting of Stockholders of ADFlex Solutions, Inc. (the
"Company") will be held at the Sheraton San Marcos, One San Marcos Place,
Chandler, AZ 85224 on Wednesday, July 28, 1999 at 2:00 p.m. MST (Arizona time)
for the following purposes:
1. To elect four 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
January 2, 2000; and
3. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on June 7, 1999 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
June 23, 1999
- --------------------------------------------------------------------------------
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>
ADFlex Solutions, Inc.
PROXY STATEMENT FOR THE ANNUAL STOCKHOLDERS' MEETING
TO BE HELD JULY 28, 1999
TABLE OF CONTENTS
Page
----
GENERAL INFORMATION.......................................................... 1
ELECTION OF DIRECTORS........................................................ 2
Nominees ............................................................ 2
Executive Officers.................................................. 3
Board Meetings and Committees of the Board of Directors............. 4
Compensation of Directors........................................... 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............... 5
EXECUTIVE COMPENSATION....................................................... 7
Summary Compensation................................................ 7
Option/SAR Grants................................................... 9
Aggregated Option Exercises and Fiscal Year-End Option Values....... 10
Information Regarding Repricing, Replacement or
Cancellation and Regrant of Option Grants..................... 11
Compensation Committee Report on 1998 Cancellations
and Regrant of Options........................................ 12
Compensation Committee Interlocks and Insider Participation......... 12
Employment Contracts, Termination of Employment
and Change in Control......................................... 12
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION...................... 13
Compensation Philosophy............................................. 14
Chief Executive Officer Compensation................................ 15
COMPARISON OF STOCK PERFORMANCE.............................................. 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 17
Certain Relationships............................................... 17
Related Transactions................................................ 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE...................... 18
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR........................... 18
STOCKHOLDER PROPOSALS........................................................ 19
OTHER BUSINESS .............................................................. 19
<PAGE>
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 July 28, 1999 at 2:00 p.m. MST (Arizona time) or at any postponement or
adjournment thereof. The Annual Meeting will be held at the Sheraton San Marcos,
One San Marcos Place, Chandler, Arizona 85224.
This Proxy Statement and the accompanying form of proxy are being first
mailed to stockholders on or about June 23, 1999. 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 June 7, 1999
(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 8,983,018 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 27, 1998 is
being mailed to Stockholders with this Proxy Statement.
1
<PAGE>
ELECTION OF DIRECTORS
Nominees
The Board of Directors currently consists of four 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 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>
Steve Sanghi 43 Mr. Sanghi has been a Director of the Company since June 1994 and has
been Chairman of the Board since April 1999. 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 51 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 of M/A-COM, a Division of AMP, that manufactures radio
frequency and microwave components. In addition, Mr. Clark is Divisional
Vice President of the Global Wireless Products Group of AMP. 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 50 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 58 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>
(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:
Name Age Position
- ---------------------- ------- -----------------------------------------
Neil Dial 47 President and Chief Operating Officer
David M. Rzasa 47 Senior Vice President of Worldwide Sales
and Marketing
Donald E. Frederick 44 Vice President, Chief Financial Officer
and Secretary
R. Charles Furniss 53 Vice President Human Resources
Eric H. Bert 34 Vice President Asia/Pacific Operations
and Managing Director ADFlex
(Thailand) Ltd.
Todd E. Patanella 36 Vice President of Corporate Materials
Neil Dial was appointed President and Chief Operating Officer in April
1999. Mr. 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 July 1994, Mr. Dial was Assistant
General Manager of Motorola's manufacturing facility in Kuala Lumpur, Malaysia.
David M. Rzasa has served as the Senior Vice President of Worldwide Sales
and Marketing since January 1999. From October, 1996 until joining the Company,
Mr. Rzasa served as Vice President and General Manager for Digi International,
based in Minnetonka, Minnesota. Prior to 1996, Mr. Rzasa was Chief Operating
Officer for Three Five Systems in Tempe, Arizona and also served as President,
Group General Manager and Director of Operations for Rosemount, Inc. in
Minnesota.
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.
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.
Todd E. Patanella has served as Vice President of Corporate Materials since
September 1998. Mr. Patanella has been with the Company or its predecessor,
Rogers Corporation, since 1992, serving in various manufacturing and
3
<PAGE>
operations management positions.
Board Meetings and Committees of the Board of Directors
During 1998, the Board of Directors met six 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 the 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 1998.
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 the 1994 Employee Stock Purchase Plan. The
Compensation Committee held four meetings in 1998.
Each Director attended at least seventy-five percent of the aggregate of
the total number of Board meetings and meetings held by committees on which he
served during 1998.
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.
4
<PAGE>
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 June 7, 1999 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 June 7, 1999 there were 87 record holders of Common Stock.
<TABLE>
<CAPTION>
Number of
Beneficial Owner Shares Percentage of Class (1)
- --------------------------------------------- ---------- -----------------------
<S> <C> <C>
Rolando C. Esteverena ....................... 164,719 1.8%
Neil Dial(2) ................................ 27,377 *
R. Charles Furniss(3) ....................... 23,538 *
Eric H. Bert(4) ............................. 13,084 *
Todd E. Patanella(5) ........................ 8,089 *
Steve Sanghi(6) ............................. 54,000 *
Richard P. Clark(7) ......................... 16,500 *
William Kennedy Wilkie(8) ................... 1,393,347 15.5%
P.O. Box 6
Langstone Road
Havant, Hampshire P09 1SA
Wade Meyercord(9) ........................... 10,000 *
J. & W. Seligman & Co. Incorporated(10) ..... 1,041,100 11.6%
100 Park Avenue
New York, NY 10017
Dimensional Fund Advisors, Inc.(11) ......... 635,600 7.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Havant International Holdings Limited(8) .... 1,392,347 15.5%
P.O. Box 6
Langstone Road
Havant, Hampshire P09 1SA
Executive officers and directors as a group . 1,726,348 18.9%
including those named above (ten persons)(12)
</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 June 7, 1999 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 8,983,018 shares of Common Stock
outstanding on June 7, 1999.
(2) Includes options to acquire 24,374 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(3) Includes options to acquire 23,538 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(4) Includes options to acquire 10,455 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
5
<PAGE>
(5) Includes options to acquire 7,186 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(6) Includes options to acquire 37,000 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(7) Includes options to acquire 13,000 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(8) 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.
(9) Includes options to acquire 9,000 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999.
(10) According to its Schedule 13G dated February 10, 1999, of the 1,041,100
shares, 1,000,000 shares are owned by Seligman Communications and
Information Fund, Inc., a registered investment company which is managed by
J & W Seligman Company 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 41,100
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 11, 1999, Dimensional Fund
Advisors, Inc., an investment advisor, has sole voting power and the sole
power to dispose of all shares reported.
(12) Includes options to acquire 146,218 shares of Common Stock currently
exercisable or exercisable within 60 days following June 7, 1999. Also
includes 1,392,347 shares of Common Stock held by HIHL of which Mr. Wilkie
disclaims beneficial ownership. See note (8) above.
6
<PAGE>
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 27, 1998 for services rendered in all capacities to
the Company during the periods indicated.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------------------------------
Securities All
Other Annual Underlying Other
Name and Principal Compensation Options Compensa-
Position Year (1) Salary($)(2) Bonus($)(4) ($)(5) (# Shares) (6) tion($)(7)
- ---------------------- --------- ------------- ------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rolando C. Esteverena, 1998 $255,147 $ 35,771 $ -- 50,000 $ 4,390
Former President and 1997 238,518 244,503 -- 20,000 2,302
Chief Executive 1996 215,000 -- -- 2,133
Officer(3)
Neil Dial, President 1998 $155,769 $ -- $ 8,122 90,000 $ 1,750
and Chief Operating 1997 45,200 -- 2,200 50,000 --
Officer(8) 1996 -- -- -- -- --
Donald E. Frederick, 1998 $171,634 $ 15,575 $ -- 80,000 $ 1,229
Vice President, 1997 97,596 33,377 103,554 50,000 499
Secretary and Chief 1996 -- -- -- -- --
Financial Officer
R. Charles Furniss, 1998 $127,500 $ 23,012 $ -- 20,000 $ 2,080
Vice President Human 1997 126,538 89,763 -- 10,000 930
Resources 1996 120,000 -- 69,306 -- 878
Eric H. Bert, Vice 1998 $120,088 $ 7,450 $ -- 14,000 $ 1,160
President Asia/Pacific 1997 97,654 53,953 26,065 1,000 616
Operations and Managing 1996 77,077 -- -- -- 359
Director ATL
</TABLE>
- ----------
(1) Mr. Frederick and Mr. Dial joined the Company in June and October 1997,
respectively. No compensation was earned by either from the Company prior
to that time. Mr. Dial was appointed President and Chief Operating Officer
on April 5, 1999.
(2) Mr. Bert's salary for 1998 includes additional compensation of $27,949,
which relates to a cost of living adjustment in effect during his
relocation to Thailand.
(3) All bonuses were paid to Mr. Esteverena under the Management Bonus Plan.
The 1997 bonus was paid in part during the year earned and in part during
the following year. Mr. Esteverena resigned from the Company April 5, 1999.
(4) Bonuses include $262 in 1998 and $700 in 1997 under the Profit Sharing
Bonus Plan for Mr. Frederick, Mr. Furniss, and Mr. Bert. All other bonuses
were paid to Mr. Frederick, Mr. Furniss and Mr. Bert under the Management
Bonus Plan. The 1997 bonuses under the Management Bonus Plan were paid in
part during the
7
<PAGE>
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. In 1998, the Company paid relocation expenses for
Mr. Dial in the amount of $8,122. In 1997, the Company paid relocation
expenses to Mr. Bert, Mr. Dial and Mr. Frederick in the amount of $26,065,
$2,200 and $103,554, respectively. Relocation expenses paid by the Company
for Mr. Furniss in 1996 were $69,306. 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 the number of shares underlying new options
granted to each named executive officer in place of previously granted
options. 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 1998, 1997 and 1996, respectively, were as
follows: Mr. Esteverena, $1,120, $1,187, $1,183; Mr. Frederick $974, $350,
$0; Mr. Dial $1,350, $0, $0; Mr. Furniss, $1,619, $483, $475; and Mr. Bert,
$1,120, $565, $330. During 1998, term life insurance premiums paid by the
Company were $1,890, $255, $400, $461 and $40 for Messrs. Esteverena,
Frederick, Dial, Furniss and Bert, respectively. During 1997, term life
insurance premiums paid by the Company were $1,115, $149, $0, $446 and $50
for Messrs. Esteverena, Frederick, Dial, Furniss and Bert, respectively.
During 1996, term life insurance premiums paid by the Company were $950,
$403, and $30 for Messrs. Esteverena, Furniss and Bert, respectively.
(8) Mr. Dial was appointed President and Chief Operating Officer upon Mr.
Esteverena's resignation effective April 5, 1999.
8
<PAGE>
Option/SAR Grants
The following table provides information with respect to stock option
grants made to each of the named executive officers during the fiscal year ended
December 27, 1998. No stock appreciation rights were granted to these
individuals during 1998.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
- -----------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation For Option
Individual Grants Term(6)
- -----------------------------------------------------------------------------------------------------------------------
Number Percent of
of Securities Total Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#)(1) Fiscal Year ($/Sh)(5) Date 5% 10%
- ----------------- ------------------ --------------- ----------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rolando C. 50,000(2) 6.3% $17.063 4/07/2008 $536,550 $1,359,700
Esteverena
Neil Dial 50,000(3) 6.3% 8.500 6/22/2008 267,500 677,500
40,000(3) 5.0% 8.500 6/22/2008 214,000 542,000
Donald E. 50,000(3) 6.3% 8.500 6/22/2008 267,500 677,500
Frederick 30,000(3) 3.8% 8.500 6/22/2008 160,500 406,500
R. Charles 20,000(3) 2.5% 8.500 6/22/2008 107,000 271,000
Furniss
Eric H. Bert 10,000(3) 1.2% 8.500 6/22/2008 53,500 135,500
4,000(4) 0.5% 8.203 11/05/2008 20,516 52,308
</TABLE>
- ----------
(1) Options were granted pursuant to the 1994 Stock Incentive Plan, as amended.
(2) Options 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.
(3) Options granted for Mr. Dial, Mr. Frederick, Mr. Furniss and Mr. Bert,
respectively, in June 1998 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.
(4) 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.
(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.
9
<PAGE>
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 1998 and the number and
value of unexercised options held by the named executive officers at December
27, 1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
- --------------------------------------------------------------------------------------------------------------------
Number of
Securities
Underlying Value of Unexercised
Unexercised Options in-the-Money Options
at Fiscal Year-End at Fiscal Year-End
Shares Value (#) Exercisable/ ($) Exercisable/
Acquired on Realized Unexercisable Unexercisable (2)
Name Exercise (#) ($)(1)
<S> <C> <C> <C> <C>
Rolando C. Esteverena 0 $ 0 33,123 / 131,877 $ 0
Neil Dial 0 0 0 / 90,000 0
Donald E. Frederick 0 0 0 / 80,000 0
R. Charles Furniss 0 0 13,999 / 42,001 0
Eric H. Bert 1,373 10,984 5,551 / 28,576 0
- --------------------------------------------------------------------------------------------------------------------
</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 27, 1998 as reported by
the Nasdaq National Market and the exercise price.
10
<PAGE>
Information Regarding Repricing, Replacement or Cancellation and Regrant
of Option Grants
On June 22, 1998, the Compensation Committee unanimously agreed to reprice
certain options previously granted by providing employees new options to replace
previously granted options. No stock appreciation rights were granted to these
individuals during 1998. 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.
Information Regarding Repricing, Replacement or Cancellation and Regrant
of Option Grants
<TABLE>
<CAPTION>
Market Length of
Number of Price of Exercise Original
Securities Stock at Price at New Option Term
Underlying Time of Time of Exercise Remaining
Name and Principal Position Date of Options Repricing Repricing Price at Date of
Repricing Repriced(1) ($/Share) ($/Share) ($/Share) Repricing
- -------------------------------- ------------ --------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rolando C. Esteverena, Former 7/2/97 20,000 $14.875 $ 27.25 $ 14.875 8 Years
President and Chief Executive
Officer (2)
Neil Dial, 6/22/98 50,000 $ 8.50 $22.063 $ 8.50 10 Years
President and Chief Operating 6/22/98 40,000 8.50 17.063 $ 8.50
Officer (2)
Donald E. Frederick, Secretary 6/22/98 50,000 $ 8.50 $15.500 $ 8.50 10 Years
and Chief Financial Officer 6/22/98 30,000 8.50 17.063 $ 8.50
R. Charles Furniss, Vice 6/22/98 20,000 $ 8.50 $17.063 $ 8.50 10 Years
President Human Resources 7/2/97 10,000 14.875 27.25 14.875 8 Years
Eric H. Bert, Vice President 6/22/98 10,000 $ 8.50 $17.063 $ 8.50 10 Years
Asia/Pacific Operations and 7/2/97 1,000 14.875 27.25 14.875 8 Years
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.
(2) Mr. Dial was appointed President and Chief Operating Officer upon Mr.
Esteverena's resignation effective April 5, 1999.
11
<PAGE>
Compensation Committee Report on 1998 Cancellations and Regrant of Options
On June 22, 1998, the Compensation Committee unanimously approved the
cancellation of all outstanding options with original exercise prices of
$22.063, $17,063 and $15.50 per share and the regrant and replacement of these
options with new options at an exercise price per share of $8.50, 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 new options with an exercise price of $8.50 per share.
Each new option has a term of ten years and becomes exercisable for 25% of the
option shares on June 22, 1999 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 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 stocks of the Company's
customers. As a result of the decrease in the fair market value of the Common
Stock, the Committee believed 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 ensure 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. It 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, 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 fiscal years ended
December 27, 1998 and December 31, 1997 and 1996 were $1,392,027, $4,514,000 and
$2,582,000, respectively.
Employment Contracts, Termination of Employment and Change in Control
The Compensation Committee has approved an agreement outlining certain
arrangements applicable to Mr. Frederick, Mr. Rzasa, Mr. Dial and Mr. Furniss
that would be effective upon a change in control of the Company. The term of the
agreement is three years, and it will be automatically extended for successive
one-year periods thereafter. Under the agreement, the executive officers named
above would be entitled to receive the following benefits if, within one year
following a change in control of the Company, any of them resigns for good
reason or is terminated by the Company:
(i) The Company would pay the executive officer 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
12
<PAGE>
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 the executive officer and his eligible
beneficiaries the benefits pursuant to the Company-sponsored benefit plans,
programs or other arrangements in which he was entitled to participate
immediately prior to the change in control until the earlier of (a) his
attainment of comparable benefits upon alternate employment or (b) one year
following the date of termination.
(iii) The Company would use reasonable efforts to continue 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 be
exercised 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 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
occurring without the executive officer'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 other 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 Company's
executive officers 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.
13
<PAGE>
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 1998, 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 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 of these
factors in establishing the components of executive compensation is as follows:
Base Salary. In establishing base salaries, the Committee 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 midpoint of the ranges.
Performance Bonuses. In establishing performance bonuses, the Committee
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. Fifty percent of the bonus is
based on the financial performance of the Company and the other fifty percent is
based on pre-determined performance criteria for the individual participant. The
criteria are set for two six-month periods and performance against the Plan is
measured two times a 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 1998, 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 vary from year to year depending on the
particular facts and circumstances at the time. For 1998, the Committee measured
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.
14
<PAGE>
Option Grants. In establishing option grants, the Committee 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, 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 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. During 1998, the Committee repriced outstanding options. See
"Compensation Committee Report on 1998 Cancellations and Regrant of Options."
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 1998, the Compensation Committee
did not increase Mr. Esteverena's base salary from the $260,150 level which was
set in July 1997. For 1998, 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 April 1998, the Compensation Committee granted to Mr.
Esteverena an option to acquire 50,000 shares of Common Stock at an exercise
price of $17.063 per share, which was equal to the fair market value on the date
of grant. The Committee considered Mr. Esteverena's prior option grants in
awarding these options.
In July 1998 and January 1999, the Committee met to determine bonuses under
the Management Bonus Plan, reviewed the Company's performance for the year and
determined that the bonus objectives were not met. Thus no management bonuses
were given for 1998.
Respectfully submitted,
Compensation Committee:
Steve Sanghi, Chairman
Richard P. Clark
William Kennedy Wilkie
15
<PAGE>
COMPARISON OF STOCK PERFORMANCE
The following graph compares the cumulative total returns for the Company's
Common Stock ("AFLX"), the Nasdaq Stock Market Index, and the Nasdaq Electronic
Components Index for the period September 27, 1994 through December 27, 1998(1).
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
PLOT POINTS TO COME
(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.
16
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships
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 and 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 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 Holding 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. Pursuant to the Share Sale and Purchase Agreement, HIHL is entitled to a
nominee to the Company's Board of Directors. 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 such additional
shares 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%.
Related Transactions
The Company derived 0.01%, 1.1% and 1.9% of its net sales in 1998, 1997 and
1996, respectively, from sales to Xyratex, a major shareholder of the Company
with William K. Wilkie as a representative who serves on the Company's Board of
Directors.
Richard P. Clark was first elected to the Board of Directors as of June 2,
1994 pursuant to certain contractual commitments with 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
27, 1998 and December 31, 1997 and 1996 were approximately $1.4 million, $4.5
million and $2.6 million, respectively.
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 must be on terms that are at least as favorable to the Company as
those that could have been negotiated with unrelated third parties.
17
<PAGE>
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 1998, except that Todd E. Patanella filed his initial report on 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 fiscal year ending
January 2, 2000 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 1999.
18
<PAGE>
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
1999 Annual Meeting of Stockholders, and evaluated by the Board for inclusion in
the Proxy Statement for that meeting under SEC Rule 14a-8, 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, 1999. In the event that a
Stockholder desires to submit a proposal outside the processes of Rule 14a-8,
that proposal will be considered untimely unless it is received in writing by
the secretary of the Company at the address set forth on the first page hereof
on or before February 12, 2000.
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
June 28, 1999
19
<PAGE>
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 Neil Dial and Donald E. Frederick and each of
them 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 June 7, 1999
at the Annual Meeting of Stockholders to be held on July 28, 1999 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 stockholders(s). If no direction is made, this proxy will be voted
FOR each of the listed proposals.
- ----------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -------------
<PAGE>
ADFlex Solutions Inc.
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
DETACH HERE
|X| Please mark votes as in this example.
The Board of Directors recommends a vote FOR each of the proposals listed below.
1. Election of Directors
Nominees: Richard P. Clark, Wade Meyercord,
Steve Sanghi and William Kennedy Wilkie.
FOR WITHHELD
ALL |_| |_| FROM ALL
NOMINEES NOMINEES
|_| ______________________________________
For all nominees except as noted above
2. Ratification of the appointment FOR AGAINST ABSTAIN
of Ernst & Young LLP as independent |_| |_| |_|
auditors.
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, pleas sign in partnership name by authorized person.
Signature________________ Date __________ Signature______________ Date__________
