<PAGE> 1
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:
<TABLE>
<CAPTION>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
SMARTFLEX SYSTEMS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(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
SMARTFLEX SYSTEMS, INC.
14312 FRANKLIN AVENUE
P.O. BOX 2085
TUSTIN, CALIFORNIA 92781-2085
April 12, 1999
Dear Stockholders:
Our Annual Meeting of Stockholders will be held on May 19, 1999, at 9:30
a.m., Pacific Time, at the Orange County Airport Hilton, 18800 MacArthur
Boulevard, Irvine, California. I urge you to attend this meeting to give us an
opportunity to meet you personally, to allow us to introduce to you the key
personnel responsible for management of your Company and to answer any questions
you may have.
The formal Notice of Meeting, the Proxy Statement, the proxy card, and the
Annual Report to Stockholders describing the Company's operations as of December
31, 1998 are enclosed.
I hope that you will be able to attend the meeting in person. Whether or
not you plan to attend the meeting, please sign and return the enclosed proxy
card promptly. A prepaid return envelope is provided for this purpose. Your
shares will be voted at the meeting in accordance with your proxy.
If you have shares in more than one name, or if your stock is registered in
more than one way, you may receive more than one copy of the proxy materials. If
so, please sign and return each of the proxy cards you receive so that all of
your shares may be voted. I look forward to seeing you at the May 19, 1999
Annual Meeting of Stockholders.
Very truly yours,
SMARTFLEX SYSTEMS, INC.
/s/ William L. Healey
William L. Healey
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
SMARTFLEX SYSTEMS, INC.
14312 FRANKLIN AVENUE
P.O. BOX 2085
TUSTIN, CALIFORNIA 92781-2085
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 19, 1999, 9:30 A.M., PACIFIC TIME
ORANGE COUNTY AIRPORT HILTON
18800 MACARTHUR BOULEVARD, IRVINE, CALIFORNIA
April 12, 1999
Dear Smartflex Stockholders:
On Wednesday, May 19, 1999, Smartflex Systems, Inc. will hold its 1999
Annual Meeting of Stockholders at the Orange County Airport Hilton, 18800
MacArthur Boulevard, Irvine, California. The meeting will begin at 9:30 a.m.,
Pacific Time.
Only stockholders who owned stock at the close of business on March 31,
1999 can vote at this meeting or any adjournments that may take place. At the
meeting we will:
(1) Elect a Board of Directors;
(2) Approve an amendment to our 1995 Equity Incentive Plan;
(3) Approve an amendment to our 1995 Employee Stock Purchase Plan;
(4) Ratify the appointment of our independent auditors for 1999; and
(5) Attend to other business properly presented at the meeting.
Notice is also hereby given of any and all adjournments and postponements
of the Annual Meeting; provided that notice thereof is given at the time and
place designated for the meeting, no new record date is set, and the
postponement or adjournment is for less than thirty (30) days.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE FOUR
PROPOSALS OUTLINED IN THIS PROXY STATEMENT.
By Order of the Board of Directors,
/s/ Nick E. Yocca
Nick E. Yocca
Secretary
Tustin, California
April 12, 1999
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE PROXY IS REVOCABLE
AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT THE MEETING.
<PAGE> 4
SMARTFLEX SYSTEMS, INC.
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 19, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders of Smartflex Systems,
Inc., a Delaware corporation (the "Company"), to be held at the Orange County
Airport Hilton, 18800 MacArthur Boulevard, Irvine, California, at 9:30 a.m.
Pacific Time, on Wednesday, May 19, 1999, and at any and all adjournments or
postponements thereof (the "Meeting").
This Proxy Statement is first being mailed or given on or about April 12,
1999 to stockholders entitled to vote at the Meeting.
REVOCABILITY OF PROXIES
A form of proxy to vote your shares at the Meeting is enclosed. Any
stockholder who executes and delivers a proxy has the right to revoke it at any
time before it is exercised by (i) delivering an instrument revoking the proxy
to the Secretary of the Company, (ii) executing and returning a proxy bearing a
later date, if received by the stock registrar on or before the last business
day preceding the Meeting, or (iii) appearing and voting in person at the
Meeting by written ballot. Subject to such revocation, shares represented by a
properly executed proxy received by the Company in time for the Meeting will be
voted in accordance with the instructions on the proxy. If no instructions are
specified for each proposal, the shares represented by the proxy will be voted
FOR the election as directors of the nominees listed on the proxy, FOR approval
of the amendment of the Company's 1995 Equity Incentive Plan, FOR approval of
the amendment of the Company's 1995 Employee Stock Purchase Plan, and FOR
ratification of the appointment of Ernst & Young LLP as independent auditors of
the Company. If any other business is properly presented at the Meeting, the
proxy will be voted in accordance with the recommendations of the Board of
Directors.
PERSONS MAKING THE SOLICITATION
This solicitation of proxies is being made by the Board of Directors of the
Company. It is contemplated that proxies will be solicited through the mails,
but officers and regular employees of the Company may solicit proxies personally
or by telephone, telegram or facsimile without receiving special compensation
therefor. The Company will bear the entire cost of solicitation of proxies
including costs associated with the preparation, assembly, printing and mailing
of this Proxy Statement and any other materials used in the solicitation of
proxies or furnished to stockholders for the Meeting. Upon request, the Company
shall reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in mailing these proxy materials to
the beneficial owners of the shares held of record by such entities. In
addition, the Company may use the services of individuals or companies it does
not regularly employ in connection with the solicitation of proxies, if
management determines that it is advisable to do so.
VOTING AT THE MEETING
The shares of common stock of the Company, $.0025 par value (the "Common
Stock"), constitute the only outstanding class of voting securities of the
Company. A total of 6,453,541 shares of the Company's Common Stock were
outstanding at the close of business on March 31, 1999, which has been fixed as
the record date (the "Record Date") for the purpose of determining the
stockholders entitled to notice of and to vote at the Meeting. Each stockholder
will be entitled to one vote, in person or by proxy, for each share of Common
Stock held of record on the Record Date. Abstentions and broker non-votes are
each included in the
<PAGE> 5
determination of the number of shares present or represented at the Meeting for
the purpose of determining whether a quorum is present, and each is tabulated
separately. In determining whether a proposal has been approved, abstentions are
counted as votes against a proposal and broker non-votes are not counted as
votes for or against a proposal or as votes present and entitled to vote on a
proposal.
PROPOSAL ONE
ELECTION OF DIRECTORS
Directors are elected at each annual stockholders' meeting to serve until
the next annual meeting or until their successors are elected and qualified. The
Board of Directors proposes the election of five directors at the Meeting.
Unless authority to vote for directors has been withheld in the proxy, the
persons named in the enclosed proxy intend to vote at the Meeting for the
election of the nominees presented below. The five nominees are incumbent
directors, and the term of office for each person elected as a director will
continue until the next annual meeting of stockholders or until a successor has
been elected and qualified. Each of the nominees has consented to serve as a
director for the ensuing year. If any nominee becomes unavailable for any reason
before the election, then the enclosed proxy will be voted for the election of
such substitute nominees, if any, as shall be designated by the Board of
Directors. The Board of Directors has no reason to believe that any of the
nominees will become unavailable to serve. Election as a director will require
the affirmative vote of the holders of a plurality of the outstanding shares of
the Company's Common Stock present or represented at the Meeting and entitled to
vote thereat.
The names and certain information concerning the persons to be nominated
for election as directors are set forth below. YOUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE NOMINEES NAMED BELOW.
NOMINEES
The following table and paragraphs set forth the names of and certain
information regarding the nominees for election as directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
William L. Healey............... 54 President, Chief Executive Officer and
Chairman of the Board of Directors
William E. Bendush.............. 50 Director
Alan V. King.................... 64 Director
William A. Klein................ 58 Director
Gary E. Liebl................... 57 Director
</TABLE>
William L. Healey has served as President and Chief Executive Officer of
the Company since July 1989, and as a director since its incorporation in
September 1993. In January 1996, Mr. Healey was elected Chairman of the Board.
Prior to joining Smartflex, Mr. Healey worked at Silicon Systems, Inc. ("Silicon
Systems"), a principal supplier of mixed signal integrated circuits to the
Company. While employed by Silicon Systems, Mr. Healey was responsible for all
manufacturing operations in California and Singapore, and held several senior
executive positions, including Senior Vice President of Operations, Vice
President of Manufacturing and Director of Wafer Fabrication Operations. Mr.
Healey also sits on the Board of publicly held Sypris Solutions Inc., a
diversified provider of specialized industrial products and technical services.
William E. Bendush has served on the Company's Board of Directors since
January 1996. From May 1987 to the present time, Mr. Bendush has served as
Senior Vice President and Chief Financial Officer of Silicon Systems.
Alan V. King has served on the Company's Board of Directors since October
1993. Mr. King also serves as Chief Executive Officer and Chairman of the Board
of Directors of Volterra Semiconductor Corporation, a developer of battery
management integrated circuits and as Chairman of the Board of Directors of
Arithmos,
2
<PAGE> 6
Inc., a developer of mixed signal application-specific integrated circuits for
flat panel displays. Mr. King also sits on the boards of publicly traded
Information Storage Devices, a designer and developer of integrated circuit
products for voice recording and playback using high density storage technology
and mixed signal expertise, and Elantec Semiconductor Corporation, a designer
and manufacturer of high performance analog integrated circuits for the
video/multimedia, data processing, instrumentation and communications markets.
From September 1991 to November 1994, Mr. King was the President and Chief
Executive Officer of Silicon Systems (See "Compensation Committee Interlocks and
Insider Participation"). From September 1986 to August 1991, Mr. King served as
the President and Chief Executive Officer of Precision Monolithics, Inc., a
semiconductor company.
William A. Klein has served on the Company's Board of Directors since
January 1994. Mr. Klein has been Chairman of the Board of The Cerplex Group,
Inc., a provider of electronic repair services, since its inception in May 1990
until April 1998. Mr. Klein was President and Chief Executive Officer of Century
Data, Inc., a disk drive manufacturer, from September 1986 to May 1990.
Gary E. Liebl has served on the Company's Board of Directors since January
1994. Mr. Liebl is a private investor and business advisor to chief executive
officers and boards of directors. Mr. Liebl serves as Chairman of the Board of
Directors of QLogic Corporation, a semiconductor company, and on the Board of
privately held Pressure Systems, Inc., a satellite components supplier. Prior to
April 1990 he held senior management positions, including Chairman and Chief
Executive Officer, at Cipher Data Products, Inc., a supplier of tape and optical
disk drives to the computer industry.
There are no family relationships among any of the Company's officers or
directors.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held 12 meetings during the fiscal
year ended December 31, 1998. The Board of Directors has established a standing
Compensation Committee, an Audit Committee and a Nominating Committee. The
Compensation Committee held 5 meetings in 1998, and also acted from time to time
by written consent of all of the members of such Committee. The Audit Committee
held 5 meetings in 1998. The Nominating Committee held no meetings in 1998. Each
director attended in 1998 at least 75% of the aggregate number of meetings of
the Board and of the Committees of which he was a member. The Compensation
Committee provides recommendations concerning salaries and incentive
compensation for executive officers and key personnel, and administers the
Company's equity incentive plans. Gary E. Liebl (Chairman) and Alan V. King are
currently the members of the Compensation Committee.
The Audit Committee is responsible for recommending to the Board of
Directors the appointment of the Company's outside auditors, examining the
results of audits and reviewing internal accounting controls. William E. Bendush
(Chairman) and William A. Klein are currently the members of the Audit
Committee.
The Nominating Committee is responsible for recommending to the Board of
Directors nominees for election to the Board of Directors. Gary E. Liebl and
Alan V. King (Chairman) are currently the members of the Nominating Committee.
3
<PAGE> 7
EXECUTIVE OFFICERS
The following table and paragraphs set forth the names of, and certain
information regarding, the executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
---- --- --------------------------
<S> <C> <C>
William L. Healey............ 54 President, Chief Executive Officer and Chairman of
the Board of Directors
Anthony R.W. Richardson...... 54 Executive Vice President and Chief Operating Officer
John W. Hohener.............. 43 Vice President, Chief Financial Officer and
Treasurer
Richard D. Bell.............. 54 Vice President of Worldwide Sales
James C. Cogan............... 59 Vice President and General Manager of EMS Business
Unit
Christopher J. Rollison...... 40 Vice President and General Manager of Advanced
Interconnect Business Unit
</TABLE>
For information on the business background of Mr. Healey, see "Election of
Directors -- Nominees" above.
Anthony R.W. Richardson joined Smartflex in February 1998 as Executive Vice
President and Chief Operating Officer. Prior to joining Smartflex, Mr.
Richardson spent 24 years in senior management roles at Raychem Corporation
("Raychem"), a material sciences company. Mr. Richardson's positions at Raychem
included Director of Operations, Director of Sales and Marketing, and General
Manager for businesses in Asia, North America, South America, Europe and the
Middle East.
John W. Hohener has served as Vice President, Chief Financial Officer and
Treasurer since August 1997. From May 1988 through July 1997, Mr. Hohener served
as the Company's Corporate Controller and Treasurer. Prior to joining Smartflex,
Mr. Hohener spent eight years with Silicon Systems, where he held numerous
financial management positions, including Director of Corporate Accounting. Mr.
Hohener served as a member of the Company's Board of Directors in 1993.
Richard D. Bell joined Smartflex in January 1987, and has served as Vice
President of Worldwide Sales since June 1998. From March 1993 to June 1998, Mr.
Bell was Vice President of Marketing and Sales of the Company. Prior to joining
Smartflex, Mr. Bell spent nine years in senior technical marketing and sales
management positions with Scientific-Atlanta, Inc., a manufacturer of
communications and electronics equipment, and Rogers Corporation, a supplier of
flex circuits to the hard disk drive market. Mr. Bell served as a member of the
Company's Board of Directors in 1993.
James C. Cogan has served as Vice President and General Manager of the
Company's EMS Business Unit since February 1999. Prior to joining Smartflex, Mr.
Cogan spent 20 years in senior management roles with Tanon Manufacturing,
General Parametrics Corporation, Wicat Systems and Datapoint Corporation. Mr.
Cogan's previous positions have included President of the West Coast Division of
Tanon Manufacturing, Chief Operating Officer and Senior Vice President of
General Parametrics Corporation, Vice President and General Manager of Wicat
Systems and Vice President and General Manager of Datapoint Corporation.
Christopher J. Rollison has served as Vice President and General Manager of
the Company's Advanced Interconnect Business Unit since February 1999, and
served as Vice President of Operations from July 1995 to February 1999. Mr.
Rollison joined Smartflex at its inception in August 1985 as a senior process
engineer. Subsequently, he held a series of positions of increasing
responsibility including Director of Operations of the Company from October 1992
to July 1995, culminating in his current role as Vice President and General
Manager of the Company's Advanced Interconnect Business Unit.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
paid or accrued by the Company for services rendered for the fiscal years ended
December 31, 1998, 1997 and 1996 to the Company's Chief Executive Officer and
each of the Company's other four most highly compensated executive officers
whose total annual salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers"):
4
<PAGE> 8
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------ ---------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2)(3) OPTIONS/SARS(#) ($)(4)
------------------ ---- --------- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William L. Healey 1998 302,405 29,474 37,332 50,000 13,856
Chairman of the Board, 1997 281,858 18,325 39,287 44,500 13,539
President and Chief
Executive 1996 259,056 110,776 40,957 -- 12,967
Officer
Anthony R.W. Richardson 1998 197,034 16,096 95,359 65,000 --
Executive Vice President and
Chief Operating Officer
John W. Hohener 1998 140,718 10,606 10,120 9,000 4,460
Vice President, Chief 1997 118,774 7,400 5,549 14,500 4,072
Financial Officer and
Treasurer 1996 105,654 23,558 329 -- 3,592
Richard D. Bell 1998 171,731 10,291 10,594 9,000 4,488
Vice President of Worldwide 1997 159,195 7,721 38,551 11,500 4,500
Sales 1996 140,452 44,950 10,332 -- 3,623
Christopher J. Rollison 1998 140,933 11,037 10,194 9,000 4,490
Vice President and General 1997 130,303 9,078 10,773 11,500 4,500
Manager of Advanced 1996 119,651 38,721 9,248 -- 3,563
Interconnect Business Unit
</TABLE>
- ---------------
(1) The Company operates and reports financial results on a 52- or 53-week year,
ending on the Saturday nearest December 31 each year, and follows a
four-four-five week quarterly cycle. For clarity of presentation, the
Company has described all periods presented as if the fiscal year ended
December 31.
(2) In fiscal 1998, "Other Annual Compensation" for Mr. Healey includes tax
reimbursements paid on Mr. Healey's behalf totaling $15,130, auto allowance
payments totaling $10,800, and other miscellaneous reimbursements of
$11,402, for a total of $37,332.
(3) In fiscal 1998, "Other Annual Compensation" for Mr. Richardson includes
relocation related benefits totaling $83,662, and other miscellaneous
reimbursements of $11,697, for a total of $95,359.
(4) In fiscal 1998, "All Other Compensation" includes matching contributions to
the Company's 401(k) savings plan for Messrs. Healey, Richardson, Hohener,
Bell and Rollison totaling $4,500, $0, $4,460, $4,488 and $4,490,
respectively. For Mr. Healey, the amount also includes fiscal 1998 term life
insurance premiums paid by the Company which totaled $9,356.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None of the Company's executive officers has a formal employment contract
with the Company, and each one's employment may be terminated at any time at the
discretion of the Board of Directors.
In February 1999, the Company appointed James C. Cogan as Vice President
and General Manager of the EMS Business Unit. Mr. Cogan's base salary is
$165,000, plus a target bonus of 30% based on the EMS Business Unit performance.
In addition, Mr. Cogan was granted an incentive stock option to purchase 25,000
shares of the Company's Common Stock under the 1998 Acquisition Nonstatutory
Stock Option Plan (the "Acquisition Plan").
The Compensation Committee has the authority as administrator of the
Company's equity incentive plans to provide for the accelerated vesting of the
shares of Common Stock subject to outstanding unvested options held by
individuals under such plans, including the Company's executive officers and
directors, in the event that a change-in-control of the Company occurs.
Effective January 1, 1996, the Board of Directors adopted an Executive
Involuntary Termination Policy (the "Policy"), in order to assist terminated
executives while they seek other employment. Under the Policy,
5
<PAGE> 9
the President, each Vice President, and certain other executives ("executives")
reporting directly to the President are eligible to receive salary continuation
and certain other benefits following any involuntary termination of their
employment, including a deemed termination resulting from a change-in-control
transaction. Under the policy, the term "involuntary termination" excludes
termination for cause (which for purposes of this policy is deemed to be gross
misconduct and/or willful neglect of duties), retirement, or death. The
post-termination salary and benefits continuation period is up to 24 months in
the case of the President, and one month for each year of service to the Company
for other covered executives, up to a maximum of 12 months in the case of Vice
Presidents, and up to a maximum of six months in the case of all other covered
executives. All salary continuation benefits will cease upon a terminated
executive's obtaining new employment.
OPTION GRANTS
The following table sets forth certain information concerning grants of
options to each of the Named Executive Officers during the year ended December
31, 1998. In addition, in accordance with the rules and regulations of the
Securities and Exchange Commission, the following table sets forth the
hypothetical gains or "option spreads" that would exist for the options. Such
gains are based on assumed rates of annual compound stock appreciation of 5% and
10% from the date on which the options were granted over the full term of the
options. The rates do not represent the Company's estimate or projection of
future Common Stock prices, and no assurance can be given that any appreciation
will occur or that the rates of annual compound stock appreciation assumed for
the purposes of the following table will be achieved.
OPTIONS GRANTED IN
LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZED
NUMBER OF PERCENTAGE VALUE AT ASSUMED
SECURITIES OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM($)
GRANTED EMPLOYEES IN OR BASE EXPIRATION ----------------------
NAME (#)(1) FISCAL YEAR(2) PRICE ($/SH) DATE 5% 10%
---- ---------- -------------- ------------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
William L. Healey......... 50,000 13.6% $ 8.06 1/14/08 $253,523 $ 642,477
Anthony R.W. Richardson... 65,000 17.6 9.69 2/2/08 396,007 1,003,560
John W. Hohener........... 9,000 2.4 8.06 1/14/08 45,634 115,646
Richard D. Bell........... 9,000 2.4 8.06 1/14/08 45,634 115,646
Christopher J. Rollison... 9,000 2.4 8.06 1/14/08 45,634 115,646
</TABLE>
- ---------------
(1) Options granted in fiscal 1998 become exercisable starting 12 months after
the grant date, with 25% of the total number of shares covered by such
options becoming exercisable at that 12-month anniversary and 6.25% of the
total number of shares covered by such options becoming exercisable on the
last day of each successive quarter.
(2) Options to purchase an aggregate of 368,500 shares of Common Stock were
granted to employees, including the Named Executive Officers, during the
fiscal year ended December 31, 1998.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table and footnotes set forth certain information concerning
all option exercises, and the number of shares covered by both exercisable and
unexercisable stock options for the Named Executive Officers as of December 31,
1998. Also reported are the values for "in the money" options that represent the
positive spread between the exercise prices of any of such existing stock
options and the closing sale price of the Company's Common Stock as of December
31, 1998.
6
<PAGE> 10
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998(#) AT DECEMBER 31, 1998($)(1)
-------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William L. Healey.............. 70,907 85,593 $ 75,510 --
Anthony R.W. Richardson........ -- 65,000 -- --
John W. Hohener................ 19,095 19,405 50,340 --
Richard D. Bell................ 17,844 17,656 31,463 --
Christopher J. Rollison........ 20,844 17,656 50,340 --
</TABLE>
- ---------------
(1) Calculated based on a fair market value equal to the reported closing price
of the Company's Common Stock on The Nasdaq National Market at December 31,
1998, of $7.25 per share, less the applicable exercise price.
COMPENSATION OF DIRECTORS
Non-employee directors are paid an annual retainer of $20,000 per year plus
$1,000 for each meeting attended in person. Mr. Healey receives no additional
compensation for services rendered by him as a director of the Company.
Pursuant to the Company's 1995 Equity Incentive Plan, each non-employee
director is automatically granted a non-qualified stock option to purchase
10,000 shares of Common Stock upon his or her initial election to the Board of
Directors, and an additional automatic grant of a non-qualified stock option to
purchase 3,000 shares of Common Stock each time such director is reelected to
the Board of Directors. The exercise price of non-qualified stock options
awarded pursuant to automatic grants is the fair market price of the Common
Stock on the date a director is elected or reelected, as the case may be, and
the non-qualified stock options vest as to 50% of the shares covered thereby on
the first anniversary of the grant date, and thereafter at the rate of 12.5% of
the shares covered thereby every three months thereafter. Each of Messrs.
Bendush, King, Klein, and Liebl received a grant of non-qualified stock options
to purchase 3,000 shares of Common Stock, upon their election to the Board at
the 1998 Annual Meeting of Stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which currently consists of Messrs. Liebl and
King, 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 equity-based incentive
plans.
Until November 1994, Mr. King was the President and Chief Executive Officer
of Silicon Systems, and Mr. Bendush is currently Senior Vice President and Chief
Financial Officer of Silicon Systems. Silicon Systems leases warehouse
facilities in Tustin, California to the Company. In 1998, the Company paid
Silicon Systems approximately $1,600 per month for this warehouse space. The
Company is also party to a Volume Purchase Agreement with Silicon Systems,
whereby the Company purchases integrated circuits from Silicon Systems and is
entitled to certain discounts on purchases made from Silicon Systems if the
Company purchases certain minimum volumes of integrated circuits. The Company
believes that such purchases and such discounts are on terms and conditions no
less favorable to the Company than are available from other suppliers. During
1998, the Company purchased approximately $1.4 million of material from Silicon
Systems.
In July 1996, Silicon Systems, then a subsidiary of TDK USA Corporation,
was sold to Texas Instruments. In connection with this transaction, the
1,161,614 shares of the Company's Common Stock held by Silicon Systems were
transferred to TDK USA Corporation.
7
<PAGE> 11
From September 1996 to the present, Mr. King has served as the Chairman of
the Board and Chief Executive Officer of Volterra Semiconductor Corporation. The
Company currently sells assembly services to Volterra Semiconductor Corporation.
During 1998, the Company sold approximately $99,000 of services to Volterra
Semiconductor Corporation.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") is a standing committee of the
Board of Directors of the Company. The Committee's purpose is to provide
recommendations to the full Board on salaries and incentive compensation for
executive officers and key employees. The Committee is primarily responsible for
establishing the criteria for, and the effectiveness of, the Company's executive
compensation policies. The Committee is also responsible for the administration
of the Company's equity incentive plans.
The following report is submitted by the Committee regarding executive
compensation policies established and executive compensation paid during fiscal
year 1998.
Executive Compensation Policies and Administration. The Committee's
compensation policy is designed to provide a competitive compensation system
which will enable the Company to attract, retain and reward its executive
officers, including the Chief Executive Officer. At present, annual compensation
of the Company's executive officers typically consists of base salary, an annual
incentive bonus and a grant of stock options. To establish and evaluate the
competitiveness and effectiveness of the Company's executive compensation
policies the Committee has adopted the following general guidelines:
- Base salaries must be competitive, within the industry and the local
markets where the Company operates, so that the Company can attract and
retain qualified executive and management personnel.
- Company performance should generally be the primary determinant for both
annual bonuses and long-term equity incentives.
- Senior executives' financial interests should be aligned with those of
the other stockholders of the Company, primarily through the use of stock
options or other appropriate equity-based awards.
Section 162(m) of the Internal Revenue Code establishes a limitation on the
deductibility of compensation payable in any particular tax year to the Chief
Executive Officer and the four most highly compensated other executive officers.
According to the regulations adopted under Section 162(m), the limitation shall
not apply (for a period ending with next year's annual meeting) to a
compensation plan of a company that becomes public provided the compensation
plan existed prior to the time of the company's becoming a public company and
provided the compensation plan was described in the company's prospectus for the
initial public offering in accordance with applicable securities laws. The
Company's 1993 Equity Incentive Plan, 1994 Equity Incentive Plan for Officers,
Directors and Consultants and 1995 Equity Incentive Plan (the "1995 Plan") are
not subject to the restrictions of Section 162(m). The Company does not foresee
any payment made or authorized in fiscal 1998 of any compensation that would be
non-deductible under Section 162(m).
Base Salaries and Employee Benefit Programs. In order to retain executives
and other key employees, and to be able to attract additional well-qualified
executives when the need arises, the Committee believes that base salary rates
and employee benefits should be comparable to those of similar companies in the
Company's industry, taking into account factors such as geographic location,
size and operating history. In establishing executive salaries, the Committee
also considers the Southern California location of the Company's headquarters.
The cost of living in Southern California is generally more expensive than in
many other geographic areas of the United States.
At the beginning of each fiscal year, the Committee establishes base
salaries of executives based upon independent studies of comparable salaries in
similarly sized companies in the Company's industry segment. The performance of
the Company with respect to annual revenue growth and earnings as well as the
individual's performance are also considered in establishing base salaries. Base
salaries and employee benefits of executives, including the Named Executive
Officers, were increased in 1998 based on the Committee's subjective evaluation
of the Company's need to be more competitive and to fairly compensate employees
for enlarged responsibilities occasioned by the Company's growth in the area of
international operations.
8
<PAGE> 12
Performance-Based Compensation. Annual bonuses are granted by the Board of
Directors, based upon recommendations of the Committee, and are intended to
provide an annual incentive to executive officers by recognizing individual
achievement and Company performance during the fiscal year. Incentive
compensation target levels, with the relative weightings ascribed to such target
levels, are set in advance at the beginning of each fiscal year by the
Compensation Committee based upon:
- the Company achieving certain revenue and earnings targets
- specific performance goals for each plan participant
At the end of the fiscal year, the actual performance is measured against
these goals to determine the amount of an executive's bonus. In addition, the
Committee also considers the incentive compensation policies instituted by
companies with comparable revenues and numbers of employees, among other factors
that the Committee deems significant. In 1998 the percentage of bonus
compensation was approximately 4% to 8% of each executive's base salary.
Stock Options. In order to reward performance and to provide an incentive
that will align the financial interests of management with those of the
stockholders, the Committee makes discretionary grants of stock options under
the Company's equity incentive plans to executive officers and key employees of
the Company on a periodic basis. The Committee believes that stock option grants
reward executives and other key employees for long-term performance, which
maximizes stockholder value, and that such grants should represent a significant
portion of each executive's total compensation package. Incentive stock options
to purchase a total of 142,000 shares of the Company's Common Stock were granted
to the Named Executive Officers during the fiscal year ended December 31, 1998,
all of which were granted under the 1995 Plan.
Chief Executive Officer's Compensation. Mr. Healey's base salary level is
subject to annual review and evaluation. During fiscal 1998, Mr. Healey's base
salary was increased to $302,405, and he was awarded an annual incentive award
of $25,000 and granted incentive stock options to purchase 50,000 shares of
common stock. As mentioned above, the Committee considered both objective and
subjective factors in determining Mr. Healey's base salary and incentive award
for 1998. Some of the factors that were considered by the Committee in
determining Mr. Healey's compensation were: the Company's ability to stay
profitable during a year of reduced revenue, maintaining significant cash
balances and low debt structure during a year of market slowdown, and successful
completion of the Company's first two acquisitions. The Committee also based Mr.
Healey's compensation on published surveys that track compensation levels of
executives in similarly sized companies.
Alan V. King
Gary E. Liebl, Chairman
Notwithstanding anything to the contrary set forth in the Company's
previous or future filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate other
filings, including this Proxy Statement, in whole or in part, the foregoing
Report, and the performance graph immediately following, shall not be
incorporated by reference into any such filings.
9
<PAGE> 13
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for the
Company, the Center for Research in Securities Prices Index for The NASDAQ Stock
Market (United States Companies) (the "NASDAQ Market Index"), and a weighted
composite industry index ("the SIC Code Index"), for the period that commenced
on August 1, 1995 (the date on which the Company's Common Stock was first
registered under the Exchange Act) and ended on December 31, 1998. The Company's
Industry Index is NASDAQ's SIC Code 7373 Index, and the Industry Index is
weighted by the market equity capitalization of each constituent company.
Cumulative total returns are calculated assuming that $100 was invested on July
31, 1995, and that all dividends were reinvested.
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG SMARTFLEX SYSTEMS, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
<TABLE>
<CAPTION>
SMARTFLEX SYSTEMS, INC. SIC CODE INDEX NASDAQ MARKET INDEX
----------------------- -------------- -------------------
<S> <C> <C> <C>
'8/1/95' 100.00 100.00 100.00
'12/31/95' 114.52 123.73 102.74
'12/31/96' 106.40 131.32 127.67
'12/31/97' 61.29 156.93 156.17
'12/31/98' 46.77 341.84 220.26
</TABLE>
CERTAIN TRANSACTIONS
INCORPORATION
The Company was incorporated in Delaware on September 17, 1993 to acquire
all of the assets and liabilities of Smartflex Systems, which was founded in
November 1985 as a joint venture between Rogers Corporation, a supplier of flex
circuits to the hard disk drive ("HDD") market, and Silicon Systems, a supplier
of mixed signal integrated circuits to the HDD market. See "Compensation
Committee Interlocks and Insider Participation."
ACQUISITIONS AND ACQUISITION PLAN
On October 7, 1998 the Company acquired Logical Services Incorporated, a
California corporation ("LSI"), pursuant to the terms of a Stock Purchase
Agreement whereby the Company purchased all of the
10
<PAGE> 14
issued and outstanding shares of stock of LSI for an aggregate purchase price of
$2.3 million. LSI is an electronic engineering, design and development company
with annual revenues of approximately $3 million. Upon the closing of the
acquisition LSI became a wholly-owned subsidiary of the Company.
On December 2, 1998, the Company, through its wholly-owned subsidiary,
Methuen Acquisition Corp., a Delaware corporation, acquired certain assets of
the Methuen, Massachusetts division of EA Industries, Inc., a New Jersey
Corporation ("EA/Methuen") pursuant to the terms of an Agreement of Purchase and
Sale for an aggregate purchase price of $2.4 million. EA/Methuen is a provider
of high-mix electronic contract manufacturing assembly and test services with
annual revenues of approximately $7 million.
On February 1, 1999, the Company, through its wholly-owed subsidiaries,
Smartflex Fremont Inc. and Smartflex New Jersey Inc., acquired certain assets
from Tanon Manufacturing, Inc., the principal operating subsidiary of EA
Industries, Inc. ("Tanon"). On December 3, 1998, Tanon filed a voluntary
proceeding under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of California. The acquisition of the
assets was subject to approval of the Bankruptcy Court which was granted on
January 29, 1999. The assets acquired include certain specified contracts,
equipment and inventory used in connection with Tanon's contract manufacturing
electronic assembly business at facilities in Fremont, California and West Long
Branch, New Jersey. The aggregate purchase price paid was $14.9 million, $2.5
million of which is due in April 2000; and the Company has delivered a
non-interest bearing promissory note to guaranty this additional payment.
On December 9, 1998, the Board of Directors adopted resolutions to adopt
and implement the Company's Acquisition Plan for the purpose of providing
nonstatutory stock options to key employees of LSI and EA/Methuen, the recently
acquired wholly-owned subsidiaries of the Company, and to key employees of other
businesses acquired by the Company from time to time, none of whom have
previously been employed by the Company, to induce such key employees to enter
into employment contracts with the Company. Under Rule 4320(e)(21)(H) of the
Nasdaq Stock Market, stockholder approval of the Acquisition Plan and any grants
thereunder is not required.
The Acquisition Plan provides for the reservation of 200,000 shares of the
Common Stock of the Company for issuance pursuant to options granted under the
Acquisition Plan which vest twenty-five percent (25%) on the first anniversary
of the date of grant and six and one-quarter percent (6.25%) each quarter
thereafter. The Board of Directors and/or the Compensation Committee of the
Board are authorized to grant and/or confirm nonstatutory stock options under
the Acquisition Plan and the Acquisition Plan will be administered by the
Compensation Committee. As of March 18, 1999, the Company had granted options to
purchase 191,750 shares available for grant under the Acquisition Plan,
including a total of 30,000 options granted to Robert Ulrickson, the President
of LSI.
The shares of Common Stock issuable under the Acquisition Plan are to be
registered with the Securities and Exchange Commission (the "SEC") under a
Registration Statement on Form S-8, or other comparable form prescribed by the
SEC, under the Securities Act of 1933.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely upon its review of the copies of reporting forms furnished to
the Company, and written representations that no other reports were required,
the Company believes that all filing requirements under Section 16(a) of the
Securities Exchange Act of 1934 applicable to its directors, officers and any
persons holding 10% or more of the Company's Common Stock, as of December 31,
1998, were timely satisfied.
11
<PAGE> 15
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of March 18, 1999 (unless otherwise
indicated), certain information regarding the beneficial ownership of the
Company's outstanding Common Stock by (i) each person known to the Company to be
the beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each director, (iii) each of the Named Executive Officers and (iv) all
directors and executive officers as a group. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE OF
NAME AND ADDRESS OWNERSHIP(*) CLASS(%)(1)
---------------- ------------ -------------
<S> <C> <C>
TDK U.S.A Corporation............................ 1,161,614(2) 18.0
12 Harbor Park Drive
Port Washington, NY 11050-4649
Dalton, Greiner, Harman, Maher & Co.............. 501,300(3) 7.8
1100 Fifth Avenue South, Suite 301
Naples, FL 34102
Heartland Advisors, Inc.......................... 550,000(4) 8.5
790 North Milwaukee Street
Milwaukee, WI 53202
The TCW Group, Inc............................... 393,100(5) 6.1
865 South Figueroa Street
Los Angeles, CA 90017
Capital Technology, Inc.......................... 338,500(6) 5.2
8314 Pineville -- Matthews Road, Suite 295
Charlotte, NC 28226
William L. Healey................................ 262,223(7) 4.0
William E. Bendush............................... 16,000(8) *
Alan V. King..................................... 17,800(9) *
William A. Klein................................. 14,000(9) *
Gary E. Liebl.................................... 14,000(9) *
Richard D. Bell.................................. 73,744(10) 1.1
James C. Cogan................................... -- *
John W. Hohener.................................. 54,831(11) *
Anthony R.W. Richardson.......................... 21,313(12) *
Christopher J. Rollison.......................... 47,387(13) *
All directors and executive officers as a group
(10 persons)................................... 521,298(14) 8.1
</TABLE>
- ---------------
(*) Indicates less than 1%.
(1) Calculated based on 6,453,541 shares of the Company's Common Stock
outstanding on March 18, 1999. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days of March 18, 1999 are deemed beneficially owned
and outstanding for computing the percentage of the person holding such
securities, but are not considered outstanding for computing the percentage
of any other person.
(2) Based on a Schedule 13D filed by TDK U.S.A. Corporation, which reported
stock ownership as of December 31, 1998.
(3) Based on a Schedule 13G/A filed by Dalton, Greiner, Hartman, Maher & Co.,
which reported stock ownership as of December 31, 1998.
(4) Based on a Schedule 13G filed by Heartland Advisors, Inc., which reported
stock ownership as of December 31, 1998.
12
<PAGE> 16
(5) Based on a Schedule 13G/A filed jointly by The TCW Group, Inc. and Mr.
Robert Day, 200 Park Avenue, Suite 2200, New York, New York 10166, an
individual who may be deemed to control the TCW Group, which reported stock
ownership as of December 31, 1998.
(6) Based on a Schedule 13G filed by Capitol Technology, Inc., which reported
stock ownership as of December 31, 1998.
(7) Includes 98,344 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(8) Includes 16,000 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(9) As to each of Messrs. King, Klein and Liebl, includes 6,000 shares subject
to presently exercisable options or options that become exercisable within
60 days of March 18, 1999.
(10) Includes 23,345 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(11) Includes 24,596 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(12) Includes 20,313 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(13) Includes 26,345 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
(14) Includes 226,943 shares subject to presently exercisable options or options
that become exercisable within 60 days of March 18, 1999.
PROPOSAL TWO
APPROVAL OF AMENDMENT OF 1995 EQUITY INCENTIVE PLAN
At the Meeting, the stockholders of the Company will be asked to approve an
amendment to the 1995 Equity Incentive Plan (the "1995 Plan"). The proposed
amendment, which is described below, will increase the maximum number of shares
of Common Stock available for awards granted under the 1995 Plan.
Currently, a maximum of 791,169 shares of Common Stock (as adjusted to
reflect the automatic one percent (1%) "evergreen" increase effective January 1,
1999) are authorized for issuance under the 1995 Plan. As of March 18, 1999, a
total of 781,269 shares had been issued net of cancellations, leaving only 9,900
shares available for grant under the 1995 Plan.
The proposed amendment, which was adopted by the Board of Directors on
January 13, 1999, subject to stockholder approval at the Meeting, will (i)
increase the maximum number of shares of Common Stock available for awards under
the 1995 Plan by 350,000 shares (from 600,000 to 950,000 shares); (ii) raise the
percentage of the annual evergreen increase each January 1 commencing and
effective as of January 1, 2000, from one percent (1%) to two percent (2%) of
the total number of issued and outstanding shares of the Company's Common Stock
as of the immediately preceding December 31; and (iii) as a sub-limit within the
amount of the increase described in (i) above, increase the maximum number of
shares that may be issued pursuant to Incentive Stock Options under the 1995
Plan by 350,000 shares (from 600,000 to 950,000 shares), effective immediately,
plus an automatic annual increase of 128,000 shares each January 1, commencing
and effective January 1, 2000, as a sub-limit within the evergreen increase
described in (ii) above. See "1995 Plan Description".
The Company is requesting the increase in shares authorized for issuance
under the 1995 Plan because, due in part to the growth of the Company and its
recent acquisitions, the number of employees eligible to participate in the 1995
Plan has increased. The authorization of additional options which may be granted
under the 1995 Plan is intended to enable the Company to continue to attract,
motivate and retain key employees and directors. For similar reasons, increasing
the percentage of the automatic evergreen increase is
13
<PAGE> 17
intended to ensure consistent annual increases in the maximum number of shares
of Common Stock available for awards under the 1995 Plan, without requiring the
administrative costs in having to seek stockholder approval of incremental
increases.
Subject to the approval of the amendment to the 1995 Plan by the Company's
stockholders, the additional shares of Common Stock issuable under the 1995 Plan
are to be registered with the Securities and Exchange Commission (the "SEC")
under a Registration Statement on Form S-8, or other comparable form prescribed
by the SEC, under the Securities Act of 1933.
Approval of the amendment of the 1995 Plan will require the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock
present or represented at the Meeting and entitled to vote thereat. Proxies
solicited by management for which no specific direction is included will be
voted FOR the amendment to add 350,000 shares of Common Stock to the 1995 Plan
(and to the Incentive Stock Option sub-limit) and to increase the annual
evergreen percentage to two percent (2%) effective January 1, 2000, plus an
automatic annual increase of 128,000 shares each January 1 commencing January 1,
2000 to the Incentive Stock Option pool of shares reserved for issuance
thereunder. YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
AMENDMENT OF THE COMPANY'S 1995 PLAN.
The principal features of the 1995 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1995 Plan itself.
Copies of the 1995 Plan can be obtained by writing to the Secretary, Smartflex
Systems, Inc., 14312 Franklin Avenue, Tustin, California 92680.
1995 PLAN DESCRIPTION
The 1995 Plan provides for the grant of stock options, performance shares,
restricted stock, stock units and other stock-based awards of the Company's
common stock to employees, executive officers, directors and consultants.
Incentive stock options may be granted only to employees and the exercise price
per share may not be less than 100% of the fair market value ("FMV") of a share
of common stock on the grant date. The exercise price per share of non-qualified
stock options shall not be less than 85% of the FMV of a share of common stock
on the grant date. The 1995 Plan provides for the automatic grant of a
non-qualified option to purchase 10,000 shares of common stock to each
non-employee director of the Company upon his or her initial election to the
Board of Directors, and an additional automatic grant of a non-qualified option
to purchase 3,000 shares of common stock each time such director is reelected.
Automatic grants shall be at the FMV on the date that such director is elected
or reelected.
An aggregate of 600,000 shares of common stock was initially reserved for
issuance under the 1995 Plan. The number of shares of common stock authorized
under the 1995 Plan is increased automatically on January 1 of each year, from
and after January 1, 1997, by an amount equal to 1% of the total number of
issued and outstanding shares of common stock of the Company as of the
immediately preceding December 31. The total shares reserved under the 1995 Plan
after the automatic increases are 791,169 at January 1, 1999. The amendment of
the 1995 Plan will add 350,000 shares of Common Stock to the pool of shares
reserved for issuance thereunder and for issuance pursuant to Incentive Stock
Options, and increase the annual evergreen percentage to two percent (2%)
effective January 1, 2000. If an award or grant respecting common stock expires
or is terminated unexercised, or is forfeited without the participant having had
the economic benefits of ownership, the shares, to that extent, again become
available for awards under the 1995 Plan. The increases pursuant to the
amendment in the reserve for the 1995 Plan are effective retroactive to grants
within 12 months prior to the Meeting that exceed the initial reserve,
aggregating options to purchase 43,837 shares at an average exercise price of
$8.20 to December 31, 1998.
The maximum number of shares of common stock initially issuable pursuant to
Incentive Stock Options was 600,000. Such amount is included in the overall
reservation of shares under the 1995 Plan and is not in addition thereto. The
amount reserved pursuant to Incentive Stock Options is increased by the
amendment by 350,000 initially, and 128,000 per year thereafter. This increase
in authorization is effective retroactive to grants of Incentive Stock Options
within 12 months prior to the Meeting that exceed the initial reserve,
aggregating options to purchase 43,837 shares at an average exercise price of
$8.20 to December 31, 1998.
14
<PAGE> 18
The purpose of the 1995 Plan is to attract and retain key employees and
directors, to provide financial incentives and rewards for persons eligible for
awards which are directly linked to the financial performance of the Company in
order to motivate such persons to achieve long-range performance goals, and to
allow persons receiving awards to participate in the growth of the Company.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), which has the exclusive power to determine whether
to grant (except for automatic grants to the Company's directors), and the terms
and conditions of any such grant, stock options, performance shares, restricted
stock, stock units and other stock-based awards to participants and to resolve
all questions relating to the administration of the 1995 Plan.
The 1995 Plan authorizes the grant of incentive stock options and
nonqualified stock options. Options shall be exercisable over such period as
determined by the Committee, but no incentive stock option may be exercisable
after ten years from the date of grant. Options may be exercisable in
installments as determined by the Committee and are evidenced by option
agreements. An option may not be transferred except by will or by the laws of
descent and distribution. Unvested options may not be exercised following
termination of service to the Company, except under certain circumstances where
such termination of service is with the consent of the Committee or due to
retirement, disability or death, in which event the Committee (subject in any
case to the foregoing limitation on the maximum term of incentive stock options)
may take any action it deems equitable or in the best interests of the Company.
The exercise price of Common Stock subject to an incentive stock option shall
not be less than 100% of the fair market value of such Common Stock on the date
of grant, and the exercise price of Common Stock subject to a nonqualified
option shall not be less than 85% of the fair market value of such Common Stock
on date of grant. The exercise price will be due upon exercise of the option and
may be paid in cash, in shares of Common Stock or through a sale and remittance
procedure with a Company-designated brokerage firm. Grants may also provide for
reload option rights upon the exercise of options, provided that the term of any
such reload option shall not extend beyond the terms of the option originally
exercised.
The 1995 Plan provides for the automatic grant of a nonqualified option to
purchase 10,000 shares of Common Stock to each non-employee director of the
Company upon his or her initial election to the Board of Directors, and an
additional automatic grant of a nonqualified option to purchase 3,000 shares of
Common Stock each time such director is reelected to the Board of Directors.
Automatic grants shall be at the fair market price of the Common Stock on the
date that such director is elected or reelected, as the case may be. See
"Compensation of Directors."
Performance shares entitle the participant to receive shares of Common
Stock based upon the degree of achievement of pre-established performance goals
over a pre-established performance cycle as determined by the Committee in its
discretion. The Committee may adjust the performance goals during a performance
cycle in order to avoid distortion which would otherwise result from events not
related to the performance of the participants occurring after the date of
grant. The Committee will have sole discretion to determine the participants
eligible for performance shares, the duration of each performance cycle, and the
number of shares earned on the basis of the Company's performance relative to
the established performance goals. At the end of the performance period, the
Committee shall determine the number of performance shares which have been
earned on the basis of performance in relation to the established performance
goals. A participant must be an employee at the end of the performance cycle in
order to receive the performance shares; provided, however, that if the
participant ceases to be an employee with the Committee's consent prior to the
end of the cycle, or dies, retires or becomes disabled prior to the end of the
cycle, the Committee may take any action it deems equitable or in the best
interests of the Company.
A grant of restricted stock consists of a specified number of shares of
Common Stock which is contingently awarded in amounts determined by the
Committee and is subject to substantial risk of forfeiture to the Company under
such conditions and such periods of time as the Committee may determine. A
participant who has been awarded restricted shares may vote and receive
dividends on restricted shares, but may not sell, assign, transfer, pledge or
otherwise encumber restricted shares during the restricted period. If a
participant's employment ceases prior to the end of the restricted period for
any other reason, all of the
15
<PAGE> 19
participant's restricted shares will be forfeited. Grants may be made without
consideration or in consideration of a payment by the participant that is less
than the fair market value on the grant date.
Stock units consist of awards of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based, on the value of Common
Stock. The Committee may award stock units subject to such terms, restrictions,
conditions, performance criteria, vesting requirements and payment rules as the
Committee shall determine.
The 1995 Plan will terminate in June 2005, unless terminated earlier by the
Board of Directors.
AMOUNTS RECEIVED UNDER THE 1995 PLAN IN 1998
The Committee determines the recipients and the amounts of grants under the
1995 Plan to employees, executive officers, directors and consultants of the
Company. At December 31, 1998, the approximate number of eligible employees,
executive officers, and non-employee directors was 70, 5, and 4, respectively.
The number of grantees could vary from year to year. Except for the automatic
grants to the Company's directors, the amounts or terms of stock-based awards
under the 1995 Plan are not determinable in advance. The automatic grants to
non-employee directors are described above. The amendment of the 1995 Plan does
not affect such automatic grant provisions. The following table presents
information concerning the grants in 1998 under the 1995 Plan.
NEW PLAN BENEFITS
1995 PLAN
<TABLE>
<CAPTION>
NAME AND POSITION EXERCISE PRICE ($)(1) NUMBER OF OPTION SHARES
----------------- --------------------- -----------------------
<S> <C> <C>
William L. Healey.............................. 8.06 50,000
Chairman of the Board, President
and Chief Executive Officer
Anthony R.W. Richardson........................ 9.69 65,000
Executive Vice President and
Chief Operating Officer
John W. Hohener................................ 8.06 9,000
Vice President, Chief Financial
Officer and Treasurer
Richard D. Bell................................ 8.06 9,000
Vice President of Worldwide Sales
Christopher J. Rollison........................ 8.06 9,000
Vice President and General Manager
of Advanced Interconnect Business Unit
All current executive officers, as a group..... 8.06 142,000
All current directors who are not executive
officers, as a group......................... 8.06 12,000
All employees, including non-executive
officers, as a group......................... 8.56(2) 368,500
</TABLE>
- ---------------
(1) Exercise price stated as of the date of grant. The fair market value of the
Company's Common Stock on The Nasdaq National Market at December 31, 1998
was $7.25 per share.
(2) Reported as an average exercise price for the number of options reported.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed, and
may vary from locality to locality.
Incentive Stock Options. There is no taxable income to an employee when an
incentive stock option is granted or when that option is exercised; however,
generally the amount by which the fair market value of the
16
<PAGE> 20
shares at the time of exercise exceeds the option price will be included in the
optionee's alternative minimum taxable income upon exercise. If stock received
on exercise of an incentive stock option is disposed of in the same year the
option was exercised, and the amount realized is less than the stock's fair
market value at the time of exercise, the amount includible in the alternative
minimum taxable income will be the amount realized upon the sale or exchange of
the stock, less the taxpayer's basis in the stock. Gain realized by an optionee
upon the sale of stock issued upon exercise of an incentive stock option is
taxable either as mid-term or long-term capital gain or loss (depending on
whether the Shares were held more than 12 or more than 18 months after
exercise), and no tax deduction is available to the Company, unless the optionee
disposes of the stock within two years after the date of grant of the option or
within one year after the date of exercise. In such event, an amount equal to
the lesser of (i) the difference between the option exercise price and the and
fair market value of the shares on the date of the optionee's exercise, or (ii)
the amount realized on disposition minus the exercise price will be taxed at
ordinary income rates, and, subject to Section 162(m) of the Code (which limits
the deductibility of compensation in excess of $1,000,000 for certain executive
officers), the Company will be entitled to a deduction to the extent the
employee must recognize ordinary income. Additionally, if the amount realized
exceeds the fair market value of the stock on the date of exercise, the gain
realized in excess of the amount taxed as ordinary income will be taxed as
capital gain.
Nonqualified Stock Options. The recipient of a nonqualified stock option
will not realize taxable income upon the grant of the option, nor will the
Company be entitled to take any deduction. Upon the exercise of a nonqualified
stock option, the optionee will realize ordinary income and, subject to Section
162(m) of the Code, the Company will be entitled to a deduction in an amount
equal to the difference between the option exercise price and the fair market
value of the stock on the date of exercise. The Company will be entitled to a
tax deduction equal to the amount of ordinary income recognized by the optionee,
provided certain reporting requirements are met. An optionee's basis for the
stock for purposes of determining gain or loss on any subsequent disposition of
the shares generally will be the fair market value of the stock on the date of
exercise of the nonqualified stock option.
Restricted Stock. The receipt of restricted stock will not cause a
recipient to realize taxable income until the expiration of any repurchase
rights retained by the Company with respect to such stock, unless the recipient
makes an election under Section 83(b) of the Code to be taxed as of the date of
purchase. If no repurchase rights are retained or if a Section 83(b) election is
made, the participant will recognize ordinary income in an amount equal to the
difference between the purchase price paid for the shares and the fair market
value of such shares on the date of purchase. If no Section 83(b) election is
made or if repurchase rights are retained, the recipient will realize taxable
income on each date that the recipient's ownership rights vest (i.e., when the
Company no longer has the right to repurchase all or a portion of the shares).
The recipient will recognize ordinary income, and, subject to Section 162(m) of
the Code, the Company will be entitled to a deduction on each date shares vest
in an amount equal to the excess of the fair market value of such shares on that
date over the purchase price paid for such shares. However, if the recipient is
subject to Section 16(b) of the Exchange Act, and if no Section 83(b) election
was made at the time of purchase, the date that ordinary income is recognized
for shares which vest within six months of purchase date shall be deferred to
six months from the date of purchase.
Tax Withholding. The Plan grants the Company the power to withhold, or
require a participant to remit to the Company, an amount sufficient to satisfy
Federal, state and local tax withholding requirements with respect to any
options exercised or restricted stock issued under the Plan. To the extent
permissible under applicable tax, securities, and other laws, the Committee may,
in its sole discretion, permit a participant to satisfy an obligation to pay any
such tax, in whole or in part, up to an amount determined on the basis of the
highest marginal tax rate applicable to such participant, by (i) directing the
Company to apply shares of Common Stock to which the participant is entitled as
a result of the exercise of an option or as a result of the lapse of
restrictions on restricted stock, or (ii) delivering to the Company shares of
Common Stock owned by the participant.
17
<PAGE> 21
PROPOSAL THREE
APPROVAL OF AMENDMENT OF 1995 EMPLOYEE STOCK PURCHASE PLAN
At the Meeting, the stockholders of the Company will be asked to approve an
amendment to the 1995 Employee Stock Purchase Plan (the "Stock Purchase Plan").
The proposed amendment, which is described below, will increase the maximum
number of shares of Common Stock available for awards granted under the Stock
Purchase Plan.
Currently, a maximum of 200,000 shares of Common Stock are authorized for
issuance under the Stock Purchase Plan. As of March 18, 1999, a total of 134,538
shares had been issued, leaving only 65,462 shares available for issuance under
the Stock Purchase Plan.
The proposed amendment, which was adopted by the Board of Directors on
January 13, 1999, subject to stockholder approval at the Meeting, will increase
the authorized number of shares of Common Stock issuable under the Stock
Purchase Plan by 125,000 shares.
The Company is requesting the increase in shares authorized for issuance
under the Employee Stock Purchase Plan because, due in part to the growth of the
Company, the number of employees eligible to participate in the Stock Purchase
Plan has increased. The authorization of additional shares which may be issued
under the Stock Purchase Plan is intended to enable the Company to continue to
attract, motivate and retain key employees.
Subject to the approval of the amendment to the 1995 Plan by the Company's
stockholders, the additional shares of Common Stock issuable under the Stock
Purchase Plan are to be registered with the Securities and Exchange Commission
(the "SEC") under a Registration Statement on Form S-8, or other comparable form
prescribed by the SEC, under the Securities Act of 1933.
Approval of the amendment of the Stock Purchase Plan will require the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock present or represented at the Meeting and entitled to vote thereat.
Proxies solicited by management for which no specific direction is included will
be voted FOR the amendment of the Stock Purchase Plan to add 125,000 shares of
Common Stock to the pool of shares reserved for issuance thereunder. YOUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDMENT OF THE
COMPANY'S STOCK PURCHASE PLAN.
The principal features of the Stock Purchase Plan are summarized below, but
the summary is qualified in its entirety by reference to the Stock Purchase Plan
itself. Copies of the Stock Purchase Plan can be obtained by writing to the
Secretary, Smartflex Systems, Inc., 14312 Franklin Avenue, Tustin, California
92680.
STOCK PURCHASE PLAN TERMS
All domestic employees of the Company (including officers) whose customary
employment is for more than five months in any calendar year and more than 20
hours per week and who have been employed by the Company for at least 90 days
are eligible to participate in the Stock Purchase Plan. Directors who are not
employees are not eligible. An aggregate of 200,000 shares of the Company's
Common Stock is reserved for offering under the Stock Purchase Plan and
available for purchase thereunder, subject to adjustment in the event of a stock
split, stock dividend or other similar change in the Common Stock or the capital
structure of the Company.
Under the Stock Purchase Plan, offerings are made on the first business day
of May and November (each such period a "Purchase Period") during which
deductions are to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the Stock Purchase Plan.
Payroll deductions may be from 1% to 15% (in whole percentage increments) of a
participant's regular base pay, exclusive of overtime, bonuses, shift-premiums
or commissions. Participants may not make direct cash payments to their
accounts. An employee may purchase up to 1,000 shares of Common Stock under the
Stock Purchase Plan during a Purchase Period. Certain additional limitations on
the amount of Common Stock which may be purchased in any calendar year are
imposed by the Code.
18
<PAGE> 22
The price per share (the "Purchase Price") at which shares of Common Stock
are to be purchased pursuant to the Stock Purchase Plan for any Purchase Period
is the lesser of (a) 85% of the fair market value of Common Stock on the date of
the grant of the option (the commencement of the Purchase Period, or the "Grant
Date") or (b) 85% of the fair market value of Common Stock on the date of
exercise of the option (the last business day of a Purchase Period, or the
"Purchase Date"). On the Purchase Date, amounts credited to the accounts of the
participants who have neither terminated from the employ of the Company nor
withdrawn from the Stock Purchase Plan for such Purchase Period are used to
purchase shares of Common Stock in accordance with the elections of such
participants.
The Company makes no cash contributions to the Stock Purchase Plan, but
bears the expenses of administration. The Stock Purchase Plan will be
administered by the Committee, which will have authority to determine the terms
and conditions under which shares are to be offered, and to resolve all
questions relating to the administration of the Stock Purchase Plan.
The Stock Purchase Plan will terminate on June 30, 2005, unless terminated
earlier pursuant to the provisions of the Stock Purchase Plan.
AMOUNTS RECEIVED UNDER THE STOCK PURCHASE PLAN IN 1998
The approximate number of current eligible employees and executive officers
is 140 and 6, respectively. The number of grantees could vary from year to year.
The amounts or terms of stock-purchases under the Stock Purchase Plan is not
determinable in advance. The following table presents information concerning the
stock purchases in 1998 under the Stock Purchase Plan.
NEW PLAN BENEFITS
STOCK PURCHASE PLAN
<TABLE>
<CAPTION>
NAME AND POSITION PURCHASE PRICE ($)(1) NUMBER OF SHARES
----------------- --------------------- ----------------
<S> <C> <C>
William L. Healey.................................. 14,556 2,000
Chairman of the Board,
President and Chief Executive Officer
Anthony R.W. Richardson............................ 6,163 1,000
Executive Vice President and
Chief Operating Officer
John W. Hohener.................................... 3,173 378
Vice President, Chief Financial
Officer and Treasurer
Richard D. Bell.................................... -- --
Vice President of Worldwide Sales
Christopher J. Rollison............................ 7,641 1,093
Vice President and General Manager of
Advanced Interconnect Business Unit
All current executive officers, as a group......... 31,533 4,471
All current directors who are not executive
officers, as a group............................. -- --
All employees, including non-executive officers, as
a group.......................................... 244,555 34,168
</TABLE>
- ---------------
(1) Total purchase price of shares, calculated by adding the sum of (i) the
number of shares purchased multiplied by the purchase price of $8.39 at the
first offering period ended April 30, 1998, and (ii) the number of shares
purchased multiplied by the purchase price of $6.16 at the second offering
period ended October 30, 1998.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed, and
may vary from locality to locality.
19
<PAGE> 23
The Stock Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
at the time of purchase of shares. However, a participant may become liable for
tax upon disposition of shares acquired under the Stock Purchase Plan, and the
tax consequences will depend upon how long a participant has held the shares
before disposition.
If the shares are disposed of at least two years after the Grant Date and
at least one year after the Purchase Date, or in the event of a participant's
death (whenever occurring) while owning such shares, then the lesser of (i) the
excess of the fair market value of the shares at the time of such disposition
over the Purchase Price of the shares or (ii) fifteen percent of the fair market
value of the shares on the Grant Date will be treated as ordinary income to the
participant. Any further gain upon such disposition will be taxed as long-term
capital gain. Any long-term capital gain would be taxed as capital gain at the
rates then in effect. If the shares are sold and the sale price is less than the
Purchase Price, there is no ordinary income and the participant will have a
long-term capital loss equal to the difference between the sale price and the
Purchase Price. The ability of a participant to utilize such a capital loss
would depend upon the participant's other tax attributes and the statutory
limitation on capital loss deductions not discussed herein.
If the shares are sold or disposed of (including any disposition by way of
gift) before the expiration of the two-year holding period described above or
within one year after the shares are transferred to the participant, then the
excess of the fair market value of the shares on the Purchase Date over the
Purchase Price will be treated as ordinary income to the participant. This
excess will constitute ordinary income for the year of sale or other disposition
even if no gain is realized on the sale or a gratuitous transfer of shares is
made. The balance of the gain will be taxed as capital gain at the rates then in
effect. If the shares are sold for less than their fair market value on the
Purchase Date, the same amount of ordinary income is attributed to the
participant and a capital loss is recognized equal to the difference between the
sale price and the value of the shares on such Purchase Date. As indicated
above, the ability of the participant to utilize such a capital loss would
depend upon the participant's other tax attributes and the statutory limitation
on capital losses not discussed herein.
The ordinary income reported under the rules described above, added to the
actual Purchase Price of the shares, determines the tax basis of the shares for
the purpose of determining gain or loss on the sale or exchange of the shares.
The Company is entitled to a deduction for amounts taxed as ordinary income
to a participant only to the extent that ordinary income must be reported upon
disposition of shares by the participant before the expiration of the holding
periods described above.
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Since the Company's inception, Ernst & Young LLP, independent auditors,
have provided audit services to the Company, including the examination of the
Company's consolidated financial statements for the year ended December 31,
1998. The Board of Directors has selected Ernst & Young LLP to audit the
Company's consolidated financial statements for the year ending December 31,
1999, and recommends that stockholders vote for the ratification of such
appointment. In the event of a negative vote on such ratification, the Board of
Directors will reconsider its selection. A representative of Ernst & Young LLP
is expected to be present at the Meeting to respond to appropriate questions
from stockholders, and will have an opportunity to make a statement if he or she
so desires.
Approval of the appointment of Ernst & Young LLP as the Company's
independent auditor will require the affirmative vote of the holders of a
majority of the outstanding shares of Common Stock present or represented at the
Meeting and entitled to vote thereat. Proxies solicited by management for which
no specific direction is included will be voted FOR the appointment of Ernst &
Young LLP as the Company's independent auditors. YOUR BOARD OF DIRECTORS
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
THE COMPANY'S INDEPENDENT AUDITORS.
20
<PAGE> 24
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the Company's next
Annual Meeting to be held in 2000 must be received in writing at the Company's
principal executive offices, at the address set forth on the Notice of Annual
Meeting which accompanies this Proxy Statement, Attention -- Investor Relations,
on or before December 14, 1999, in order to be considered for inclusion in the
proxy materials relating to that meeting.
OTHER MATTERS
The Board of Directors does not know prior to making this solicitation of
any matters to be presented at the Meeting other than those set forth above.
However, if other matters come before the Meeting, it is the intention of the
persons named in the accompanying proxy to vote the proxy in accordance with the
recommendations of the Board of Directors on such matters, and discretionary
authority to do so is included in the proxy.
Dated: April 12, 1999
/s/ Nick E. Yocca
Nick E. Yocca, Secretary
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JANUARY 2, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WILL BE PROVIDED TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO INVESTOR
RELATIONS, SMARTFLEX SYSTEMS, INC., 14312 FRANKLIN AVENUE, P.O. BOX 2085,
TUSTIN, CALIFORNIA 92781-2085.
21
<PAGE> 25
PROXY PROXY
SMARTFLEX SYSTEMS, INC.
1999 ANNUAL MEETING OF STOCKHOLDERS - MAY 19, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints William L. Healey and John W. Hohener,
and each of them, individually, as the attorney, agent and proxy, with full
power of substitution, of the undersigned and to vote, as designated on the
reverse side, all the shares of Common Stock of Smartflex Systems, Inc. which
the undersigned is entitled to vote at the Annual Meeting of Stockholders of
Smartflex Systems, Inc. to be held at the Orange County Airport Hilton, 18800
MacArthur Boulevard, Irvine, California on Wednesday, May 19, 1999, at 9:30
a.m., Pacific Time, or at each and any adjournment or postponement thereof.
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
<PAGE> 26
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDER BELOW. WHERE NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED FOR
THE ELECTION OF DIRECTORS OF THE NOMINEES NAMED BELOW ON THIS PROXY, FOR THE
APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1995 EQUITY INCENTIVE PLAN, FOR THE
APPROVAL OF THE AMENDMENT OF THE COMPANY'S 1995 EMPLOYEE STOCK PURCHASE PLAN,
AND FOR THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
1. ELECTION OF DIRECTORS.
Nominees: William L. Healey, William E. Bendush, Alan V. King,
William A. Klein and Gary E. Liebl
MARK HERE
WITHHELD IF YOU PLAN
FOR ALL FROM ALL TO ATTEND
NOMINEES NOMINEES THE MEETING
[ ] [ ] [ ]
[ ] ______________________________________
For all nominees except as noted above
2. APPROVAL OF AMENDMENT OF 1995 EQUITY INCENTIVE PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. APPROVAL OF AMENDMENT OF 1995 EMPLOYEE STOCK PURCHASE PLAN.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
5. IN THEIR DISCRETION, UPON OTHER BUSINESS WHICH PROPERLY COMES BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND RETURN
THIS PROXY, WHICH MAY BE REVOKED AT ANY TIME PRIOR TO ITS USE.
Please sign exactly as your name appears hereon. Executors,
administrators, guardians, officers of corporations, and others signing in a
fiduciary capacity should state their full titles as such.
Signature: ______________________ Date: ______________
Signature: ______________________ Date: ______________
