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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
SMARTFLEX SYSTEMS, INC.
(NAME OF SUBJECT COMPANY)
SMARTFLEX SYSTEMS, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $.0025 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
83169K108
((CUSIP) NUMBER OF CLASS OF SECURITIES)
WILLIAM L. HEALEY
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
14312 FRANKLIN AVENUE
TUSTIN, CALIFORNIA 92781
(714) 838-8737
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
COPIES TO:
NICK E. YOCCA, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH
660 NEWPORT CENTER DRIVE, SUITE 1600
NEWPORT BEACH, CALIFORNIA 92660
(949) 725-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The subject company is Smartflex Systems, Inc., a Delaware corporation (the
"Company"). The address of the principal executive offices of the Company is
14312 Franklin Avenue, Tustin California 92781. The title of the class of equity
securities to which this Statement relates is the Company's Common Stock, $.0025
par value (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to a tender offer (the "Offer") made by SSI
Acquisition Corp. ("Purchaser"), a Delaware corporation and a wholly-owned
subsidiary of Saturn Electronics & Engineering, Inc., a Michigan corporation
("Parent"), to purchase all of the outstanding Shares at $10.50 per Share (the
"Merger Consideration"), net to the seller in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase dated July 14, 1999 (the
"Offer to Purchase") and the related Letter of Transmittal (which together
constitute the "Offer"), a copy of which is filed as Exhibit 1 to this Schedule
14D-9. The Offer is being made by Purchaser pursuant to an Agreement and Plan of
Merger, dated as of July 6, 1999, by and among Parent, Purchaser and the Company
(the "Merger Agreement"), a copy of which is filed as Exhibit 2 hereto and is
incorporated herein by reference. The principal executive offices of Purchaser
and Parent are located at 255 Rex Boulevard, Auburn Hills, Michigan 48326.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Statement, are set forth in Item 1 above.
(b) (1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its directors and officers are described on
pages 5 through 20 of the Company's Proxy Statement dated April 12, 1999
relating to its Annual Meeting of Stockholders held on May 19, 1999 (the "Proxy
Statement") under the headings "Employment Contracts and Termination of
Employment and Change-in-Control Arrangement," "Approval of Amendment of 1995
Equity Incentive Plan" and "Approval of Amendment of 1995 Employee Stock
Purchase Plan." A copy of such portions of the Proxy Statement is filed as
Exhibit 3 hereto.
Under the Company's 1993 Equity Incentive Plan, 1994 Equity Incentive Plan,
1995 Equity Incentive Plan and 1998 Acquisition Nonstatutory Stock Option Plan
(the "Stock Option Plans"), as of July 6, 1999, executive officers and directors
of the Company held outstanding options to purchase an aggregate of 474,000
Shares at a weighted average exercise price of $9.0647 per share. Of these,
options to purchase an aggregate of 216,255 Shares were vested. Pursuant to the
terms of the Merger Agreement, each outstanding option granted under the Stock
Option Plans or otherwise will be cancelled at the Effective Time (as defined in
the Merger Agreement) and each holder of a cancelled option will be entitled to
receive, at the Effective Time or as soon as practicable thereafter, from the
Company, in consideration for the cancellation of such option, an amount in cash
equal to the product of (i) the number of Shares previously subject to such
option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such option. Directors and
executive officers of the Company, will as a result, be entitled to receive in
the Merger, an aggregate of $680,332.20 based on the number of options held by
them as of July 6, 1999.
The Company's 1993 Equity Incentive Plan (the "1993 Plan") provides for the
grant of stock options and other stock-based awards of the Company's common
stock to employees, consultants and affiliates. The 1993 Plan allows for the
issuance of up to 280,000 Shares upon the exercise of options and other
stock-based awards issued under the 1993 Plan. Effective upon consummation of
the Company's initial public offering, the Company ceased granting options and
issuing other stock-based awards under the 1993 Plan. As of July 6, 1999,
options to purchase an aggregate of 144,000 Shares, net of cancellations, were
granted under the 1993 Plan, 54,425 of which were then exercisable.
The Company's 1994 Equity Incentive Plan (the "1994 Plan") provides for the
grant of stock options and other stock-based awards of the Company's common
stock to employees, consultants and affiliates. The 1994
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Plan allows for the issuance of up to 100,000 Shares upon the exercise of
options and other stock-based awards issued under the 1994 Plan. Effective upon
consummation of the Company's initial public offering, the Company ceased
granting options and issuing other stock-based awards under the 1994 Plan. As of
July 6, 1999, options to purchase an aggregate of 57,200 Shares, net of
cancellations, were granted under the 1994 Plan, none of which were then
exercisable.
The purpose of the Company's 1998 Acquisition Nonstatutory Stock Option
Plan (the "Acquisition Plan") is to attract and retain key employees of the
companies acquired by the Company and its wholly-owned subsidiaries. An
aggregate of 200,000 Shares has been reserved for issuance under the Acquisition
Plan. As of July 6, 1999, options to purchase an aggregate of 176,500 Shares,
net of cancellations, were granted under the Acquisition Plan, all of which were
then exercisable.
(2) On July 6, 1999, the Purchaser and the Parent entered into Stock Tender
and Voting Agreements (the "Stockholder Agreements") with each of the Company's
directors and executive officers (each, a "Stockholder Party"), copies of which
are filed as Exhibits 4-14 hereto and are incorporated herein by this reference.
The following is a summary of certain provisions of the Stockholder Agreements.
Agreement to Tender. Pursuant to the Stockholder Agreements, each
Stockholder Party will tender all Shares beneficially owned by it pursuant to
the Offer within 10 business days of commencement of the Offer.
Voting and Irrevocable Proxy. Pursuant to the Stockholder Agreements, each
Stockholder Party will (i) vote all Shares beneficially owned by it in favor of
the Merger, (ii) vote all Shares beneficially owned by it against any action or
agreement that would result in a breach of any covenant or any representation or
warranty or any other obligation or agreement of the Company under or pursuant
to the Merger Agreement, (iii) vote all Shares beneficially owned by it against
any action or agreement that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, and (iv) without limiting the
foregoing, consult with the Parent and vote all Shares beneficially owned by it
in such manner as is determined by the Parent to be in compliance with this
paragraph. Pursuant to the Stockholder Agreements, each Stockholder Party has
delivered to the Parent contemporaneously with the execution of the Stockholder
Agreement an Irrevocable Proxy pursuant to which each Stockholder Party
irrevocably appoints and constitutes Wallace K. Tsuha, Jr., Jereen G. Trudell
and the Parent to exercise the proxy to vote the Shares in the foregoing manner
at any time until the earlier to occur of the valid termination of the Merger
Agreement or the Effective Time.
Termination. The Stockholder Agreements provide that they will terminate on
the earliest to occur of (a) the date on which the Purchaser accepts for payment
the Shares tendered in the Offer, so long as the Shares are so tendered and not
withdrawn, (b) the Effective Time and (c) the date of the termination of the
Merger Agreement in accordance with its terms. The Purchaser shall not purchase
the Shares subject to the Stockholder Agreements pursuant to the Offer unless
the Purchaser purchases pursuant to the Offer that number of Shares such that
the Minimum Condition (as defined below in the summary of the Merger Agreement,
under the heading the "Offer") is satisfied.
Certain Covenants of Stockholder Party. Pursuant to the Stockholder
Agreements, each Stockholder Party agrees not to: (a) sell, transfer, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of the Shares; (b) grant
any proxies, deposit any Shares into a voting trust or enter into a voting
agreement with respect to any Shares; or (c) directly or indirectly through any
agent or otherwise, solicit, initiate or encourage the submission of any
proposal or offer from any person (other than the Parent or the Purchaser)
relating to any Competing Transaction (as defined in the Merger Agreement), or
participate in any discussions or negotiations regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any person (other than the Parent and the Purchaser) to do or seek
any of the foregoing. Pursuant to the Stockholder Agreements, each Stockholder
Party has agreed to cease and cause to be terminated any existing activities,
discussions or negotiations by or on its behalf with any person (other than the
Parent and the Purchaser) conducted prior to entering into such agreement with
respect to any Competing Transaction and agreed to promptly notify the Parent
following receipt of any request by any
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person (other than the Parent or the Purchaser) relating to any possible
Competing Transaction or information concerning the Company. The Stockholder
Agreements provide that the Stockholder Party may, solely in his or her capacity
as a member of the Board of Directors of the Company, furnish information to, or
enter into discussions or negotiations with, any person in connection with an
unsolicited proposal involving a fully-financed (as represented by such person)
Competing Transaction which is made in writing by such person and which, if
consummated, would provide consideration per share of Common Stock to the
stockholders of the Company in excess of the Offer Price if, and only to the
extent that, the Board of Directors of the Company determines in good faith,
based upon the written advice of its counsel, that such action is required for
the Board of Directors of the Company to comply with its fiduciary duties to
stockholders under the Delaware General Corporate Law ("DGCL").
(3) The following is a summary of certain provisions of the Merger
Agreement.
The Offer. The Merger Agreement provides that if none of the events
described below under the heading "Certain Conditions of the Offer" shall have
occurred or are existing, the Purchaser will commence the Offer as promptly as
reasonably practicable after the date of the Merger Agreement, but in no event
later than five business days after the date thereof. The obligation of the
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer is subject to the condition that at least a majority of the Company's
outstanding shares (calculated on a fully diluted basis) be tendered and not
withdrawn (the "Minimum Condition") and the other conditions described below
under the heading "Certain Conditions of the Offer." Pursuant to the Merger
Agreement, the Purchaser expressly reserves the right to waive any such
condition, to increase the price per Share payable in the Offer, and to make any
other changes in the terms and conditions of the Offer; provided, however, that,
without the prior written consent of the Company, no change may be made (i)
which decreases the price per Share payable in the Offer or which changes or
waives the Minimum Condition, (ii) which changes the form of consideration
payable in the Offer, (iii) which, except as set forth in the next succeeding
sentence, extends the period that the Offer is outstanding for one or more
periods not to exceed 30 days in the aggregate, (iv) which reduces the maximum
number of Shares to be purchased in the Offer or (v) which imposes conditions
other than those described below under the heading "Certain Conditions of the
Offer." The Merger Agreement, however, provides that notwithstanding anything to
the contrary contained therein, without the consent of the Company, the Parent
and the Purchaser may extend the Offer for one or more periods not to exceed 30
days in the aggregate.
Certain Conditions of the Offer. Pursuant to the Merger Agreement, the
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the Securities and Exchange Commission (the
"Commission") (including Rule 14e-1(c) under the Exchange Act of 1934, as
amended (the "Exchange Act") relating to the Purchaser's obligation to pay for
or return tendered Shares after the termination or withdrawal of the Offer), to
pay for any Shares tendered pursuant to the Offer if (i) the Minimum Condition
shall not have been satisfied, (ii) any applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act") shall not have expired or
been terminated prior to the expiration of the Offer, (iii) acceptance for
payment and payment for the Shares tendered would result in a violation of any
applicable material foreign antitrust or competition law, rule or regulation, or
(iv) at any time on or after the date of the Merger Agreement and prior to the
acceptance of such Shares for payment, any of the following conditions exist:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, which makes illegal or otherwise directly or indirectly restrains
or prohibits or makes materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares by the Parent, the
Purchaser or any other affiliate of the Parent, or the consummation of any
other transaction contemplated by the Merger Agreement;
(b) there shall have occurred any Material Adverse Effect (which is
defined in the Merger Agreement as any change or changes, event(s),
condition(s), development(s) or effect(s) that adversely affects, or may be
reasonably likely to adversely affect, individually or in the aggregate,
the business
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operations, results of operations, properties, condition, financial
condition, cash flows, assets or liabilities (including, without
limitation, contingent liabilities) of the Company and the value of the
Shares, in any case by an amount equal to at least $2,500,000) with respect
to the Company;
(c) (i) the Board of Directors of the Company or any committee thereof
(x) shall have publicly withdrawn or modified in a manner adverse to the
Parent or the Purchaser the approval or recommendation of the Offer, the
Merger, the Stockholder Agreements or the Merger Agreement, (y) after the
Company's receipt of a proposal involving an acquisition or purchase of all
or any material portion of the assets of, or any equity interest in, the
Company or any of its subsidiaries (each, a "Subsidiary" and collectively,
the "Subsidiaries") or any merger, consolidation, business combination,
reorganization, recapitalization or similar transaction involving the
Company or any Subsidiary (each, a "Competing Transaction"), shall have
failed to reaffirm such approval or recommendation upon request by the
Parent within four business days after the Company's receipt of Parent's
request or (z) shall have approved or recommended any takeover proposal or
any other acquisition of Shares other than the Offer and the Merger, or
(ii) the Board of Directors of the Company or any committee thereof shall
have resolved to do any of the foregoing;
(d) there shall have been any breach of warranty by the Company in the
Merger Agreement as a result of which, individually or in the aggregate,
there may reasonably be expected to occur a Material Adverse Effect with
respect to the Company;
(e) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or complied
with by it under the Agreement;
(f) the Merger Agreement shall been terminated in accordance with its
terms; or
(g) the Purchaser and the Company shall have agreed (i) that the
Purchaser shall terminate the Offer or (ii) that the Purchaser shall
postpone the acceptance for payment of or payment for Shares thereunder
which, in the sole judgment of the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by the
Parent or any of its affiliates) giving rise to any such condition, makes
it inadvisable to proceed with such acceptance for payment or payment.
The Merger Agreement provides that the foregoing conditions are for the
sole benefit of the Purchaser and the Parent and may be asserted by the
Purchaser or the Parent regardless of the circumstances giving rise to any such
condition or may be waived by the Purchaser or the Parent in whole or in part at
any time and from time to time in their sole discretion. The Merger Agreement
provides that the failure by the Parent or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
Company Action. The Merger Agreement provides that, subject to the
conditions thereof, the Company has approved of and consented to the Offer. The
Board of Directors of the Company, at a meeting duly called and held on July 6,
1999, has unanimously (i) determined that the Merger Agreement and the
Stockholder Agreements, and the Offer and the Merger and the tender of the
Shares pursuant to the Stockholder Agreements, are fair to and in the best
interests of the stockholders of the Company, (ii) approved and adopted the
Merger Agreement and the Stockholders Agreement, and the Offer and the Merger
and the tender of the Shares pursuant to the Stockholder Agreements, (iii) taken
all action to render the provisions of the Company's stockholder rights plan and
of Section 203 of the DGCL inapplicable to the Offer, the Merger and the
Stockholder Agreements, and (iv) recommended that the stockholders of the
Company accept the Offer and approve and adopt the Merger Agreement and the
Offer and the Merger.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time (as defined in the Merger Agreement), the Purchaser will be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the Surviving
Corporation, and shall
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continue to be governed by the laws of the State of Delaware. The Merger
Agreement provides that the Parent, the Purchaser and the Company shall use
their reasonable best efforts to consummate the Merger as soon as practicable.
Pursuant to the Merger Agreement, at the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time (other than any Shares
held by the Purchaser, the Parent or any direct or indirect wholly-owned
subsidiary of the Parent or the Company, which will be canceled and retired
without any conversion thereof and no payment or distribution shall be made with
respect thereto, or Shares that are owned by stockholders, if any, who are
entitled to and who properly exercise dissenter's rights under the DGCL) shall
be canceled and shall be converted automatically into the right to receive an
amount equal to the Merger Consideration, payable, without interest, to the
holder of such Shares, upon surrender in accordance with the Merger Agreement,
of the certificate that formerly evidenced such Shares. In addition, at the
Effective Time, each share of common stock of the Purchaser issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock, $.0025 par value, of the Surviving Corporation.
The Merger Agreement provides that each outstanding option to purchase
Shares granted under the Stock Option Plans or otherwise will be canceled at the
Effective Time, and each holder of a canceled option (whether issued pursuant to
a Stock Option Plan or otherwise) will be entitled to receive, at the Effective
Time or as soon as practicable thereafter, from the Company, in consideration
for the cancellation of such option, an amount in cash equal to the product of
(i) the number of Shares previously subject to such option and (ii) the excess,
if any, of the Merger Consideration over the exercise price per Share previously
subject to such option.
The Merger Agreement provides that the Certificate of Incorporation of the
Purchaser, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation of the Surviving Corporation, and that the Bylaws
of the Purchaser, as in effect immediately prior to the Effective Time, will be
the Bylaws of the Surviving Corporation, in each case, until amended in
accordance with applicable law. The Merger Agreement also provides that the
directors of the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation and that the officers of the
Purchaser immediately prior to the Effective Time will be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
Special Stockholders' Meeting. If immediately after the expiration of the
Offer at least a majority of the outstanding shares on a fully-diluted basis
have been tendered in the Offer and not withdrawn, unless the Purchaser is able
to conduct a "short-form" merger without stockholder approval under the DGCL,
then the Purchaser will purchase all Shares tendered pursuant to the Offer and
the Company will promptly, in accordance with applicable law and its Certificate
of Incorporation and Bylaws, (i) duly call, give notice of, convene and hold a
special meeting of its stockholders as soon as practicable following the
expiration of the Offer for the purpose of considering and taking action on the
Merger Agreement and the Offer and the Merger (the "Special Stockholders'
Meeting") and (ii) subject to certain provisions of the Merger Agreement, (a)
include in the proxy statement to be prepared in connection with such meeting
(the "Merger Proxy Statement") the unanimous recommendation of the Board of
Directors of the Company that the stockholders of the Company approve and adopt
the Merger Agreement and the Offer and the Merger and (b) use its best efforts
to obtain such approval and adoption.
Merger Proxy Statement. The Merger Agreement provides that, as soon as
practicable following the date of consummation of the Offer, the Company will
file the Merger Proxy Statement with the Commission under the Exchange Act,
unless not required under the applicable "short-form" merger provisions of the
DGCL, and the Company will use its best efforts to have the Merger Proxy
Statement cleared by the Commission. The parties will cooperate with one another
in this endeavor.
Access to Information; Confidentiality. Pursuant to the Merger Agreement,
from the date of the Merger Agreement to the Effective Time, the Company will,
and will cause the Subsidiaries and the officers, directors, employees, auditors
and other agents of the Company and the Subsidiaries to, afford the officers,
employees and agents of the Parent and the Purchaser access at all reasonable
times to the officers, employees, agents,
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properties, offices, plants and other facilities, books and records of the
Company and each Subsidiary, will instruct its independent auditors to make
available its accountants' work papers to the officers, employees or agents of
the Parent and the Purchaser, and will furnish the Parent and the Purchaser with
all financial, operating and other data and information as the Parent or the
Purchaser, through its officers, employees or agents, may reasonably request.
All information obtained by the Parent or the Purchaser pursuant to the above
sentence will be kept confidential in accordance with the amended
Confidentiality Agreement between the Parent and the Company, a copy of which is
filed as Exhibit 15 hereto.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to the Parent and the
Purchaser with respect to, among other things, its organization and
qualification, the Subsidiaries, capitalization, authority, required filings and
consents, compliance with law, financial statements, the absence of certain
changes or events concerning the Company or any of the Subsidiaries since
December 31, 1998, the absence of litigation, employee benefit plans, labor
matters, information in the Tender Offer Statement, the Offer to Purchase and
such other documents, together with all supplements and amendments thereto
(collectively, the "Offer Documents"), this Schedule 14D-9 and the Merger Proxy
Statement, real property matters, intellectual property matters, taxes,
environmental matters, material contracts, brokers and counsel, Year 2000
compliance, capitalization and certain other matters. The Parent and the
Purchaser have made customary representations and warranties to the Company with
respect to, among other things, their organization, authority, no conflicts,
required filings and consents, financing for the Offer, information in the Offer
Documents and the Merger Proxy Statement, and brokers.
Conduct of Business by the Company. Pursuant to the Merger Agreement, the
Company has agreed that, from the date of the Merger Agreement to the Effective
Time, unless the Parent shall otherwise agree in writing, the business of the
Company and the Subsidiaries will be conducted only in, and the Company and the
Subsidiaries will not take any action except in, the ordinary course of business
and in a manner consistent with past practice; and the Company will use its best
efforts to preserve substantially intact the business organization of the
Company and the Subsidiaries, to keep available the services of the current
officers, employees and consultants of the Company and the Subsidiaries and to
preserve the current relationships of the Company and the Subsidiaries with
customers, suppliers and other persons with which the Company or any Subsidiary
has significant business relationships.
Pursuant to the Merger Agreement, neither the Company nor any Subsidiary
will, from the date of the Merger Agreement to the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Parent: (i) amend its Certificate of Incorporation or Bylaws or
equivalent organizational documents; (ii) issue, sell, pledge, dispose of,
grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (a) any shares of capital stock of any class of the Company or
any Subsidiary or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any Subsidiary (except for the issuance of a maximum of 994,502 Shares
issuable pursuant to stock options outstanding, or any rights to purchase Shares
under the Company's 1995 Employee Stock Purchase Plan in effect, on the date of
the Merger Agreement) or (b) any assets of the Company, any Subsidiary, except
for sales in the ordinary course of business and in a manner consistent with
past practice; (iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock; (iv) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(v)(1) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets or any other business combination) another entity
or any assets, (2) incur indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, pledge in respect of or otherwise as
an accommodation become responsible for the obligations of any person, or make
loans or advances, except in the ordinary course of business consistent with
past practice, but in no event shall there be more than $1,000,000 of
indebtedness outstanding at one time in addition to the total amount of
indebtedness outstanding as of the date of the Merger Agreement, (3) enter into
any contract or agreement other than purchases of inventory in the ordinary
course of business or contracts or agreements entered into in the ordinary
course of business consistent with
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past practice and which require payments by the Company or the Subsidiaries in
an aggregate amount of less than $100,000, (4) terminate, cancel or permit any
change in, or agree to any change in, any Material Contract (as defined in the
Merger Agreement), except in the ordinary course of business consistent with
past practice, (5) terminate, cancel or permit any change in, or agree to any
change in, any Affiliate Contract, Broker Agreement or Attorney Engagement (as
defined in the Merger Agreement), (6) authorize any single capital expenditure
which is above specified dollar thresholds, or (7) enter into or amend any
contract, agreement, commitment or arrangement with respect to any matter set
forth in this subparagraph (v); (vi) increase the compensation of, or grant any
severance or termination pay to, directors, officers and employees (except for
normal compensation increases consistent with past practice for employees who
are not officers); (vii) change accounting policies or practices; (viii) make
any tax election or settle or compromise any material federal, state, local or
foreign income tax liability; (ix) pay, discharge or satisfy any claim,
liability or obligation; or (x) announce an intention, enter into any formal or
informal agreement, or otherwise make a commitment to do any of the foregoing.
No Solicitation of Transactions. Pursuant to the Merger Agreement, neither
the Company nor any Subsidiary shall, directly or indirectly, through any
officer, director, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any person relating to a Competing
Transaction or participate in any discussions or negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing.
The Company and each of the Subsidiaries will cease and cause to be terminated
any existing activities, discussions or negotiations by or on its behalf with
any other person conducted prior to the execution of the Merger Agreement with
respect to any Competing Transaction and will promptly notify the Parent
following receipt of any request by any person relating to any possible
Competing Transaction or information concerning the Company. The Company agreed
that it will not disclose any of the terms of the Merger Agreement or the
matters referred to therein to any other prospective acquiror of the Company
until the Effective Time or earlier if the Merger Agreement is terminated in
accordance with its terms, except to the extent such disclosure is required by
law or the regulations of Nasdaq. Nothing contained in the Merger Agreement
shall prohibit the Board of Directors of the Company from furnishing information
to, or entering into discussions or negotiations with, any person in connection
with an unsolicited (from the date of the Merger Agreement) proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person and which, if consummated, would provide
consideration per Share to the stockholders of the Company in excess of the
Offer Price (a "Superior Proposal"), if, and only to the extent that, the Board
of Directors of the Company determines in good faith, based upon the advice of
the SG Cowen Securities Corporation and written advice of its counsel, that such
action is required for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under the DGCL.
Employee Benefits Matters. The Merger Agreement provides that for a period
of one year from the Effective Time, the Parent shall, or shall cause the
Company or the Surviving Corporation to, maintain the Plans (as defined in the
Merger Agreement) (other than the Stock Option Plans, the Company's 1995
Employee Stock Purchase Plan and the Company's 1999 Key Employee's Stock
Ownership Plan) which the Company maintains for the benefit of, or which are
open to, a majority of the employees of the Company on the terms in effect on
the date of the Merger Agreement, or such other plans, arrangements or programs
as will provide employees with benefits that in the aggregate are substantially
equivalent to those provided under the Plans (other than the Stock Option Plans,
the Company's 1995 Employee Stock Purchase Plan and the Company's 1999 Key
Employee's Stock Ownership Plan) as in effect on the date of the Merger
Agreement. In addition, the Parent shall, or shall cause the Company or the
Surviving Corporation to, assume and agree to perform certain agreements and
policies in the same manner and to the same extent that the Company is required
to perform such agreements.
Directors' and Officers' Indemnification and Insurance. The Merger
Agreement provides that the Articles of Incorporation and Bylaws of the
Surviving Corporation must contain provisions no less favorable with respect to
indemnification than are set forth in the Bylaws of the Company and these
provisions may not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner
8
<PAGE> 9
that would adversely affect the rights thereunder of individuals who at the
Effective Time, were directors, officers, employees, fiduciaries or agents of
the Company, unless such modification shall be required by law.
The Merger Agreement provides that the Company agrees, to the extent
permitted by Delaware law, to indemnify and hold harmless, and, after the
Effective Time, the Surviving Corporation agrees to indemnify and hold harmless,
to the extent permitted by Delaware law, each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against any costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Effective Time, for a period of six years after the date of the Merger
Agreement. In the event of such claim, action, suit, proceeding or
investigation, (a) the Company or the Surviving Corporation, as the case may be,
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company or the Surviving Corporation, promptly after statements therefor are
received and (b) the Company and the Surviving Corporation will cooperate in the
defense of any such matter; provided, however, that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
written consent (which consent will not be unreasonably withheld); provided
further that neither the Company nor the Surviving Corporation shall be
obligated to pay the fees and expenses of more than one counsel for all
Indemnified Parties in any single action except to the extent that two or more
of such Indemnified Parties shall have conflicting interests in the outcome of
the action; and provided further that, in the event that any claim for
indemnification is asserted or made within such six-year period, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim.
The Merger Agreement provides that the Surviving Corporation shall use its
best efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring on or prior to the Effective Time; provided, however, that in no event
shall the Surviving Corporation be required to expend more than an amount per
year equal to 150% of current annual premiums paid by the Company for such
insurance, which amount shall be increased by 5% for each year hereafter. The
Merger Agreement requires that any successor corporation or assignee of the
Company or the Surviving Corporation assume these insurance and indemnification
obligations.
Board Representation. The Merger Agreement provides that after the purchase
by the Purchaser of Shares pursuant to the Offer, Parent will be entitled to
designate at its option up to that number of directors of the Company's Board of
Directors as will make Parent's representation on the Company's Board of
Directors equal to the percentage of the outstanding Shares held by Parent or
any of its subsidiaries and the Company shall, at such time, increase the size
of Board of Directors, or use its best efforts to secure the resignation of
directors, or both, as necessary to permit Parent's designees to be so elected
to the Company's Board of Directors. However, in the event that the Parent's
designees are elected to the Board of Directors of the Company, until the
Effective Time, such Board of Directors shall have at least two directors who
are Continuing Directors. "Continuing Directors" means directors of the Company
on the date of the Merger Agreement. From and after the time that Parent's
designees constitute a majority of the Board and prior to the Effective Time,
any amendment or termination of the Merger Agreement, any extension of time for
the performance of the obligations of Purchaser or Parent, any waiver of rights
of the Company under the Merger Agreement and certain other actions may only be
effected by the action of a majority of the Continuing Directors.
Waiver. The Merger Agreement provides that, at any time prior to the
Effective Time, any party thereto may (i) extend the time for the performance of
any obligation or other act of any other party thereto, (ii) waive any
inaccuracy in the representations and warranties contained therein or in any
document delivered pursuant thereto and (iii) waive compliance with any
agreement or condition contained therein. Any
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<PAGE> 10
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
Conditions to the Merger. The Merger Agreement provides that if the
conditions described above under the heading "Conditions to the Offer" have been
satisfied or, where permitted, waived, the respective obligations of each party
to effect the Merger shall be subject to the satisfaction at or prior to the
Effective Time of the following conditions: (i) the Merger Agreement, and the
transactions contemplated thereby, including, without limitation, the Merger,
shall have been approved and adopted by the affirmative vote of the stockholders
of the Company (unless the vote of stockholders is not required by the DGCL);
(ii) no foreign, United States or state governmental authority, agency or
commission shall have enacted, issued promulgated, enforced or entered any law,
rule, regulation executive order, decree, injunction or other order which is
then in effect and has the effect of making the acquisition of Shares by the
Parent or the Purchaser or any affiliate of either of them or the consummation
of the Merger illegal or otherwise restricting, preventing or prohibiting the
consummation of the Offer and the Merger; (iii) the Purchaser shall have
purchased all Shares validly tendered and not withdrawn pursuant to the Offer;
provided, however, that this condition shall only be applicable to the
obligations of the Parent and the Purchaser if the Purchaser's failure to
purchase such Shares is not in breach of the Merger Agreement or the terms of
the Offer; and (iv) any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated, and consummation
of the Merger shall not result in a violation of any applicable material foreign
antitrust or competition law, rule or regulation.
Termination. The Merger Agreement provides that it may be terminated and
the Merger and the other transactions contemplated thereby may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the stockholders of the Company:
(i) By mutual written consent duly authorized by the Boards of
Directors of the Parent, the Purchaser and the Company; or
(ii) By the Parent, the Purchaser or the Company if (a) the Effective
Time shall not have occurred on or before December 31, 1999; provided,
however, that the right to terminate the Merger Agreement under this
section shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date or
(b) any court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree, ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Offer
or the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; or
(iii) By the Parent, upon approval of its Board of Directors, if (a)
due to an occurrence or circumstance that would result in a failure to
satisfy any of the conditions described above under the heading "Conditions
to the Offer," the Purchaser shall have (1) failed to commence the Offer
within 60 days following the date of the Merger Agreement, (2) terminated
the Offer without having accepted any Shares for payment thereunder or (3)
failed to pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer unless such action or inaction under (1), (2) or
(3) shall have been caused by or resulted from the failure of the Parent or
the Purchaser to perform in any material respect any covenant or agreement
of either of them contained in the Merger Agreement or the material breach
by the Parent or the Purchaser of any representation or warranty of either
of them contained in this Agreement or (b) prior to the purchase of Shares
pursuant to the Offer, the Board of Directors of the Company or any
committee thereof shall have publicly withdrawn or modified in a manner
adverse to the Purchaser or the Parent or, after receipt of a proposal
involving a Competing Transaction, upon the request of the Parent, shall
not have, within four business days after receipt of the Parent's request,
publicly reaffirmed its approval or recommendation of the Offer, the Merger
Agreement, the Merger, the Stockholder Agreements or any other transaction
contemplated by the Merger Agreement, or shall have recommended another
merger, consolidation, business combination, recapitalization,
reorganization or
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<PAGE> 11
similar transaction involving, or acquisition of, the Company or its
assets, or another tender offer or exchange offer for Shares, or shall have
resolved to do any of the foregoing; or
(iv) By the Parent, upon approval of its Board of Directors, if the
Company shall have materially breached its obligations discussed under "No
Solicitation of Transactions" above; or
(v) By the Company, upon approval of the Board of Directors of the
Company, if Parent or Purchaser shall materially breach any of its
obligations under the Merger Agreement and shall fail to cure such breach
within ten days after written notice thereof from the Company or if due to
an occurrence or circumstance that would result in a failure to satisfy any
of the conditions described above under the heading "Conditions to the
Offer," the Purchaser shall have (a) failed to commence the Offer within 60
days following the date of the Merger Agreement, (b) terminated the Offer
without having accepted any Shares for payment thereunder or (c) failed to
pay for Shares pursuant to the Offer within 90 days following the
commencement of the Offer; unless such action or inaction under (a), (b)
and (c) shall have been caused by or resulted from the failure of the
Company to perform in any material respect any covenant or agreement of it
contained in the Merger Agreement or the material breach by the Company of
any representation or warranty of it contained in the Merger Agreement; or
(vi) By the Company or the Parent, prior to the purchase of Shares
pursuant to the Offer, if the Board of Directors of the Company, in full
compliance with the provisions discussed in "No Solicitation of
Transactions" above, shall have approved the execution by the Company of a
definitive agreement relating to a Superior Proposal.
Effect of Termination. In the event of the termination of the Merger
Agreement pursuant to the foregoing, the Merger Agreement will then become void,
and there will be no liability on the part of any party thereto, except as set
forth in Sections 8.03 (Fees and Expenses) and 9.01 (Non-Survival of
Representations and Warranties) of the Merger Agreement. This, however, will not
relieve any party from liability for any breach of the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that in the event that (a)
any person shall have commenced a tender or exchange offer for 25% or more (or
which, assuming the maximum amount of securities which could be purchased, would
result in any person beneficially owning 25% or more) of the then outstanding
Shares or otherwise publicly announced a Competing Transaction for the direct or
indirect acquisition of the Company or all or substantially all of its assets
and (1) the Board of Directors of the Company does not recommend against the
Competing Transaction, (2) the Offer shall have remained open for at least 20
business days, (3) the Minimum Condition shall not have been satisfied and (4)
the Merger Agreement shall have been terminated; or (b) the Merger Agreement is
terminated pursuant to clauses (iii)(b), (iv) or (vi) under "Termination" above;
then, in any such event, the Company shall pay the Parent promptly (but in no
event later than one business day after the first of such events shall have
occurred) a fee of $2,500,000, in immediately available funds.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Offer and the Merger shall be paid
by the party incurring such expenses, whether or not any Transaction is
consummated.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) At a meeting held on July 6, 1999, the Board of Directors of the
Company unanimously approved the Merger Agreement and, for the reasons
hereinafter set forth, determined that the Offer and the Merger are fair to, and
in the best interests of, the stockholders of the Company. The Board recommends
that the Company's stockholders accept the Offer and tender their Shares
pursuant to the Offer.
(b) In reaching its determination to approve the Offer and the Merger and
to recommend that the Company's stockholders accept the Offer and tender their
Shares, the Board of Directors considered a number of factors, including the
following: (i) the terms and conditions of the Offer and the proposed Merger
Agreement, including the amount and form of consideration being offered to the
Corporation's stockholders; (ii) the $10.50 per share cash offer price in the
Offer and the Merger represents a premium of approximately
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<PAGE> 12
93% over the closing sale price per share on the NASDAQ National Market System
on July 2, 1999, the last trading day prior to the Board Meeting (and
approximately 200% over the closing sale price on June 30, 1999); (iii)
historical market prices and trading volume of the shares and historical and
projected earnings; (iv) market prices and financial data related to companies
engaged in similar businesses to the Company and prices and premiums paid in
recent acquisitions (both friendly and hostile) of other similar companies; (v)
the Company's historical and recent operating results, its financial condition,
its borrowing and financing capacity and the Board of Directors' and
management's evaluation of the Company's properties, assets and prospects; (vi)
the absence of any financing condition or any other term or condition which in
the Board's view was unduly onerous or could materially impair the consummation
of the Offer or the Merger; (vii) the business reputation of Parent, and the
ability of Parent to finance and complete the Offer and the Merger in a timely
manner; (viii) the anticipated future capital needs of the Company and the
possible constraints on growth should the capital requirements of the Company be
met solely from operations and the Company's credit arrangements with its
principal lender; (ix) possible alternatives, which the Board concluded were not
reasonably likely to result in a more favorable combination of price, form of
consideration and likelihood of consummation than the Offer and the Merger; (x)
the fact that the Merger Agreement, if approved and executed, would not preclude
the Company from (A) negotiating with or providing information to a person from
whom the Company received an unsolicited written proposal relating to an
alternative acquisition of the Company or any of its subsidiaries if the Board
of Directors, upon the written advice of independent counsel, reasonably
believes that the failure to do so would constitute a breach of its fiduciary
duties or (B) accepting such alternative acquisition if the Board determines
that, based on the opinion of its outside financial advisors, such proposal is
on terms financially superior to the Company's stockholders as compared with the
Offer and the Merger (subject to payment of a $2,500,000 fee to Parent); and
(xi) the opinion of SG Cowen Securities Corporation ("SG Cowen") to the effect
that (as of July 6, 1999) the consideration to be received by the stockholders
of the Company (other than the Parent and its affiliates) in the Offer and the
Merger was fair, from a financial point of view, to such stockholders.
In connection with its opinion, SG Cowen reported to the Board of Directors
of the Company that it reviewed and considered such financial and other matters
as it deemed relevant, including, among other things: (i) a draft of the Merger
Agreement dated July 6, 1999; (ii) certain publicly available information for
the Company, including the annual report of the Company filed on Form 10-K for
each of the years ended December 31, 1996, 1997 and 1998 and the quarterly
report filed on Form 10-Q for the quarter ended March 31, 1999; (iii) financial
projections for the quarters ending June 30, 1999, September 30, 1999, December
31, 1999 and the fiscal years ending December 31, 2000 and 2001 prepared by the
management of the Company; (iv) First Call consensus earnings per share
estimates of financial institutions for the Company ("First Call Estimates");
(v) discussions SG Cowen had with certain members of management of the Company
concerning the historical and current business operations, financial conditions
and prospects of the Company and such other matters SG Cowen deemed relevant;
(vi) the reported price and trading statistics of the shares of the Company's
Common Stock during the last twelve month period and the period since the
Company's initial public offering, in each case through the period ended July 2,
1999; (vii) the relative stock price performance of the Company's Common Stock
as compared to the broader market and the stock price performance of certain
publicly traded companies SG Cowen deemed relevant for the last twelve month and
last three year periods ended July 2, 1999; (viii) the financial condition of
the Company as compared to the financial conditions of certain other companies
SG Cowen deemed relevant; (ix) certain financial terms of the Offer and Merger
as compared to the financial terms of selected other business combinations SG
Cowen deemed relevant; (x) premiums implied by the Offer and the Merger as
compared to premiums paid in selected other business combinations SG Cowen
deemed relevant; (xi) the present value of projected pre-tax operating cash flow
information for the Company provided by management assuming a range of perpetual
growth rates and discount rates; and (xii) such other information, financial
studies, analyses and investigations and such other factors that SG Cowen deemed
relevant for the purposes of its opinion letter.
In the course of such review, SG Cowen, with the consent of the Company
Board, relied upon and assumed, without independent investigation, the accuracy
and completeness of the financial and other information provided to them by the
Company, or which was otherwise publicly available. SG Cowen further relied upon
the assurances of management of the Company that they were unaware of any facts
that would
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<PAGE> 13
make the information provided to SG Cowen incomplete or misleading. In arriving
at its opinion, SG Cowen did not conduct any physical inspection of the
properties or facilities of the Company. In addition, SG Cowen, with the Company
Board's consent, assumed that the financial projections which SG Cowen examined
were reasonably prepared by management of the Company on bases reflecting the
best currently available estimates and good faith judgments of management as to
the future performance of the Company. For certain of SG Cowen's analyses, SG
Cowen also utilized the First Call Estimates. Management of the Company
confirmed to SG Cowen, and SG Cowen assumed, that the financial projections
provided to SG Cowen and the First Call Estimates provided a reasonable basis
for SG Cowen's opinion. SG Cowen did not make or obtain any independent
evaluations, valuations or appraisals of the assets or liabilities of the
Company, nor was SG Cowen furnished with such materials. SG Cowen has not
opined, nor has SG Cowen been asked to opine, on Parent's or Purchaser's ability
to obtain funds necessary to consummate the Offer and the Merger, and SG Cowen
assumed that such financing will be available. With respect to all legal matters
relating to the Company and the Offer and the Merger, SG Cowen relied on the
advice of legal counsel to the Company. SG Cowen's services to the Company in
connection with the Offer and the Merger have been comprised of rendering an
opinion from a financial point of view with respect to the consideration to be
paid to the Company's stockholders. SG Cowen's opinion is necessarily based upon
economic and market conditions and other circumstances as they existed and could
be evaluated by SG Cowen on the date of the opinion. Although subsequent
developments may affect SG Cowen's opinion, SG Cowen does not have any
obligation to update, revise or reaffirm its opinion and SG Cowen expressly
disclaims any responsibility to do so. Additionally, SG Cowen was not authorized
or requested to, and did not, solicit alternative offers for the Company or its
assets, nor did SG Cowen investigate any other alternative transactions that may
be available to the Company.
THE FULL TEXT OF THE WRITTEN OPINION OF SG COWEN (THE "OPINION") IS
ATTACHED AS EXHIBIT 4 HERETO AND INCORPORATED HEREIN BY REFERENCE. THE OPINION
CONTAINS A DESCRIPTION OF THE MATTERS CONSIDERED, THE ASSUMPTIONS MADE AND THE
SCOPE OF REVIEW UNDERTAKEN BY SG COWEN IN RENDERING THE OPINION. STOCKHOLDERS OF
THE COMPANY ARE URGED TO READ THE OPINION IN ITS ENTIRETY. No limitations were
imposed by the Board of Directors or the Company on SG Cowen with respect to the
investigations made, or the procedures followed, in rendering the Opinion. The
Opinion was presented for the information of the Board of Directors of the
Company in connection with its consideration of the Merger Agreement, and is
directed only to the fairness, from a financial point of view, of the
consideration to be received by the stockholders of the Company (other than the
Parent and its affiliates) pursuant to the Offer and the Merger. SG COWEN'S
OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO
TENDER SUCH STOCKHOLDER'S SHARES IN THE OFFER OR AS TO HOW TO VOTE WITH RESPECT
TO THE MERGER.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained SG Cowen as the Company's financial advisor on May 26,
1999, in connection with a possible sale of the Company. Under the engagement
letter, the Company agreed to pay SG Cowen for its services as financial advisor
and for rendering its Opinion an aggregate of $275,000 (the "Initial Fees"),
with $25,000 payable upon signing of its engagement letter and $250,000 payable
at the time the Opinion is delivered to the Company's Board of Directors. Under
the engagement letter, if the sale of the Company is accomplished, SG Cowen will
be paid a fee of approximately $934,935, in addition to the Initial Fees. These
fees have been paid, or will be payable by, the Company and will not affect the
cash that will be received by the stockholders of the Company.
The Company also has agreed to reimburse SG Cowen for its reasonable travel
and other out-of-pocket expenses (including reasonable fees and expenses of
legal counsel) and to indemnify SG Cowen and its affiliates, its directors,
officers, agents, employees and affiliates against certain liabilities. The
engagement of SG Cowen may be terminated, with or without cause, by the Company
or by SG Cowen on 30 days' prior written notice.
Except as described above, neither the Company nor any person acting on its
behalf has retained any other person to make solicitations or recommendations to
security holders on its behalf concerning the Offer.
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<PAGE> 14
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) On June 24, 1999 and effective May 18, 1999, William L. Healey, the
Company's President, Chief Executive Officer and Chairman of the Board of
Directors, terminated and waived all of his rights under the Stock Option
Agreement between the Company and Mr. Healey dated January 14, 1997. Such Option
Agreement provided for the grant of options to Mr. Healey to purchase 35,000
Shares at an exercise price of $16.50 per share.
On May 19, 1999, the Company's non-employee directors, William E. Bendush,
Alan V. King, William A. Klein and Gary E. Liebl, each received an automatic
grant of non-qualified stock options to purchase 3,000 Shares at an exercise
price of $3.50 per Share. Such options are automatically granted to non-employee
directors of the Company each time such directors are reelected to the Board of
Directors.
Each of William L. Healey, Anthony R.W. Richardson, Christopher J. Rollison
and James Cogan are participants in the Company's 1995 Employee Stock Purchase
Plan. On May 1, 1999, Messrs. Healey, Richardson and Rollison each purchased
1,000 Shares at a price of $2.92 per Share, pursuant to the Company's 1995
Employee Stock Purchase Plan (Mr. Cogan had not yet become a participant in the
1995 Employee Stock Purchase Plan as of such date).
During the past 60 days, the Company issued an aggregate of 550 Shares on
exercise of outstanding options, and on May 1, 1999, the Company issued 37,649
Shares pursuant to its 1995 Employee Stock Purchase Plan. In addition, during
the past 60 days, the Company granted stock options to purchase an aggregate of
18,750 Shares at an average exercise price of $3.54 per Share.
To the best of the Company's knowledge, no other transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries presently intend to tender all Shares
which are held of record or beneficially owned by such persons pursuant to the
Offer, other than Shares, if any, held by any such person which, if tendered,
could cause such person to incur liability under the provisions of Section 16(b)
of the Exchange Act.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described herein, no negotiation is being undertaken or is
underway by the Company in response to the Offer which relates to or would
result in: (1) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any of its subsidiaries; (2) a purchase, sale or
transfer of a material amount of assets by the Company or any of its
subsidiaries; (3) a tender offer for or other acquisition of securities by or of
the Company; or (4) any material change in the present capitalization or
dividend policy of the Company.
(b) None.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1(a) Offer to Purchase dated July 14, 1999.
1(b) Letter of Transmittal.
Exhibit 2 Agreement and Plan of Merger dated as of July 6, 1999 by and
among Parent, Purchaser and the Company.*
Exhibit 3 Copy of pages 5 through 20 of the Company's Proxy Statement
dated April 12, 1999.*
Exhibit 4 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William L. Healey.*
Exhibit 5 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William E. Bendush.*
Exhibit 6 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Alan V. King.*
Exhibit 7 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William A. Klein.*
Exhibit 8 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Gary E. Liebl.*
Exhibit 9 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Anthony R.W. Richardson.*
Exhibit 10 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and John W. Hohener.*
Exhibit 11 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Richard D. Bell.*
Exhibit 12 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and James Cogan.*
Exhibit 13 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Christopher Rollison.*
Exhibit 14 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Cheryl Moreno.*
Exhibit 15 Confidentiality Agreement dated as of February 2, 1999, as
amended on February 3, 1999, between Parent and the
Company.*
Exhibit 16 Opinion of SG Cowen dated July 6, 1999.
Exhibit 17 Press Release issued by the Company on July 7, 1999.*
Exhibit 18 Letter to Stockholders of the Company, dated July 14, 1999.
</TABLE>
- ---------------
* Not included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
SMARTFLEX SYSTEMS, INC.
/s/ WILLIAM L. HEALEY
--------------------------------------
Name: William L. Healey
Title: Chairman of the Board,
President
and Chief Executive Officer
Date: July 14, 1999
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SCHEDULE I
ADDITIONAL INFORMATION PROVIDED PURSUANT TO SECTION 14(f)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This information is being furnished in connection with the designation by
the Parent, pursuant to the Merger Agreement, of persons to be elected to the
Company's Board of Directors other than at a meeting of the Company's
stockholders. The Merger Agreement provides that, promptly upon the payment by
Purchaser pursuant to the Offer for such number of Shares which represent at
least a majority of the outstanding Shares and from time to time thereafter,
Parent shall be entitled to designate members of the Company's Board of
Directors such that Parent, subject to compliance with Section 14(f) of the
Exchange Act, will have a number of representatives on the Board of Directors,
rounded up to the next whole number, equal to the product obtained by
multiplying the number of directors fixed in the Company's Bylaws by the
percentage of Shares beneficially owned by Parent and any of its subsidiaries.
The Company has agreed, upon request by Parent, promptly to increase the
size of the Board of Directors to the extent permitted by its Certificate of
Incorporation and/or use its best efforts to secure the resignations of such
number of directors, or both, as is necessary to enable Parent's designees to be
elected to the Board of Directors and use its best efforts to cause Parent's
designees to be so elected. The Company has agreed to take, at the request of
Parent and at its expense, all action necessary to effect any such election,
including the mailing to its stockholders of the information required by Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder.
INFORMATION WITH RESPECT TO THE OFFEROR'S DESIGNEES
The Offeror has stated in the Offer to Purchase that Offeror intends to
designate six directors of the Company following consummation of the Offer. The
names and certain biographical information concerning these designees are as
follows:
Wallace K. Tsuha, Jr. has been Chief Executive Officer of the Parent since
1995, and Chairman of the Board since 1985. Mr. Tsuha served as President of the
Parent from 1985 until March 1995, and from December 1995 until the present.
Donald J. Cowie has been Chief Financial Officer, Executive Vice President,
Treasurer and Assistant Secretary of the Parent since 1996. From 1993 until
1995, Mr. Cowie was Group Vice President -- OEM of International Jensen
Incorporated.
Nick Najmolhoda has been Executive Vice President of Operations of the
Parent since 1996. From 1995 until 1996, Mr. Najmolhoda served as Vice President
of Electro Mechanical of Parent. From 1994 to 1995, he served as Executive Vice
President of Operations of MascoTech Controls.
Gene R. Smith, Jr. has been Executive Vice President, Business Management
of the Parent since 1996. From 1994 to 1996, Mr. Smith was an independent
consultant. From 1993 to 1994, he served as Vice President -- Electronics of
Parent.
Sherman L. Cruz has been a director of Parent and an independent consultant
since 1996. From 1991 to 1996 he served as Chief Financial Officer of Parent.
Jereen G. Trudell has been Corporate Counsel and Secretary of the Parent
since 1996. From 1987 until 1996, Ms. Trudell was an associate attorney with
Miller, Canfield, Paddock and Stone.
None of Parent's designees currently is a director of, or holds any
position with, the Company. The Company has been advised by Purchaser and Parent
that, to the best of their knowledge and except as disclosed in the Offer to
Purchase, none of Parent's designees or any of their associates beneficially
owns any equity securities of the Company, or rights to acquire any equity
securities of the Company, or except as disclosed in the Offer to Purchase, has
been involved in any transactions with the Company or any of its directors,
executive officers or affiliates which are required to be disclosed pursuant to
the rules and regulations of the Securities and Exchange Commission.
17
<PAGE> 18
INFORMATION WITH RESPECT TO THE COMPANY
1. CERTAIN INFORMATION CONCERNING THE COMPANY AND THE COMPANY'S BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares comprise the only class of voting stock of the Company
outstanding and each Share is entitled to one vote. There were 6,493,994 Shares
outstanding on July 6, 1999.
The Company's Board of Directors currently consists of 5 members.
THE CURRENT MEMBERS OF THE BOARD
To the extent the Company's Board of Directors will consist of persons who
are not the Parent's designees, the Board is expected to consist of those
persons who are currently directors of the Company who have not resigned.
The information presented below sets forth, as of July 6, 1999, as to each
director, his age and principal occupation and business experience and the
period during which each has served as a director of the Company. See "Board
Meetings and Committees" for information concerning the composition of Board
committees. See "Security Ownership of Management and Certain Beneficial Owners"
for the aggregate number of Shares beneficially owned by each director as of
July 6, 1999.
William L. Healey, 54, has served as President and Chief Executive Officer
of the Company and its predecessor joint venture 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 the Company, 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, 50, has served on the Company's Board of Directors
since January 1996. From May 1987 until April 1999, Mr. Bendush served as Senior
Vice President and Chief Financial Officer of Silicon Systems. Since April 1999,
Mr. Bendush has served as Vice President and Chief Financial Officer of Applied
Micro Circuits Corporation.
Alan V. King, 64, 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, 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, 58, 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.
18
<PAGE> 19
Gary E. Liebl, 57, 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.
CERTAIN ARRANGEMENTS CONCERNING THE ELECTION OF DIRECTORS
Pursuant to the terms of the Merger Agreement, promptly upon the payment by
Purchaser pursuant to the Offer for such number of Shares which represent at
least a majority of the outstanding Shares and from time to time thereafter,
Parent shall be entitled to designate up to that number of members of the
Company's Board of Directors equal to the product obtained by multiplying the
number of directors fixed in the Company's Bylaws by the percentage of Shares
beneficially owned by Parent and any of its subsidiaries. The Company shall,
upon request by Parent, promptly increase the size of the Board of Directors to
the extent permitted by its Certificate of Incorporation and/or use its best
efforts to secure the resignations of such number of directors as is necessary
to enable Parent's designees to be elected to the Board of Directors and shall
use its best efforts to cause Parent's designees to be so elected. At the
request of Parent, the Company shall take, at its expense, all action necessary
to effect any such election, including the mailing to its stockholders of the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder.
INFORMATION REGARDING THE BOARD
The Board of Directors held a total of 12 meetings during fiscal 1998. No
member of the Board of Directors attended fewer than 75% of the meetings of the
Board of Directors, and no director attended fewer than 75% of the meetings of
committees upon which such director served. The Board of Directors has a
Compensation Committee and an Audit 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
Compensation Committee provides recommendations concerning salaries and
incentive compensation for executive officers and key personnel, and administers
the Company's equity incentive plans. Alan V. King (Chairman) and William A.
Klein 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
Gary E. Liebl are currently the members of the Audit Committee.
CURRENT EXECUTIVE OFFICERS OF THE COMPANY
In addition to Mr. Healey, the other executive officers of the Company are
Anthony R.W. Richardson, John W. Hohener, Richard D. Bell, James C. Cogan,
Christopher J. Rollison and Cheryl Moreno.
Anthony R.W. Richardson, 54, joined the Company in February 1998 as
Executive Vice President and Chief Operating Officer. Prior to joining the
Company, 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, 43, 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 the
Company, 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, 54, joined the Company 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
19
<PAGE> 20
the Company. Prior to joining the Company, 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 Cogan, 59, has served as Vice President and General Manager of the
Company's EMS Business Unit since February 1999. Prior to joining the Company,
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, 40, has served as Vice President and General
Manager of the Company's Advanced Interconnect Business Unit since February
1999, and has served as Vice President of Operations since July 1995. Mr.
Rollison joined the Company 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 of Operations
and General Manager of the Company's Advanced Interconnect Business Unit.
Cheryl L. Moreno, 43, has served as Vice President of Human Resources since
March 1999, and has served as Director of Human Resources since November 1997.
Prior to joining the Company, Ms. Moreno was Director of Human Resources for MAI
Systems Corp. She previously has held Human Resources management positions with
Alps Electric, Ltd., Ball Corp. and Beckman Instruments, Inc.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 with respect to the
Company's fiscal year ended December 31, 1998, were timely satisfied.
20
<PAGE> 21
2. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 6, 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 PERCENTAGE
NAME AND ADDRESS BENEFICIAL OWNERSHIP(*) OF 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) 7.7
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........................................... 250,379(7) 3.8
William E. Bendush.......................................... 17,875(8) *
Alan V. King................................................ 21,875(9) *
William A. Klein............................................ 15,875(9) *
Gary E. Liebl............................................... 15,875(9) *
Richard D. Bell............................................. 75,649(10) 1.2
John W. Hohener............................................. 57,113(11) *
Anthony R.W. Richardson..................................... 26,375(12) *
Christopher J. Rollison..................................... 50,292(13) *
All directors and executive officers as a group (11
persons).................................................. 534,808(14) 7.9
</TABLE>
- ---------------
(*) Indicates less than 1%.
(1) Calculated based on 6,493,994 shares of the Company's Common Stock
outstanding on July 6, 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 July 6, 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. Shares of Common Stock subject to options which may
become exercisable within 60 days of July 6, 1999, solely by virtue of the
Merger are not deemed beneficially owned and outstanding for computing the
percentage of the person holding such securities.
(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.
(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.
21
<PAGE> 22
(6) Based on a Schedule 13G filed by Capitol Technology, Inc., which reported
stock ownership as of December 31, 1998.
(7) Includes 85,500 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
(8) Consists of 17,875 shares subject to presently exercisable options or
options that become exercisable within 60 days of July 6, 1999.
(9) As to each of Messrs. King, Klein and Liebl, includes 7,875 shares subject
to presently exercisable options or options that become exercisable within
60 days of July 6, 1999.
(10) Includes 25,250 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
(11) Includes 26,500 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
(12) Includes 24,375 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
(13) Includes 28,250 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
(14) Includes 234,875 shares subject to presently exercisable options or options
that become exercisable within 60 days of July 6, 1999.
3. CERTAIN INFORMATION CONCERNING EXECUTIVE COMPENSATION
SUMMARY OF 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 $100,000 (collectively, the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
--------------------------------------- COMPENSATION AWARDS
OTHER ------------------------------
ANNUAL SECURITIES
COMPEN- UNDERLYING ALL OTHER
NAME AND SATION OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2)(3) SARS(#) SATION($)(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
Officer 1996 259,056 110,776 40,957 -- 12,967
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.
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<PAGE> 23
(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 $9,356.
OPTION GRANTS
The following table sets forth certain information concerning grants of
options to each of the Named Executive Officers during the year ended December
31, 1998. In addition, in accordance with the rules and regulations of the
Securities and Exchange Commission, the following table sets forth the
hypothetical gains or "option spreads" that would exist for the options. Such
gains are based on assumed rates of annual compound stock appreciation of 5% and
10% from the date on which the options were granted over the full term of the
options. The rates do not represent the Company's estimate or projection of
future Common Stock prices, and no assurance can be given that any appreciation
will occur or that the rates of annual compound stock appreciation assumed for
the purposes of the following table will be achieved.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF PERCENTAGE OF POTENTIAL REALIZED
SECURITIES TOTAL OPTIONS VALUE AT ASSUMED
UNDERLYING GRANTED TO EXERCISE OR ANNUAL RATES OF STOCK
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/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.
23
<PAGE> 24
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.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, 1998 IN-THE-MONEY OPTIONS 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 reelection to the Board at
the 1999 Annual Meeting of Stockholders.
4. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee, which currently consists of Messrs. King and
Klein, 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 until April 1999, Mr. Bendush was 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
24
<PAGE> 25
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.
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.
5. COMPENSATION POLICIES AND FISCAL 1998 COMPENSATION
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 former Committee (Messrs. Liebl
and King) 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.
25
<PAGE> 26
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.
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
26
<PAGE> 27
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 Schedule 14D-9, in whole or in part, the foregoing
Report, and the performance graph immediately following, shall not be
incorporated by reference into any such filings.
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 NASDAQ MARKET
INC. SIC CODE INDEX INDEX
----------------- -------------- -------------
<S> <C> <C> <C>
08/01/95 100.00 100.00 100.00
12/31/95 114.52 123.73 102.74
12/31/96 106.45 131.32 127.67
12/31/97 61.29 156.93 156.17
12/31/98 46.77 341.84 220.26
</TABLE>
6. COMPENSATION PURSUANT TO PLANS
1995 EQUITY INCENTIVE PLAN ("1995 PLAN")
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
27
<PAGE> 28
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 are 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 were 791,169 at January 1, 1999. The Company
sought the approval of its stockholders to increase the number of shares of
common stock reserved for issuance under the 1995 Plan; however, the
stockholders voted against such increase at the Company's 1999 Annual Meeting of
Stockholders in May 1999.
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 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 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
28
<PAGE> 29
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 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.
1993 EQUITY INCENTIVE PLAN ("1993 PLAN")
The Company's 1993 Plan provides for the grant of stock options and other
stock-based awards of the Company's common stock to employees, consultants and
affiliates. The 1993 Plan allows for the issuance of up to 280,000 Shares upon
the exercise of options and other stock-based awards issued under the 1993 Plan.
Effective upon consummation of the Company's initial public offering, the
Company ceased granting options and issuing other stock-based awards under the
1993 Plan. As of July 6, 1999, options to purchase an aggregate of 144,000
Shares, net of cancellations, were granted under the 1993 Plan, 54,425 of which
were then exercisable.
1994 EQUITY INCENTIVE PLAN ("1994 PLAN")
The Company's 1994 Plan provides for the grant of stock options and other
stock-based awards of the Company's common stock to employees, consultants and
affiliates. The 1994 Plan allows for the issuance of up to 100,000 Shares upon
the exercise of options and other stock-based awards issued under the 1994 Plan.
Effective upon consummation of the Company's initial public offering, the
Company ceased granting options and issuing other stock-based awards under the
1994 Plan. As of July 6, 1999, options to purchase an aggregate of 57,200
Shares, net of cancellations, were granted under the 1994 Plan, none of which
were then exercisable.
1998 ACQUISITION NONSTATUTORY STOCK OPTION PLAN ("ACQUISITION PLAN")
The purpose of the Company's Acquisition Plan is to attract and retain key
employees of the companies acquired by the Company and its wholly-owned
subsidiaries. An aggregate of 200,000 Shares has been reserved for issuance
under the Acquisition Plan. As of July 6, 1999, options to purchase an aggregate
of 176,500 Shares, net of cancellations, were granted under the Acquisition
Plan, all of which were then exercisable.
29
<PAGE> 30
1995 EMPLOYEE STOCK PURCHASE PLAN ("STOCK PURCHASE PLAN")
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.
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.
7. OTHER COMPENSATION 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 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 a stock option to purchase 25,000 shares of the
Company's Common Stock under 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, 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
30
<PAGE> 31
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.
Pursuant to the Merger Agreement, Parent and the Purchaser have agreed that
Parent, as of the effective date of the Merger, will cause the Company to
perform these agreements, arrangements and benefits in the same manner and to
the same extent that the Company is required to perform such agreements,
arrangements and benefits as of the date of the Merger Agreement.
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1(a) Offer to Purchase dated July 14, 1999.
1(b) Letter of Transmittal.
2 Agreement and Plan of Merger dated as of July 6, 1999 by and
among Parent, Purchaser and the Company.*
3 Copy of pages 5 through 20 of the Company's Proxy Statement
dated April 12, 1999.*
4 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William L. Healey.*
5 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William E. Bendush.*
6 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Alan V. King.*
7 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and William A. Klein.*
8 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Gary E. Liebl.*
9 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Anthony R.W. Richardson.*
10 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and John W. Hohener.*
11 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Richard D. Bell.*
12 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and James Cogan.*
13 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Christopher Rollison.*
14 Stock Tender and Voting Agreement dated as of July 6, 1999
by and among Parent, Purchaser and Cheryl Moreno.*
15 Confidentiality Agreement dated as of February 2, 1999, as
amended on February 3, 1999, between Parent and the
Company.*
16 Opinion of SG Cowen dated July 6, 1999.
17 Press Release issued by the Company on July 7, 1999.*
18 Letter to Stockholders of the Company, dated July 14, 1999.
</TABLE>
- ---------------
* Not included in copies mailed to stockholders.
<PAGE> 1
EXHIBIT 1(a)
OFFER TO PURCHASE FOR CASH
ALL ISSUED AND OUTSTANDING SHARES OF COMMON STOCK
OF
SMARTFLEX SYSTEMS, INC.
AT
$10.50 NET PER SHARE
BY
SSI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
SATURN ELECTRONICS & ENGINEERING, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON WEDNESDAY, AUGUST 11, 1999,
UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS BEING MADE PURSUANT TO AN AGREEMENT AND PLAN OF MERGER DATED
AS OF JULY 6, 1999 AMONG SATURN ELECTRONICS & ENGINEERING, INC. (THE "PARENT"),
SSI ACQUISITION CORP. (THE "PURCHASER") AND SMARTFLEX SYSTEMS, INC. (THE
"COMPANY"). THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND
FOUND ADVISABLE THE MERGER AGREEMENT, THE OFFER AND THE MERGER REFERRED TO
HEREIN, UNANIMOUSLY DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND
TENDER THEIR SHARES (AS DEFINED HEREIN).
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
A MAJORITY OF THE OUTSTANDING SHARES AND RIGHTS TO ACQUIRE SHARES AT THE TIME OF
ACCEPTANCE FOR PAYMENT. SEE SECTIONS 1 AND 15 BELOW FOR ADDITIONAL TERMS AND
CONDITIONS OF THE OFFER.
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (i) complete and sign the Letter of Transmittal or a
facsimile copy thereof in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of
Transmittal or such facsimile, or, in the case of a book-entry transfer effected
pursuant to the procedure set forth in Section 2, an Agent's Message (as defined
herein), and any other required documents, to the Depositary (as defined herein)
and either deliver the certificates for such Shares to the Depositary along with
the Letter of Transmittal or facsimile or deliver such Shares pursuant to the
procedure for book-entry transfer set forth in Section 2 or (ii) request such
stockholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such stockholder. A stockholder having Shares
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such stockholder desires to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available or who cannot comply in a
timely manner with the procedure for book-entry transfer, or who cannot deliver
all required documents to the Depositary prior to the expiration of the Offer,
may tender such Shares by following the procedure for guaranteed delivery set
forth in Section 2.
<PAGE> 2
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
or any other tender offer materials may be directed to Georgeson Shareholder
Communications Inc., who is acting as the Information Agent, at its address and
telephone numbers set forth on the back cover of this Offer to Purchase.
Additional copies of this Offer to Purchase, the Letter of Transmittal, the
Notice of Guaranteed Delivery and other related materials may be obtained from
the Information Agent or from brokers, dealers, commercial banks, trust
companies and other nominees.
THE INFORMATION AGENT FOR THE OFFER IS:
GEORGESON SHAREHOLDER COMMUNICATIONS INC. LOGO
July 14, 1999
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 1
THE TENDER OFFER............................................ 3
1. Terms of the Offer...................................... 3
2. Procedure for Tendering Shares.......................... 4
3. Withdrawal Rights....................................... 7
4. Acceptance for Payment and Payment...................... 7
5. Certain Federal Income Tax Consequences................. 8
6. Price Range of the Shares; Dividends on the Shares...... 10
7. Effect of the Offer on the Market for the Shares; Stock
Quotation; Exchange Act Registration; Margin
Regulations............................................. 10
8. Certain Information Concerning the Company.............. 12
9. Certain Information Concerning the Purchaser and the
Parent.................................................... 13
10. Source and Amount of Funds.............................. 14
11. Contacts with the Company; Background of the Offer...... 14
12. The Merger Agreement and the Stockholder Agreements..... 15
13. Purpose of the Offer; Plans for the Company............. 24
14. Dividends and Distributions............................. 24
15. Certain Conditions of the Offer......................... 24
16. Certain Legal Matters................................... 25
17. Fees and Expenses....................................... 27
18. Miscellaneous........................................... 27
SCHEDULE I--Directors and Executive Officers of the
Purchaser and the Parent.................................. 29
</TABLE>
<PAGE> 4
To the Holders of Common Stock of Smartflex Systems, Inc.:
INTRODUCTION
SSI Acquisition Corp., a Delaware corporation (the "Purchaser") and a
wholly owned subsidiary of Saturn Electronics & Engineering, Inc., a Michigan
corporation (the "Parent"), hereby offers to purchase all issued and outstanding
shares of common stock, $.0025 par value (the "Shares"), of Smartflex Systems,
Inc., a Delaware corporation (the "Company"), at $10.50 per Share (the "Offer
Price"), net to the seller in cash, without interest, upon the terms and subject
to the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer").
Tendering stockholders whose Shares are registered in their own name and
who tender Shares directly to the Depositary (as defined below) will not be
obligated to pay brokerage fees or commissions to the Purchaser or the
Depositary or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer.
Stockholders who hold their Shares through a bank or broker should check with
such institution as to whether they charge any service fees. The Purchaser will
pay the fees and expenses of BankBoston, N.A., which is acting as the Depositary
(the "Depositary"), and Georgeson Shareholder Communications Inc., which is
acting as Information Agent (the "Information Agent"), in connection with the
Offer. See Section 17.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE HAVING BEEN
VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST
A MAJORITY OF THE OUTSTANDING SHARES AND RIGHTS TO ACQUIRE SHARES AT THE TIME OF
ACCEPTANCE FOR PAYMENT (THE "MINIMUM CONDITION").
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED AND FOUND
ADVISABLE THE MERGER AGREEMENT, THE OFFER AND THE MERGER REFERRED TO HEREIN,
UNANIMOUSLY DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE COMPANY AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER
THEIR SHARES.
The Offer is being made pursuant to the Agreement and Plan of Merger dated
as of July 6, 1999 (the "Merger Agreement") among the Parent, the Purchaser and
the Company. Following the satisfaction or waiver of certain conditions,
including approval by stockholders of the Company, if such approval is required
by applicable law, the Purchaser will be merged with and into the Company, with
the Company surviving the merger (as such, the "Surviving Corporation") as a
wholly owned subsidiary of the Parent (the "Merger"). At the effective time of
the Merger (the "Effective Time"), each outstanding Share (other than Shares
owned by the Company or by the Parent, the Purchaser or any other direct or
indirect wholly owned subsidiary of the Parent or the Company, or Shares with
respect to which appraisal rights are properly exercised under Delaware law
("Dissenting Shares")) will be converted into the right to receive the Offer
Price in cash, without interest (the "Merger Consideration"). See Section 12.
In the event the Purchaser acquires 90% or more of the outstanding Shares
pursuant to the Offer or otherwise, the Purchaser would be able to effect the
Merger pursuant to the short-form merger provisions of the Delaware General
Corporation Law ("DGCL"), without prior notice to, or any action by, any other
stockholder of the Company. In such event, the Purchaser is required to effect
the Merger without prior notice to, or any action by, any other stockholder of
the Company, promptly after its acceptance for payment of Shares tendered into
the Offer. In the Merger Agreement, the Parent, the Purchaser and the Company
have agreed that the Purchaser may extend the Offer for one or more periods not
to exceed 30 days in the aggregate without the prior written consent of the
Company. If immediately after the expiration of the Offer at least a majority
but less than 90% of the outstanding Shares on a fully-diluted basis have been
tendered in the Offer and not withdrawn, then the parties have agreed that the
Purchaser will purchase all Shares tendered pursuant to the Offer and the
Company will promptly convene a special meeting of the stockholders of the
Company for the purpose of considering the Merger and taking action on the
Merger Agreement and the transactions contemplated thereby (the "Transactions").
The Company has agreed, as soon as practicable after the
1
<PAGE> 5
consummation of the Offer, to file a proxy statement relating to the Merger with
the Securities and Exchange Commission (the "Commission"). See Section 12.
The Purchaser and the Parent have entered into Stock Tender and Voting
Agreements each dated as of July 6, 1999 (the "Stockholder Agreements") with
certain stockholders of the Company (the "Stockholders"), including all of its
directors and executive officers, who own 299,933 outstanding Shares in the
aggregate on the date of the Merger Agreement, representing approximately 5% of
the outstanding Shares. Under the Stockholder Agreements, each Stockholder
agreed, among other things, to validly tender the Shares beneficially owned by
it, as well as any Shares subsequently acquired by it. In addition, each
Stockholder agreed to vote its Shares in favor of the Merger, the adoption by
the Company of the Merger Agreement and the approval of the terms thereof and
each of the other transactions contemplated by the Merger Agreement, and agreed
to vote against (a) any action or agreement that would result in a breach of any
covenant or any representation or warranty or any other obligation or agreement
of the Company under or pursuant to the Merger Agreement and (b) any action or
agreement that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer. Each Stockholder also agreed, without
limiting the foregoing, to consult with the Parent and vote all Shares
beneficially owned by it in such manner as is determined by the Parent to be in
compliance with the provisions of the Stockholder Agreements. The Stockholder
Agreements are more fully described in Section 12. Pursuant to the Stockholder
Agreements, each Stockholder has delivered to the Parent, contemporaneously with
the execution of its Stockholder Agreement, an irrevocable proxy (each an
"Irrevocable Proxy") pursuant to which each Stockholder irrevocably appointed
Wallace K. Tsuha, Jr., Jereen G. Trudell and the Parent, as its proxies and
attorneys-in-fact to exercise the proxy to vote the Shares in the foregoing
manner at any time until the earlier to occur of the valid termination of the
Merger Agreement or the Effective Time.
SG Cowen Securities Corporation ("Cowen"), investment banker to the
Company, has delivered to the Board of Directors of the Company its written
opinion dated July 6, 1999 that, as of such date and based upon and subject to
the matters set forth therein, the consideration to be received by the
stockholders of the Company (other than the Purchaser and its affiliates) in the
Offer and the Merger is fair to such stockholders from a financial point of
view. Such opinion is set forth in full as an exhibit to the Company's
Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to stockholders of the Company concurrently herewith.
The Company has represented and warranted to the Purchaser that, as of July
6, 1999, there were 6,493,994 Shares issued and outstanding, and 994,502 Shares
reserved for issuance upon exercise of outstanding options to purchase Shares
granted under the Company Stock Option Plans (as defined in the Merger
Agreement) or otherwise (the "Company Stock Options"). As provided in the Merger
Agreement, all outstanding Company Stock Options on the effective date of the
Merger will become fully vested and will be cancelled. The holders of such
Company Stock Options will be entitled to receive from the Company a cash
payment equal to the product of (i) the number of Shares previously subject to
such option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such option.
As of July 6, 1999, the Minimum Condition would be satisfied if the
Purchaser acquired 3,744,249 Shares.
The Merger Agreement and the Stockholder Agreements are more fully
described in Section 12. Certain Federal income tax consequences of the sale of
Shares pursuant to the Offer and the exchange of Shares for the Merger
Consideration pursuant to the Merger are described in Section 5.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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<PAGE> 6
THE TENDER OFFER
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Purchaser will accept for payment and pay, as promptly as
practicable after the Expiration Date, for all Shares validly tendered prior to
the Expiration Date and not theretofore properly withdrawn in accordance with
Section 3. The term "Expiration Date" means 12:00 Midnight, New York City time,
on Wednesday, August 11, 1999, unless and until (i) the Purchaser, in its sole
discretion (but subject to the terms of the Merger Agreement), or (ii) the
Purchaser and the Company, shall have extended the period of time during which
the Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended by the Purchaser, or by
the Purchaser and the Company, shall expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition. See Section 15. If such conditions are not satisfied prior to
the Expiration Date, the Purchaser reserves the right (but shall not be
obligated), subject to the terms of the Merger Agreement, to (i) decline to
purchase any of the Shares tendered and terminate the Offer, (ii) waive any of
the conditions to the Offer, to the extent permitted by applicable law, and,
subject to complying with applicable rules and regulations of the Commission,
purchase all Shares validly tendered or (iii) extend the Offer and, subject to
the right of stockholders to withdraw Shares until the Expiration Date, retain
the Shares tendered during the period or periods for which the Offer is
extended.
Subject to the Merger Agreement, including the restrictions discussed
below, and the applicable rules and regulations of the Commission, the Purchaser
reserves the right, in its sole discretion, at any time and from time to time,
and regardless of whether any of the events set forth in Section 15 have
occurred or been determined by the Purchaser to have occurred, to (a) subject to
the limitation described below, extend the period of time during which the Offer
is open, and thereby delay acceptance for payment of any Shares, by giving oral
or written notice of such extension and delay to the Depositary or (b) waive any
condition or amend the Offer in any other respect by giving oral or written
notice of such waiver or amendment to the Depositary. During any such extension,
all Shares previously tendered and not properly withdrawn will remain subject to
the Offer, subject to the right of a tendering stockholder to withdraw such
stockholder's Shares. See Section 3. Under no circumstances will interest be
paid on the purchase price for tendered Shares, whether or not the Purchaser
exercises its right to extend the Offer. In the Merger Agreement, the Parent,
the Purchaser and the Company have agreed that the Purchaser may extend the
Offer for one or more periods not to exceed 30 days in the aggregate without the
prior written consent of the Company. In addition, the Purchaser has agreed in
the Merger Agreement that it will not, without the express written consent of
the Company, (i) reduce the maximum number of Shares subject to the Offer, (ii)
reduce the Offer Price or change or waive the Minimum Condition, (iii) add to or
modify the conditions set forth in Section 15, (iv) extend the Offer, except as
provided above, or (v) change the form of consideration payable in the Offer.
The rights reserved by the Purchaser in the two preceding paragraphs are in
addition to the Purchaser's rights pursuant to Section 15. There can be no
assurance that the Purchaser will exercise its right to extend the Offer. Any
extension, amendment, delay, waiver or termination will be followed as promptly
as practicable by public announcement. In the case of an extension, Rule
14e-1(d) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires that the announcement be issued no later than the earlier of (i)
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date, or (ii) the first opening of the Nasdaq National
Market of the Nasdaq Stock Market ("Nasdaq") on the next business day after the
previously scheduled Expiration Date, in accordance with the public announcement
requirements of Rule 14e-1 under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to
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<PAGE> 7
the Dow Jones News Service. As used in this Offer to Purchase, "business day"
has the meaning set forth in Rule 14d-1 under the Exchange Act.
If the Offer is extended, or if the Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its acceptance for payment of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 3. However, the ability of
the Purchaser to delay the payment for Shares that the Purchaser has accepted
for payment is limited by Rule 14e-1 under the Exchange Act, which requires that
a bidder pay the consideration offered or return the securities deposited by or
on behalf of holders of securities promptly after the termination or withdrawal
of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in the percentage of
securities sought or any dealer solicitation fee, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. With respect to a change in price or a change in the
percentage of securities sought, a minimum period of 10 business days is
generally required to allow for adequate dissemination of such information to
stockholders.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Condition and the other conditions set forth in Section 15. Subject to the terms
and conditions contained in the Merger Agreement, the Purchaser reserves the
right (but shall not be obligated) to waive any or all such conditions.
The Company has provided the Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the Offer to
holders of the Shares. This Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the stockholder
lists or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. PROCEDURE FOR TENDERING SHARES
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (i) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees or, in
the case of a book-entry transfer, an Agent's Message (as defined below), and
any other documents required by the Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase, and either certificates for tendered Shares must be received by the
Depositary at one of such addresses or such Shares must be delivered pursuant to
the procedure for book-entry transfer set forth below (and a Book-Entry
Confirmation (as defined below) received by the Depositary), in each case prior
to the Expiration Date, or (ii) the tendering stockholder must comply with the
guaranteed delivery procedure set forth below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two business days after the date of
this Offer to Purchase. Any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Shares by
causing the Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. However, although delivery of Shares may be
effected through book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message, and any other required documents, must, in any case, be
transmitted to, and received by, the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase
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<PAGE> 8
prior to the Expiration Date, or the tendering stockholder must comply with the
guaranteed delivery procedure described below. The confirmation of a book-entry
transfer of Shares into the Depositary's account at the Book-Entry Transfer
Facility as described above is referred to herein as a "Book-Entry
Confirmation."
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE
WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal if (i) the Letter of Transmittal is signed by the registered holder
of Shares (which, for purposes of this Section, includes any participant in the
Book-Entry Transfer Facility's system whose name appears on a security position
listing as the owner of the Shares) tendered therewith and such registered
holder has not completed either the box entitled "Special Delivery Instructions"
or the box entitled "Special Payment Instructions" on the Letter of Transmittal
or (ii) such Shares are tendered for the account of a firm that is a participant
in the Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution"). In all other cases, all signatures on the
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instructions 1 and 5 to the Letter of Transmittal. If the certificates for
Shares are registered in the name of a person other than the signer of the
Letter of Transmittal, or if payment is to be made or certificates for Shares
not tendered or not accepted for payment are to be issued to a person other than
the registered holder of the certificates surrendered, the tendered certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered holders or owners appear
on the certificates, with the signatures on the certificates or stock powers
guaranteed as described above. See Instructions 1 and 5 to the Letter of
Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation with respect to such Shares),
together with a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), with any required signature guarantees, or, in the
case of a book-entry transfer, an Agent's Message, and any other documents
required by the Letter of Transmittal, are received by the Depositary
within three trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day," for purposes of the preceding
sentence, is any day on which the Nasdaq National Market is open for
business.
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<PAGE> 9
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by facsimile transmission or mail to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth in
such Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of (i) certificates for such Shares (or a timely
Book-Entry Confirmation of a transfer of such Shares as described in Section 2),
(ii) a Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message, and (iii) any other documents required by the
Letter of Transmittal. Accordingly, tendering stockholders may be paid at
different times depending upon when certificates for Shares or Book-Entry
Confirmations are actually received by the Depositary. UNDER NO CIRCUMSTANCES
WILL INTEREST BE PAID BY THE PURCHASER ON THE PURCHASE PRICE OF THE SHARES,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
the Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing a Letter of Transmittal as set forth above
(including through delivery of an Agent's Message), the tendering stockholder
will irrevocably appoint designees of the Purchaser as such stockholder's
attorneys-in-fact and proxies in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder and
accepted for payment by the Purchaser and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after the date hereof. All such proxies shall be considered
irrevocable and coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, the Purchaser
accepts for payment Shares tendered by such stockholder as provided herein. Upon
such acceptance for payment, all prior powers of attorney and proxies given by
such stockholder with respect to such Shares or other securities or rights will,
without further action, be revoked and no subsequent powers of attorney and
proxies may be given (and, if given, will not be deemed effective). The
designees of the Purchaser will thereby be empowered to exercise all voting and
other rights with respect to such Shares or other securities or rights in
respect of any annual, special or adjourned meeting of the Company's
stockholders, or otherwise, as they in their sole discretion deem proper. The
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Purchaser's acceptance for payment of
such Shares, the Purchaser must be able to exercise full voting and other rights
with respect to such Shares and other securities or rights, including voting at
any meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by the Purchaser in its sole discretion, which determination
will be final and binding. The Purchaser reserves the absolute right to reject
any or all tenders determined by it not to be in proper form or the acceptance
for payment of or payment for which may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the absolute right to waive
any defect or irregularity in any tender with respect to any particular Shares,
whether or not similar defects or irregularities are waived in the case of other
Shares. No tender of Shares will be deemed to have been validly made until all
defects or irregularities relating thereto have been cured or waived. None of
the Purchaser, the Parent, the Depositary, the Information Agent or any other
person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give any such
notification. The Purchaser's interpretation of the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding on all parties.
Backup Withholding. In order to avoid "backup withholding" of Federal
income tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must provide the Depositary with such stockholder's correct
taxpayer identification number ("TIN") on a Substitute Form W-9 and certify
under penalty of perjury that such TIN is correct and that such stockholder is
not subject to backup withholding. Certain stockholders (including, among
others, all corporations and certain foreign individuals
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<PAGE> 10
and entities) are not subject to backup withholding. If a stockholder does not
provide its correct TIN or fails to provide the certifications described above,
the Internal Revenue Service ("IRS") may impose a penalty on such stockholder
and payment of cash to such stockholder pursuant to the Offer may be subject to
backup withholding of 31%. All stockholders surrendering Shares pursuant to the
Offer should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary). Noncorporate foreign stockholders should complete and sign the main
signature form and a Form W-8, Certificate of Foreign Status, a copy of which
may be obtained from the Depositary, in order to avoid backup withholding. See
Instruction 9 to the Letter of Transmittal.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment and paid for by the Purchaser pursuant
to the Offer, may also be withdrawn at any time after September 10, 1999.
For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase and must specify
the name of the person having tendered the Shares to be withdrawn, the number of
Shares to be withdrawn and the name of the registered holder of the Shares to be
withdrawn, if different from the name of the person who tendered the Shares. If
certificates for Shares to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
certificates, the serial numbers shown on such certificates must be submitted to
the Depositary and, unless such Shares have been tendered by an Eligible
Institution, the signature on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been tendered pursuant to the procedures
for book-entry delivery set forth in Section 2, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. However, withdrawn Shares may be retendered by again following one
of the procedures described in Section 2 at any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, which determination will be final and binding. None of the
Purchaser, the Parent, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
4. ACCEPTANCE FOR PAYMENT AND PAYMENT
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and pay, as promptly as
practicable after the Expiration Date, for all Shares validly tendered prior to
the Expiration Date and not properly withdrawn in accordance with Section 3. Any
determination concerning the satisfaction of such terms and conditions will be
within the discretion of the Purchaser, and such determination will be final and
binding on all tendering stockholders. See Sections 1 and 15. The Purchaser
expressly reserves the right, in its sole discretion, to delay acceptance for
payment of or payment for Shares in order to comply in whole or in part with any
applicable law. Any such delays will be effected in compliance with Rule
14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to pay
for or return tendered Shares promptly after the termination or withdrawal of
the Offer).
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<PAGE> 11
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares (or timely Book-Entry Confirmation of a transfer of such Shares as
described in Section 2), (ii) a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, and (iii) any
other documents required by the Letter of Transmittal. The per Share
consideration paid to any stockholder pursuant to the Offer will be the highest
per Share consideration paid to any other stockholder pursuant to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser and
not properly withdrawn as, if and when the Purchaser gives oral or written
notice to the Depositary of the Purchaser's acceptance for payment of such
Shares. Upon the terms and subject to the conditions of the Offer, payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from the Purchaser
and transmitting payment to tendering stockholders whose Shares have been
accepted for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE
PURCHASER ON THE PURCHASE PRICE OF THE SHARES, REGARDLESS OF ANY EXTENSION OF
THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT.
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering stockholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering stockholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer. The Purchaser will pay
stock transfer taxes with respect to the transfer and sale to it or its order
pursuant to the Offer, except as otherwise provided in Instruction 6 of the
Letter of Transmittal, as well as any charges and expenses of the Depositary and
the Information Agent.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to compliance with Rule 14e-1(c) under the Exchange Act,
which requires that a tender offeror pay the consideration offered or return the
tendered securities promptly after the termination or withdrawal of a tender
offer), the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent
tendering stockholders are entitled to exercise, and duly exercise, withdrawal
rights as described in Section 3.
If any tendered Shares are not purchased pursuant to the Offer because of
an invalid tender or otherwise, the certificates for such Shares will be
returned, and if certificates are submitted for more Shares than are tendered,
new certificates for the Shares not tendered will be sent, in each case without
expense, to the tendering stockholder (or, in the case of Shares delivered by
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility pursuant to the procedure set forth in Section 2,
such Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable after the expiration or termination of the
Offer.
The Purchaser reserves the right to transfer or assign, in whole or from
time to time in part, to the Parent, or to one or more direct or indirect wholly
owned subsidiaries of the Parent, the right to purchase Shares tendered pursuant
to the Offer. Any such transfer or assignment will not relieve the Purchaser of
its obligations under the Offer and will in no way prejudice the rights of
tendering stockholders to receive payment for Shares validly tendered and
accepted for payment pursuant to the Offer.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sales of Shares pursuant to the Offer (and the receipt of cash by
stockholders of the Company pursuant to the Merger) will be taxable transactions
for Federal income tax purposes under the Internal Revenue Code of 1986, as
amended (the "Code"), and may also be taxable transactions under applicable
state, local, foreign and other tax laws. Generally, for federal income tax
purposes, a tendering stockholder will generally recognize gain or loss equal to
the difference between the amount of cash received by the stockholder pursuant
to the Offer (or pursuant to the Merger) and the aggregate tax basis in the
Shares tendered by the stockholder and
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<PAGE> 12
purchased pursuant to the Offer (or converted pursuant to the Merger). Gain or
loss will be calculated separately for each block of Shares tendered and
purchased pursuant to the Offer (or converted pursuant to the Merger).
In general, cash received in respect of Dissenting Shares, if any, will
result in the recognition of capital gain or loss to the beneficial owner of
such Shares. Any such beneficial owner should consult such owner's tax advisor
in that regard.
If tendered Shares are held by a tendering stockholder as capital assets,
gain or loss recognized by the tendering stockholder will be capital gain or
loss, which will be long-term capital gain or loss if the tendering
stockholder's holding period for the Shares exceeds one year. Long-term capital
gains recognized by a tendering individual stockholder will generally be taxed
at a maximum federal income tax rate of 20%. The ability to deduct capital
losses is subject to limitations.
A stockholder (other than certain exempt stockholders including, among
others, all corporations) that tenders Shares may be subject to 31% backup
withholding unless the stockholder provides its TIN and certifies that such
number is correct or properly certifies that it is awaiting a TIN and certifies
as to no loss of exemption from backup withholding and otherwise complies with
the applicable requirements of the backup withholding rules. A stockholder that
does not furnish its correct TIN or that does not otherwise establish a basis
for an exemption from backup withholding may be subject to a penalty imposed by
the IRS. Each stockholder should complete and sign the Substitute Form W-9
included as part of the Letter of Transmittal so as to provide the information
and certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary).
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an income tax return.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY
NOT BE APPLICABLE WITH RESPECT TO SHARES RECEIVED AS COMPENSATION OR WITH
RESPECT TO HOLDERS OF SHARES WHO ARE SUBJECT TO SPECIAL TAX TREATMENT UNDER THE
CODE, SUCH AS NON-U.S. PERSONS, LIFE INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS AND FINANCIAL INSTITUTIONS, AND MAY NOT APPLY TO A HOLDER OF
SHARES IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES, SUCH AS PERSONS WHO HOLD THEIR
SHARES AS A HEDGE OR AS PART OF A HEDGING, STRADDLE, CONVERSION OR OTHER RISK
REDUCTION TRANSACTION. STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS) OF THE
OFFER AND THE MERGER.
9
<PAGE> 13
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES
The Shares are traded on Nasdaq and prices reflecting such trading are
published by the National Association of Securities Dealers, Inc. under the
symbol "SFLX." The following table sets forth, for each of the periods
indicated, the high and low sales prices per Share as reported in publicly
available sources for the periods indicated.
<TABLE>
<CAPTION>
SALES PRICE
----------------
HIGH LOW
------ ------
<S> <C> <C>
1997
First Quarter............................................... $18.00 $10.25
Second Quarter.............................................. 15.25 9.25
Third Quarter............................................... 12.25 9.50
Fourth Quarter.............................................. 12.00 8.75
1998
First Quarter............................................... 11.63 8.00
Second Quarter.............................................. 12.25 5.75
Third Quarter............................................... 12.00 5.63
Fourth Quarter.............................................. 9.00 5.50
1999
First Quarter............................................... 8.25 3.38
Second Quarter (through July 13, 1999)...................... 9.94 2.50
</TABLE>
On July 1, 1999, the last full day of trading before the Company publicly
announced that it had engaged an investment banker in connection with the
potential sale of the Company, the reported closing sale price of the Shares on
the Nasdaq National Market was $4 3/4 per Share. On July 13, 1999, the last full
day of trading before the commencement of the Offer, the reported last sale
price of the Shares on the Nasdaq National Market was $9.94 per Share.
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES.
Since its inception, the Company has not declared or paid any dividends on
shares of its capital stock.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATION; EXCHANGE
ACT REGISTRATION; MARGIN REGULATIONS
The Purchaser intends to seek to cause the Company to terminate the
registration of the Shares under the Exchange Act as soon after the completion
of the Offer as the requirements for such termination are met. If registration
of the Shares is not terminated prior to the Merger, the registration of the
Shares under the Exchange Act will be terminated following the consummation of
the Merger.
Market for the Common Shares. The purchase of Shares pursuant to the Offer
will reduce the number of holders of Shares and the number of Shares that might
otherwise trade publicly and could adversely affect the liquidity and market
value of the remaining Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of Nasdaq for continued designation
for the Nasdaq National Market. To maintain such designation, a security must
substantially meet one of two maintenance standards. The first maintenance
standard requires that (i) there be at least 750,000 publicly held shares, (ii)
the publicly held shares have a market value of at least $5 million, (iii) the
issuer have net tangible assets of at least $4 million, (iv) there be at least
400 stockholders of round lots, (v) the minimum bid price per share be at least
$1.00 and (vi) there be at least two registered and active market makers. The
second maintenance standard requires that (i) the issuer have either (A) a
market capitalization of at least $50 million or (B) total assets and total
revenue of at least $50 million each for the most recently completed fiscal year
or two of the last three most recently completed fiscal years, (ii) there be at
least 1,100,000 shares publicly held, (iii) the publicly held shares have
10
<PAGE> 14
a market value of at least $15 million, (iv) the minimum bid price per share be
at least $5.00, (v) there be at least 400 stockholders of round lots and (vi)
there be at least four registered and active market makers.
If these standards for continued designation for the Nasdaq National Market
are not met, the Shares might nevertheless continue to be included in the Nasdaq
SmallCap Market. Continued inclusion in the Nasdaq SmallCap Market, however,
would require that (i) there be at least 300 round lot holders, (ii) there be at
least 500,000 publicly held shares, (iii) the publicly held shares have a market
value of at least $1 million, (iv) there be at least two registered and active
market makers, of which one may be entering stabilizing bids and (v) the issuer
have either (A) net tangible assets of at least $2 million, (B) market
capitalization of at least $35 million or (C) net income of at least $500,000 in
the most recently completed fiscal year or in two of the last three most
recently completed fiscal years. Shares held directly or indirectly by
directors, officers or beneficial owners of more than 10% of the Shares are not
considered as being publicly held for the purpose of determining whether either
of the Nasdaq listing criteria were met. According to the Company, as of July 6,
1999, there were approximately 83 holders of record of Shares and 6,493,994
Shares outstanding.
If the purchase of Shares pursuant to the Offer causes the Shares to no
longer meet the requirements for continued inclusion in the Nasdaq National
Market or the Nasdaq SmallCap Market as a result of a reduction in the number or
market value of publicly held Shares or the number of round lot holders or
otherwise, as the case may be, the market for Shares could be adversely
affected. It is possible that the Shares would continue to trade in the
over-the-counter market and that price quotations would be reported by other
sources. The extent of the public market for the Shares and the availability of
such quotations, however, would depend upon the number of holders of Shares
remaining at such time, the interests in maintaining a market in Shares on the
part of securities firms, the possible termination of registration of the Shares
under the Exchange Act, as described below, and other factors.
Exchange Act Registration. Registration of the Shares under the Exchange
Act may be terminated upon application of the Company to the Commission if the
Shares are neither listed on a national securities exchange nor held by 500 or
more holders of record. Termination of registration of the Shares under the
Exchange Act would, subject to Section 15(d) of the Exchange Act, substantially
reduce the information required to be furnished by the Company to its
stockholders and to the Commission and would make certain provisions of the
Exchange Act no longer applicable to the Company, such as the shortswing profit
recovery provisions of Section 16(b) of the Exchange Act, the requirement of
furnishing a proxy or information statement pursuant to Section 14(a) or (c) of
the Exchange Act in connection with stockholders' meetings and the related
requirement of furnishing an annual report to stockholders and the requirements
of Rule 13e-3 under the Exchange Act with respect to "going private"
transactions. Furthermore, the ability of "affiliates" of the Company and
persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 or 144A promulgated under the Securities Act of
1933, as amended, may be impaired or eliminated. The Purchaser intends to seek
to cause the Company to apply for termination of registration of the Shares
under the Exchange Act as soon after the completion of the Offer as the
requirements for such termination are met.
If registration of the Shares is not terminated prior to the Merger, then
trading of the Shares will cease to be reported on Nasdaq and the registration
of the Shares under the Exchange Act will be terminated following the
consummation of the Merger.
Margin Regulations. The Shares are currently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. Depending upon factors
similar to those described above regarding listing and market quotations, it is
possible that, following the Offer, the Shares would no longer constitute
"margin securities" for the purposes of the margin regulations of the Federal
Reserve Board and therefore could no longer be used as collateral for loans made
by brokers. If registration of Shares under the Exchange Act were terminated,
the Shares would no longer be "margin securities" or be eligible for Nasdaq
reporting.
11
<PAGE> 15
8. CERTAIN INFORMATION CONCERNING THE COMPANY
General. The Company is a Delaware corporation with its principal
executive offices at 14312 Franklin Avenue, Tustin, California 92781, telephone
no. (714) 838-8737. According to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998 (the "Annual Report"), the Company is a
technology leader in electronics manufacturing services, providing a diverse
range of services to customers to achieve their product realization needs. These
services include product, Application Specific Integrated Circuits, software and
Radio Frequency design; modeling, and package/enclosure management; and the
precision assembly of comprehensive advanced interconnect solutions, utilizing
precision surface mount and Direct-Chip-Attach technologies. Prototype through
high volume manufacturing of electronic circuit board and box build services is
provided through nine facilities worldwide for customers in the Americas, Europe
and Asia. The Company believes it is a leading supplier of advanced surface
mount technology, Chip-On-Flex, and Flip-Chip-On-Flex assemblies to the hard
disk drive ("HDD") and non-HDD markets.
Selected Financial Information. Set forth below is certain selected
consolidated financial information with respect to the Company excerpted or
derived from the information contained in the Annual Report, as well as from the
information contained in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, which are incorporated herein by reference. More
comprehensive financial information is included in such reports and other
documents filed by the Company with the Commission, and the following summary is
qualified in its entirety by reference to such reports and such other documents
and all the financial information (including any related notes) contained
therein. Such reports and other documents should be available for inspection and
copies thereof should be obtainable in the manner set forth below under
"Available Information."
SMARTFLEX SYSTEMS, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ --------------------------------
1999 1998 1998 1997 1996
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................ $23,152 $37,005 $107,601 $133,347 $146,100
Operating income (loss)..................... 316 263 967 (6,795) 10,446
Net income (loss)........................... (4,854) 828 1,516 (4,129) 7,157
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, AT DECEMBER 31,
------------ ------------------
1999 1998 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $25,415 $32,719 $33,640
Total assets................................................ 86,365 72,291 81,906
Long-Term obligations....................................... 15,341 5,526 1,689
Total stockholders' equity.................................. 46,166 51,019 49,089
</TABLE>
Available Information. The Company is subject to the reporting
requirements of the Exchange Act and, in accordance therewith, is required to
file reports and other information with the Commission relating to its business,
financial condition and other matters. Certain information as of particular
dates concerning the Company's directors and officers, their remuneration, the
principal holders of the Company's securities and any material interest of such
persons in transactions with the Company is required to be disclosed in proxy
statements distributed to the Company's stockholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located in the Northwestern Atrium Center, 500 West
Madison Street (Suite 1400), Chicago,
12
<PAGE> 16
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies should be obtainable, by mail, upon payment of the Commission's
customary charges, by writing to the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a World Wide
Web site on the internet at http://www.sec.gov that contains reports and certain
other information regarding registrants that file electronically with the
Commission. Such information should also be on file at The Nasdaq Stock Market,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Company Information. The information concerning the Company contained
herein has been taken from or based upon publicly available documents on file
with the Commission and other publicly available information. Although the
Purchaser and the Parent do not have any knowledge that any such information is
untrue, neither the Purchaser nor the Parent takes any responsibility for the
accuracy or completeness of such information or for any failure by the Company
to disclose events that may have occurred and may affect the significance or
accuracy of any such information.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND THE PARENT
The Purchaser, a Delaware corporation and a wholly owned subsidiary of the
Parent, was organized in June 1999 to facilitate the Parent's acquisition of
control of, and the entire equity interest in, the Company upon the successful
completion of the Merger. The principal offices of the Purchaser are located at
255 Rex Boulevard, Auburn Hills, Michigan 48326, telephone no. (248) 853-5724.
All outstanding shares of capital stock of the Purchaser are owned by the
Parent. The Purchaser does not have any significant assets or liabilities and
has not engaged in activities other than those incidental to its formation and
capitalization, its execution of the Merger Agreement and preparation of the
Offer and the Merger. Because the Purchaser is newly formed and has minimal
assets and capitalization, no meaningful financial information regarding the
Purchaser is available.
The Parent, a Michigan corporation, has its principal office located at 255
Rex Boulevard, Auburn Hills, Michigan 48326, telephone no. (248) 853-5724. The
Parent is a privately-held company providing electronic, electromechanical and
electrical systems for automotive and nonautomotive applications.
Neither the Parent, nor the Purchaser are subject to the reporting
requirements of the Exchange Act and, therefore, they do not file reports or
other information with the Commission relating to their business, financial
condition or other matters.
Except as described in this Offer to Purchase, neither the Parent nor the
Purchaser (together, the "Purchasing Entities") nor, to the best knowledge of
the Purchasing Entities, any of the persons listed in Schedule I (or any
associate or majority owned subsidiary of the Purchasing Entities or any of the
persons so listed), beneficially owns any equity security of the Company, and
none of the Purchasing Entities or, to the best knowledge of the Purchasing
Entities, any of the other persons referred to above, or any of the respective
directors, executive officers or subsidiaries of any of the foregoing, has
effected any transaction in any equity security of the Company during the past
60 days. Wallace K. Tsuha, Jr., President, Chief Executive Officer and Chairman
of the Company, directly owns 1,500 Shares. Gene R. Smith, Jr., Executive Vice
President, Business Management, of the Company, sold 1,000 Shares on May 24,
1999 for $3.58 per Share in a market transaction.
Except as described in this Offer to Purchase, (i) there have not been any
contacts, transactions or negotiations between the Purchasing Entities, any of
their respective subsidiaries or, to the best knowledge of the Purchasing
Entities, any of the persons listed in Schedule I, on the one hand, and the
Company or any of its directors, officers or affiliates, on the other hand, that
are required to be disclosed pursuant to the rules and regulations of the
Commission and (ii) none of the Purchasing Entities or, to the best knowledge of
the Purchasing Entities, any of the persons listed in Schedule I has any
contract, arrangement, understanding or relationship with any person with
respect to any securities of the Company.
Except as described in this Offer to Purchase, during the last five years,
none of the Purchasing Entities or, to the best knowledge of the Purchasing
Entities, any of the persons listed in Schedule I (i) has been convicted in a
criminal proceeding (excluding traffic violations and similar misdemeanors) or
(ii) was a party
13
<PAGE> 17
to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting activities
subject to, Federal or state securities laws or finding any violation of such
laws. The name, business address, present principal occupation or employment,
five year employment history and citizenship of each of the directors and
executive officers of the Purchaser and the Parent are set forth in Schedule I.
10. SOURCE AND AMOUNT OF FUNDS
The Offer is not conditioned upon any financing arrangement. The Parent
estimates that the total amount of funds required by the Purchaser to acquire
the tendered Shares pursuant to the Offer, to consummate the Merger under the
Merger Agreement, to refinance any indebtedness of the Company which may become
payable as a result of the Offer and the Merger, to pay holders of Company Stock
Options in connection with the Offer and Merger and to pay estimated fees and
expenses related to the Offer and the Merger will be approximately $73.5
million. The Purchaser expects to obtain all funds needed to consummate the
Offer and the Merger from contributions from Parent. Parent expects to obtain
funds for its distribution to the Purchaser pursuant to a Credit Agreement to be
entered into in accordance with a financing commitment letter (the "Commitment
Letter") dated July 2, 1999 from Comerica Bank, as administrative agent (the
"Agent") for several lenders (the "Lenders"). Pursuant to the Commitment Letter,
Comerica Bank has agreed to provide Parent a $125,000,000 secured revolving
credit facility for general corporate purposes, including the acquisition of the
stock of the Company, subject to customary fees.
The Commitment Letter is subject to customary conditions. The credit
facility will be guaranteed by all wholly-owned subsidiaries of Parent or all
wholly-owned subsidiaries of Parent will be co-obligors of the credit facility,
and will be secured by a security interest in substantially all tangible and
intangible assets of Parent and its wholly-owned subsidiaries.
The credit facility will have a maturity of three years from the date of
closing of the Facility, and will bear interest, at the Parent's option, at (i)
the higher of (A) Comerica Bank's prime rate or (B) the federal funds rate plus
100 basis points, plus the Applicable Margin (as defined in the Commitment
Letter) or (ii) Comerica Bank's Eurodollar rate, plus the Applicable Margin.
The Commitment Letter also includes an obligation on the part of the
Company to indemnify the Lenders against certain liabilities. The foregoing
summary of the Commitment Letter is qualified in its entirety by references to
the text of the Commitment Letter, which is filed with the Commission as an
exhibit to the Tender Offer Statement on Schedule 14D-1 (the "Tender Offer
Statement") filed by the Parent and the Purchaser.
It is currently anticipated that the indebtedness incurred in connection
with the Offer and the Merger will be repaid from current funds, and additional
funds generated internally by the Parent and its subsidiaries after the Merger,
and through other sources that may be available from time to time.
11. CONTACTS WITH THE COMPANY; BACKGROUND OF THE OFFER
In July 1997, the Parent inquired of the Company's management as to the
Company's desire to conduct discussions concerning an acquisition by the Parent
of the Company or other strategic initiative. Corporate marketing brochures and
general product and service information of the Parent and the Company were
exchanged. The Company's management indicated that it had no desire to enter
into any such discussions at that time.
During 1998, the Parent contacted the Company's executive management
several times and reinforced the Parent's desire to explore strategic
initiatives. The Company's management informed the Parent that it did not wish
to consider a merger or sale, but that the Company would be willing to consider
collaborating on a program if incremental value for the Company could be
created. The Parent and the Company discussed the pursuit of a catalyst program,
but no such program was ever pursued by them.
In January 1999, the Parent again contacted the Company and expressed its
desire to meet with the Company's management to explore areas of mutual benefit.
The Company's executive management agreed to
14
<PAGE> 18
such a meeting. A mutual confidentiality agreement was signed by the parties on
February 2, 1999 and amended on February 3, 1999.
The initial meeting between the Parent and the Company's executive
management was held on February 25, 1999. Financial and strategic information
was exchanged and the Parent and the Company concluded that further discussions
were warranted.
In early March, 1999, the Parent's business development representative and
representatives of the Company met to explore possible opportunities. The
meeting was exploratory in nature and generally provided each party with a
better understanding of the other's capabilities and expectations.
In late March, the Parent received information from the Company's
management that the Company's Board of Directors had instructed the Company's
management to cease discussions with the Parent because prolonged discussions
would be a management distraction and dilute management's efforts to improve the
Company's operations.
On April 22, 1999, the Parent sent the Company's Chief Executive Officer an
unsolicited letter of interest to explore a possible combination of the Parent
and the Company in a negotiated transaction. Shortly thereafter, the Company
expressed its willingness to have a group of the Company's directors meet with
representatives of the Parent so that the Parent could express its interest to
that group.
On May 18, 1999, representatives of the Parent met with two of the members
of the Board of Directors of the Company and with the Company's legal counsel to
review the Parent's proposal. The representatives of the Company indicated that
the Company's Board of Directors would consider the Parent's proposal and inform
the Parent as to whether the Company had any interest in pursuing it. The
following week, the Company informed the Parent that it would engage an
investment banking firm to explore and evaluate the Company's strategic
alternatives. On June 11, the Parent received notice that a meeting could take
place among the Parent, the Company's management and the Company's investment
banker.
On June 16, 1999, representatives of the Parent, the Company and the
Company's advisors met. The Company reviewed its financial forecast and
discussed management's confidence levels, customer program assumptions and
comparable transactions. The Parent's executive emphasized that based on the
information reviewed and the market comparables, a range of $8.00 to $10.00 per
fully diluted Share appeared to be the appropriate valuation. The meeting
adjourned with both sides agreeing that none of the representatives had the
authority to negotiate an agreement, and that the matter should be resolved by
the Parent's chief executive officer and the Company's lead Board of Directors
representative.
On June 21, 1999, the Parent sent the Company's Chairman a letter which
indicated that a combination of the parties could be accomplished in which the
Company's common shares would be valued at $9.00 per Share.
On June 22, the Parent's Chief Executive Officer and the Company's lead
Board representative agreed to continue to explore a business combination on the
assumption that the price per Share would be in the range of $10.00 to $12.00.
After their discussion, they verbally agreed to a price per Share of $10.50.
Later on June 22, 1999, the Parent sent the Company's Chairman a letter
confirming the price per Share of $10.50.
From noon on June 28, 1999 through noon on July 1, 1999, representatives of
the Parent and the Company met to conduct in-depth discussions concerning a
merger, to commence negotiating a definitive agreement, and to commence due
diligence.
On July 1, 1999, the Parent's Board of Directors approved the acquisition
of the Company for a price of $10.50 per Share.
12. THE MERGER AGREEMENT AND THE STOCKHOLDER AGREEMENTS
The following is a summary of certain provisions of the Merger Agreement
and the Stockholder Agreements. This summary is qualified in its entirety by
reference to the Merger Agreement and the Stockholder Agreements which are
incorporated by reference and copies of which have been filed with the
15
<PAGE> 19
Commission as exhibits to the Tender Offer Statement. The Merger Agreement and
the Stockholder Agreements may be examined and copies may be obtained at the
places set forth in Section 8 of this Offer to Purchase under "Available
Information."
(A) THE MERGER AGREEMENT
The Offer. The Merger Agreement provides that if none of the events set
forth in Section 15 shall have occurred or is existing, the Purchaser will
commence the Offer as promptly as reasonably practicable after the date of the
Merger Agreement, but in no event later than five business days after the date
thereof. The obligation of the Purchaser to accept for payment and pay for
Shares tendered pursuant to the Offer is subject to the condition that at least
a majority of the Company's outstanding shares (calculated on a fully diluted
basis) be tendered and not withdrawn (the "Minimum Condition") and the other
conditions set forth in Section 15. Pursuant to the Merger Agreement, the
Purchaser expressly reserves the right to waive any such condition, to increase
the price per Share payable in the Offer, and to make any other changes in the
terms and conditions of the Offer; provided, however, that, without the prior
written consent of the Company, no change may be made (i) which decreases the
price per Share payable in the Offer or which changes or waives the Minimum
Condition, (ii) which changes the form of consideration payable in the Offer,
(iii) which extends the period that the Offer is outstanding for one or more
periods not to exceed 30 days in the aggregate, (iv) which reduces the maximum
number of Shares to be purchased in the Offer or (v) which imposes conditions
other than those set forth in Section 15.
Company Action. The Merger Agreement provides that, subject to the
conditions thereof, the Company has approved of and consented to the Offer. The
Board of Directors of the Company, at a meeting duly called and held on July 6,
1999, has unanimously (i) determined that the Merger Agreement and the
Stockholder Agreements, and the Transactions, including, without limitation, the
Offer, the Merger and the tender of the Shares pursuant to the Stockholder
Agreements, are fair to and in the best interests of the stockholders of the
Company, (ii) approved and adopted the Merger Agreement and the Stockholders
Agreement, and the Transactions, including, without limitation, the Offer, the
Merger and the tender of the Shares pursuant to the Stockholder Agreements,
(iii) taken all action to render the provisions of the Company's stockholder
rights plan and of Section 203 of the DGCL inapplicable to the Offer, the Merger
and the Stockholder Agreements, and (iv) recommended that the stockholders of
the Company accept the Offer and approve and adopt the Merger Agreement and the
Transactions, including, without limitation, the Merger.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, the Purchaser will be merged with and into the Company. As a result of the
Merger, the separate corporate existence of the Purchaser will cease and the
Company will continue as the Surviving Corporation, and shall continue to be
governed by the laws of the State of Delaware. The Merger Agreement provides
that the Parent, the Purchaser and the Company shall use their reasonable best
efforts to consummate the Merger as soon as practicable.
Pursuant to the Merger Agreement, at the Effective Time, each Share issued
and outstanding immediately prior to the Effective Time (other than any Shares
held by the Purchaser, the Parent or any direct or indirect wholly owned
subsidiary of the Parent or the Company, which will be canceled and retired
without any conversion thereof and no payment or distribution shall be made with
respect thereto, or Shares that are owned by stockholders, if any, who are
entitled to and who properly exercise dissenter's rights under the DGCL) shall
be canceled and shall be converted automatically into the right to receive an
amount equal to the Merger Consideration, payable, without interest, to the
holder of such Shares, upon surrender in accordance with the Merger Agreement,
of the certificate that formerly evidenced such Shares. In addition, at the
Effective Time, each share of common stock of the Purchaser issued and
outstanding immediately prior to the Effective Time will be converted into and
exchanged for one validly issued, fully paid and nonassessable share of Common
Stock, $.0025 par value, of the Surviving Corporation.
The Merger Agreement provides that each outstanding option to purchase
Shares granted under the Company Stock Option Plans (as defined in the Merger
Agreement) or otherwise will be canceled at the Effective Time, and each holder
of a canceled option (whether issued pursuant to a Company Stock Option Plan or
otherwise) will be entitled to receive, at the Effective Time or as soon as
practicable thereafter, from
16
<PAGE> 20
the Company, in consideration for the cancellation of such option, an amount in
cash equal to the product of (i) the number of Shares previously subject to such
option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such option.
The Merger Agreement provides that the Certificate of Incorporation of the
Purchaser, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation of the Surviving Corporation, and that the By-Laws
of the Purchaser, as in effect immediately prior to the Effective Time, will be
the By-Laws of the Surviving Corporation, in each case, until amended in
accordance with applicable law. The Merger Agreement also provides that the
directors of the Purchaser immediately prior to the Effective Time will be the
initial directors of the Surviving Corporation and that the officers of the
Purchaser immediately prior to the Effective Time will be the initial officers
of the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
Special Stockholders' Meeting. Immediately after the expiration of the
Offer, subject to the conditions thereof, if at least a majority of the
outstanding shares on a fully-diluted basis have been tendered in the Offer and
not withdrawn, unless the Purchaser is able to conduct a "short-form" merger
without stockholder approval under the DGCL, then the Purchaser will purchase
all Shares tendered pursuant to the Offer and the Company will promptly, in
accordance with applicable law and its Certificate of Incorporation and Bylaws,
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders as soon as practicable following the expiration of the Offer for
the purpose of considering and taking action on the Merger Agreement and the
Transactions (the "Special Stockholders' Meeting") and (ii) subject to certain
provisions of the Merger Agreement, (a) include in the proxy statement to be
prepared in connection with such meeting (the "Proxy Statement") the unanimous
recommendation of the Board of Directors of the Company that the stockholders of
the Company approve and adopt the Merger Agreement and the Transactions,
including without limitation, the Merger and (b) use its best efforts to obtain
such approval and adoption.
Proxy Statement. The Merger Agreement provides that, as soon as
practicable following the date of the consummation of the Offer, the Company
will file the Proxy Statement with the Commission under the Exchange Act, unless
not required under the applicable "short-form" merger provisions of the DGCL,
and the Company will use its best efforts to have the Proxy Statement cleared by
the Commission. The parties will cooperate with one another in this endeavor.
Access to Information; Confidentiality. Pursuant to the Merger Agreement,
from the date of the Merger Agreement to the Effective Time, the Company will,
and will cause the Company's subsidiaries (the "Subsidiaries") and the officers,
directors, employees, auditors and other agents of the Company and the
Subsidiaries to, afford the officers, employees and agents of the Parent and the
Purchaser access at all reasonable times to the officers, employees, agents,
properties, offices, plants and other facilities, books and records of the
Company and each Subsidiary, will instruct its independent auditors to make
available its accountants' work papers to the officers, employees or agents of
the Parent and the Purchaser, and will furnish the Parent and the Purchaser with
all financial, operating and other data and information as the Parent or the
Purchaser, through its officers, employees or agents, may reasonably request.
All information obtained by the Parent or the Purchaser pursuant to the above
sentence will be kept confidential in accordance with the amended
Confidentiality Agreement between the Parent and the Company, a copy of which is
filed with the Commission as an exhibit to the Tender Offer Statement.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to the Parent and the
Purchaser with respect to, among other things, its organization and
qualification, the Subsidiaries, capitalization, authority, required filings and
consents, compliance with law, financial statements, the absence of certain
changes or events concerning the Company or any of the Subsidiaries since
December 31, 1998, the absence of litigation, employee benefit plans, labor
matters, information in the Tender Offer Statement, this Offer to Purchase and
such other documents, together with all supplements and amendments thereto
(collectively, the "Offer Documents"), the Schedule 14D-9 and the Proxy
Statement, real property matters, intellectual property matters, taxes,
environmental matters, material contracts, brokers and counsel, Year 2000
compliance and certain other matters. The Parent and the Purchaser have made
customary representations and warranties to the Company with respect to,
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among other things, their organization, authority, no conflicts, required
filings and consents, financing for the Offer, information in the Offer
Documents and the Proxy Statement, and brokers.
Conduct of Business by the Company. Pursuant to the Merger Agreement, the
Company has agreed that, from the date of the Merger Agreement to the Effective
Time, unless the Parent shall otherwise agree in writing, the business of the
Company and the Subsidiaries will be conducted only in, and the Company and the
Subsidiaries will not take any action except in, the ordinary course of business
and in a manner consistent with past practice; and the Company will use its best
efforts to preserve substantially intact the business organization of the
Company and the Subsidiaries, to keep available the services of the current
officers, employees and consultants of the Company and the Subsidiaries and to
preserve the current relationships of the Company and the Subsidiaries with
customers, suppliers and other persons with which the Company or any Subsidiary
has significant business relationships.
Pursuant to the Merger Agreement, neither the Company nor any Subsidiary
will, from the date of the Merger Agreement to the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of the Parent: (i) amend its Certificate of Incorporation or Bylaws or
equivalent organizational documents; (ii) issue, sell, pledge, dispose of,
grant, encumber, or authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (a) any shares of capital stock of any class of the Company or
any Subsidiary or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any Subsidiary (except for the issuance of a maximum of 994,502 Shares
issuable pursuant to stock options outstanding or any rights to purchase Shares
under the Company's 1995 Employee Stock Purchase Plan in effect on the date of
the Merger Agreement) or (b) any assets of the Company, any Subsidiary, except
for sales in the ordinary course of business and in a manner consistent with
past practice; (iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock; (iv) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(v)(1) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets or any other business combination) another entity
or any assets, (2) incur indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, pledge in respect of or otherwise as
an accommodation become responsible for the obligations of any person, or make
loans or advances, except in the ordinary course of business consistent with
past practice, but in no event shall there be more than $1,000,000 of
indebtedness outstanding at one time in addition to the total amount of
indebtedness outstanding as of the date of the Merger Agreement, (3) enter into
any contract or agreement other than purchases of inventory in the ordinary
course of business or contracts or agreements entered into in the ordinary
course of business consistent with past practice and which require payments by
the Company or the Subsidiaries in an aggregate amount of less than $100,000,
(4) terminate, cancel or permit any change in, or agree to any change in, any
Material Contract (as defined in the Merger Agreement), except in the ordinary
course of business consistent with past practice, (5) terminate, cancel or
permit any change in, or agree to any change in, any Affiliate Contract, Broker
Agreement or Attorney Engagement (as defined in the Merger Agreement), (6)
authorize any single capital expenditure which is above specified dollar
thresholds, or (7) enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subparagraph (v); (vi)
increase the compensation of, or grant any severance or termination pay to,
directors, officers and employees (except for normal compensation increases
consistent with past practice for employees who are not officers); (vii) change
accounting policies or practices; (viii) make any tax election or settle or
compromise any material federal, state, local or foreign income tax liability;
(ix) pay, discharge or satisfy any claim, liability or obligation; or (x)
announce an intention, enter into any formal or informal agreement, or otherwise
make a commitment to do any of the foregoing.
No Solicitation of Transactions. Pursuant to the Merger Agreement, neither
the Company nor any Subsidiary shall, directly or indirectly, through any
officer, director, agent or otherwise, solicit, initiate or encourage the
submission of any proposal or offer from any person relating to the acquisition
or purchase of all or any material portion of the assets of, or any equity
interest in, the Company or any Subsidiary or any merger, consolidation,
business combination, reorganization, recapitalization or similar transaction
involving
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<PAGE> 22
the Company or any Subsidiary (each a "Competing Transaction") or participate in
any discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Company and each of the
Subsidiaries will cease and cause to be terminated any existing activities,
discussions or negotiations by or on its behalf with any other person conducted
prior to the execution of the Merger Agreement with respect to any Competing
Transaction and will promptly notify the Parent following receipt of any request
by any person relating to any possible Competing Transaction or information
concerning the Company. The Company agreed that it will not disclose any of the
terms of the Merger Agreement or the matters referred to therein to any other
prospective acquiror of the Company until the Effective Time or earlier if the
Merger Agreement is terminated in accordance with its terms, except to the
extent such disclosure is required by law or the regulations of Nasdaq. Nothing
contained in the Merger Agreement shall prohibit the Board of Directors of the
Company from furnishing information to, or entering into discussions or
negotiations with, any person in connection with an unsolicited (from the date
of the Merger Agreement) proposal involving a fully-financed (as represented by
such person) Competing Transaction which is made in writing by such person and
which, if consummated, would provide consideration per Share to the stockholders
of the Company in excess of the Offer Price (a "Superior Proposal"), if, and
only to the extent that, the Board of Directors of the Company determines in
good faith, based upon the advice of the SG Cowen Securities Corporation and the
written advice of its counsel, that such action is required for the Board of
Directors of the Company to comply with its fiduciary duties to stockholders
under the DGCL.
Employee Benefits Matters. The Merger Agreement provides that for a period
of one year from the Effective Time, the Parent shall, or shall cause the
Company or the Surviving Corporation to, maintain the Plans (as defined in the
Merger Agreement) (other than the Company Stock Option Plans and the Company's
1995 Employee Stock Purchase Plan and 1999 Key Employees Stock Ownership Plan)
which the Company maintains for the benefit of, or which are open to, a majority
of the employees of the Company on the terms in effect on the date of the Merger
Agreement, or such other plans, arrangements or programs as will provide
employees with benefits that in the aggregate are substantially equivalent to
those provided under the Plans (other than the Company Stock Option Plans and
the Company's 1995 Employee Stock Purchase Plan and 1999 Key Employees Stock
Ownership Plan) as in effect on the date of the Merger Agreement. In addition,
the Parent shall, or shall cause the Company or the Surviving Corporation to,
assume and agree to perform certain agreements and policies in the same manner
and to the same extent that the Company is required to perform such agreements
and policies.
Directors' and Officers' Indemnification and Insurance. The Merger
Agreement provides that the Articles of Incorporation and Bylaws of the
Surviving Corporation must contain provisions no less favorable with respect to
indemnification than are set forth in the Bylaws of the Company and these
provisions may not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time, were directors,
officers, employees, fiduciaries or agents of the Company, unless such
modification shall be required by law.
The Merger Agreement provides that the Company agrees, to the extent
permitted by Delaware Law, to indemnify and hold harmless, and, after the
Effective Time, the Surviving Corporation agrees to indemnify and hold harmless,
to the extent permitted by Delaware Law, each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against any costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Effective Time, for a period of six years after the date of the Merger
Agreement. In the event of such claim, action, suit, proceeding or
investigation, (a) the Company or the Surviving Corporation, as the case may be,
shall pay the reasonable fees and expenses of counsel selected by the
Indemnified Parties, which counsel shall be reasonably satisfactory to the
Company or the Surviving Corporation, promptly after statements therefor are
received and (b) the Company and the
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<PAGE> 23
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that neither the Company nor the Surviving Corporation shall
be liable for any settlement effected without its written consent (which consent
will not be unreasonably withheld); provided further that neither the Company
nor the Surviving Corporation shall be obligated to pay the fees and expenses of
more than one counsel for all Indemnified Parties in any single action except to
the extent that two or more of such Indemnified Parties shall have conflicting
interests in the outcome of the action; and provided further that, in the event
that any claim for indemnification is asserted or made within such six-year
period, all rights to indemnification in respect of such claim shall continue
until the disposition of such claim.
The Merger Agreement provides that the Surviving Corporation shall use its
best efforts to maintain in effect for six years from the Effective Time, if
available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable) with respect to matters
occurring on or prior to the Effective Time; provided, however, that in no event
shall the Surviving Corporation be required to expend more than an amount per
year equal to 150% of current annual premiums paid by the Company for such
insurance, which amount shall be increased by 5% for each year hereafter. The
Merger Agreement requires that any successor corporation or assignee of the
Company or the Surviving Corporation assume these insurance and indemnification
obligations.
Board Representation. The Merger Agreement provides that after the
purchase by the Purchaser of Shares pursuant to the Offer, the Parent will be
entitled to designate at its option up to that number of directors of the
Company's Board of Directors as will make the Parent's representation on the
Company's Board of Directors equal to the percentage of the outstanding Shares
held by the Parent or any of its subsidiaries and the Company shall, at such
time, increase the size of Board of Directors, or use its best efforts to secure
the resignation of directors, or both, as necessary to permit the Parent's
designees to be so elected to the Company's Board of Directors. However, in the
event that the Parent's designees are elected to the Board of Directors of the
Company, until the Effective Time, such Board of Directors shall have at least
two directors who are Continuing Directors. "Continuing Directors" means
directors of the Company on the date of the Merger Agreement. From and after the
time that the Parent's designees constitute a majority of the Board and prior to
the Effective Time, any amendment or termination of the Merger Agreement, any
extension of time for the performance of the obligations of the Purchaser or the
Parent, any waiver of rights of the Company under the Merger Agreement and
certain other actions may only be effected by the action of a majority of the
Continuing Directors.
Waiver. The Merger Agreement provides that, at any time prior to the
Effective Time, any party thereto may (i) extend the time for the performance of
any obligation or other act of any other party thereto, (ii) waive any
inaccuracy in the representations and warranties contained therein or in any
document delivered pursuant thereto and (iii) waive compliance with any
agreement or condition contained therein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
Conditions to the Merger. The Merger Agreement provides that if the
conditions set forth in Section 15 have been satisfied or, where permitted,
waived, the respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions: (i) the Merger Agreement and the Transactions, including, without
limitation, the Merger, shall have been approved and adopted by the affirmative
vote of the stockholders of the Company (unless the vote of stockholders is not
required by the DGCL); (ii) no foreign, United States or state governmental
authority, agency or commission shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order which is then in effect and has the effect of making
the acquisition of Shares by the Parent or the Purchaser or any affiliate of
either of them or the consummation of the Merger illegal or otherwise
restricting, preventing or prohibiting the consummation of the Transactions;
(iii) the Purchaser shall have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer; provided, however, that this condition shall
only be applicable to the obligations of the Parent and the Purchaser if the
Purchaser's failure to purchase such Shares is not in breach of the Merger
Agreement or the terms of the Offer; and (iv) any waiting period applicable to
the consummation of the Merger under the Hart-Scott-Rodino Antitrust
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<PAGE> 24
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") shall have expired or been terminated, and
consummation of the Merger shall not result in a violation of any applicable
material foreign antitrust or competition law, rule or regulation.
Termination. The Merger Agreement provides that it may be terminated and
the Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the stockholders
of the Company:
(i) By mutual written consent duly authorized by the Boards of
Directors of the Parent, the Purchaser and the Company; or
(ii) By the Parent, the Purchaser or the Company if (a) the Effective
Time shall not have occurred on or before December 31, 1999; provided,
however, that the right to terminate the Merger Agreement under this
section shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date or
(b) any court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree, ruling or taken
any other action restraining, enjoining or otherwise prohibiting the Offer
or the Merger and such order, decree, ruling or other action shall have
become final and nonappealable; or
(iii) By the Parent, upon approval of its Board of Directors, if (a)
due to an occurrence or circumstance that would result in a failure to
satisfy any of the conditions set forth in Section 15, the Purchaser shall
have (1) failed to commence the Offer within 60 days following the date of
the Merger Agreement, (2) terminated the Offer without having accepted any
Shares for payment thereunder or (3) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer unless
such action or inaction under (1), (2) or (3) shall have been caused by or
resulted from the failure of the Parent or the Purchaser to perform in any
material respect any covenant or agreement of either of them contained in
the Merger Agreement or the material breach by the Parent or the Purchaser
of any representation or warranty of either of them contained in this
Agreement or (b) prior to the purchase of Shares pursuant to the Offer, the
Board of Directors of the Company or any committee thereof shall have
publicly withdrawn or modified in a manner adverse to the Purchaser or the
Parent or, after receipt of a proposal involving a Competing Transaction,
upon the request of the Parent, shall not have, within four business days
after receipt of the Parent's request, publicly reaffirmed its approval or
recommendation of the Offer, the Merger Agreement, the Merger, the
Stockholder Agreements or any other Transaction, or shall have recommended
another merger, consolidation, business combination, recapitalization,
reorganization or similar transaction involving, or acquisition of, the
Company or its assets, or another tender offer or exchange offer for
Shares, or shall have resolved to do any of the foregoing; or
(iv) By the Parent, upon approval of its Board of Directors, if the
Company shall have materially breached its obligations discussed under "No
Solicitation of Transactions" above; or
(v) By the Company, upon approval of the Board of Directors of the
Company, if Parent or Purchaser shall materially breach any of its
obligations under the Merger Agreement and shall fail to cure such breach
within ten days after written notice thereof from the Company or if due to
an occurrence or circumstance that would result in a failure to satisfy any
of the conditions set forth in Section 15, the Purchaser shall have (a)
failed to commence the Offer within 60 days following the date of the
Merger Agreement, (b) terminated the Offer without having accepted any
Shares for payment thereunder or (c) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer; unless
such action or inaction under (a), (b) and (c) shall have been caused by or
resulted from the failure of the Company to perform in any material respect
any covenant or agreement of it contained in the Merger Agreement or the
material breach by the Company of any representation or warranty of it
contained in the Merger Agreement; or
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<PAGE> 25
(vi) By the Company or the Parent, prior to the purchase of Shares
pursuant to the Offer, if the Board of Directors of the Company, in full
compliance with the provisions discussed in "No Solicitation of
Transactions" above, shall have approved the execution by the Company of a
definitive agreement relating to a Superior Proposal.
Effect of Termination. In the event of the termination of the Merger
Agreement pursuant to the foregoing, the Merger Agreement will then become void,
and there will be no liability on the part of any party thereto, except as set
forth in Sections 8.03 (Fees and Expenses) and 9.01 (Non-Survival of
Representations and Warranties) of the Merger Agreement. This, however, will not
relieve any party from liability for any breach of the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that in the event that
(a) any person shall have commenced a tender or exchange offer for 25% or more
(or which, assuming the maximum amount of securities which could be purchased,
would result in any person beneficially owning 25% or more) of the then
outstanding Shares or otherwise publicly announced a Competing Transaction for
the direct or indirect acquisition of the Company or all or substantially all of
its assets and (1) the Board of Directors of the Company does not recommend
against the Competing Transaction, (2) the Offer shall have remained open for at
least 20 business days, (3) the Minimum Condition shall not have been satisfied
and (4) the Merger Agreement shall have been terminated; or (b) the Merger
Agreement is terminated pursuant to clauses (iii)(b), (iv) or (vi) under
"Termination" above; then, in any such event, the Company shall pay the Parent
promptly (but in no event later than one business day after the first of such
events shall have occurred) a fee of $2,500,000, in immediately available funds.
The Merger Agreement provides that all costs and expenses incurred in
connection with the Merger Agreement and the Transactions shall be paid by the
party incurring such expenses, whether or not any Transaction is consummated.
(B) THE STOCKHOLDER AGREEMENTS.
Each of the Stockholders of the Company listed on Schedule I to the Merger
Agreement, including all directors and executive officers of the Company, has
entered into a Stockholder Agreement with the Parent and the Purchaser.
Agreement to Tender. Pursuant to the Stockholder Agreements, each
Stockholder will tender all Shares beneficially owned by it pursuant to the
Offer within 10 business days of commencement of the Offer.
Voting and Irrevocable Proxy. Pursuant to the Stockholder Agreements, each
Stockholder will (i) vote all Shares beneficially owned by it in favor of the
Merger, (ii) vote all Shares beneficially owned by it against any action or
agreement that would result in a breach of any covenant or any representation or
warranty or any other obligation or agreement of the Company under or pursuant
to the Merger Agreement, (iii) vote all Shares beneficially owned by it against
any action or agreement that would impede, interfere with, delay, postpone or
attempt to discourage the Merger or the Offer, and (iv) without limiting the
foregoing, consult with the Parent and vote all Shares beneficially owned by it
in such manner as is determined by the Parent to be in compliance with this
paragraph. Pursuant to the Stockholder Agreements, each Stockholder will deliver
to the Parent contemporaneously with the execution of the Stockholder Agreement
an Irrevocable Proxy pursuant to which each Stockholder irrevocably appoints and
constitutes Wallace K. Tsuha, Jr., Jereen G. Trudell and the Parent to exercise
the proxy to vote the Shares in the foregoing manner at any time until the
earlier to occur of the valid termination of the Merger Agreement or the
Effective Time.
Termination. The Stockholder Agreements provide that they will terminate
on the earliest to occur of (a) the date on which the Purchaser accepts for
payment the Shares tendered in the Offer, so long as the Shares are so tendered
and not withdrawn, (b) the Effective Time and (c) the date of the termination of
the Merger Agreement in accordance with its terms. The Purchaser shall not
purchase the Shares subject to the Stockholder Agreements pursuant to the Offer
unless the Purchaser purchases pursuant to the Offer that number of Shares such
that the Minimum Condition is satisfied.
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Certain Covenants of Stockholder. Pursuant to the Stockholder Agreements,
each Stockholder agrees not to: (a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares; (b) grant any proxies,
deposit any Shares into a voting trust or enter into a voting agreement with
respect to any Shares; or (c) directly or indirectly through any agent or
otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person (other than the Parent or the Purchaser) relating to any
Competing Transaction, or participate in any discussions or negotiations
regarding, or furnish to any other person any information with respect to, or
otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any person (other than the Parent and the
Purchaser) to do or seek any of the foregoing. Pursuant to the Stockholder
Agreements, each Stockholder has agreed to cease and cause to be terminated any
existing activities, discussions or negotiations by or on its behalf with any
person (other than the Parent and the Purchaser) conducted prior to entering
into such agreement with respect to any Competing Transaction and agreed to
promptly notify the Parent following receipt of any request by any person (other
than the Parent or the Purchaser) relating to any possible Competing Transaction
or information concerning the Company. The Stockholder Agreements provide that
the Stockholder may, solely in his or her capacity as a member of the Board of
Directors of the Company, furnish information to, or enter into discussions or
negotiations with, any person in connection with an unsolicited proposal
involving a fully-financed (as represented by such person) Competing Transaction
which is made in writing by such person and which, if consummated, would provide
consideration per share of Common Stock to the stockholders of the Company in
excess of the Offer Price if, and only to the extent that, the Board of
Directors of the Company determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of its counsel, that such
action is required for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under the DGCL.
(C) APPRAISAL RIGHTS
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company will
have certain rights under the DGCL to dissent and demand appraisal of, and to
receive payment in cash for the fair value of, their Shares. Such rights to
dissent, if the stockholder does not vote in favor of the Merger and complies
with certain statutory procedures, could lead to a judicial determination of the
fair value of the Shares (excluding any element of value arising from the
accomplishment or expectation of the Merger) required to be paid in cash to such
dissenting holders for their Shares. Such value could be less than, equal to, or
more than the Offer Price. In addition, such dissenting stockholders may be
entitled to receive payment of interest from the date of consummation of the
Merger on the amount determined to be the fair value of their Shares. In
determining the fair value of the Shares, a Delaware court would be required to
take into account all relevant factors. Accordingly, such determination could be
based upon considerations other than, or in addition to, the market value of the
Shares, including, among other things, asset values and earning capacity.
(D) RULE 13E-3
The Commission has adopted Rule 13e-3 under the Exchange Act that is
applicable to certain "going private" transactions and that may under certain
circumstances be applicable to the Merger following the purchase of Shares
pursuant to the Offer in which the Purchaser seeks to acquire any remaining
Shares. Rule 13e-3 should not be applicable to the Merger if the Merger is
consummated within one year after the expiration or termination of the Offer and
the price paid in the Merger is not less than the price per Share paid pursuant
to the Offer. However, in the event that the Purchaser is deemed to have
acquired control of the Company pursuant to the Offer and if the Merger is
consummated more than one year after completion of the Offer or an alternative
acquisition transaction is effected whereby stockholders of the Company receive
consideration less than that paid pursuant to the Offer, in either case at a
time when the Shares are still registered under the Exchange Act, the Purchaser
may be required to comply with Rule 13e-3 under the Exchange Act. If applicable,
Rule 13e-3 would require, among other things, that certain financial information
concerning the Company and certain information relating to the fairness of the
Merger or such alternative transaction and the consideration offered to minority
stockholders in the Merger or such alternative
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<PAGE> 27
transaction, be filed with the Commission and disclosed to stockholders prior to
consummation of the Merger or such alternative transaction. The purchase of a
substantial number of Shares pursuant to the Offer may result in the Company
being able to terminate its Exchange Act registration. See Section 7. If such
registration were terminated, Rule 13e-3 would be inapplicable to any such
future Merger or such alternative transaction.
13. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY
Purpose of the Offer. The purpose of the Offer and the Merger is to enable
the Parent to acquire control of, and the entire equity interest in, the
Company. The Offer, as the first step in the acquisition of the Company, is
intended to facilitate the acquisition of all the Shares. The Parent will
consummate the Merger as soon as practicable following the consummation of the
Offer. The purpose of the Merger is to acquire all Shares not purchased pursuant
to the Offer or otherwise.
Plans for the Company. It is expected that, initially following the
Merger, the business and operations of the Company and its Subsidiaries will
continue without substantial change. The Parent intends to conduct a detailed
review of the Company and its Subsidiaries and their assets, corporate
structure, operations, properties, policies, management and personnel and to
consider, subject to the terms of the Merger Agreement, what, if any, changes
would be desirable in light of the circumstances then existing. The Parent
reserves the right to take such actions and make such changes as it deems
desirable. Such changes could include changes in the Company's business,
corporate structure, capitalization, dividend policy, Board of Directors or
management or personnel.
Except as otherwise described in this Offer to Purchase, the Purchaser and
the Parent have no current, definite plans or proposals that would relate to, or
result in, any extraordinary corporate transaction involving the Company, such
as a merger, reorganization or liquidation involving the Company or any of its
Subsidiaries, a sale or transfer of a material amount of assets of the Company
or any of its Subsidiaries, any change in the Company's capitalization or
dividend policy or any other material change in the Company's business,
corporate structure, present Board of Directors or management or personnel.
The Merger Agreement provides that the directors of the Purchaser, at the
effective time of the Merger, will be the initial directors of the Company after
the Merger. For the potential effects of the Offer and the Merger on the listing
of the Shares on Nasdaq and their registration under the Exchange Act, see
Section 7.
14. DIVIDENDS AND DISTRIBUTIONS
The Merger Agreement provides that, prior to the Effective Time, without
the prior written consent of the Parent, neither the Company nor any Subsidiary
of the Company will directly or indirectly do, or propose to do, any of the
following: (i) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (a) any shares
of capital stock of any class of the Company or any Subsidiary, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any Subsidiary
(except for the issuance of a maximum of 994,502 Shares issuable pursuant to
stock options outstanding on the date of the Merger Agreement and to the
issuance of shares pursuant to the Company's Employee Stock Purchase Plan) or
(b) any assets of the Company or any Subsidiary, except for sales in the
ordinary course of business and in a manner consistent with past practice; or
(ii) declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital stock.
15. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or the Merger Agreement, the
Purchaser shall not be required to accept for payment or, subject to any
applicable rules and regulations of the Commission, including Rule 14e-1(c)
under the Exchange Act (relating to the Purchaser's obligation to pay for or
return tendered Shares after the termination or withdrawal of the Offer), to pay
for any Shares tendered pursuant to the Offer if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under
24
<PAGE> 28
the HSR Act shall not have expired or been terminated prior to the expiration of
the Offer, (iii) acceptance for payment and payment for the Shares tendered
would result in a violation of any applicable material foreign antitrust or
competition law, rule or regulation, or (iv) at any time on or after the date of
the Merger Agreement and prior to the expiration of the Offer, any of the
following conditions exist:
(a) there shall have been entered any order, preliminary or permanent
injunction, decree, judgment or ruling in any action or proceeding before
any court or governmental, administrative or regulatory authority or
agency, which makes illegal or otherwise directly or indirectly restrains
or prohibits or makes materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares by the Parent, the
Purchaser or any other affiliate of the Parent, or the consummation of any
other transaction contemplated by the Merger Agreement;
(b) there shall have occurred any Material Adverse Effect (as defined
in the Merger Agreement) with respect to the Company;
(c) (i) the Board of Directors of the Company or any committee thereof
(x) shall have publicly withdrawn or modified in a manner adverse to the
Parent or the Purchaser the approval or recommendation of the Offer, the
Merger, the Stockholder Agreements or the Merger Agreement, (y) after the
Company's receipt of a proposal involving a Competing Transaction (as
defined in the Merger Agreement), shall have failed to reaffirm such
approval or recommendation upon request by the Parent within four business
days after the Company's receipt of Parent's request or (z) shall have
approved or recommended any takeover proposal or any other acquisition of
Shares other than the Offer and the Merger, or (ii) the Board of Directors
of the Company or any committee thereof shall have resolved to do any of
the foregoing;
(d) there shall have been any breach of warranty by the Company in the
Merger Agreement as a result of which, individually or in the aggregate,
there may reasonably be expected to occur a Material Adverse Effect with
respect to the Company;
(e) the Company shall have failed to perform in any material respect
any obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or complied
with by it under the Agreement;
(f) the Merger Agreement shall been terminated in accordance with its
terms; or
(g) the Purchaser and the Company shall have agreed (i) that the
Purchaser shall terminate the Offer or (ii) that the Purchaser shall
postpone the acceptance for payment of or payment for Shares thereunder
which, in the sole judgment of the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by the
Parent or any of its affiliates) giving rise to any such condition, makes
it inadvisable to proceed with such acceptance for payment or payment.
The Merger Agreement provides that the foregoing conditions are for the
sole benefit of the Purchaser and the Parent and may be asserted by the
Purchaser or the Parent regardless of the circumstances giving rise to any such
condition or may be waived by the Purchaser or the Parent in whole or in part at
any time and from time to time in their sole discretion. The Merger Agreement
provides that the failure by the Parent or the Purchaser at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right, the
waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
16. CERTAIN LEGAL MATTERS
Based on a review of publicly available filings made by the Company with
the Commission and other publicly available information concerning the Company,
neither the Purchaser nor the Parent is aware of any license or regulatory
permit that appears to be material to the business of the Company and its
subsidiaries, taken as a whole, that might be adversely affected by the
Purchaser's acquisition of Shares as contemplated herein or of any approval or
other action, except as otherwise described in this Section 16, by any
25
<PAGE> 29
governmental, administrative or regulatory agency or authority, domestic,
foreign or supernational, that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser and the Parent currently
contemplate that such approval or other action will be sought, except as
described below under "State Takeover Laws." While, except as otherwise
expressly described in this Section 16, the Purchaser does not presently intend
to delay the acceptance for payment of or payment for Shares tendered pursuant
to the Offer pending the outcome of any such matter, there can be no assurance
that any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of if such approvals were not obtained or such other actions
were not taken in order to obtain any such approval or other action. If certain
types of adverse action are taken with respect to the matters discussed below,
the Purchaser could, subject to the terms and conditions of the Merger
Agreement, decline to accept for payment or pay for any Shares tendered. See
Section 15 for certain conditions to the Offer.
State Takeover Laws. The Company is incorporated under the laws of the
State of Delaware. No Delaware takeover statute or similar statute or
regulation, including, without limitation, Section 203 the DGCL which the
Company has taken all action to render inapplicable to the Transactions, imposes
restrictions materially adversely affecting (or materially delaying) the
consummation of the Offer or the Merger or would, as a result of the Offer, the
Merger, the Transactions or the acquisition of securities of the Company by the
Parent or the Purchaser, (A) restrict or impair the ability of the Parent to
vote, or otherwise to exercise the rights of a stockholder with respect to,
securities of the Company or the Surviving Corporation that may be acquired or
controlled by the Parent or (B) entitle any stockholder to acquire securities of
the Company or the Surviving Corporation on a basis not available to the Parent.
A number of states throughout the United States have enacted takeover
statutes that purport, in varying degrees, to be applicable to attempts to
acquire securities of corporations that are incorporated or have assets,
stockholders, executive offices or places of business in such states. In Edgar
v. MITE Corp., the Supreme Court of the United States held that the Illinois
Business Takeover Act, which involved state securities laws that made the
takeover of certain corporations more difficult, imposed a substantial burden on
interstate commerce and therefore was unconstitutional. In CTS Corp. v. Dynamics
Corp. of America, however, the Supreme Court of the United States held that a
state may, as a matter of corporate law, and, in particular, those laws
concerning corporate governance, constitutionally disqualify a potential
acquiror from voting on the affairs of a target corporation without prior
approval of the remaining stockholders; provided that such laws were applicable
only under certain conditions. Subsequently, a number of Federal courts ruled
that various state takeover statutes were unconstitutional insofar as they apply
to corporations incorporated outside the state of enactment.
Based on information supplied by the Company and its own review, the Parent
and the Purchaser do not believe that any other state takeover statutes purport
to apply to the Offer or the Merger. Neither the Purchaser nor the Parent has
currently complied with any state takeover statute or regulation. The Purchaser
reserves the right to challenge the applicability or validity of any state law
purportedly applicable to the Offer or the Merger and nothing in this Offer to
Purchase or any action taken in connection with the Offer or the Merger is
intended as a waiver of such right. If it is asserted that any state takeover
statute is applicable to the Offer or the Merger and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer or the
Merger, the Purchaser might be required to file certain information with, or to
receive approvals from, the relevant state authorities, and the Purchaser might
be unable to accept for payment or pay for Shares tendered pursuant to the
Offer, or be delayed in consummating the Offer or the Merger. In such case, the
Purchaser may not be obligated to accept for payment or pay for any Shares
tendered pursuant to the Offer. See Section 15.
U.S. Antitrust. Under the provisions of the HSR Act applicable to the
Offer, the acquisition of Shares under the Offer may be consummated following
the expiration of a 15-day waiting period following the filing by Parent of a
Premerger Notification and Report Form with respect to the Offer, unless Parent
receives a request for additional information or documentary material from the
Department of Justice, Antitrust Division
26
<PAGE> 30
(the "Antitrust Division") or the Federal Trade Commission ("FTC") or unless
early termination of the waiting period is granted. Parent expects to make such
a filing on July 15, 1999. If, within the initial 15-day waiting period, either
the Antitrust Division or the FTC requests additional information or documentary
material concerning the Offer, then the waiting period will be extended through
the tenth day after the date of substantial compliance by all parties receiving
such requests. Complying with a request for additional information or
documentary material can take a significant amount of time.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed acquisition
of the Company. At any time before or after the Purchaser's acquisition of
Shares pursuant to the Offer, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the purchase of Shares pursuant to the
Offer or the consummation of the Merger, or seeking the divestiture of Shares
acquired by the Purchaser or the divestiture of substantial assets of the
Company or its Subsidiaries or Parent or its subsidiaries. Private parties may
also bring legal action under the antitrust laws under certain circumstances.
There can be no assurance that a challenge to the Offer, the consummation of the
Merger, or the sale of the Shares on antitrust grounds will not be made, or, if
such a challenge is made, of the result thereof.
If any applicable waiting period under the HSR Act applicable to the Offer
has not expired or been terminated prior to the Expiration Date, the Purchaser
will not be obligated to proceed with the Offer or the purchase of any Shares
not theretofore purchased pursuant to the Offer. See Section 15.
At any time before or after the Purchaser's purchase of Shares pursuant to
the Offer, an antitrust enforcement agency in jurisdictions other than the
United States could take such action under the applicable antitrust laws, if
any, as it deems necessary or desirable in the public interest. Private parties
may also be able to bring legal action under such antitrust laws under certain
circumstances. There can be no assurance that a challenge to the Offer on such
antitrust grounds will not be made or, if such a challenge is made, of the
results thereof.
17. FEES AND EXPENSES
The Purchaser has retained Georgeson Shareholder Communications Inc. to act
as the Information Agent and BankBoston, N.A., to serve as the Depositary in
connection with the Offer. The Information Agent and the Depositary each will
receive reasonable and customary compensation for their services, be reimbursed
for certain reasonable out-of-pocket expenses and be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
under the Federal securities laws.
Neither the Purchaser nor the Parent will pay any fees or commissions to
any broker or dealer or other person (other than the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by the
Purchaser upon request for customary mailing and handling expenses incurred by
them in forwarding material to their customers.
18. MISCELLANEOUS
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. Neither the Purchaser nor the Parent is aware of any jurisdiction
in which the making of the Offer or the tender of Shares in connection therewith
would not be in compliance with the laws of such jurisdiction. To the extent the
Purchaser or the Parent becomes aware of any state law that would limit the
class of offerees in the Offer, the Purchaser will amend the Offer and,
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to holders of Shares prior to
the expiration of the Offer. In any jurisdiction where securities or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of the Purchaser by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
27
<PAGE> 31
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR THE PARENT NOT CONTAINED HEREIN OR
IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Purchaser or the Parent has filed with the Commission the Tender Offer
Statement pursuant to Rule 14d-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer. In addition, the Company has
filed with the Commission the Schedule 14D-9 pursuant to Rule 14d-9 under the
Exchange Act setting forth its recommendation with respect to the Offer and the
reasons for such recommendation and furnishing certain additional related
information. Such Schedules and any amendments thereto, including exhibits,
should be available for inspection and copies should be obtainable in the manner
set forth in Sections 8 and 9 (except that they will not be available at the
regional offices of the Commission).
SSI ACQUISITION CORP.
July 14, 1999
28
<PAGE> 32
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND THE PARENT
1. GENERAL. SSI Acquisition Corp., a Delaware corporation (the
"Purchaser"), is a wholly owned subsidiary of Saturn Electronics & Engineering,
Inc., a Michigan corporation (the "Parent"). Information with regard to the
directors and executive officers of the Parent and the Purchaser is set forth in
Items 2 and 3 below, respectively. The principal address and current business
address for each of the entities described in this Item 1 is c/o Saturn
Electronics & Engineering, Inc., 255 Rex Boulevard, Auburn Hills, Michigan
48366.
2. DIRECTORS AND EXECUTIVE OFFICERS OF SATURN ELECTRONICS & ENGINEERING,
INC. The name, business address, present principal occupation or employment and
five-year employment history of each of the directors and executive officers of
the Parent are set forth below. Unless otherwise indicated, the business address
of each such director and each such executive officer is c/o Saturn Electronics
& Engineering, Inc., 255 Rex Boulevard, Auburn Hills, Michigan 48326. All
executive officers listed below are citizens of the United States.
<TABLE>
<CAPTION>
POSITION WITH THE PARENT; PRINCIPAL
OCCUPATION OR EMPLOYMENT;
NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY
------------------------- -----------------------------------
<S> <C>
Wallace K. Tsuha, Jr. Chief Executive Officer (1995 to present),
President (1985 to March 1995; December 1995
to present) and Chairman of the Board (1985
to present).
Donald J. Cowie Chief Financial Officer, Executive Vice
President, Treasurer and Assistant Secretary
(1996 to present). Group Vice President --
OEM of International Jensen Incorporated
(1993 to 1995).
Nick Najmolhoda Executive Vice President of Operations (1996
to present). Vice President of Electro
Mechanical of Parent (1995 to 1996).
Executive Vice President of Operations of
MascoTech Controls (1994 to 1995).
Gene R. Smith, Jr. Executive Vice President, Business Management
(1996 to present). Independent consultant
(1994 to 1996). Vice President -- Electronics
of Parent (1993 to 1994).
William T. Anderson Director of Parent. Vice President and
MascoTech Corporation Controller of MascoTech Corporation (1998 to
21001 VanBorn Road present). Vice President, Operational
Taylor, Michigan 48180 Accounting of MascoTech Corporation (1994 to
1998).
David E. Cole Director of Parent. Director of Office for
University of Michigan the Study of Automotive Transportation,
Transportation Research Institute University of Michigan (1975 to present).
2901 Baxter
Ann Arbor, Michigan 48109
Sherman L. Cruz Director of Parent. Independent consultant
970 Golfview (1996 to present). Chief Financial Officer of
Rochester Hills, Michigan 48307 Parent (1991 to 1996).
</TABLE>
29
<PAGE> 33
<TABLE>
<CAPTION>
POSITION WITH THE PARENT; PRINCIPAL
OCCUPATION OR EMPLOYMENT;
NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY
------------------------- -----------------------------------
<S> <C>
Forest J. Farmer Director of Parent. Chairman and Chief
Trilium Teamologies, Inc. Executive Officer of The Farmer Group (1994
219 S. Main Street, Suite 300 to present). President of Chrysler Acustar
Royal Oak, Michigan 48067 (1988 to 1994).
Rick Inatome Director of Parent. Chairman of Inacom Corp.
Inacom Corp. (1991 to present).
1800 West Maple Road
Troy, Michigan 48084
</TABLE>
3. DIRECTORS AND EXECUTIVE OFFICERS OF SSI ACQUISITION CORP. The name of
each of the directors and executive officers of the Purchaser are set forth
below. The business address, present principal occupation or employment and
five-year employment history of such individuals are set forth above in Item 2
of this Schedule I. All directors and executive officers listed below are
citizens of the United States.
<TABLE>
<CAPTION>
POSITION WITH SSI ACQUISITION CORP.
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND BUSINESS ADDRESS 5-YEAR EMPLOYMENT HISTORY
------------------------- -----------------------------------
<S> <C>
Wallace K. Tsuha, Jr. Director and President.
Vice President, Treasurer and Chief Financial
Donald J. Cowie Officer.
Gene R. Smith, Jr. Vice President.
</TABLE>
30
<PAGE> 34
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates for Shares and any other
required documents should be sent or delivered by each stockholder of the
Company or such stockholder's broker, dealer, commercial bank, trust company or
other nominee to the Depositary at one of its addresses set forth below.
The Depositary for the Offer is:
BANKBOSTON, N.A.
<TABLE>
<S> <C> <C>
By Overnight, Certified
By First Class Mail: By Hand: or Express Mail:
BankBoston, N.A. Securities Transfer & BankBoston, N.A.
ATTN: Corporate Actions Reporting Services, Inc. ATTN: Corporate Actions
P.O. Box 8029 c/o Boston EquiServe LP 150 Royall Street
Boston, MA 02266-8029 100 William Street, Galleria Canton, MA 02021
New York, NY 10038
By Facsimile Transmission:
(For Eligible Institutions only)
(781) 575-2233/2232
For Information or Confirmation:
(781) 575-3400
</TABLE>
Questions and requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
or any other tender offer materials may be directed to the Information Agent at
the address and telephone numbers listed below. You may also contact your
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
Georgeson Shareholder Communications Inc. Logo
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
<PAGE> 1
EXHIBIT 1(b)
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
SMARTFLEX SYSTEMS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED JULY 14, 1999
BY
SSI ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
SATURN ELECTRONICS & ENGINEERING, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, AUGUST 11, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
BANKBOSTON, N.A.
<TABLE>
<CAPTION>
By Overnight, Certified
By First Class Mail: By Hand: or Express Mail:
<S> <C> <C>
BankBoston, N.A. Securities Transfer & BankBoston, N.A.
ATTN: Corporate Actions Reporting Services, Inc. ATTN: Corporate Actions
P.O. Box 8029 c/o Boston 150 Royall Street
Boston, MA 02266-8029 EquiServe LP Canton, MA 02021
100 William Street,
Galleria
New York, NY 10038
By Facsimile Transmission:
(For Eligible Institutions only)
(781) 575-2233/2232
For Information or Confirmation:
(781) 575-3400
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS
LETTER OF TRANSMITTAL WHERE INDICATED AND COMPLETE THE SUBSTITUTE FORM W-9
PROVIDED BELOW.
THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders either if
certificates for Shares (as defined below) are to be forwarded herewith or,
unless an Agent's Message (as defined below) is utilized, if delivery of Shares
is to be made by book-entry transfer to an account maintained by the Depositary
at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 2 of the Offer to Purchase. Stockholders who
deliver Shares by book-entry transfer are referred to herein as "Book-Entry
Stockholders" and other stockholders are referred to herein as "Certificate
Stockholders."
<PAGE> 2
Stockholders whose certificates for Shares (the "Share Certificates") are
not immediately available or who cannot deliver either the Share Certificates
for, or a Book-Entry Confirmation (as defined below) with respect to, their
Shares and all other documents required hereby to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender
their Shares in accordance with the guaranteed delivery procedure set forth in
Section 2 of the Offer to Purchase. See Instruction 2. Delivery of documents to
the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
<TABLE>
<S> <C> <C> <C>
DESCRIPTION OF SHARES TENDERED
NAME(S) & ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS SHARE CERTIFICATE(S) TENDERED
NAME(S) APPEAR(S) ON CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER
SHARE OF SHARES NUMBER
CERTIFICATE REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
TOTAL SHARES
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to
the Depositary are being tendered hereby. See Instruction 4.
</TABLE>
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO AN
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution:
-----------------------------------------------------------------------------
The Depository Trust Company
Account Number
----------------------------------- Transaction Code Number
-----------------------------------
[ ]CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING; PLEASE
INCLUDE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY:
Name(s) of Registered Holder(s):
-----------------------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------------
Name of Institution that Guaranteed Delivery:
---------------------------------------------------------------------
2
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to SSI Acquisition Corp., a Delaware
corporation (the "Purchaser"), and a wholly owned subsidiary of Saturn
Electronics & Engineering, Inc., a Michigan corporation (the "Parent"), the
above-described shares of common stock, $.0025 par value (the "Shares"), of
Smartflex, Inc., a Delaware corporation (the "Company"), upon the Purchaser's
offer to purchase all issued and outstanding Shares at a price of $10.50 per
Share, net to the seller in cash, without interest, in accordance with the terms
and subject to the conditions set forth in the Purchaser's Offer to Purchase
dated July 14, 1999 (the "Offer to Purchase"), and this Letter of Transmittal
(which, together with any amendments or supplements thereto or hereto,
collectively constitute the "Offer"), receipt of which is hereby acknowledged.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), (i) the Purchaser will accept for payment and pay, as promptly as
practicable after the Expiration Date, for all Shares validly tendered herewith
prior to the Expiration Date and not properly withdrawn in accordance with the
terms of the Offer, and (ii) the undersigned hereby sells, assigns and transfers
to, or upon the order of, the Purchaser all right, title and interest in and to
all the Shares that are being tendered hereby and any and all non-cash
dividends, distributions (including, without limitation, distribution of
additional Shares) or rights declared, paid or distributed in respect of such
Shares on or after July 6, 1999 (collectively, "Distributions"), and irrevocably
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver such
Share Certificates and all Distributions, or transfer ownership of such Shares
and all Distributions on the account books maintained by the Book-Entry Transfer
Facility, together, in any such case, with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Purchaser, (b) present
such Shares and all Distributions for transfer on the Company's books and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares and all Distributions, all in accordance with the terms of the
Offer.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints Wallace K. Tsuha, Jr. and Jereen G. Trudell as proxies of the
undersigned, each with full power of substitution, to the full extent of the
undersigned's rights with respect to the Shares tendered by the undersigned and
accepted for payment by the Purchaser (and any and all Distributions). All such
proxies shall be considered coupled with an interest in the tendered Shares.
This appointment will be effective if, when, and only to the extent that, the
Purchaser accepts such Shares for payment pursuant to the Offer. Upon such
acceptance for payment, all prior proxies given by the undersigned with respect
to such Shares (and such other Shares and securities) will, without further
action, be revoked, and no subsequent proxies may be given nor any subsequent
written consent executed by the undersigned (and, if given or executed, will not
be deemed to be effective) with respect thereto. The designees of the Purchaser
named above will, with respect to the Shares and other securities for which the
appointment is effective, be empowered to exercise all voting and other rights
of the undersigned as they in their sole discretion may deem proper at any
annual or special meeting of the stockholders of the Company or any adjournment
or postponement thereof, by written consent in lieu of any such meeting or
otherwise, and the Purchaser reserves the right to require that, in order for
Shares or other securities to be deemed validly tendered, immediately upon the
Purchaser's acceptance for payment of such Shares, the Purchaser must be able to
exercise full voting rights with respect to such Shares.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the tendered
Shares (and all Distributions) and, when the same are accepted for payment by
the Purchaser, the Purchaser will acquire good, marketable and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances, and that the same will not be subject to any adverse claim. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or the Purchaser to be necessary or desirable to
complete the sale, assignment and transfer of the tendered Shares (and all
Distributions). In addition, the undersigned shall promptly remit and transfer
to
3
<PAGE> 4
the Depositary for the account of the Purchaser any and all Distributions in
respect of the Shares tendered hereby, accompanied by appropriate documentation
of transfer, and, pending such remittance and transfer or appropriate assurance
thereof, the Purchaser shall be entitled to all rights and privileges as owner
of each such Distribution and may withhold the entire purchase price of the
tendered Shares or deduct from such purchase price, the amount or value of such
Distribution as determined by the Purchaser in its sole discretion.
All authority conferred or agreed to be conferred pursuant to this Letter
of Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. Except as stated in the Offer to Purchase, this
tender is irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
of the procedures described in Section 2 of the Offer to Purchase and in the
Instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions of the Offer,
including, without limitation, the undersigned's representation and warranty
that the undersigned owns the Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificates for
Shares not tendered or accepted for payment in the name(s) of the registered
holder(s) appearing under "Description of Shares Tendered." Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the check
for the purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing under "Description of Shares
Tendered." In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or return any certificates for Shares not tendered or
accepted for payment (and any accompanying documents, as appropriate) in the
name of, and deliver such check and/or return such certificates (and any
accompanying documents, as appropriate) to, the person or persons so indicated.
Please credit any Shares tendered herewith by book-entry transfer that are not
accepted for payment by crediting the account at the Book-Entry Transfer
Facility. The undersigned recognizes that the Purchaser has no obligation
pursuant to the Special Payment Instructions to transfer any Shares from the
name of the registered holder(s) thereof if the Purchaser does not accept for
payment any of the Shares so tendered.
4
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be issued in the name of someone other than the undersigned.
Issue check and/or certificate(s) to:
Name
- -------------------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------------------
- -------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
are to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown under "Description of Shares Tendered."
Mail check and/or certificate(s) to:
Name
- -------------------------------------------------------
(PLEASE PRINT)
Address
- -------------------------------------------------------
- -------------------------------------------------------
(INCLUDE ZIP CODE)
- -------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
5
<PAGE> 6
SIGN HERE
(ALSO SIGN AND COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(SIGNATURE(S) OF STOCKHOLDER(S))
Dated:
- ------------------------------------------------------------------------------ ,
1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Share Certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5.)
Name(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- ---------------------------------------------------------------------------
Taxpayer Identification or Social Security Number
- -----------------------------------------------------------
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
- --------------------------------------------------------------------------------
Name and Title
- --------------------------------------------------------------------------------
(PLEASE PRINT)
Name of Firm
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
- ---------------------------------------------------------------------------
Dated:
- ------------------------------------------------------------------------------ ,
1999
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal if (i) this Letter of Transmittal is signed by the
registered holder of Shares (which, for purposes of this Section, includes any
participant in the Book-Entry Transfer Facility's system whose name appears on a
security position listing as the owner of the Shares) tendered herewith and such
registered holder has not completed either the box entitled "Special Delivery
Instructions" or the box entitled "Special Payment Instructions" on this Letter
of Transmittal or (ii) such Shares are tendered for the account of a firm that
is a participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5. If the certificates for Shares are registered in
the name of a person other than the signer of this Letter of Transmittal, or if
payment is to be made or certificates for Shares not tendered or not accepted
for payment are to be issued to a person other than the registered holder of the
certificates surrendered, the tendered certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holders or owners appear on the certificates,
with the signatures on the certificates or stock powers guaranteed as described
above. See Instruction 5.
2. Requirements of Tender. This Letter of Transmittal is to be completed
by stockholders either if certificates are to be forwarded herewith or, unless
an Agent's Message (as defined below) is utilized, if delivery of Shares is to
be made pursuant to the procedures for book-entry transfer set forth in Section
2 of the Offer to Purchase. For a stockholder validly to tender Shares pursuant
to the Offer, either (a) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message, and
any other documents required by the Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth herein prior to the Expiration
Date and either (i) certificates for tendered Shares must be received by the
Depositary at one of such addresses prior to the Expiration Date or (ii) Shares
must be delivered pursuant to the procedures for book-entry transfer set forth
herein and a Book-Entry Confirmation (as defined in the Offer to Purchase) must
be received by the Depositary prior to the Expiration Date, or (b) the tendering
stockholder must comply with the guaranteed delivery procedures set forth below
and in Section 2 of the Offer to Purchase.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of this Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
If certificates are forwarded to the Depositary in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany each
such delivery. If a stockholder desires to tender Shares pursuant to the Offer
and such stockholder's Share Certificates are not immediately available or the
procedure for book-entry transfer cannot be completed on a timely basis or time
will not permit all required documents to reach the Depositary prior to the
Expiration Date, such stockholder's tender may be effected if all the following
conditions are met: (a) such tender is made by or through an Eligible
Institution; (b) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by the
Depositary, as provided in Section 2 of the Offer to Purchase, prior to the
Expiration Date; and (c) the Share Certificates for all tendered Shares, in
proper form for transfer (or a Book-Entry Confirmation with respect to such
Shares), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, or,
in the case of a book-entry transfer, an Agent's Message, and any other
documents required by this Letter of Transmittal, are received by the Depositary
within three trading days after the date of execution of the Notice of
Guaranteed Delivery as provided in Section 2 of the Offer to Purchase. A
"trading day," for purposes of the preceding sentence, is any day on with the
Nasdaq National Market is open for business.
7
<PAGE> 8
THE METHOD OF DELIVERY OF SHARES, THIS LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate schedule attached hereto.
4. Partial Tenders. (APPLICABLE TO CERTIFICATE STOCKHOLDERS ONLY). If
fewer than all the Share Certificates submitted are to be tendered, fill in the
number of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In any such case, new Share Certificates for the remainder of the
Shares that were evidenced by the old Share Certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the acceptance for payment
of, and payment for, the Shares tendered herewith. All Shares represented by
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or accepted for payment are to be issued
to, a person other than the registered holder(s). Signatures on such
certificates and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificates listed, the certificates must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holder(s) appear on the
certificates. Signatures on such certificates and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Share Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchaser of such person's authority so to act must be
submitted.
6. Stock Transfer Taxes. Except as provided in this Instruction 6, the
Purchaser will pay stock transfer taxes with respect to the transfer and sale of
Shares to the Purchaser or its order pursuant to the Offer. If, however, payment
of the purchase price is to be made to, or if certificates for Shares not
tendered or accepted for payment are to be registered in the name of, any
person(s) other than the registered holder(s), or if tendered certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s) or such person) payable on account of the transfer
to such person will be deducted from the purchase price unless satisfactory
evidence of the payment of such taxes or exemption therefrom is submitted.
8
<PAGE> 9
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instructions. If a check is to be issued
in the name of and/or certificates for Shares not tendered or not accepted for
payment are to be returned to, a person other than the signer of this Letter of
Transmittal or if a check is to be sent and/or such certificates are to be
returned to a person other than the signer of this Letter of Transmittal or to
an address other than that shown above, the appropriate boxes on this Letter of
Transmittal must be completed.
8. Waiver of Conditions. The Purchaser reserves the absolute right in its
sole discretion to waive any of the specified conditions of the Offer, in whole
or in part, in the case of any Shares tendered.
9. 31% Backup Withholding; Substitute Form W-9. In order to avoid "backup
withholding" of Federal income tax on payments of cash pursuant to the Offer, a
stockholder surrendering Shares in the Offer must provide the Depositary with
such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalty of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. Certain
stockholders (including, among others, all corporations and certain foreign
individuals and entities) are not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service ("IRS") may impose
a penalty on such stockholder and payment of cash to such stockholder pursuant
to the Offer may be subject to backup withholding of 31%. All stockholders
surrendering Shares pursuant to the Offer should complete and sign the main
signature form and the Substitute Form W-9 included as part of the Letter of
Transmittal to provide the information and certification necessary to avoid
backup withholding (unless an applicable exemption exists and is proved in a
manner satisfactory to the Purchaser and the Depositary). Noncorporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
If backup withholding applies to a stockholder, the Depositary is required
to withhold 31% from payments to such stockholder. Backup withholding is not an
additional tax. Rather, the amount of the backup withholding can be credited
against the Federal income tax liability of the person subject to the backup
withholding, provided that the required information is given to the IRS. If
backup withholding results in an overpayment of tax, a refund can be obtained by
the stockholder upon filing an income tax return.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary. However, such amounts will be refunded to such
stockholder if a TIN is provided to the Depositary within 60 days.
The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
10. Requests for Assistance or Additional Copies. Requests for additional
copies of the Offer to Purchase, this Letter of Transmittal, the Notice of
Guaranteed Delivery and the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 and questions or requests for
assistance may be directed to the Information Agent at its address set forth
below.
11. Lost, Destroyed or Stolen Certificates. If any certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Company's stock transfer agent, EquiServe, at (781)
575-3400. The stockholder will then be instructed as to the steps that must be
taken in order to replace
9
<PAGE> 10
the certificate. This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES,
OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE, AND ALL OTHER
REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE
EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED SHARES MUST BE RECEIVED BY
THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT TO THE PROCEDURES FOR
BOOK-ENTRY TRANSFER, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE DEPOSITARY, IN EACH CASE ON OR PRIOR TO THE EXPIRATION DATE, OR THE
TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR GUARANTEED DELIVERY.
10
<PAGE> 11
PAYOR'S NAME: BANKBOSTON, N.A., AS DEPOSITARY
<TABLE>
<C> <S> <C> <C>
SUBSTITUTE ----------------------------
FORM W-9 Social Security Number or
Part 1 -- PLEASE PROVIDE YOUR TAXPAYER ----------------------------
IDENTIFICATION NUMBER IN THE BOX AT RIGHT AND Employer
CERTIFY BY SIGNING AND DATING BELOW. Identification Number
DEPARTMENT OF THE TREASURY, Part 2 -- CERTIFICATION -- Under penalties of perjury, I certify that:
INTERNAL REVENUE SERVICE
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued for me) and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that I
am no longer subject to backup withholding.
</TABLE>
<TABLE>
<C> <S> <C> <C>
PAYOR'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTIONS -- You must cross out item
IDENTIFICATION NUMBER (2) above if you have been notified by the IRS that
you are currently subject to backup withholding
because of underreporting interest or dividends on
your tax returns. However, if after being notified by
the IRS that you were subject to backup withholding
you received another notification from the IRS PART 3--
stating that you are no longer subject to backup Awaiting
withholding, do not cross out such item (2). TIN [ ]
Signature
---------------------------------------------
Date ------------------------------------------- ,
1999
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
11
<PAGE> 12
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalty of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld, but that such amounts
will be refunded to me if I then provide a Taxpayer Identification Number within
sixty (60) days.
Signature:
- ---------------------------------------------- Date:
- ----------------------------------------------
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone numbers below. Requests for additional copies
of the Offer to Purchase, the related Letter of Transmittal and all other tender
offer materials may be directed to the Information Agent. Copies will be
furnished promptly at the Purchaser's expense. No fees or commissions will be
paid to any broker or dealer or any other person (other than the Information
Agent) for soliciting tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
Georgeson Shareholder Communications Inc. Logo
Wall Street Plaza
New York, New York 10005
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
<PAGE> 1
EXHIBIT 2
================================================================================
AGREEMENT AND PLAN OF MERGER
among
SATURN ELECTRONICS & ENGINEERING, INC.
SSI ACQUISITION CORP.
and
SMARTFLEX SYSTEMS, INC.
Dated as of July 6, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.........................................................................................................2
SECTION 1.01. The Offer.................................................................................2
SECTION 1.02. Company Action............................................................................3
ARTICLE II........................................................................................................5
SECTION 2.01. The Merger................................................................................5
SECTION 2.02. Effective Time; Closing...................................................................5
SECTION 2.03. Effect of the Merger......................................................................5
SECTION 2.04. Articles of Incorporation; Bylaws.........................................................5
SECTION 2.05. Directors and Officers....................................................................6
SECTION 2.06. Conversion of Securities..................................................................6
SECTION 2.07. Employee and Director Stock Options.......................................................6
SECTION 2.08. Surrender of Shares; Stock Transfer Books.................................................7
ARTICLE III.......................................................................................................8
SECTION 3.01. Organization and Qualification; Subsidiaries..............................................8
SECTION 3.02. Articles of Incorporation and Bylaws......................................................9
SECTION 3.03. Capitalization............................................................................9
SECTION 3.04. Authority Relative to this Agreement.....................................................10
SECTION 3.05. No Conflict; Required Filings and Consents...............................................10
SECTION 3.06. Compliance...............................................................................11
SECTION 3.07. SEC Filings; Financial Statements........................................................11
SECTION 3.08. Absence of Certain Changes or Events.....................................................12
SECTION 3.09. Absence of Litigation....................................................................12
SECTION 3.10. Employee Benefit Plans...................................................................13
SECTION 3.11. Labor Matters............................................................................15
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement.........................................15
SECTION 3.13. Tangible Property; Real Property and Leases..............................................16
SECTION 3.14. Trademarks, Patents and Copyrights.......................................................17
SECTION 3.15. Taxes....................................................................................17
SECTION 3.16. Environmental Matters....................................................................18
SECTION 3.17. Material Contracts.......................................................................18
SECTION 3.18. Brokers and Counsel......................................................................19
SECTION 3.19. Year 2000 Compliance.....................................................................19
ARTICLE IV.......................................................................................................20
SECTION 4.01. Corporate Organization...................................................................20
SECTION 4.02. Authority Relative to This Agreement.....................................................20
SECTION 4.03. No Conflict; Required Filings and Consents...............................................20
SECTION 4.04. Financing................................................................................21
SECTION 4.05. Offer Documents; Proxy Statement.........................................................21
SECTION 4.06. Brokers..................................................................................21
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V........................................................................................................22
SECTION 5.01. Conduct of Business by the Company Pending the Merger....................................22
ARTICLE VI.......................................................................................................24
SECTION 6.01. Special Shareholders' Meeting............................................................24
SECTION 6.02. Proxy Statement..........................................................................24
SECTION 6.03. Access to Information; Confidentiality...................................................24
SECTION 6.04. No Solicitation of Transactions..........................................................25
SECTION 6.05. Employee Benefits Matters; Employment Agreements.........................................25
SECTION 6.06. Directors' and Officers' Indemnification and Insurance...................................26
SECTION 6.07. Notification of Certain Matters..........................................................27
SECTION 6.08. Further Action; Reasonable Best Efforts..................................................27
SECTION 6.09. Public Announcements.....................................................................28
SECTION 6.10. Confidentiality Agreement................................................................28
SECTION 6.11 Financial Statements.....................................................................28
SECTION 6.12 SEC Reports..............................................................................28
SECTION 6.13 Customer Calls...........................................................................28
ARTICLE VII......................................................................................................29
SECTION 7.01. Conditions to the Merger.................................................................29
ARTICLE VIII.....................................................................................................29
SECTION 8.01. Termination..............................................................................29
SECTION 8.02. Effect of Termination....................................................................31
SECTION 8.03. Fees and Expenses........................................................................31
SECTION 8.04. Amendment................................................................................31
SECTION 8.05. Waiver...................................................................................32
ARTICLE IX.......................................................................................................32
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements...............................32
SECTION 9.02. Notices..................................................................................32
SECTION 9.03. Certain Definitions......................................................................33
SECTION 9.04. Severability.............................................................................34
SECTION 9.05. Entire Agreement, Assignment.............................................................34
SECTION 9.06. Parties in Interest......................................................................34
SECTION 9.07. Specific Performance.....................................................................34
SECTION 9.08. Governing Law............................................................................35
SECTION 9.09. Headings.................................................................................35
SECTION 9.10. Counterparts; Facsimile..................................................................35
</TABLE>
ANNEX A Conditions to the Offer
SCHEDULE I
EXHIBIT A
ii
<PAGE> 4
Glossary of Defined Terms
<TABLE>
<CAPTION>
Location of
Defined Term Definition
------------ ----------
<S> <C>
affiliate....................................................................... ss. 9.03(a)
Affiliate Contract.............................................................. ss. 3.17
Agreement....................................................................... Preamble
Attorney Engagement............................................................. ss. 3.18
beneficial owner................................................................ ss. 9.03(b)
Blue Sky Laws................................................................... ss. 3.05(b)
Board ....................................................................... Recitals
Broker Agreement................................................................ ss. 3.18
business day.................................................................... ss. 9.03(c)
Certificate of Merger........................................................... ss. 2.02
Certificates.................................................................... ss. 2.08(b)
Code ....................................................................... ss. 3.10(a)
Company ....................................................................... Preamble
Competing Proposal.............................................................. ss. 8.03(a)(i)
Competing Transaction........................................................... ss. 6.04
Confidentiality Agreement....................................................... ss. 6.03(b)
control ....................................................................... ss. 9.03(d)
control by...................................................................... ss. 9.03(d)
Delaware Law.................................................................... Recitals
Disclosure Schedule............................................................. ss. 3.01
Effective Time.................................................................. ss. 2.02
Environmental Law............................................................... ss. 3.16(a)
ERISA ....................................................................... ss. 3.10(a)
Exchange Act.................................................................... ss. 1.02(b)
Fee ....................................................................... ss. 8.03(a)
GAAP ....................................................................... ss. 3.07(b)
Hazardous Substances............................................................ ss. 3.16(a)
HSR Act ....................................................................... ss. 3.05(b)
Indemnified Parties............................................................. ss. 6.06(b)
IRS ....................................................................... ss. 3.10(a)
Material Adverse Effect......................................................... ss. 3.01(a)
Material Contracts.............................................................. ss. 3.17
Merger ....................................................................... Recitals
Merger Consideration............................................................ ss. 2.06(a)
Minimum Condition............................................................... ss. 1.01(a)
1998 Balance Sheet.............................................................. ss. 3.07(c)
Offer ....................................................................... Recitals
Offer Documents................................................................. ss. 1.01(b)
Offer to Purchase............................................................... ss. 1.01(b)
Parent ....................................................................... Preamble
Paying Agent.................................................................... ss. 2.08(a)
Per Share Amount................................................................ Recitals
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
person ....................................................................... ss. 9.03(e)
Plans ....................................................................... ss. 3.10(a)
Proprietary Rights.............................................................. ss. 3.14
Proxy Statement................................................................. ss. 3.12
Purchaser....................................................................... Preamble
Schedule 14D-1.................................................................. ss. 1.01(b)
Schedule 14D-9.................................................................. ss. 1.02(b)
SEC ....................................................................... ss. 1.01(b)
SEC Reports..................................................................... ss. 3.07(a)
Securities Act.................................................................. ss. 3.07(a)
SG Cowen ....................................................................... ss. 1.02(a)
Shareholder Agreements.......................................................... Recitals
Shareholders.................................................................... Recitals
Shares ....................................................................... Recitals
Special Shareholders' Meeting................................................... ss. 6.01
Spread ....................................................................... ss. 2.07
Stock Option Plans.............................................................. ss. 2.07
Subsidiary...................................................................... ss. 3.01
subsidiary...................................................................... ss. 9.03(f)
Superior Proposal............................................................... ss. 6.04
Surviving Corporation........................................................... ss. 2.01
Transactions.................................................................... ss. 3.04
under common control with....................................................... ss. 9.03(d)
WARN ....................................................................... ss. 3.10(f)
Year 2000 Compliant............................................................. ss. 3.19
</TABLE>
ii
<PAGE> 6
AGREEMENT AND PLAN OF MERGER, dated as of July 6, 1999 (this
"Agreement"), among SATURN ELECTRONICS & ENGINEERING, INC., a corporation
organized under the laws of Michigan ("Parent"), SSI ACQUISITION CORP., a
Delaware corporation and a wholly owned subsidiary of Parent ("Purchaser"), and
SMARTFLEX SYSTEMS, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each unanimously determined that it is in the best interests of
their respective shareholders for Parent to acquire the Company upon the terms
and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, it is proposed
that Purchaser shall make a cash tender offer (the "Offer") to acquire all the
issued and outstanding shares of common stock, $.0025 par value, of the Company
(the "Shares") for U.S. $10.50 per Share (such amount being hereinafter referred
to as the "Per Share Amount") net to the seller in cash, upon the terms and
subject to the conditions of this Agreement and the Offer;
WHEREAS, the Board of Directors of the Company (the "Board"),
including all the disinterested directors on the Board, has unanimously approved
the making of the Offer and resolved and agreed to recommend that holders of
Shares tender their Shares pursuant to the Offer;
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of Parent, Purchaser and the Company have each unanimously approved
the merger (the "Merger") of Purchaser with and into the Company in accordance
with the Business Corporation Act of the State of Delaware ("Delaware Law")
following the consummation of the Offer and upon the terms and subject to the
conditions set forth herein;
WHEREAS, to induce Parent and Purchaser to enter into this
Agreement, Parent has required that Purchaser and each of the shareholders of
the Company listed on Schedule I attached hereto (the "Shareholders") enter into
a Stock Tender and Voting Agreement, dated today's date (the "Shareholder
Agreements"), pursuant to which each Shareholder agrees, among other things, to
validly tender its Shares into, and not to withdraw its Shares from, the Offer,
and to vote its Shares in favor of the Merger, in each case subject to the terms
and conditions set forth therein; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of the Parent, the Purchaser and the Company have each unanimously
approved the execution, delivery and performance of the Shareholder Agreements
in accordance with applicable law.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
<PAGE> 7
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement
shall not have been terminated in accordance with Section 8.01 and none of the
events set forth in Annex A hereto shall have occurred or be existing, Purchaser
shall commence the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the date hereof. The
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer shall be subject to the condition (the "Minimum
Condition") that at least the number of Shares that combined with the Shares
already owned by Parent, Purchaser or any of their affiliates shall constitute a
majority of the then outstanding Shares on a fully diluted basis (including,
without limitation, all Shares issuable upon the conversion of any convertible
securities or upon the exercise of any options, warrants or rights) shall have
been validly tendered and not withdrawn prior to the expiration of the Offer and
also shall be subject to the satisfaction of the other conditions set forth in
Annex A hereto. Purchaser expressly reserves the right to waive any such
condition, to increase the price per Share payable in the Offer, and to make any
other changes in the terms and conditions of the Offer; provided, however, that,
without the prior written consent of the Company, no change may be made which
decreases the price per Share payable in the Offer or which changes or waives
the Minimum Condition or which changes the form of consideration to be paid in
the Offer or which extends the period that the Offer is outstanding for one or
more periods not to exceed thirty days in the aggregate or which reduces the
maximum number of Shares to be purchased in the Offer or which imposes
conditions to the Offer in addition to those set forth in Annex A hereto. The
Per Share Amount shall, subject to applicable withholding of taxes, be paid net
to the seller in cash, upon the terms and subject to the conditions of the
Offer. Subject to the terms and conditions of the Offer (including, without
limitation, the Minimum Condition), Purchaser shall pay, as promptly as
practicable after expiration of the Offer, for all Shares validly tendered into
and not withdrawn from, the Offer.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 (together with
all amendments and supplements thereto, the "Schedule 14D-1") with respect to
the Offer and the other Transactions (as hereinafter defined), which shall have
been provided to the Company and to which the Company shall not have reasonably
objected. The Schedule 14D-1 shall contain or shall incorporate by reference an
offer to purchase (the "Offer to Purchase") and forms of the related letter of
transmittal and any related summary advertisement (the Schedule 14D-1, the Offer
to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
Documents"). Each of Parent, Purchaser and the Company agree to correct promptly
any information provided by it for use in the Offer Documents which shall have
become false or misleading, and Parent and Purchaser further agree to take all
steps necessary to cause the Schedule 14D-1 as so corrected to be filed with the
SEC and the other Offer Documents as so
2
<PAGE> 8
corrected to be disseminated to holders of Shares, in each case as and to the
extent required by applicable federal securities laws.
SECTION 1.02. Company Action. (a) The Company hereby approves
of and consents to the Offer and represents and warrants that (i) the Board, at
a meeting duly called and held on July 6, 1999, has unanimously (A) determined
that this Agreement, the Shareholder Agreements and the transactions
contemplated hereby and thereby, including, without limitation, each of the
Offer, the Merger and the tender of Shares pursuant to the Shareholder
Agreements, are fair to and in the best interests of the shareholders of the
Company, (B) approved and adopted this Agreement and the transactions,
including, without limitation, the Offer, the Merger and the tender of Shares
pursuant to the Shareholder Agreements, contemplated hereby and thereby, (C)
taken all action to render the provisions of the Rights Agreement, dated as of
July 17, 1996, between the Company and The First National Bank of Boston, as
Rights Agent, and of Section 203 of the Delaware Law inapplicable to the Offer,
the Merger and the Shareholder Agreements, and (D) recommend that the
shareholders of the Company accept the Offer and approve and adopt this
Agreement and the transactions, including, without limitation, the Merger,
contemplated hereby, and (ii) SG Cowen Securities Corporation ("SG Cowen") has
delivered to the Board an opinion to the effect that the consideration to be
received by the holders of Shares (other than Parent, Purchaser and their
affiliates) pursuant to each of the Offer and the Merger is fair to such holders
of Shares from a financial point of view, it being understood and acknowledged
that such opinion has been rendered to the Board and may only be relied upon by
the Board, the Company and any successors thereto. Subject only to the
provisions of Sections 6.04 and 8.01(e) below, the Company hereby consents to
the inclusion in the Offer Documents of the recommendation of the Board
described in the immediately preceding sentence; provided, however, that the
Board may withdraw such consent in the exercise of its fiduciary duties as
contemplated in Sections 6.04 and 8.01(e) below.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing, subject
only to the provisions of Sections 6.04 and 8.01(d) below, the recommendation of
the Board described in Section 1.02(a) and shall disseminate the Schedule 14D-9
to the extent required by Rule 14d-9 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and any other applicable federal
securities laws. Each of the Company, Parent and Purchaser agree to correct
promptly any information provided by it for use in the Schedule 14D-9 which
shall have become false or misleading, and the Company further agrees to take
all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with
the SEC and disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws. Prior to the Company's filing of
the Schedule 14D-9, such Schedule shall have been provided to Purchaser and
Parent and shall not have been reasonably objected to.
(c) The Company shall promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Shares and
with security position listings of Shares held in stock depositories, each as of
a recent date, together with all other
3
<PAGE> 9
available listings and computer files containing names, addresses and security
position listings of record holders and beneficial owners of Shares. The Company
shall furnish Purchaser with such additional information, including, without
limitation, updated listings and computer files of shareholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall hold in confidence the information contained
in such labels, listings and files, shall use such information only in
connection with the Offer and the Merger and, if this Agreement shall be
terminated in accordance with Section 8.01, shall deliver to the Company, or
certify to the Company destruction of, all copies of such information then in
their possession.
(d) (i) The Company will, promptly following the purchase and
payment for by Purchaser of all Shares validly tendered and not withdrawn
pursuant to the Offer, take all actions necessary to cause persons designated by
Parent to become directors of the Company so that the total number of persons so
designated equals that number of directors, rounded up to the next whole number,
which represents the product of (x) the total number of directors on the Board
of Directors of the Company multiplied by (y) the percentage that the number of
Shares so accepted for payment and paid for plus any Shares beneficially owned
by Parent, Purchaser or their respective affiliates on the date when Parent so
accepts for payment and pays for any Shares pursuant to the Offer bears to the
number of Shares outstanding at the time of such acceptance for payment and
payment. In furtherance thereof, the Company will increase the size of its Board
of Directors, or use best efforts to secure the resignation of directors, or
both, as is necessary to permit Parent's designees to be elected to the
Company's Board of Directors; provided, however, prior to the Effective Time (as
defined in Section 2.2), subject to the provisions of Section 1.02(d)(ii), the
Company's Board of Directors shall always have at least two members who are
directors of the Company as of the date hereof (the "Continuing Directors"). At
such time, the Company, if so requested, will cause persons designated by Parent
to constitute at least the same percentage of each committee of the Company's
Board of Directors as determined above in this Section 1.02(d)(i). The Company's
obligations to appoint designees to its Board of Directors shall be subject to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The
Company shall promptly take all actions required pursuant to such section and
rule in order to fulfill its obligations under this Section 1.02(d)(i). Parent
and Purchaser will supply the Company with all information which the Company
shall reasonably request with respect to nominees to the Company's Board of
Directors in order for the Company to make the filing required by Section 14(f)
of the Exchange Act. Except with respect to the information provided by Parent
or Purchaser pursuant to the immediately preceding sentence, the Company agrees
that none of the information attached to the Offer Documents pursuant to Section
14(f) or Rule 14f-1 shall contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances in which they were
made, not misleading.
(ii) Following the election or appointment of the designees of
Parent pursuant to Section 1.02(d)(i) and prior to the Effective Time, any
amendment or termination of this Agreement, extension for the performance of the
obligations or other acts of Parent and
4
<PAGE> 10
Purchaser under this Agreement, waiver of the rights of the Company under this
Agreement, or action taken by the Company pursuant to, or that is described in,
Article 8 and Sections 1.01(a), 6.06, 8.04 and 8.05, notwithstanding anything
herein to the contrary, will (if and to the extent that there are any then
serving Continuing Directors) require the approval of a majority of the
Continuing Directors. If, prior to the Effective Time, the number of Continuing
Directors is fewer than two, the remaining Continuing Director, if any, will be
entitled to appoint a director to fill the vacancy created and such appointee
will be a Continuing Director for the purpose of this Agreement. The Continuing
Directors may not be removed prior to the Effective Time except for cause.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law, at the
Effective Time (as hereinafter defined), Purchaser shall be merged with and into
the Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"), and shall continue to
be governed by the laws of the State of Delaware.
SECTION 2.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VII, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger in substantially the form of
Exhibit A hereto, or in such other form as the parties shall otherwise agree
(the "Certificate of Merger"), with the Delaware Secretary of State, in such
form as is required by, and executed in accordance with the relevant provisions
of, Delaware Law (the date and time of such filings being, collectively, the
"Effective Time"). Prior to such filing, a closing shall be held at the offices
of Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit,
Michigan 48226, or such other place as the parties shall agree, for the purpose
of confirming the satisfaction or waiver, as the case may be, of the conditions
set forth in Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities, obligations, restrictions, disabilities and duties
of the Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Articles of Incorporation; Bylaws. (a) The
Articles of Incorporation of Purchaser, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended as provided by
5
<PAGE> 11
applicable law and such Articles of Incorporation; provided, however, that, at
the Effective Time, Article I of the Articles of Incorporation of the Surviving
Corporation shall be amended to read as follows: "The name of the corporation is
Smartflex Systems, Inc. "
(b) The Bylaws of Purchaser, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Articles of Incorporation of the
Surviving Corporation and such Bylaws.
SECTION 2.05. Directors and Officers. The directors of
Purchaser immediately prior to the Effective Time shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation, and the
officers of Purchaser immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the Shares:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to Section
2.06(b)) shall be cancelled and shall be converted automatically into the
right to receive an amount equal to the Per Share Amount in cash (the
"Merger Consideration"), payable, without interest, to the holder of such
Share, upon surrender, in the manner provided in Section 2.08, of the
certificate that formerly evidenced such Share;
(b) Each Share owned by Purchaser, Parent or any direct or
indirect wholly owned subsidiary of Parent or of the Company immediately
prior to the Effective Time shall be cancelled and retired without any
conversion thereof and no payment or distribution shall be made with
respect thereto; and
(c) Each share of common stock, without par value, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock, $.0025 par value per share, of the
Surviving Corporation.
SECTION 2.07. Employee and Director Stock Options. In accordance with
the terms of the Company's 1993 Equity Incentive Plan, 1994 Equity Incentive
Plan, 1995 Equity Incentive Plan and Acquisition Stock Plan (the "Stock Option
Plans"), each outstanding option to purchase Shares granted under the Stock
Option Plans shall, immediately prior to the Effective Time, become exercisable
regardless of the vesting schedule contained in any stock option agreement or in
any of the Stock Option Plans. Each outstanding option to purchase Shares
granted under the Stock Option Plans or otherwise shall be cancelled at the
Effective Time. In the event that any unexercised option is cancelled by the
Company, each holder of a cancelled option shall be entitled to receive, at the
Effective Time or as soon as practicable thereafter, from
6
<PAGE> 12
the Company, in consideration for the cancellation of such option, an amount in
cash equal to the product of (i) the number of Shares previously subject to such
option and (ii) the excess, if any, of the Merger Consideration over the
exercise price per Share previously subject to such option (the "Spread").
SECTION 2.08. Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent (the "Paying Agent") for the holders of Shares in connection
with the Merger to receive the funds to which holders of Shares shall become
entitled pursuant to Section 2.06(a), and at the Effective Time Purchaser shall
deposit with such Paying Agent an amount sufficient to pay the aggregate Merger
Consideration. Such funds shall be invested by the Paying Agent as directed by
the Surviving Corporation, provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of America
or in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, respectively.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2.06(a) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be cancelled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. In the
event any certificate representing Shares shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed, the Paying Agent will issue in
exchange for such lost, stolen or destroyed certificate the Merger Consideration
deliverable in respect thereof as determined in accordance with this Article II;
provided, however, the person to whom the Merger Consideration is paid shall, as
a condition precedent to the payment thereof, give the Surviving Corporation a
bond in such sum as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the
7
<PAGE> 13
Surviving Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
(c) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of Shares (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it) and, thereafter, such holders shall
be entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat and other similar laws) only as general creditors thereof with
respect to any Merger Consideration that may be payable upon due surrender of
the Certificates held by them. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be liable to any holder of a
Share for any Merger Consideration delivered in respect of such Share to a
public official pursuant to any abandoned property, escheat or other similar
law.
(d) At the close of business on the day of the Effective
Time, the stock transfer books of the Company shall be closed and, thereafter,
there shall be no further registration of transfers of Shares on the records of
the Company. From and after the Effective Time, the holders of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided herein or by
applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each subsidiary of the Company (a "Subsidiary"), is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing or in good standing or to have
such power, authority and governmental approvals would not, individually or in
the aggregate, have a Material Adverse Effect (as defined below). The Company
and each Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. When used in connection with the
Company or any Subsidiary, the term "Material Adverse Effect" means any change
or changes, event(s), condition(s), development(s) or effect(s) that adversely
affects, or may be reasonably likely to adversely affect, individually or in the
aggregate, the business, operations, results of operations, properties,
condition, financial
8
<PAGE> 14
condition, cash flows, assets or liabilities (including, without limitation,
contingent liabilities) of the Company and the Subsidiaries taken as a whole and
the value of the Shares, in any case, by an amount equal to at least $2,500,000;
provided, however, that a Material Adverse Effect shall not include any adverse
effect resulting from general economic conditions or conditions generally
affecting the contract manufacturing market. A true and complete list of all the
Subsidiaries, together with the jurisdiction of incorporation of each Subsidiary
and the percentage of the outstanding capital stock (calculated on a fully
diluted basis) of each Subsidiary owned by the Company, each other Subsidiary
and any third party, is set forth in Section 3.01 of the Disclosure Schedule,
which has been delivered prior to the date of this Agreement by the Company to
Parent (the "Disclosure Schedule"). Except as disclosed in such Section 3.01,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint venture or
other business association or entity.
SECTION 3.02. Articles of Incorporation and Bylaws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Articles of Incorporation and the Bylaws or equivalent organizational documents,
each as amended to date, of the Company and each Subsidiary. Such Articles of
Incorporation, Bylaws and equivalent organization documents are in full force
and effect. Neither the Company nor any Subsidiary is in violation of any
provision of its Articles of Incorporation, Bylaws or equivalent organizational
documents.
SECTION 3.03. Capitalization. The authorized capital stock of
the Company consists of 5,000,000 shares of preferred stock (none of which is
issued and outstanding) and 25,000,000 Shares. As of the date hereof, (i)
6,493,994 Shares are issued and outstanding, all of which are validly issued,
fully paid and nonassessable, (ii) no Shares are held by the Subsidiaries or in
the Company's treasury, and (iii) 994,502 Shares are reserved for issuance
pursuant to stock options granted pursuant to the Company's Stock Option Plans
or otherwise. Except as set forth in this Section 3.03 or Section 3.03 of the
Disclosure Schedule, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary (including, without limitation, any
securities which are convertible into or exchangeable for Shares of capital
stock of, or other equity interests in, the Company or any Subsidiaries). All
Shares subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 3.03 of the Disclosure Schedule, there are no outstanding
contractual obligations of the Company or any Subsidiary to repurchase, redeem
or otherwise acquire any Shares or any capital stock of any Subsidiary or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any Subsidiary or any other person. Each
outstanding share of capital stock of each Subsidiary is duly authorized,
validly issued, fully paid and nonassessable and, except as set forth in Section
3.03 of the Disclosure Schedule, is owned free and clear of all liens and
encumbrances.
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SECTION 3.04. Authority Relative to this Agreement. Subject to
approval by the affirmative vote of the shareholders of the Company, the Company
has all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions, including,
without limitation, the Merger, contemplated hereby (the "Transactions"). The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by the affirmative vote of the holders of a majority of the
outstanding Shares as required by Delaware Law and the Company's Certificate of
Incorporation, and the filing and recordation of the Certificate of Merger as
required by Delaware Law). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company.
SECTION 3.05. No Conflict; Required Filings and Consents.
Except as set forth in Section 3.05 of the Disclosure Schedule, (a) the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Articles of Incorporation or Bylaws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or subject or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance of any nature on any property or asset of the Company or any
Subsidiary pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound or
subject. Any costs and expenses which occur or are reasonably likely to occur as
a result of the failure to obtain the consent of the other parties to the
contracts and agreements listed in Section 3.05 of the Disclosure Schedule prior
to the Effective Time shall be borne by the Company and its Subsidiaries and
shall be considered in determining whether a Material Adverse Effect has
occurred.
(b) The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, state
securities or "blue sky" laws ("Blue Sky Laws") and state takeover laws, the
premerger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act") and the filing and recordation of the Certificate of
Merger as required by Delaware Law, and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Offer or the
Merger, or otherwise
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prevent the Company from performing its obligations under this Agreement, or
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.06. Compliance. Except as set forth in Section 3.06
of the Disclosure Schedule, neither the Company nor any Subsidiary is, in any
material respect, in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or subject or (ii) any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any property or asset of the Company or any Subsidiary is bound or
subject.
SECTION 3.07. SEC Filings; Financial Statements. (a) The
Company has filed all forms, reports and documents required to be filed by it
with the SEC in the past three years, and has heretofore delivered to Parent, in
the form filed with the SEC, (i) its Annual Reports on Form 10-K for the fiscal
years ended December 31, 1996, 1997 and 1998, respectively, (ii) its Quarterly
Reports on Form 10-Q for the periods ended (x) March 31, June 30 and September
30 in 1997 and in 1998, and (y) March 31, 1999, (iii) all proxy statements
relating to the Company's meetings of shareholders (whether annual or special)
held in the past three years and (iv) all other forms, reports and other
registration statements (other than Quarterly Reports on Form 10-Q not referred
to in clause (ii) above) filed by the Company with the SEC in the past three
years (the forms, reports and other documents referred to in clauses (i), (ii),
(iii) and (iv) above being referred to herein, collectively, as the "SEC
Reports"). The most recent SEC Report filed by the Company is its Quarterly
Report on Form 10-Q for the period ended March 31, 1999. The SEC Reports (i)
were prepared in accordance with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), and the Exchange Act, as the case may be, and
the rules and regulations promulgated thereunder and (ii) did not, at the time
they were filed, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary is required to file any form,
report or other document with the SEC.
(b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared from the
books and records of the Company in accordance with generally accepted
accounting principles applied on a consistent basis ("GAAP") throughout the
periods indicated (except as may be indicated in the notes thereto and except,
in the case of unaudited statements, as may be permitted under the Exchange Act)
and each fairly presents the consolidated financial position, results of
operations and changes in shareholders' equity and cash flows of the Company and
the consolidated Subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (subject, in the case of unaudited
financial statements, to normal year-end audit adjustments).
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the consolidated Subsidiaries as at December 31, 1998
including the notes thereto (the "1998 Balance Sheet"), or as reflected on the
consolidated balance sheet of the
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Company and the consolidated Subsidiaries as at May 31, 1999 or in Section 3.07
of the Disclosure Schedule, neither the Company nor any Subsidiary has any
liability or obligation of any nature (whether accrued, absolute, contingent or
otherwise) which would be required to be reflected on a balance sheet, or in the
notes thereto, prepared in accordance with GAAP.
SECTION 3.08. Absence of Certain Changes or Events. Since
December 31, 1998, except as set forth in Section 3.08 of the Disclosure
Schedule or as contemplated by this Agreement or disclosed in any SEC Report
filed since December 31, 1998 and prior to the date of this Agreement, the
Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since
December 31, 1998, there has not been (i) any Material Adverse Effect with
respect to the Company, (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to any property or asset of the Company or
any Subsidiary and having, individually or in the aggregate, a Material Adverse
Effect with respect to the Company, (iii) any material change by the Company in
its accounting methods, principles or practices, with respect to the Company
(iv) any revaluation by the Company of any asset (including, without limitation,
any writing down of the value of inventory or writing off of notes or accounts
receivable), other than in the ordinary course of business consistent with past
practice, (v) any failure by the Company to revalue any asset in accordance with
GAAP consistent with past practice, (vi) any entry by the Company or any
Subsidiary into any commitment or transaction material to the Company and the
Subsidiaries taken as a whole, (vii) any declaration, setting aside or payment
of any dividend or distribution in respect of any capital stock of the Company
or any redemption, purchase or other acquisition of any of its securities,
(viii) other than as set forth in any contracts (as in effect on the date
hereof) referred to in Section 3.10, any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of the Company or any Subsidiary, except customary increases in compensation to
employees generally incurred in the ordinary course of business consistent with
past practice, (ix) any entering into, renewal, modification or extension of,
any material contract, arrangement or agreement with any affiliate of the
Company, or (x) any entering into, renewal, modification or extension of, any
contract, arrangement or agreement with any other party having, individually or
in the aggregate, a Material Adverse Effect with respect to the Company.
SECTION 3.09. Absence of Litigation. Except as set forth in
Section 3.09 of the Disclosure Schedule or as disclosed in the SEC Reports filed
prior to the date of this Agreement, there is no claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or any property or asset of the Company or any
Subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which (i) the amount in
controversy is or could reasonably be expected to be at least $50,000, (ii)
seeks to, or is reasonably likely to, delay or prevent the consummation of any
Transaction or (iii) which, if adversely determined against the Company would
limit, in any material respect, the Company's ability to conduct its business as
currently conducted. As of the date hereof, except as set forth in Section 3.09
of the Disclosure Schedule, neither the Company nor any Subsidiary nor any
property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award. Except as set forth
in Section 3.09 of the Disclosure
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Schedule, the Company and each Subsidiary has notified its insurance companies,
in accordance with the terms and conditions of its insurance policies, of any
pending or, to the knowledge of the Company, threatened litigation, and no
insurance company has denied coverage, reserved its rights to deny coverage or
otherwise advised the Company or any of its Subsidiaries of any defenses
available to such insurance company to deny coverage for any such pending or, to
the knowledge of the Company, threatened litigation.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the
Disclosure Schedule contains a true and complete list of (i) all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, termination, severance or
other contracts or agreements to which the Company or any Subsidiary is a party,
with respect to which the Company or any Subsidiary has any obligation or which
are maintained, contributed to or sponsored by the Company or any Subsidiary for
the benefit of any current or former employee, officer or director of the
Company or any Subsidiary and (ii) each employee benefit plan for which the
Company or any Subsidiary could incur liability under Title IV of ERISA, or in
respect of which the Company or any Subsidiary remains secondarily liable under
Section 4204 of ERISA (collectively, the "Plans"). Except as set forth in
Section 3.10 of the Disclosure Schedule, no Plan is a "defined benefit plan"
within the meaning of Section 3(35) of ERISA and no Plan is subject to Title IV
of ERISA. Each Plan is in writing and the Company has previously furnished
Parent with a true and complete copy of each Plan and a true and complete copy
of each material document prepared in connection with each such Plan, including,
without limitation, (i) a copy of each trust or other funding arrangement, (ii)
each summary plan description and summary of material modifications, (iii) the
most recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared financial statement in connection with each such Plan. Except
as set forth in Section 3.10 of the Disclosure Schedule, neither the Company nor
any Subsidiary has any express or implied commitment (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "Code").
(b) Except as disclosed in Section 3.10 of the Disclosure
Schedule, none of the Plans (i) provides for the payment of separation,
severance, termination or similar-type benefits to any person, (ii) obligates
the Company or any Subsidiary to pay separation, severance, termination or other
benefits as a result of any Transaction or (iii) obligates the Company or any
Subsidiary to make any payment or provide any benefit that could be subject to a
tax under Section 4999 of the Code. Except as disclosed in Section 3.10 of the
Disclosure Schedule, none of the Plans provides for or promises retiree medical,
disability or life insurance
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benefits to any current or former employee, officer or director of the Company
or any Subsidiary.
(c) Except as set forth in Section 3.10 of the Disclosure
Schedule, each Plan which is intended to be qualified under Section 401(a) or
401(k) of the Code has received a favorable determination letter from the IRS
that such Plan is so qualified, and each trust established in connection with
any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. To the knowledge of the Company, no fact or event has
occurred since the date of any such determination letter from the IRS that could
adversely affect the qualified status of any such Plan or the exempt status of
any such trust. Each trust maintained or contributed to by the Company or any
Subsidiary which is intended to be qualified as a voluntary employees'
beneficiary association exempt from federal income taxation under Sections
501(a) and 501(c)(9) of the Code has received a favorable determination letter
from the IRS that it is so qualified and so exempt, and, to the knowledge of the
Company, no fact or event has occurred since the date of such determination by
the IRS that could adversely affect such qualified or exempt status.
(d) There has been no prohibited transaction (within the
meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any
Plan. Neither the Company nor any Subsidiary is currently liable or has
previously incurred any liability for any tax or penalty arising under Section
4971, 4972, 4979, 4980 or 4980B of the Code or Section 502(c) of ERISA, and no
fact or event exists which could give rise to any such liability. Neither the
Company nor any Subsidiary has incurred any liability under, arising out of or
by operation of Title IV of ERISA, including, without limitation, any liability
in connection with (i) the termination or reorganization of any employee pension
benefit plan subject to Title IV of ERISA or (ii) the withdrawal from any
Multiemployer Plan or Multiple Employer Plan, and no fact or event exists which
could give rise to any such liability.
(e) To the knowledge of the Company, each Plan is now and
has been operated in all respects in accordance with the requirements of all
applicable laws, including, without limitation, ERISA and the Code, and the
Company and each Subsidiary have performed all obligations required to be
performed by them under, are not in any respect in default under or in violation
of, and have no knowledge of any default or violation by any party to, any Plan.
All contributions, premiums or payments required to be made with respect to any
Plan have been timely made ,are fully deductible for income tax purposes and no
such deduction previously claimed has been challenged by any government entity.
The 1998 Balance Sheet reflects an accrual of all amounts of employer
contributions and premiums accrued but unpaid with respect to the Plans.
(f) The Company and the Subsidiaries have not incurred
any liability under, and have complied in all material respects with, the Worker
Adjustment Retraining Notification Act and the regulations promulgated
thereunder ("WARN") and do not reasonably expect to incur any such liability as
a result of actions taken or not taken prior to the Effective Time. Section
3.10(f) of the Disclosure Schedule lists (i) all the employees terminated or
laid off by the
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Company or any Subsidiary during the 90 days prior to the date hereof and (ii)
all the employees of the Company or any Subsidiary who have experienced a
reduction in hours of work of more than 50% during any month during the 90 days
prior to the date hereof and describes all notices given by the Company and the
Subsidiaries in connection with WARN. The Company will, by written notice to
Parent and Purchaser, update Section 3.10(f) of the Disclosure Schedule to
include any such terminations, layoffs and reductions in hours from the date
hereof through the Effective Time and will provide Parent and Purchaser with any
related information which they may reasonably request.
SECTION 3.11. Labor Matters. Except as set forth in Section
3.11 of the Disclosure Schedule, (i) there are no controversies pending or, to
the knowledge of the Company, threatened between the Company or any Subsidiary,
on the one hand, and any of their respective employees or former employees, on
the other hand; (ii) neither the Company nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Subsidiary, nor, to the knowledge of the
Company, are there any activities or proceedings of any labor union to organize
any such employees; (iii) neither the Company nor any Subsidiary has breached or
otherwise failed to comply with any provision of any such agreement or contract
and there are no grievances outstanding against the Company or any Subsidiary
under any such agreement or contract; (iv) there are no unfair labor practice
complaints pending or, to the knowledge of the Company, threatened against the
Company or any Subsidiary before the National Labor Relations Board or any
current union representation questions involving employees of the Company or any
Subsidiary; and (v) there is no strike, slowdown, work stoppage or lockout, or,
to the knowledge of the Company, threat thereof, by or with respect to any
employees of the Company or any Subsidiary. Section 3.11 of the Disclosure
Letter sets forth an accurate and complete list of all agreements or
arrangements with employees, consultants (excluding attorneys and investment
banking firms) and agents of the Company or any Subsidiary, including (without
limitation, employment, consulting, severance, stay-bonus, termination or other
agreements or arrangements) where the total compensation to any such employee,
consultant or agent under any such agreement or arrangement (or series of
related agreements or arrangements) exceeds $100,000 in any year.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy
Statement. Neither the Schedule 14D-9 nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, the Offer Documents, or any amendments or supplements thereto
are filed with the SEC or are first published, sent or given to shareholders of
the Company, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. In the event that Purchaser has not
designated a majority of the members of the Board pursuant to the terms of
Section 1.02(d) above and a shareholder vote is required, neither the
information supplied by the Company for inclusion in the proxy statement to be
sent to the shareholders of the Company in connection with the Special
Shareholders' Meeting (as defined in Section 6.01 hereof), nor the information
statement to be sent to shareholders of the Company in connection with the
Merger (such proxy or information statement, as amended or
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supplemented, being referred to herein as the "Proxy Statement") shall not, at
the date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to shareholders of the Company, at the time of the Special Shareholders'
Meeting, if applicable and at the Effective Time, be false or misleading with
respect to any material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Shareholders' Meeting which shall
have become false or misleading. The Schedule 14D-9 and the Proxy Statement
shall comply in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information which is supplied in writing by Parent or Purchaser or which is
excerpted from or derived from public sources other than the Company's public
filings with the SEC.
SECTION 3.13. Tangible Property; Real Property and Leases. (a)
The Company and the Subsidiaries have good and marketable title to all their
tangible properties and assets, free and clear of all liens and encumbrances,
with only such exceptions as are set forth in Section 3.13 of the Disclosure
Schedule, and subject to (i) liens for taxes, assessments or governmental
charges not yet due, (ii) liens incident to construction, common carriers, and
public warehouse storage, which are either not delinquent or are being contested
in good faith by the Company by appropriate proceedings and as to which
appropriate reserves have been established on the 1998 Balance Sheet, (iii)
liens or deposits in connection with workers' compensation, unemployment, or
other insurance, social security laws, or to secure customs' duties, public or
statutory obligations in lieu of surety, stay or appeal bonds, or to secure
performance of contracts or bids (other than contracts for the payment of money
borrowed), or deposits required by law or governmental regulations or by any
court order, decree, judgment or rule as condition to the transaction of
business or the exercise of any right, privilege or license or (iv) other liens
or deposits of a like nature made in the ordinary course of business.
(b) No parcel of real property owned or leased by the
Company or any Subsidiary is subject to any governmental decree or order to be
sold nor is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed or threatened.
(c) All leases of real property leased for the use or
benefit of the Company or any Subsidiary to which the Company or any Subsidiary
is a party having a term in excess of ten years or requiring rental payments in
excess of U.S. $100,000 during the period of the lease and all amendments and
modifications thereto are in full force and effect and have not been modified or
amended, and there exists no default under any such lease by the Company or any
Subsidiary, nor any event which with notice or lapse of time or both would
reasonably be expected to constitute a default thereunder by the Company or any
Subsidiary, nor, to the knowledge of the Company, does there exist any default,
or any event which with notice or lapse of time or both would reasonably be
expected to constitute a default thereunder, by any other party to any such
lease. Section 3.13 of the Disclosure Schedule sets forth an accurate and
complete list of each
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parcel of real property owned or leased by the Company or any Subsidiary and of
the leases and other documents described in the immediately preceding sentence,
and accurate and complete copies of each such lease and other documents have
been provided to the Parent.
SECTION 3.14. Trademarks, Patents and Copyrights. Except as
set forth in Section 3.14 of the Disclosure Schedule, the Company and the
Subsidiaries own or possess adequate licenses or other valid rights to use all
material patents, patent rights, trademarks, trademark rights, trade names,
trade dress, trade name rights, copyrights, servicemarks, trade secrets,
applications for trademarks and for servicemarks, mask works, know-how and other
proprietary rights and information (collectively, "Proprietary Rights") used or
held for use in connection with the business of the Company and the Subsidiaries
as conducted since June 30, 1997, as currently conducted or as contemplated to
be conducted, and the Company is unaware of any assertion or claim challenging
the validity of any of such Proprietary Rights. Except as set forth in Section
3.14 of the Disclosure Schedule, the conduct of the business of the Company and
the Subsidiaries did not, does not and will not conflict in any way with any
Proprietary Rights of any third party that, individually or in the aggregate,
would have a Material Adverse Effect with respect to the Company. Except as set
forth in Section 3.14 of the Disclosure Schedule, there are no infringements of
any Proprietary Rights owned by or licensed by or to the Company or any
Subsidiary. Except as set forth in Section 3.14 of the Disclosure Schedule,
neither the Company nor any Subsidiary has licensed or otherwise permitted the
use by any third party of any Proprietary Rights.
SECTION 3.15. Taxes. The Company and the Subsidiaries have
filed all federal, state, local and foreign tax returns and reports (as defined
below) required to be filed by them and have paid and discharged all taxes (as
defined below) that have become due as of the date hereof, other than such
payments as are being contested in good faith by appropriate proceedings and
other than such payments as to which adequate reserves are set forth on the 1998
Balance Sheet. Neither the IRS nor any other taxing authority or agency,
domestic or foreign, is now asserting or, to the knowledge of the Company,
threatening to assert against the Company or any Subsidiary any deficiency or
claim for additional taxes or interest thereon or penalties in connection
therewith. To the knowledge of the Company's management, no tax return or
taxable period of the Company is under examination by any taxing authority, and
Company has not received written notice of any pending audit by any taxing
authority. Except as set forth on Schedule 3.15 of the Disclosure Schedule, the
Company is not a party to any agreement or contract which would result in
payment of any "excess parachute payment" within the meaning of Section 280G of
the Code. The Company has not been and is not a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code). Neither
the Company nor any Subsidiary has granted any waiver of any statute of
limitations with respect to, or any extension of a period for the assessment of,
any federal, state, county, municipal or foreign income tax which is currently
in effect. The accruals and reserves for taxes reflected in the 1998 Balance
Sheet are adequate to cover all taxes accruable through such date (including
interest and penalties, if any, thereon) in accordance with GAAP. Neither the
Company nor any Subsidiary has made an election under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset owned by the Company or any of the Subsidiaries. For
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purposes of this Agreement, "taxes" shall mean all taxes or other like
assessments including, without limitation, income, withholding, gross receipts,
excise, real or personal property, asset, sales, use, license, payroll,
transaction, capital, net worth and franchise taxes imposed by or payable to any
federal, state, county, local or foreign government, taxing authority,
subdivision or agency thereof, including interest, penalties, additions to tax
or additional amounts thereto. For purposes of this Agreement, "tax return"
shall mean any report, return, declaration or other information required to be
supplied to a taxing authority in connection with taxes. The Transactions,
including the Offer and the Merger, will not cause any change in the taxes
payable by any Subsidiary of the Company.
SECTION 3.16. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) any asbestos or asbestos-containing material, petroleum
and petroleum products, including crude oil and any fractions thereof, natural
gas, natural gas liquids, synthetic gas, polychlorinated biphenyls or radon; (B)
any pollutant or contaminant; or (C) any substance with respect to which a
federal, state or local agency requires environmental investigation, monitoring,
reporting or remediation; and (ii) "Environmental Law" means any federal, state,
foreign, county or local law relating to (A) releases or threatened releases of
Hazardous Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution of the environment or the protection of human
health.
(b) Except as described in Section 3.16 of the Disclosure
Schedule: (i) neither the Company or any of its Subsidiaries, nor any of their
operations, have violated any applicable Environmental Law; (ii) the Company and
each Subsidiary has all material permits and licenses required under any
applicable Environmental Law and is in compliance with all such permits and
licenses; (iii) the soils, surface and ground waters at the properties owned or
leased, currently or in the past, by the Company and each Subsidiary are not
contaminated with any Hazardous Substance; (iv) neither the Company nor any
Subsidiary has received any notice of violation of liability under any
Environmental Law which liability remains unresolved; (v) true, correct and
complete copies of all environmental surveys, reports, assessments and similar
materials which were prepared by or on behalf of the Company, any of its
Subsidiaries or any affiliate of either the Company or any Subsidiary, have been
made available to Parent; and (vi) neither the Company nor any Subsidiary has
contractually assumed any liability of any other person involving Hazardous
Substances or Environmental Laws. Any costs which occur or are reasonably likely
to occur relating to the matters reflected in Section 3.16 of the Disclosure
Schedule shall be borne by the Company and its Subsidiaries and, to the extent
such costs are in excess of $50,000, such excess shall be considered in
determining whether a Material Adverse Effect has occurred.
SECTION 3.17. Material Contracts. Each contract or agreement
to which the Company or any of the Subsidiaries is a party that is material to
the Company or any Subsidiary (a "Material Contract"), or that is between the
Company or any Subsidiary, on the one hand, and any director, officer or
affiliate of the Company, on the other hand (an "Affiliate Contract") is in full
force and effect and is enforceable against the parties thereto (including the
Company and
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the Subsidiaries) in accordance with its terms and no condition or state of
facts exists that, with notice or the passage of time, or both, would constitute
a material default by the Company or any Subsidiary or, to the knowledge of the
Company, any third party under such Material Contracts. The Company or the
applicable Subsidiary and, to the knowledge of the Company, any third party
thereto, has duly complied in all material respects with the provision of each
Material Contract to which it is a party. An accurate and complete list of each
Material Contract and each Affiliate Contract is set forth in Section 3.17 of
the Disclosure Schedule, and accurate and complete copies of each Material
Contract and each Affiliate Contract have been provided to the Parent. The term
Material Contract shall include any agreement, lease, contract, note, mortgage,
indenture, arrangement or other obligation (or any series of related agreements,
lease, contracts, notes, mortgages, indentures, arrangements or other
obligations) entered into by the Company or any of its Subsidiaries (i) of a
nature which would be required to be included as an Exhibit in a registration
statement filed with the SEC under the Securities Act, pursuant to Item
601(b)(10) of Regulation S-K (other than this Agreement); (ii) which involves
the leasing or rental of any significant portion of the real property currently
utilized by the Company or any of the Subsidiaries; (iii) under which the
Company or any Subsidiary has incurred or may incur indebtedness for borrowed
money; (iv) under which the Company or any Subsidiary is leasing any equipment
or other tangible personal property; or (v) which requires the Company or any of
its Subsidiaries to expend funds in excess of $100,000 in any one-year period
and which is not terminable at will by the Company or its Subsidiary, other than
those which relate to the purchase of inventory by the Company or any of its
Subsidiary, each of which shall only be deemed a Material Contract in the event
that it requires the Company or any of its Subsidiaries to expend funds in
excess of $1,000,000 in any one-year period and which is not terminable at will
by the Company or its Subsidiary.
SECTION 3.18. Brokers and Counsel. No broker, finder or
investment banker (other than SG Cowen) is entitled to any brokerage, finder's
or other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Parent a complete and correct copy of all agreements among the
Company or any of its Subsidiaries, on the one hand, and SG Cowen (the "Broker
Agreement") or Stradling Yocca Carlson & Rauth on the other hand (the "Attorney
Engagement") pursuant to which such firms would be entitled to any payment
relating to the Transactions.
SECTION 3.19. Year 2000 Compliance. All computer software,
computerized systems, manufacturing equipment and other systems owned or used by
the Company or any Subsidiary, or licensed by the Company or any Subsidiary, as
licensor or as licensee, other than any shrinkwrap software available to retail
customers, and each product sold by the Company, is "Year 2000 Compliant" (as
hereinafter defined), except as disclosed in Section 3.19 of the Disclosure
Schedule. For purposes of this Agreement, "Year 2000 Compliant" shall mean (i)
all such software and systems shall operate in 4-digit year format and, in all
material respects, without errors in the recognition, calculation and processing
of date data relating to century recognition, leap years, single and
multi-century formulae, date values and interfaces of date-related
functionality's; (ii) all date processing shall be conducted in a four-digit
year format and all date sorting that includes a "year field" or "year category"
shall be based upon a four-digit
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year format; and (iii) any date arithmetic programs or calculators in the
software shall operate in all material respects in accordance with the related
user documentation in the Year 2000, and the years following, without degrading
functionality or performance. The Company and each Subsidiary have taken
appropriate steps to obtain assurances from customers, vendors, suppliers and
licensors as to their Year 2000 Compliance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a material adverse effect on the business
or operations of Parent and Purchaser and their respective subsidiaries, taken
as a whole.
SECTION 4.02. Authority Relative to This Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of Parent or Purchaser are
necessary to authorize this Agreement or to consummate the Transactions (other
than with respect to the Merger, the filing and recordation of the Certificate
of Merger as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Parent and Purchaser do not, and
the performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or Bylaws (or equivalent
documents) of either Parent or Purchaser, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Purchaser pursuant to, any note, bond, mortgage, indenture,
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contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any property or asset of either of them is bound or subject.
(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement by Parent and Purchaser
will not, require any consent, approval, authorization or permit of, or filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except (i) for applicable requirements, if any, of the Exchange Act,
Blue Sky Laws and state takeover laws, the HSR Act and filing and recordation of
the Certificate of Merger as required by Delaware Law and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger, or otherwise prevent Parent or Purchaser from performing their
respective obligations under this Agreement.
SECTION 4.04. Financing. Parent has, or has commitments to obtain,
sufficient funds to permit Purchaser to acquire all the outstanding Shares in
the Offer and the Merger, evidence of which has been provided to the Company.
SECTION 4.05. Offer Documents; Proxy Statement. The Offer
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to shareholders of the Company, as the case
may be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
Proxy Statement and the information statement to be sent to the Company's
shareholders will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to shareholders of the Company, at the time
of the Special Shareholders' Meeting, if applicable, and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Shareholders' Meeting which shall
have become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.
SECTION 4.06. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Parent or
Purchaser.
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ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the
Merger. The Company covenants and agrees that, between the date of this
Agreement and the Effective Time, unless Parent shall otherwise agree in
writing, the businesses of the Company and the Subsidiaries shall be conducted
only in, and the Company and the Subsidiaries shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and the Company shall use its best efforts to preserve substantially
intact the business organization of the Company and the Subsidiaries, to keep
available the services of the current officers, employees and consultants of the
Company and the Subsidiaries and to preserve the current relationships of the
Company and the Subsidiaries with customers, suppliers and other persons with
which the Company or any Subsidiary has significant business relations. By way
of amplification and not limitation, except as contemplated by this Agreement or
by Section 5.01 of the Disclosure Schedule, neither the Company nor any
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Parent:
(a) amend or otherwise change its Articles of Incorporation or Bylaws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any
shares of capital stock of any class of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any Subsidiary (except for the issuance of a maximum of 994,502
Shares issuable pursuant to stock options outstanding or any rights to
purchase Shares under the Company's 1995 Employee Stock Purchase Plan in
effect on the date hereof) or (ii) any material assets of the Company or
any Subsidiary, except for sales in the ordinary course of business and in
a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or
any division thereof or any assets; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, pledge in respect of or otherwise as an accommodation become
responsible
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for the obligations of any person, or make any loans or advances, except in
the ordinary course of business and consistent with past practice, but in
no event shall there be more than $1,000,000 of indebtedness outstanding at
any one time in addition to the total amount of indebtedness outstanding as
of the date of this Agreement; (iii) enter into any contract or agreement
which is outside of the ordinary course of business, consistent with past
practice, or which requires payments by the Company or the Subsidiaries in
an aggregate amount of more than U.S. $100,000, other than contracts or
agreements relating to the purchase of inventory by the Company or the
Subsidiaries in the ordinary course of business, which contracts or
agreements will not be subject to such $100,000 limitation; (iv) terminate,
cancel or permit any change in, or agree to any change in, any Material
Contract, except in the ordinary course of business consistent with past
practice; (v) terminate, cancel or permit any change in, or agree to any
change in, any Affiliate Agreement, Broker Agreement or Attorney
Engagement; (vi) other than the proposed capital expenditures described in
Schedule 5.01(e) of the Disclosure Schedule, authorize any single capital
expenditure which is in excess of U.S. $100,000 or capital expenditures
which are, in the aggregate, in excess of U.S. $250,000 for the Company and
the Subsidiaries taken as a whole; or (vii) enter into or amend any
contract, agreement, commitment or arrangement with respect to any matter
set forth in this Section 5.01(e);
(f) increase the compensation payable or to become payable to its
directors, officers or employees, except for normal increases consistent
with past practices in salaries or wages of employees of the Company or any
Subsidiary who are not officers of the Company, or grant any severance or
termination pay to, or enter into any employment, severance, termination,
stay-bonus or similar agreement with, any director, officer or other
employee of the Company or any Subsidiary, or establish, adopt, enter into
or amend any collective bargaining, bonus, profit sharing, thrift,
compensation (including any sales compensation plan), stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee, or
communicate to employees, accrue any benefits under or otherwise implement
the Company's 1999 Executive Incentive Plan;
(g) take any action, other than (i) reasonable and usual actions in
the ordinary course of business and consistent with past practice or (ii)
as required by the SEC, with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
(h) make any tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(i) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business and consistent with past practice, of
liabilities reflected or reserved against in the 1998 Balance Sheet or
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subsequently incurred in the ordinary course of business and consistent
with past practice or incurred in connection with the Transactions; or
(j) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Special Shareholders' Meeting. The Company,
acting through the Board, shall, in accordance with applicable law and the
Company's Articles of Incorporation and Bylaws, unless not required under
applicable "short-form" merger provisions of Delaware Law, (i) duly call, give
notice of, convene and hold a special meeting of its shareholders as soon as
practicable following consummation of the Offer for the purpose of considering
and taking action on this Agreement and the transactions contemplated hereby
(the "Special Shareholders' Meeting") and (ii) subject to the provisions of
Sections 6.04 and 8.01 below, (A) include in the Proxy Statement the unanimous
recommendation of the Board that the shareholders of the Company approve and
adopt this Agreement and the Transactions, including, without limitation, the
Merger and (B) use its best efforts to obtain such approval and adoption. At the
Special Shareholders' Meeting (or by consent if a shareholders meeting is not
required), Parent and Purchaser shall cause all Shares then owned by them and
their subsidiaries to be voted in favor of the approval and adoption of this
Agreement and the Transactions, including, without limitation, the Merger.
SECTION 6.02. Proxy Statement. As soon as practicable
following consummation of the Offer, the Company shall file the Proxy Statement
with the SEC under the Exchange Act, unless not required under applicable
"short-form" merger provisions of Delaware Law, and shall use its best efforts
to have the Proxy Statement cleared by the SEC. Parent, Purchaser and the
Company shall cooperate with each other in the preparation of the Proxy
Statement, and the Company shall notify Parent promptly of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Parent promptly copies of all correspondence between the
Company or any representative of the Company and the SEC. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement prior to
its being filed with the SEC and shall give Parent and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser agrees to use its best efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of and requests
by the SEC and to cause the Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of Shares entitled to vote at
the Special Shareholders' Meeting at the earliest practicable time.
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SECTION 6.03. Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser access at all reasonable times to the officers, employees,
agents, properties, offices, plants and other facilities, books and records of
the Company and each Subsidiary, shall instruct its independent auditors to make
available its accountants' work papers to the officers, employees and agents of
Parent and Purchaser, and shall furnish Parent and Purchaser with all financial,
operating and other data and information as Parent or Purchaser, through its
officers, employees or agents, may reasonably request.
(b) All information obtained by Parent or Purchaser pursuant to this
Section 6.04 shall be kept confidential, by Purchaser, by Parent and by any
other party which is to be afforded access pursuant to Section 6.03(a), in
accordance with the confidentiality agreement, dated February 2, 1999, as
amended on February 3, 1999 (the "Confidentiality Agreement"), between Parent
and the Company.
SECTION 6.04. No Solicitation of Transactions. Neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in (other
than pursuant to the exercise of options outstanding on the date hereof), the
Company or any Subsidiary or any merger, consolidation, business combination,
reorganization, recapitalization or similar transaction involving the Company or
any Subsidiary (each a "Competing Transaction") or participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Company and each of its
Subsidiaries will cease and cause to be terminated any existing activities,
discussions or negotiations by or on its behalf with any other person conducted
heretofore with respect to any Competing Transaction and will promptly notify
Parent following receipt of any request by any person relating to any possible
Competing Transaction or information concerning the Company. The Company agrees
that it will not disclose any of the terms of this Agreement or the matters
referred to herein to any other prospective acquiror of the Company until the
Effective Time or earlier if this Agreement is terminated in accordance with its
terms, except to the extent such disclosure is contemplated by this Agreement or
is otherwise required by law or the regulations of the Nasdaq Stock Market.
Nothing contained in this Section 6.04 shall prohibit the Board from furnishing
information to, or entering into discussions or negotiations with, any person in
connection with an unsolicited (from the date of this Agreement) proposal
involving a fully-financed (as represented by such person) Competing Transaction
which is made in writing by such person and which, if consummated, would provide
consideration per Share to the shareholders of the Company in excess of the Per
Share Amount (a "Superior Proposal"), if, and only to the extent that, the Board
determines in good faith, based upon the advice of SG Cowen and the written
advice of Stradling Yocca Carlson & Rauth, that such action is required for the
Board to comply with its fiduciary duties to shareholders under Delaware Law.
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SECTION 6.05. Employee Benefits Matters; Employment Agreements. For a
period of one year from the Effective Time, Parent shall, or shall cause the
Company or the Surviving Corporation to, maintain the Plans (other than the
Stock Option Plans, the Company's 1995 Employee Stock Purchase Plan and the
Company's 1999 Key Employees Stock Ownership Plan) which the Company maintains
for the benefit of, or which are open to, a majority of the employees of the
Company on the terms in effect on the date hereof, or such other plans,
arrangements or programs as will provide employees with benefits that in the
aggregate are substantially equivalent to those provided under the Plans (other
than the Stock Option Plans, the Company's 1995 Employee Stock Purchase Plan and
the Company's 1999 Key Employees Stock Ownership Plan) as in effect on the date
hereof. In addition, Parent shall, or shall cause the Surviving Corporation to,
assume and agree to perform those agreements and policies listed in Schedule
6.05 of the Disclosure Schedule in the same manner and to the same extent that
the Company is required to perform such agreements and policies as of the date
hereof, and Parent shall not, and shall cause the Surviving Corporation to not,
withdraw or modify the obligations of Parent or the Surviving Corporation
thereunder, as the case may be, without obtaining the prior consent of the other
party or parties thereto, or the current beneficiaries thereof.
SECTION 6.06. Directors' and Officers' Indemnification and Insurance.
(a) The Articles of Incorporation and Bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in Article VII of the Bylaws of the Company,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who at the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company, unless
such modification shall be required by law. Any determinations made pursuant to
Section 3 of Article VII of the Bylaws of the Company with respect to the
appropriateness of indemnification shall be made in good faith.
(b) The Company shall, to the extent permitted by Delaware Law,
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation shall, to the extent permitted by Delaware Law, indemnify and hold
harmless, each present and former director, officer, employee, fiduciary and
agent of the Company and each Subsidiary (collectively, the "Indemnified
Parties") against all costs and expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and settlement amounts
paid in connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee, fiduciary or
agent, whether occurring before or after the Effective Time, for a period of six
years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation, (i) the Company or the Surviving Corporation, as
the case may be, shall pay the reasonable fees and expenses of counsel selected
by the Indemnified Parties, which counsel shall be reasonably satisfactory to
the Company or the Surviving Corporation, promptly after statements therefor are
received and (ii) the Company and the Surviving Corporation shall cooperate in
the defense of any such matter; provided, however, that neither the Company nor
the Surviving Corporation shall be liable for any settlement effected without
its written consent (which consent shall not be
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unreasonably withheld); provided further that neither the Company nor the
Surviving Corporation shall be obligated pursuant to this Section 6.06(b) to pay
the fees and expenses of more than one counsel for all Indemnified Parties in
any single action except to the extent that two or more of such Indemnified
Parties shall have conflicting interests in the outcome of such action; and
provided further that, in the event that any claim for indemnification is
asserted or made within such six-year period, all rights to indemnification in
respect of such claim shall continue until the disposition of such claim.
(c) Prior to the Effective Time the Company shall, and
after the Effective Time the Surviving Corporation shall, make reasonable
advances to the Indemnified Parties to cover expenses for which such Indemnified
Parties would otherwise be entitled to indemnification pursuant to this Section
6.06, subject to receipt of an undertaking by the Indemnified Parties to
reimburse the Company for all such amounts advanced if it is subsequently
determined that the Company is not required to indemnify such Indemnified Party.
(d) The Surviving Corporation shall use its best efforts
to maintain in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not materially less favorable) with respect to matters occurring on or prior to
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 6.06(d) more than an
amount per year equal to 150% of current annual premiums paid by the Company for
such insurance, which amount shall be increased by 5% for each year hereafter.
(e) In the event the Company or the Surviving Corporation
or any of their respective successors or assigns (i) consolidates with or merges
into any other person and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such case,
proper provision shall be made so that the successors and assigns of the Company
or the Surviving Corporation, as the case may be, or at Parent's option, Parent,
shall assume the obligations set forth in this Section 6.06.
SECTION 6.07. Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, of any event the occurrence,
or non-occurrence, of which causes any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect and (ii) any
failure of the Company, Parent or Purchaser, as the case may be, to comply with
or satisfy any material covenant, condition or agreement to be complied with or
satisfied by it hereunder.
SECTION 6.08. Further Action; Reasonable Best Efforts. Upon
the terms and subject to the conditions hereof (including, without limitation,
Section 6.04), each of the parties hereto shall (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act
with respect to the Transactions and (ii) use its reasonable best
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efforts to take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the Transactions,
including, without limitation, using its reasonable best efforts to obtain all
licenses, permits (including, without limitation, environmental permits),
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and the Subsidiaries as
are necessary for the consummation of the Transactions and to fulfill the
conditions to the Offer and the Merger. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall use their reasonable best efforts to take all such action.
SECTION 6.09. Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by law or any listing
agreement with a national securities exchange or The Nasdaq Stock Market to
which Parent or the Company is a party.
SECTION 6.10. Confidentiality Agreement. Upon the acceptance for
payment of Shares pursuant to the Offer, the Confidentiality Agreement shall be
deemed to have terminated without further action by the parties thereto.
SECTION 6.11 Financial Statements. As soon as they are made
available to senior management of the Company, the Company shall make available
to Parent copies of all internally generated monthly, quarterly and annual
financial statements, consisting of consolidated balance sheets, and statements
of income and of cash flows.
SECTION 6.12 SEC Reports. The Company shall timely file all
quarterly, annual and other reports and information required to be filed by it
with the SEC under the Exchange Act for all periods through and including the
Effective Time and, promptly after making such filing, shall provide Parent with
an accurate and complete copy thereof. The delivery to Parent of copies of any
such reports and information shall constitute a representation and warranty by
the Company to Parent that such report or information was prepared in accordance
with the requirements of the Exchange Act and did not, at the time it was filed,
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in light of the circumstances in which they were made, not misleading.
SECTION 6.13 Customer Calls. The Company shall, and shall
cause each of its Subsidiaries and the officers, directors, employees and agents
of the Company and its Subsidiaries to, participate with Parent in visiting and
communicating with customers of the Company and its Subsidiaries, as reasonably
requested by Parent prior to the Effective Time.
28
<PAGE> 34
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations
of each party to effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement and the Transactions,
including, without limitation, the Merger, shall have been approved and
adopted by the affirmative vote of the shareholders of the Company (unless
the vote of the shareholders is not required by Delaware Law);
(b) No Order. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of
Shares by Parent or Purchaser or any affiliate of either of them or the
consummation of the Merger illegal or otherwise restricting, preventing or
prohibiting consummation of the Transactions;
(c) Offer. Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that this condition shall only be applicable to
the obligations of Parent or Purchaser if Purchaser's failure to purchase
such Shares is not in breach of this Agreement or the terms of the Offer;
and
(d) HSR Act and Foreign Antitrust Laws. Any waiting period
(and any extension thereof) applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and consummation
of the Merger shall not result in a violation of any applicable material
foreign antitrust or competition law, rule or regulation.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the transactions contemplated hereby by the shareholders of the
Company:
29
<PAGE> 35
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company; or
(b) By Parent, Purchaser or the Company if (i) the Effective
Time shall not have occurred on or before December 31, 1999; provided,
however, that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or (ii) any
court of competent jurisdiction in the United States or other governmental
authority shall have issued an order, decree, ruling or taken any other
action restraining, enjoining or otherwise prohibiting the Offer or the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable; or
(c) By Parent, upon approval of its Board of Directors, if (i)
due to an occurrence or circumstance that would result in a failure to
satisfy any condition set forth in Annex A hereto, Purchaser shall have (A)
failed to commence the Offer within 60 days following the date of this
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer; unless such action
or inaction under (A), (B) or (C) shall have been caused by or resulted
from the failure of Parent or Purchaser to perform in any material respect
any covenant or agreement of either of them contained in this Agreement or
the material breach by Parent or Purchaser of any representation or
warranty of either of them contained in this Agreement or (ii) prior to the
purchase of Shares pursuant to the Offer, the Board or any committee
thereof shall have publicly withdrawn or modified in a manner adverse to
Purchaser or Parent or, after receipt of a proposal involving a Competing
Transaction, upon the request of Parent, shall not have, within four
business days after receipt of Parent's request, publicly reaffirmed, its
approval or recommendation of the Offer, this Agreement, the Merger, the
Shareholder Agreements or any other Transaction, or shall have recommended
another merger, consolidation, business combination, recapitalization,
reorganization or similar transaction involving, or acquisition of, the
Company or its assets, or another tender offer or exchange offer for
Shares, or shall have resolved to do any of the foregoing; or
(d) By the Parent, upon approval of its Board of Directors, if
the Company shall have materially breached its obligations under Section
6.04 above; or
(e) By the Company, upon approval of the Board, if Parent or
Purchaser shall materially breach any of its obligations hereunder and
shall fail to cure such breach within ten days after written notice thereof
from the Company or if due to an occurrence or circumstance that would
result in a failure to satisfy any of the conditions set forth in Annex A
hereto, Purchaser shall have (A) failed to commence the Offer within 60
days following the date of this Agreement, (B) terminated the Offer without
having accepted any Shares for payment thereunder or (C) failed to pay for
Shares pursuant to the Offer within 90 days following the commencement of
the Offer, unless such action or inaction under (A), (B), and (C) shall
have been caused by or resulted from the failure of the
30
<PAGE> 36
Company to perform in any material respect any covenant or agreement of it
contained in this Agreement or the material breach by the Company of any
representation or warranty of it contained in this Agreement; or
(f) by the Company or Parent, prior to the purchase of Shares pursuant
to the Offer, if the Board, in full compliance with the provisions of
Section 6.04 above, shall have approved the execution by the Company of a
definitive agreement relating to a Superior Proposal.
SECTION 8.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void, and there shall be no liability on the part of any party hereto,
except as set forth in Sections 8.03 and 9.01, and nothing herein shall relieve
any party from liability for any breach hereof.
SECTION 8.03. Fees and Expenses. (a) In the event that
(i) any person shall have commenced a tender or exchange offer
for 25% or more (or which, assuming the maximum amount of securities which
could be purchased, would result in any person beneficially owning 25% or
more) of the then outstanding Shares or otherwise publicly announced a
Competing Transaction for the direct or indirect acquisition of the Company
or all or substantially all of its assets and (w) the Board does not
recommend against the Competing Transaction, (x) the Offer shall have
remained open for at least 20 business days, (y) the Minimum Condition
shall not have been satisfied and (z) this Agreement shall have been
terminated pursuant to Section 8.01; or
(ii) this Agreement is terminated (x) pursuant to Section 8.01(c)(ii)
or (y) pursuant to Section 8.01(d) or (z) pursuant to Section 8.01(f);
then, in any such event, the Company shall pay Parent promptly (but in no event
later than one business day after the first of such events shall have occurred)
a fee of U.S. $2,500,000 (the "Fee"), which amount shall be payable in
immediately available funds.
(b) Except as set forth above, all costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such expenses, whether or not any Transaction is consummated.
SECTION 8.04. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the transactions
contemplated hereby by the shareholders of the Company, no amendment may be made
which would reduce the amount or change the type of consideration into which
each Share shall be converted upon consummation of the Merger. This Agreement
may not be amended except by an instrument in writing signed by the parties
hereto.
31
<PAGE> 37
SECTION 8.05. Waiver. At any time prior to the Effective Time,any
party hereto may (i) extend the time for the performance of any obligation or
other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in an
instrument in writing signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Articles II and IX and in Section 6.06 shall survive the Effective Time
indefinitely and those set forth in Section 8.03 and Article IX shall survive
termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by United States express mail (postage prepaid, return receipt
requested) or by overnight courier guaranteeing next business day delivery to
the respective parties at the following addresses (or at such other address for
a party as shall be specified in a notice given in accordance with this Section
9.02):
if to Parent or Purchaser:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
with a copy to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
32
<PAGE> 38
if to the Company:
Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, California 92781
Attention: William Healey, President,
Chief Executive Officer and Chairman of the Board
Facsimile: (714) 838-3130
with a copy to:
Stradling Yocca Carson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
SECTION 9.03. Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
affiliates or associates or person with whom such person or any of its
affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any Shares;
(c) "business day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power
33
<PAGE> 39
to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, as trustee or
executor, by contract or credit arrangement or otherwise;
(e) "person" means an individual, corporation, partnership,
limited partnership, syndicate, person (including, without limitation, a
"person" as defined in Section 13(d)(3) of the Exchange Act), trust,
association or entity or government, political subdivision, agency or
instrumentality of a government; and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means an affiliate controlled by
such person, directly or indirectly, through one or more intermediaries.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.05. Entire Agreement, Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in Sections 6.03(b) and 6.10,
all prior agreements and undertakings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof; provided, however,
the third full paragraph of page 3 of the Confidentiality Agreement shall not be
deemed to reduce or modify the Company's obligations with respect to any
representation or warranty made pursuant to this Agreement. This Agreement shall
not be assigned by operation of law or otherwise, except that Parent and
Purchaser may assign all or any of their rights and obligations hereunder to any
affiliate of Parent provided that no such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Section 6.06 (which is intended to be for
the benefit of the persons covered thereby and may be enforced by such persons).
SECTION 9.07. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or equity.
34
<PAGE> 40
SECTION 9.08. Governing Law. The Merger and the rights of the
shareholders of the Company, this Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws.
SECTION 9.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts; Facsimile. This Agreement may be
executed in one or more counterparts (including by facsimile signature), each of
which shall be an original and all of which, when taken together, shall be one
and the same agreement.
35
<PAGE> 41
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
SATURN ELECTRONICS &
ENGINEERING, INC.
Attest:
/s/ Jereen G. Trudell By: /s/ W. Tsuha
- ---------------------------------- ------------------------------------
Name: Jereen G. Trudell Name: Wallace K. Tsuha, Jr.
Title: President, Chief Executive
Officer and Chairman of the
Board
SSI ACQUISITION CORP.
Attest:
/s/ Jereen G. Trudell By: /s/ W. Tsuha
- ---------------------------------- ------------------------------------
Name: Jereen G. Trudell Name: Wallace K. Tsuha, Jr.
Title: President, Chief Executive
Officer and Chairman of the
Board
SMARTFLEX SYSTEMS, INC.
Attest:
/s/ John Hohener By: /s/ William L. Healy
- ---------------------------------- ------------------------------------
Name: John Hohener Name: William L. Healy
Title: President
36
<PAGE> 42
ANNEX A
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer,
(iii) acceptance for payment of and payment for Shares tendered would result in
a violation of any applicable material foreign antitrust or competition law,
rule or regulation, or (iv) at any time on or after the date of this Agreement,
and prior to the acceptance for payment of Shares, any of the following
conditions shall exist:
(a) there shall have been entered any order, preliminary or
permanent injunction, decree, judgment or ruling in any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, which makes illegal or otherwise directly or
indirectly restrains or prohibits or makes materially more costly the
making of the Offer, the acceptance for payment of, or payment for, any
Shares by Parent, Purchaser or any other affiliate of Parent, or the
consummation of any other Transaction;
(b) there shall have occurred any Material Adverse Effect with
respect to the Company;
(c) (i) the Board or any committee thereof (x) shall have
publicly withdrawn or modified in a manner adverse to Parent or Purchaser
the approval or recommendation of the Offer, the Merger, the Shareholder
Agreements or the Agreement, (y) after the Company's receipt of a proposal
involving a Competing Transaction, shall have failed to reaffirm such
approval or recommendation upon request by Parent within four business days
after the Company's receipt of Parent's request or (z) shall have approved
or recommended any takeover proposal or any other acquisition of Shares
other than the Offer and the Merger, or (ii) the Board or any committee
thereof shall have resolved to do any of the foregoing;
(d) there shall have been any breach of warranty by, the
Company in the Agreement as a result of which, individually or in the
aggregate, there is, or may reasonably be expected to occur a Material
Adverse Effect with respect to the Company;
(e) the Company shall have failed to perform in any material
respect any obligation or to comply in any material respect with any
material agreement or material covenant of the Company to be performed or
complied with by it under the Agreement;
37
<PAGE> 43
(f) the Agreement shall have been terminated in accordance with its
terms; or
(g) Purchaser and the Company shall have agreed (i) that Purchaser
shall terminate the Offer or (ii) that Purchaser shall postpone the
acceptance for payment of or payment for Shares thereunder which, in the
sole judgment of Purchaser, in any such case, and regardless of the
circumstances (including any action or inaction by Parent or any of its
affiliates) giving rise to any such condition, makes it inadvisable to
proceed with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and
Parent and may be asserted by Purchaser or Parent regardless of the
circumstances giving rise to any such condition or may be waived by Purchaser or
Parent in whole or in part at any time and from time to time in their sole
discretion. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
38
<PAGE> 44
SCHEDULE I
William Healey
William Bendush
Alan King
William Klein
Gary Liebl
Anthony Richardson
John Hohener
Richard Bell
James Cogan
Christopher Rollison
Cheryl Moreno
39
<PAGE> 1
EXHIBIT 3
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> 2
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> 3
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> 4
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> 5
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> 6
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> 7
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> 8
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> 9
(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> 10
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> 11
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> 12
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>
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(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> 13
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> 14
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> 15
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> 16
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> 1
EXHIBIT 4
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among William L. Healey ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 250,379 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of any
proposal or offer from any person (other than Saturn or Merger Sub) relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
4
<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
William L. Healey
27682 Pinestrap Circle
Laguna Hills, California 92653
Facsimile: (949) 831-6656
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
<PAGE> 7
District Court for the Central District of California and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and agrees that any service of process in connection with any
dispute arising out of this Agreement or the Merger may be given to any other
party hereto by certified mail, return receipt requested, at the respective
addresses set forth in Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a breach
of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
---------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ William L. Healey
---------------------------------------
Name: William L. Healey
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- ---------------------------
Name: William L. Healey
Number of shares of Common Stock owned of record as of the date of this
proxy: 164,879
10
<PAGE> 1
EXHIBIT 5
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among William E. Bendush ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of the date hereof, 17,875 shares of Common Stock (the "Existing
Shares", together with any shares of Common Stock beneficial ownership of which
is acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing Shares
are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of
any proposal or offer from any person (other than Saturn or Merger Sub) relating
to any acquisition or purchase of all or any material portion of the assets of,
or any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
4
<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect,
to notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly
set forth herein, none of the representations, warranties, covenants and
agreements made by Stockholder, Saturn or Merger Sub in this Agreement will
survive the Closing hereunder.
10. Notices. All notices or other communication required or
permitted hereunder will be in writing, will be given by hand delivery, U.S.
Express Mail (return receipt requested), overnight courier guaranteeing next
business day delivery, or facsimile, and will be deemed duly given when
received, addressed as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
William E. Bendush
27861 Horseshoe Bend
San Juan Capistrano, California 92675
Facsimile: (949) 493-3813
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
6
<PAGE> 7
District Court for the Central District of California and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and agrees that any service of process in connection with any
dispute arising out of this Agreement or the Merger may be given to any other
party hereto by certified mail, return receipt requested, at the respective
addresses set forth in Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts (including by facsimile signature), each
of which will be deemed to be an original and all of which together will
constitute one and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver
such additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed
or implied, will be construed to give any person other than the parties hereto
any legal or equitable right, remedy or claim under or by reason of this
Agreement or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Saturn, Merger
Sub and Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ William E. Bendush
-------------------------------------------
Name: William E. Bendush
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- -------------------------------
Name: William E. Bendush
Number of shares of Common Stock owned of record as of the date of this proxy: 0
10
<PAGE> 1
EXHIBIT 6
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July 6,
1999 by and among Alan V. King ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems, Inc.,
a Delaware corporation ("Smartflex"), are entering into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), pursuant to which Merger
Sub agrees to make a tender offer (the "Offer") for all of the outstanding
shares of common stock, $.0025 par value (the "Common Stock") of Smartflex, at a
price of $10.50 per share (the "Offer Price"), in cash, following which
Smartflex will be merged with and into Merger Sub, with Smartflex as the
Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 21,875 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days of
commencement of the Offer, and not withdraw any such Shares, except to the
extent that the tender of shares (including Shares acquired after the date
hereof) pursuant to the Offer would subject Stockholder to liability under
Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of Smartflex,
however called, and in any action by consent of the stockholders of
Smartflex, Stockholder will: (a) vote all Shares beneficially owned by it
in favor of the Merger; (b) vote all Shares beneficially owned by it
against any action or agreement that would result in a breach of any
covenant or any representation or warranty or any other obligation or
agreement of Smartflex under or pursuant to the Merger Agreement; (c) vote
all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay, postpone
or attempt to discourage, the Merger or the Offer including, but not
limited to, (i) any corporate transaction not entered into in the ordinary
course of business (other than the Merger), including, but not limited to,
a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a
sale or transfer of a material amount of assets of Smartflex or any of its
subsidiaries, (iii) any change in the board of directors of Smartflex, (iv)
any material change in the capitalization of Smartflex, (v) any change in
the charter, by-laws or other organizational or constitutive documents of
Smartflex, or (vi) any other material change in the corporate structure or
business of Smartflex; and (d) without limiting the foregoing, consult with
Saturn and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of the
Merger Agreement. Notwithstanding the foregoing, Stockholder may take any
action in his or her role as a director or officer of Smartflex as
permitted under Sections 6.04 and 8.01(e) of the Merger Agreement. This
Agreement is intended to bind Stockholder only with respect to the specific
matters set forth herein and shall not prohibit the Stockholder from acting
in accordance with his or her fiduciary duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution of this
Agreement: (i) Stockholder will deliver to Saturn a proxy in the form
attached hereto as Exhibit A, which will be irrevocable to the fullest
extent permitted by law (the "Proxy"), with respect to all Shares owned of
record by Stockholder; and (ii) Stockholder will cause to be delivered to
Saturn additional Proxies executed on behalf of each record owner of any
Shares owned beneficially (but not owned of record) by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder represents
and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing Shares are
all of the Shares currently beneficially owned by Stockholder. On the Closing
Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal right,
power and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by Saturn and Merger Sub
will not violate the charter, bylaws or other organizational or constitutive
documents of Saturn or Merger Sub, or any other agreement, contract or
arrangement to which Saturn or Merger Sub is a party or is bound. This Agreement
has been duly executed and delivered by each of Saturn and Merger Sub and
constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections 5,
6 and 19 which will survive any termination of this Agreement), will terminate
on the earliest to occur of (a) the date on which Merger Sub accepts for payment
the Shares tendered in the Offer, so long as the Shares are so tendered and not
withdrawn, (b) the Effective Time (as defined in the Merger Agreement), and (c)
simultaneously with the termination of the Merger Agreement in accordance with
its terms.
5. Expenses. Except as provided in Section 19, each party hereto will pay
all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this Agreement,
Stockholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of any
proposal or offer from any person (other than Saturn or Merger Sub) relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
4
<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to notify
Saturn promptly of the number of any shares of Common Stock beneficial ownership
of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the execution
of this Agreement (and from time to time prior to the termination of this
Agreement), Stockholder will cause Smartflex to provide for each certificate
representing Shares beneficially owned by Stockholder to bear a legend in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THE STOCK TENDER AND VOTING AGREEMENT AND ARE
SUBJECT TO THE IRREVOCABLE PROXY REFERRED TO THEREIN, EACH DATED AS OF
JULY 6, 1999, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND
COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Alan V. King
14472 Oak Place
Saratoga, California 95070
Facsimile: (978) 428-5538
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns and personal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto without the
prior written consent of the other parties, except that Merger Sub may assign
any or all of its rights and obligations hereunder to Saturn or any direct or
indirect wholly-owned subsidiary of Saturn without the consent of Stockholder or
Company, but no such transfer will relieve Merger Sub of its obligations under
this Agreement if such subsidiary does not perform the obligations of Merger Sub
hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
6
<PAGE> 7
District Court for the Central District of California and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and agrees that any service of process in connection with any
dispute arising out of this Agreement or the Merger may be given to any other
party hereto by certified mail, return receipt requested, at the respective
addresses set forth in Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a breach of
any provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party will be entitled to obtain in
any court of competent jurisdiction a decree of specific performance or to
enjoin the continuing breach of such provision, in each case without the
requirement that a bond be posted, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining such relief, the aggrieved party will
not be precluded from seeking or obtaining any other relief to which it may be
entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed in
any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by any
party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to be
executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ Alan V. King
--------------------------------------------
Name: Alan V. King
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement pursuant to Section 8.01 thereof or
the Effective Time at any meeting of the stockholders of Smartflex, however
called, or in any written action by consent of stockholders of Smartflex: (a) in
favor of the Merger; (b) against any action or agreement that would result in a
breach of any covenant or any representation or warranty or any other obligation
or agreement of Smartflex under or pursuant to the Merger Agreement; or (c)
against any action or agreement that would impede, interfere with, delay,
postpone, or attempt to discourage the Merger or the Offer including, but not
limited to, (i) any corporate transaction not entered into in the ordinary
course of business (other than the Merger), including, but not limited to, a
merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable, in
any jurisdiction will, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this proxy or affecting the validity or
enforceability of any of the terms or provisions of this proxy in any other
jurisdiction. If any provision of this proxy is so broad as to be unenforceable,
the provision will be interpreted to be only so broad as is enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- ------------------------------------
Name: Alan V. King
Number of shares of Common Stock owned of record as of the date of this proxy:
14,000
10
<PAGE> 1
EXHIBIT 7
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among William A. Klein ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 15,875 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against
<PAGE> 2
any action or agreement that would result in a breach of any covenant
or any representation or warranty or any other obligation or agreement
of Smartflex under or pursuant to the Merger Agreement; (c) vote all
Shares beneficially owned by it against any action or agreement that
would impede, interfere with, delay, postpone or attempt to discourage,
the Merger or the Offer including, but not limited to, (i) any
corporate transaction not entered into in the ordinary course of
business (other than the Merger), including, but not limited to, a
merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii)
a sale or transfer of a material amount of assets of Smartflex or any
of its subsidiaries, (iii) any change in the board of directors of
Smartflex, (iv) any material change in the capitalization of Smartflex,
(v) any change in the charter, by-laws or other organizational or
constitutive documents of Smartflex, or (vi) any other material change
in the corporate structure or business of Smartflex; and (d) without
limiting the foregoing, consult with Saturn and vote all Shares
beneficially owned by it in such manner as is determined by Saturn to
be in compliance with the provisions of this Section 1.2. Stockholder
acknowledges receipt and review of a copy of the Merger Agreement.
Notwithstanding the foregoing, Stockholder may take any action in his
or her role as a director or officer of Smartflex as permitted under
Sections 6.04 and 8.01(e) of the Merger Agreement. This Agreement is
intended to bind Stockholder only with respect to the specific matters
set forth herein and shall not prohibit the Stockholder from acting in
accordance with his or her fiduciary duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing Shares
are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this Agreement,
Stockholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of any
proposal or offer from any person (other than Saturn or Merger Sub) relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
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<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER AND
VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF WHICH
ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly
set forth herein, none of the representations, warranties, covenants and
agreements made by Stockholder, Saturn or Merger Sub in this Agreement will
survive the Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
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<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
William A. Klein
101 Via Lido Sound
Newport Beach, California 92663
Facsimile: (949) 723-1034
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
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<PAGE> 7
District Court for the Central District of California and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and agrees that any service of process in connection with any
dispute arising out of this Agreement or the Merger may be given to any other
party hereto by certified mail, return receipt requested, at the respective
addresses set forth in Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts (including by facsimile signature), each
of which will be deemed to be an original and all of which together will
constitute one and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver
such additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed
or implied, will be construed to give any person other than the parties hereto
any legal or equitable right, remedy or claim under or by reason of this
Agreement or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Saturn, Merger
Sub and Stockholder.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
-----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
-----------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ William A. Klein
--------------------------------------------
Name: William A. Klein
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<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
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<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- ---------------------------------
Name: William A. Klein
Number of shares of Common Stock owned of record as of the date of this proxy:
8,000
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EXHIBIT 8
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among Gary E. Liebl ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 15,875 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution of
this Agreement: (i) Stockholder will deliver to Saturn a proxy in the
form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing Shares
are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
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transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
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<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of
any proposal or offer from any person (other than Saturn or Merger Sub) relating
to any acquisition or purchase of all or any material portion of the assets of,
or any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
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<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect,
to notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly
set forth herein, none of the representations, warranties, covenants and
agreements made by Stockholder, Saturn or Merger Sub in this Agreement will
survive the Closing hereunder.
10. Notices. All notices or other communication required or
permitted hereunder will be in writing, will be given by hand delivery, U.S.
Express Mail (return receipt requested), overnight courier guaranteeing next
business day delivery, or facsimile, and will be deemed duly given when
received, addressed as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
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<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Gary E. Liebl
1082 Country Hills Drive
Santa Ana, California 92705
Facsimile: (714) 838-0296
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
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<PAGE> 7
District Court for the Central District of California and, in connection
therewith, each party to this Agreement hereby consents to the jurisdiction of
such courts and agrees that any service of process in connection with any
dispute arising out of this Agreement or the Merger may be given to any other
party hereto by certified mail, return receipt requested, at the respective
addresses set forth in Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a breach
of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver
such additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Saturn, Merger
Sub and Stockholder.
[Remainder of page intentionally left blank.]
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<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
--------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer
` and Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
--------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ Gary E. Liebl
-----------------------------------------------
Name: Gary E. Liebl
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
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<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- --------------------------------
Name: Gary E. Liebl
Number of shares of Common Stock owned of record as of the date of this proxy:
8,000
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<PAGE> 1
EXHIBIT 9
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among Anthony R. W. Richardson ("Stockholder"), Saturn
Electronics & Engineering, Inc., a Michigan corporation ("Saturn"), and SSI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 26,375 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
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<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or
regulation applicable to Stockholder, or (ii) any order, judgment or decree by
which Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal right,
power and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by Saturn and Merger Sub
will not violate the charter, bylaws or other organizational or constitutive
documents of Saturn or Merger Sub, or any other agreement, contract or
arrangement to which Saturn or Merger Sub is a party or is bound. This Agreement
has been duly executed and delivered by each of Saturn and Merger Sub and
constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein
or in the Merger Agreement and except for filings required pursuant to the
Exchange Act, and the rules and regulations thereunder or disclosures
Stockholder's legal counsel advises in writing are necessary in order to
fulfill Stockholder's obligations imposed by law, in which event Stockholder
will give prompt prior notice of such disclosure to Saturn and cooperate with
Saturn in obtaining a protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of
any proposal or offer from any person (other than Saturn or Merger Sub) relating
to any acquisition or purchase of all or any material portion of the
assets of, or any equity interest in (other than pursuant to the exercise of
options outstanding on the date hereof), Smartflex or any subsidiary of
Smartflex, or any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary
of Smartflex (each a "Competing Transaction"), or participate in any
discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise, cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by
any person (other than Saturn and Merger Sub) to do or seek any of the
foregoing, Stockholder will cease and cause to be terminated any existing
activities, discussions or negotiations by or on its behalf with any person
(other than Saturn and Merger Sub) conducted heretofore with respect to
any Competing Transaction and will promptly notify Saturn following receipt of
any request by any person (other than Saturn or Merger Sub) relating to any
possible Competing Transaction or information concerning Smartflex. Nothing
contained herein will prohibit Stockholder, solely in his capacity as an
officer or as a member of the board of directors of Smartflex (the "Board"),
from furnishing information to, or entering into discussions or negotiations
with, any person (other than Saturn and Merger Sub) in connection with an
unsolicited proposal involving a fully-financed (as represented by such person)
Competing Transaction which is made in writing by such person (other than
Saturn and Merger Sub) and which, if consummated, would provide consideration
per share, of Common Stock to the stockholders of Smartflex in excess of the
Offer Price if, and only to the extent that, the Board determines in good
faith, based upon the advice of SG Cowen Securities Corporation and the
written advice of Stradling Yocca Carlson & Rauth, that such action is required
for the Board to comply with its fiduciary duties to stockholders under
Delaware law.
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<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
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<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Anthony R. W. Richardson
29962 Hillsdale Terrace
San Juan Capistrano, California 92675
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
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<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in
Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a breach
of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
------------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer
and Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
------------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ A.R.W. Richardson
-----------------------------------------------------
Name: A.R.W. Richardson
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- -----------------------------------
Name: Anthony R.W. Richardson
Number of shares of Common Stock owned of record as of the date of this proxy:
2,000
10
<PAGE> 1
EXHIBIT 10
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among John W. Hohener ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 57,113 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or
regulation applicable to Stockholder, or (ii) any order, judgment or decree by
which Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein
or in the Merger Agreement and except for filings required pursuant to the
Exchange Act, and the rules and regulations thereunder or disclosures
Stockholder's legal counsel advises in writing are necessary in order to
fulfill Stockholder's obligations imposed by law, in which event Stockholder
will give prompt prior notice of such disclosure to Saturn and cooperate with
Saturn in obtaining a protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement
or understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the
submission of any proposal or offer from any person (other than Saturn or
Merger Sub) relating to any acquisition or purchase of all or any material
portion of the assets of, or any equity interest in (other than pursuant to the
exercise of options outstanding on the date hereof), Smartflex or any
subsidiary of Smartflex, or any merger, consolidation, business combination,
reorganization, recapitalization or similar transaction involving Smartflex or
any subsidiary of Smartflex (each a "Competing Transaction"), or participate in
any discussions or negotiations regarding, or furnish to any other person any
information with respect to, or otherwise, cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any person
(other than Saturn and Merger Sub) to do or seek any of the foregoing,
Stockholder will cease and cause to be terminated any existing activities,
discussions or negotiations by or on its behalf with any person (other than
Saturn and Merger Sub) conducted heretofore with respect to any Competing
Transaction and will promptly notify Saturn following receipt of any request
by any person (other than Saturn or Merger Sub) relating to any possible
Competing Transaction or information concerning Smartflex. Nothing contained
herein will prohibit Stockholder, solely in his capacity as an officer or as a
member of the board of directors of Smartflex (the "Board"), from furnishing
information to, or entering into discussions or negotiations with, any person
(other than Saturn and Merger Sub) in connection with an unsolicited proposal
involving a fully-financed (as represented by such person) Competing
Transaction which is made in writing by such person (other than Saturn and
Merger Sub) and which, if consummated, would provide consideration per share, of
Common Stock to the stockholders of Smartflex in excess of the Offer Price if,
and only to the extent that, the Board determines in good faith, based upon the
advice of SG Cowen Securities Corporation and the written advice of Stradling
Yocca Carlson & Rauth, that such action is required for the Board to comply with
its fiduciary duties to stockholders under Delaware law.
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<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
John W. Hohener
21861 Via Del Lago
Trabuco Canyon, California 92679
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
6
<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in
Section 10 above.
14. Injunctive Relief. The parties agree that in the event of a breach
of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
---------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
---------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ John Hohener
---------------------------------
Name: John Hohener
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
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<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- ------------------------------
Name: John W. Hohener
Number of shares of Common Stock owned of record as of the date of this proxy:
30,613
10
<PAGE> 1
EXHIBIT 11
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among Richard D. Bell ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex
Systems, Inc., a Delaware corporation ("Smartflex"), are entering into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
pursuant to which Merger Sub agrees to make a tender offer (the "Offer") for all
of the outstanding shares of common stock, $.0025 par value (the "Common Stock")
of Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of the date hereof, 75,649 shares of Common Stock (the "Existing
Shares", together with any shares of Common Stock beneficial ownership of which
is acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement
in reliance on Stockholder's representations, warranties, covenants and
agreement hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub.
Saturn and Merger Sub, jointly and severally, represent and warrant to
Stockholder as follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of
Sections 5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto
will pay all of its expenses in connection with the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of its
counsel and other advisers. The provisions of this Section 5 will survive the
Closing hereunder.
6. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of any
proposal or offer from any person (other than Saturn or Merger Sub) relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
4
<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly
set forth herein, none of the representations, warranties, covenants and
agreements made by Stockholder, Saturn or Merger Sub in this Agreement will
survive the Closing hereunder.
10. Notices. All notices or other communication required or
permitted hereunder will be in writing, will be given by hand delivery, U.S.
Express Mail (return receipt requested), overnight courier guaranteeing next
business day delivery, or facsimile, and will be deemed duly given when
received, addressed as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman
of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Richard D. Bell
44 Glen Echo
Dove Canyon, California 92679
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
6
<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in Section
10 above.
14. Injunctive Relief. The parties agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts (including by facsimile signature), each
of which will be deemed to be an original and all of which together will
constitute one and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver
such additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, will be construed to give any person other than the
parties hereto any legal or equitable right, remedy or claim under or by reason
of this Agreement or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced
by any party to this Agreement to enforce or recover damages for any breach of
the provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Saturn, Merger
Sub and Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ Richard D. Bell
------------------------------------------
Name: Richard D. Bell
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- --------------------------------------
Name: Richard D. Bell
Number of shares of Common Stock owned of record as of the date of this proxy:
50,399
10
<PAGE> 1
EXHIBIT 12
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among James Cogan ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex
Systems, Inc., a Delaware corporation ("Smartflex"), are entering into an
Agreement and Plan of Merger of even date herewith (the "Merger Agreement"),
pursuant to which Merger Sub agrees to make a tender offer (the "Offer") for all
of the outstanding shares of common stock, $.0025 par value (the "Common Stock")
of Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), as of the date hereof, no shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement
in reliance on Stockholder's representations, warranties, covenants and
agreement hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub.
Saturn and Merger Sub, jointly and severally, represent and warrant to
Stockholder as follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of
Sections 5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto
will pay all of its expenses in connection with the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of its
counsel and other advisers. The provisions of this Section 5 will survive the
Closing hereunder.
6. Confidentiality. Stockholder recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of
any proposal or offer from any person (other than Saturn or Merger Sub) relating
to any acquisition or purchase of all or any material portion of the assets of,
or any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
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<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly
set forth herein, none of the representations, warranties, covenants and
agreements made by Stockholder, Saturn or Merger Sub in this Agreement will
survive the Closing hereunder.
10. Notices. All notices or other communication required or
permitted hereunder will be in writing, will be given by hand delivery, U.S.
Express Mail (return receipt requested), overnight courier guaranteeing next
business day delivery, or facsimile, and will be deemed duly given when
received, addressed as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman
of the Board
Facsimile: (248) 853-2645
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With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
James Cogan
6865 Thornhill Drive
Oakland, California 94611
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
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<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in Section
10 above.
14. Injunctive Relief. The parties agree that in the event of a
breach of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts (including by facsimile signature), each
of which will be deemed to be an original and all of which together will
constitute one and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver
such additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, will be construed to give any person other than the
parties hereto any legal or equitable right, remedy or claim under or by reason
of this Agreement or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced
by any party to this Agreement to enforce or recover damages for any breach of
the provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a written document executed by Saturn, Merger
Sub and Stockholder.
[Remainder of page intentionally left blank.]
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<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
------------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
------------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ James C. Cogan
------------------------------------------------
Name: James C. Cogan
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
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<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- -------------------------------------------
Name: James Cogan
Number of shares of Common Stock owned of record as of the date of this proxy: 0
10
<PAGE> 1
EXHIBIT 13
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July
6, 1999 by and among Christopher Rollison ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems,
Inc., a Delaware corporation ("Smartflex"), are entering into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), pursuant to which
Merger Sub agrees to make a tender offer (the "Offer") for all of the
outstanding shares of common stock, $.0025 par value (the "Common Stock") of
Smartflex, at a price of $10.50 per share (the "Offer Price"), in cash,
following which Smartflex will be merged with and into Merger Sub, with
Smartflex as the Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 50,292 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days
of commencement of the Offer, and not withdraw any such Shares, except
to the extent that the tender of shares (including Shares acquired
after the date hereof) pursuant to the Offer would subject Stockholder
to liability under Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time
this Agreement is in effect, at any meeting of the stockholders of
Smartflex, however called, and in any action by consent of the
stockholders of Smartflex, Stockholder will: (a) vote all Shares
beneficially owned by it in favor of the Merger; (b) vote all Shares
beneficially owned by it against any action or agreement that would
result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the
Merger Agreement; (c) vote all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay,
postpone or attempt to discourage, the Merger or the Offer including,
but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but
not limited to, a merger, other business combination, reorganization,
consolidation, recapitalization, dissolution or liquidation involving
Smartflex, (ii) a sale or transfer of a material amount of assets of
Smartflex or any of its subsidiaries, (iii) any change in the board of
directors of Smartflex, (iv) any material change in the capitalization
of Smartflex, (v) any change in the charter, by-laws or other
organizational or constitutive documents of Smartflex, or (vi) any
other material change in the corporate structure or business of
Smartflex; and (d) without limiting the foregoing, consult with Saturn
and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of
the Merger Agreement. Notwithstanding the foregoing, Stockholder may
take any action in his or her role as a director or officer of
Smartflex as permitted under Sections 6.04 and 8.01(e) of the Merger
Agreement. This Agreement is intended to bind Stockholder only with
respect to the specific matters set forth herein and shall not prohibit
the Stockholder from acting in accordance with his or her fiduciary
duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution
of this Agreement: (i) Stockholder will deliver to Saturn a proxy in
the form attached hereto as Exhibit A, which will be irrevocable to the
fullest extent permitted by law (the "Proxy"), with respect to all
Shares owned of record by Stockholder; and (ii) Stockholder will cause
to be delivered to Saturn additional Proxies executed on behalf of each
record owner of any Shares owned beneficially (but not owned of record)
by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder
represents and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing
Shares are all of the Shares currently beneficially owned by Stockholder. On the
Closing Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal
capacity, right, power and authority to enter into and perform all of
Stockholder's obligations under this Agreement. The execution and delivery of
this Agreement by Stockholder will not violate any agreement, contract or
arrangement to which Stockholder is a party or is bound, including, without
limitation, any voting agreement, stockholders agreement or voting trust. This
Agreement has been duly executed and delivered by Stockholder and constitutes a
legal, valid and binding agreement of Stockholder, enforceable in accordance
with its terms. Neither the execution or delivery of this Agreement nor the
consummation by Stockholder of the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal
right, power and authority to enter into and perform all of its obligations
under this Agreement. The execution and delivery of this Agreement by Saturn and
Merger Sub will not violate the charter, bylaws or other organizational or
constitutive documents of Saturn or Merger Sub, or any other agreement, contract
or arrangement to which Saturn or Merger Sub is a party or is bound. This
Agreement has been duly executed and delivered by each of Saturn and Merger Sub
and constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will
pay all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this
Agreement, Stockholder agrees, while this Agreement is in effect, not to,
directly or indirectly:
(a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of
any proposal or offer from any person (other than Saturn or Merger Sub) relating
to any acquisition or purchase of all or any material portion of the assets of,
or any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
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7.2 Stockholder agrees, while this Agreement is in effect, to
notify Saturn promptly of the number of any shares of Common Stock beneficial
ownership of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the
execution of this Agreement (and from time to time prior to the termination of
this Agreement), Stockholder will cause Smartflex to provide for each
certificate representing Shares beneficially owned by Stockholder to bear a
legend in the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
EXCHANGED OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE TERMS AND CONDITIONS OF THE STOCK TENDER
AND VOTING AGREEMENT AND ARE SUBJECT TO THE IRREVOCABLE PROXY
REFERRED TO THEREIN, EACH DATED AS OF JULY 6, 1999, AS SUCH
AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND COPIES OF
WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman
of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Christopher Rollison
28902 Via Hacienda
San Juan Capistrano, California 92675
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
personal representatives, but neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned by any of the parties hereto
without the prior written consent of the other parties, except that Merger Sub
may assign any or all of its rights and obligations hereunder to Saturn or any
direct or indirect wholly-owned subsidiary of Saturn without the consent of
Stockholder or Company, but no such transfer will relieve Merger Sub of its
obligations under this Agreement if such subsidiary does not perform the
obligations of Merger Sub hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
6
<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in Section
10 above.
14. Injunctive Relief. The parties agree that in the event of a breach
of any provision of this Agreement, the aggrieved party may be without an
adequate remedy at law. The parties therefore agree that in the event of a
breach of any provision of this Agreement, the aggrieved party will be entitled
to obtain in any court of competent jurisdiction a decree of specific
performance or to enjoin the continuing breach of such provision, in each case
without the requirement that a bond be posted, as well as to obtain damages for
breach of this Agreement. By seeking or obtaining such relief, the aggrieved
party will not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by
any party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
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<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to
be executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
----------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
----------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ Chris Rollison
----------------------------------------------
Name: Chris Rollison
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted
in connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may
exercise this proxy, to vote the Shares at any time until the earlier to occur
of the valid termination of the Merger Agreement pursuant to Section 8.01
thereof or the Effective Time at any meeting of the stockholders of Smartflex,
however called, or in any written action by consent of stockholders of
Smartflex: (a) in favor of the Merger; (b) against any action or agreement that
would result in a breach of any covenant or any representation or warranty or
any other obligation or agreement of Smartflex under or pursuant to the Merger
Agreement; or (c) against any action or agreement that would impede, interfere
with, delay, postpone, or attempt to discourage the Merger or the Offer
including, but not limited to, (i) any corporate transaction not entered into in
the ordinary course of business (other than the Merger), including, but not
limited to, a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of
the undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable,
in any jurisdiction will, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this proxy or affecting the
validity or enforceability of any of the terms or provisions of this proxy in
any other jurisdiction. If any provision of this proxy is so broad as to be
unenforceable, the provision will be interpreted to be only so broad as is
enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- -------------------------------------
Name: Christopher Rollison
Number of shares of Common Stock owned of record as of the date of this proxy:
22,042
10
<PAGE> 1
EXHIBIT 14
STOCK TENDER AND VOTING AGREEMENT
STOCK TENDER AND VOTING AGREEMENT (this "Agreement"), dated as of July 6,
1999 by and among Cheryl Moreno ("Stockholder"), Saturn Electronics &
Engineering, Inc., a Michigan corporation ("Saturn"), and SSI Acquisition Corp.,
a Delaware corporation and a wholly-owned subsidiary of Saturn ("Merger Sub").
RECITALS
A. Concurrently herewith Saturn, Merger Sub and Smartflex Systems, Inc.,
a Delaware corporation ("Smartflex"), are entering into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), pursuant to which Merger
Sub agrees to make a tender offer (the "Offer") for all of the outstanding
shares of common stock, $.0025 par value (the "Common Stock") of Smartflex, at a
price of $10.50 per share (the "Offer Price"), in cash, following which
Smartflex will be merged with and into Merger Sub, with Smartflex as the
Surviving Corporation (the "Merger").
B. Stockholder beneficially owns (as defined in Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as
of the date hereof, 3,500 shares of Common Stock (the "Existing Shares",
together with any shares of Common Stock beneficial ownership of which is
acquired by Stockholder after the date hereof and prior to the termination
hereof, hereinafter collectively referred to as the "Shares").
C. As a condition to their willingness to enter into the Merger
Agreement, Saturn and Merger Sub have requested that Stockholder agree, and
Stockholder has agreed, to enter into this Agreement.
D. Saturn and Merger Sub have entered into the Merger Agreement in
reliance on Stockholder's representations, warranties, covenants and agreement
hereunder.
THEREFORE, the parties agree as follows:
1. Agreement to Tender and Vote; Irrevocable Proxy.
1.1 Tender. Stockholder agrees to validly tender all Shares
beneficially owned by it pursuant to the Offer within ten business days of
commencement of the Offer, and not withdraw any such Shares, except to the
extent that the tender of shares (including Shares acquired after the date
hereof) pursuant to the Offer would subject Stockholder to liability under
Section 16(b) of the Exchange Act.
1.2 Voting. Stockholder hereby agrees that, during the time this
Agreement is in effect, at any meeting of the stockholders of Smartflex,
however called, and in any action by consent of the stockholders of
Smartflex, Stockholder will: (a) vote all Shares beneficially owned by it
in favor of the Merger; (b) vote all Shares beneficially owned by it
against any action or agreement that would result in a breach of any
covenant or any representation or warranty or any other obligation or
agreement of Smartflex under or pursuant to the Merger Agreement; (c) vote
all Shares beneficially owned by it against
<PAGE> 2
any action or agreement that would impede, interfere with, delay, postpone
or attempt to discourage, the Merger or the Offer including, but not
limited to, (i) any corporate transaction not entered into in the ordinary
course of business (other than the Merger), including, but not limited to,
a merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a
sale or transfer of a material amount of assets of Smartflex or any of its
subsidiaries, (iii) any change in the board of directors of Smartflex, (iv)
any material change in the capitalization of Smartflex, (v) any change in
the charter, by-laws or other organizational or constitutive documents of
Smartflex, or (vi) any other material change in the corporate structure or
business of Smartflex; and (d) without limiting the foregoing, consult with
Saturn and vote all Shares beneficially owned by it in such manner as is
determined by Saturn to be in compliance with the provisions of this
Section 1.2. Stockholder acknowledges receipt and review of a copy of the
Merger Agreement. Notwithstanding the foregoing, Stockholder may take any
action in his or her role as a director or officer of Smartflex as
permitted under Sections 6.04 and 8.01(e) of the Merger Agreement. This
Agreement is intended to bind Stockholder only with respect to the specific
matters set forth herein and shall not prohibit the Stockholder from acting
in accordance with his or her fiduciary duties to Smartflex.
1.3. Irrevocable Proxy. Contemporaneously with the execution of this
Agreement: (i) Stockholder will deliver to Saturn a proxy in the form
attached hereto as Exhibit A, which will be irrevocable to the fullest
extent permitted by law (the "Proxy"), with respect to all Shares owned of
record by Stockholder; and (ii) Stockholder will cause to be delivered to
Saturn additional Proxies executed on behalf of each record owner of any
Shares owned beneficially (but not owned of record) by Stockholder.
2. Representations and Warranties of Stockholder. Stockholder represents
and warrants to Saturn and Merger Sub as follows:
2.1 Ownership of Shares. On the date hereof the Existing Shares are
all of the Shares currently beneficially owned by Stockholder. On the Closing
Date, the Shares will constitute all of the shares of Common Stock owned
beneficially by Stockholder. Stockholder does not have any rights to acquire any
additional shares of Common Stock other than pursuant to options issued under
the Stock Option Plans (as defined in the Merger Agreement), Stockholder
currently has with respect to the Existing Shares, and at Closing will have with
respect to the Shares, good, valid and marketable title, free and clear of all
liens, encumbrances, restrictions, options, warrants, rights to purchase, voting
agreements or voting trusts, and claims of every kind (other than the
encumbrances created by this Agreement and other than restrictions on transfer
under applicable, Federal and State securities laws).
2.2 Power; Binding Agreement. Stockholder has the full legal capacity,
right, power and authority to enter into and perform all of Stockholder's
obligations under this Agreement. The execution and delivery of this Agreement
by Stockholder will not violate any agreement, contract or arrangement to which
Stockholder is a party or is bound, including, without limitation, any voting
agreement, stockholders agreement or voting trust. This Agreement has been duly
executed and delivered by Stockholder and constitutes a legal, valid and binding
agreement of Stockholder, enforceable in accordance with its terms. Neither the
execution or delivery of this Agreement nor the consummation by Stockholder of
the
2
<PAGE> 3
transactions contemplated hereby will (a) other than filings required under the
federal or state securities laws, require any consent or approval of or filing
with any Governmental or other regulatory body, or (b) constitute a violation
of, conflict with or constitute, a default under (i) any law, rule or regulation
applicable to Stockholder, or (ii) any order, judgment or decree by which
Stockholder is bound.
2.3. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fees from Stockholder in connection with this Agreement
or the transactions contemplated hereby exclusive of any commission or finder's
fees referred to in the Merger Agreement.
3. Representations and Warranties of Saturn and Merger Sub. Saturn and
Merger Sub, jointly and severally, represent and warrant to Stockholder as
follows:
3.1 Authority. Each of Saturn and Merger Sub has full legal right,
power and authority to enter into and perform all of its obligations under this
Agreement. The execution and delivery of this Agreement by Saturn and Merger Sub
will not violate the charter, bylaws or other organizational or constitutive
documents of Saturn or Merger Sub, or any other agreement, contract or
arrangement to which Saturn or Merger Sub is a party or is bound. This Agreement
has been duly executed and delivered by each of Saturn and Merger Sub and
constitutes a legal, valid and binding agreement of Saturn and Merger Sub,
enforceable in accordance with its terms. Neither the execution of this
Agreement nor the consummation by Saturn or Merger Sub of the transactions
contemplated hereby will (a) require any consent or approval of or filing with
any governmental or other regulatory body, or (b) constitute a violation of,
conflict with or constitute a default under (i) any law, rule or regulation
applicable to Saturn or Merger Sub, or (ii) any order, judgment or decree to
which Saturn or Merger Sub is bound.
3.2. Finder's Fees. No person is, or will be, entitled to any
commission or finder's fee from Saturn or Merger Sub in connection with this
Agreement or the transactions contemplated hereby exclusive of any commission or
finder's fees referred to in the Merger Agreement.
4. Termination. This Agreement (other than the provisions of Sections
5, 6 and 19 which will survive any termination of this Agreement), will
terminate on the earliest to occur of (a) the date on which Merger Sub accepts
for payment the Shares tendered in the Offer, so long as the Shares are so
tendered and not withdrawn, (b) the Effective Time (as defined in the Merger
Agreement), and (c) simultaneously with the termination of the Merger Agreement
in accordance with its terms.
5. Expenses. Except as provided in Section 19, each party hereto will pay
all of its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its counsel
and other advisers. The provisions of this Section 5 will survive the Closing
hereunder.
6. Confidentiality. Stockholder recognizes that successful consummation
of the transactions contemplated by this Agreement may be dependent upon
confidentiality with respect to these matters. In this connection, pending
public disclosure, Stockholder agrees that it will not disclose or discuss these
matters with anyone (other than officers, directors, legal
3
<PAGE> 4
counsel and advisors of Stockholder or Smartflex, if any) not a party to this
Agreement, without prior written consent of Saturn, except as provided herein or
in the Merger Agreement and except for filings required pursuant to the Exchange
Act, and the rules and regulations thereunder or disclosures Stockholder's legal
counsel advises in writing are necessary in order to fulfill Stockholder's
obligations imposed by law, in which event Stockholder will give prompt prior
notice of such disclosure to Saturn and cooperate with Saturn in obtaining a
protective order or in limiting such disclosure.
7. Certain Covenants of Stockholder.
7.1 Except in accordance with the provisions of this Agreement,
Stockholder agrees, while this Agreement is in effect, not to, directly or
indirectly:
(a) sell, transfer, pledge, encumber, assign or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares;
(b) grant any proxies, deposit any Shares into a voting trust or
enter into a voting agreement with respect to any Shares; or
(c) solicit, initiate or encourage the submission of any
proposal or offer from any person (other than Saturn or Merger Sub) relating to
any acquisition or purchase of all or any material portion of the assets of, or
any equity interest in (other than pursuant to the exercise of options
outstanding on the date hereof), Smartflex or any subsidiary of Smartflex, or
any merger, consolidation, business combination, reorganization,
recapitalization or similar transaction involving Smartflex or any subsidiary of
Smartflex (each a "Competing Transaction"), or participate in any discussions or
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise, cooperate in any way with, or assist or participate
in, facilitate or encourage, any effort or attempt by any person (other than
Saturn and Merger Sub) to do or seek any of the foregoing, Stockholder will
cease and cause to be terminated any existing activities, discussions or
negotiations by or on its behalf with any person (other than Saturn and Merger
Sub) conducted heretofore with respect to any Competing Transaction and will
promptly notify Saturn following receipt of any request by any person (other
than Saturn or Merger Sub) relating to any possible Competing Transaction or
information concerning Smartflex. Nothing contained herein will prohibit
Stockholder, solely in his capacity as an officer or as a member of the board of
directors of Smartflex (the "Board"), from furnishing information to, or
entering into discussions or negotiations with, any person (other than Saturn
and Merger Sub) in connection with an unsolicited proposal involving a
fully-financed (as represented by such person) Competing Transaction which is
made in writing by such person (other than Saturn and Merger Sub) and which, if
consummated, would provide consideration per share, of Common Stock to the
stockholders of Smartflex in excess of the Offer Price if, and only to the
extent that, the Board determines in good faith, based upon the advice of SG
Cowen Securities Corporation and the written advice of Stradling Yocca Carlson &
Rauth, that such action is required for the Board to comply with its fiduciary
duties to stockholders under Delaware law.
4
<PAGE> 5
7.2 Stockholder agrees, while this Agreement is in effect, to notify
Saturn promptly of the number of any shares of Common Stock beneficial ownership
of which is acquired by Stockholder after the date hereof.
8. Legend and Stop Transfer Instructions. Immediately after the execution
of this Agreement (and from time to time prior to the termination of this
Agreement), Stockholder will cause Smartflex to provide for each certificate
representing Shares beneficially owned by Stockholder to bear a legend in the
following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
TERMS AND CONDITIONS OF THE STOCK TENDER AND VOTING AGREEMENT AND ARE
SUBJECT TO THE IRREVOCABLE PROXY REFERRED TO THEREIN, EACH DATED AS OF
JULY 6, 1999, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME, AND
COPIES OF WHICH ARE ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
ISSUER.
Immediately after the execution of this Agreement (and from time to time prior
to the termination of this Agreement), Stockholder will cause Smartflex to
require the transfer agent for its Common Stock to make a notation in its
records prohibiting the transfer of any of the Shares, except in accordance with
the terms and conditions of this Agreement.
9. Survival of Representation and Warranties. Except as expressly set
forth herein, none of the representations, warranties, covenants and agreements
made by Stockholder, Saturn or Merger Sub in this Agreement will survive the
Closing hereunder.
10. Notices. All notices or other communication required or permitted
hereunder will be in writing, will be given by hand delivery, U.S. Express Mail
(return receipt requested), overnight courier guaranteeing next business day
delivery, or facsimile, and will be deemed duly given when received, addressed
as follows,
If to Saturn or Merger Sub:
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Attention: Wallace K. Tsuha, Jr., President,
Chief Executive Officer and Chairman of the Board
Facsimile: (248) 853-2645
5
<PAGE> 6
With copies to:
Honigman Miller Schwartz and Cohn
2290 First National Building
660 Woodward Avenue
Detroit, Michigan 48226
Attention: Donald J. Kunz, Esq.
Facsimile: (313) 465-7455
If to Stockholder:
Cheryl Moreno
1030 Road Runner Road
Anaheim, California 92807
With copies to:
Stradling Yocca Carlson & Rauth
660 Newport Center Drive
Suite 1600
Newport Beach, California 92660
Attention: Nick E. Yocca, Esq.
Facsimile: (949) 725-4100
11. Entire Agreement; Amendment. This Agreement, together with the
documents expressly referred to herein, constitute the entire agreement among
the parties hereto with respect to the subject matter contained herein and
supersede all prior agreements and understandings among the parties with respect
to such subject matter. This Agreement may not be modified, amended, altered or
supplemented except by an agreement in writing executed by the party against
whom such modification, amendment, alteration or supplement is sought to be
enforced.
12. Assigns. This Agreement will be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns and personal
representatives, but neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto without the
prior written consent of the other parties, except that Merger Sub may assign
any or all of its rights and obligations hereunder to Saturn or any direct or
indirect wholly-owned subsidiary of Saturn without the consent of Stockholder or
Company, but no such transfer will relieve Merger Sub of its obligations under
this Agreement if such subsidiary does not perform the obligations of Merger Sub
hereunder.
13. Governing Law; Jurisdiction; and Consent to Service. Except as
expressly set forth below, this Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
In addition, each of Stockholder, Merger Sub and Saturn hereby agrees that any
dispute arising out of this Agreement will be heard in the United States
District Court for the Central District of California and, in connection
therewith, each party to
6
<PAGE> 7
this Agreement hereby consents to the jurisdiction of such courts and agrees
that any service of process in connection with any dispute arising out of this
Agreement or the Merger may be given to any other party hereto by certified
mail, return receipt requested, at the respective addresses set forth in Section
10 above.
14. Injunctive Relief. The parties agree that in the event of a breach of
any provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. The parties therefore agree that in the event of a breach of any
provision of this Agreement, the aggrieved party will be entitled to obtain in
any court of competent jurisdiction a decree of specific performance or to
enjoin the continuing breach of such provision, in each case without the
requirement that a bond be posted, as well as to obtain damages for breach of
this Agreement. By seeking or obtaining such relief, the aggrieved party will
not be precluded from seeking or obtaining any other relief to which it may be
entitled.
15. Counterparts; Facsimile Signatures. This Agreement may be executed in
any number of counterparts (including by facsimile signature), each of which
will be deemed to be an original and all of which together will constitute one
and the same document.
16. Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision will be interpreted
to be only so broad as is enforceable.
17. Further Assurances. Each party hereto will execute and deliver such
additional documents as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
18. Third Party Beneficiaries. Nothing in this Agreement, expressed or
implied, will be construed to give any person other than the parties hereto any
legal or equitable right, remedy or claim under or by reason of this Agreement
or any provision contained herein.
19. Legal Expenses. In the event any legal proceeding is commenced by any
party to this Agreement to enforce or recover damages for any breach of the
provisions hereof, the prevailing party in such legal proceeding will be
entitled to recover in such legal proceeding from the losing party such
prevailing party's costs and expenses incurred in connection with such legal
proceedings, including reasonable attorneys fees. The provisions of this Section
19 will survive the Closing hereunder.
20. Amendment and Modification. This Agreement may be amended, modified
and supplemented only by a written document executed by Saturn, Merger Sub and
Stockholder.
[Remainder of page intentionally left blank.]
7
<PAGE> 8
IN WITNESS WHEREOF, Saturn and Merger Sub have caused this Agreement to be
executed by their duly authorized officers, and Stockholder has duly executed
this Agreement, as of the date and year first above written.
"SATURN"
SATURN ELECTRONICS &
ENGINEERING, INC.
By: /s/ W. Tsuha
------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President,
Chief Executive Officer and
Chairman of the Board
"MERGER SUB"
SSI ACQUISITION CORP.
By: /s/ W. Tsuha
------------------------------------------
Name: Wallace K. Tsuha, Jr.
Its: President
"STOCKHOLDER"
/s/ Cheryl L. Moreno
------------------------------------------
Name: Cheryl L. Moreno
8
<PAGE> 9
EXHIBIT A
Form Of Irrevocable Proxy
The undersigned stockholder of Smartflex Systems, Inc., a Delaware
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
by law) appoints and constitutes Wallace K. Tsuha, Jr., Jereen Trudell and
Saturn Electronics & Engineering, Inc. ("Saturn"), and each of them, the
attorneys and proxies of the undersigned with full power of substitution and
resubstitution, to the full extent of the undersigned's rights with respect to
(i) the issued and outstanding shares of capital stock of Smartflex owned of
record by the undersigned as of the date of this proxy, which shares are
specified on the final page of this proxy and (ii) any and all other shares of
capital stock of Smartflex which the undersigned may acquire after the date
hereof (the shares of the capital stock of Smartflex referred to in (clauses (i)
and (ii) of the immediately preceding sentence are collectively referred to as
the "Shares"). Upon the execution hereof all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares.
This proxy is irrevocable, is coupled with an interest and is granted in
connection with a Stock Tender and Voting Agreement, dated as of the date
hereof, among Saturn, SSI Acquisition Corp. and the undersigned (the "Stock
Tender Agreement"), and is granted in consideration of Saturn entering into the
Agreement and Plan of Merger, dated as of the date hereof, among Saturn, SSI
Acquisition Corp. and Smartflex (the "Merger Agreement"). Capitalized terms used
but not otherwise defined in this proxy have the meanings ascribed to such terms
in the Merger Agreement.
The attorneys and proxies named above will be empowered, and may exercise
this proxy, to vote the Shares at any time until the earlier to occur of the
valid termination of the Merger Agreement pursuant to Section 8.01 thereof or
the Effective Time at any meeting of the stockholders of Smartflex, however
called, or in any written action by consent of stockholders of Smartflex: (a) in
favor of the Merger; (b) against any action or agreement that would result in a
breach of any covenant or any representation or warranty or any other obligation
or agreement of Smartflex under or pursuant to the Merger Agreement; or (c)
against any action or agreement that would impede, interfere with, delay,
postpone, or attempt to discourage the Merger or the Offer including, but not
limited to, (i) any corporate transaction not entered into in the ordinary
course of business (other than the Merger), including, but not limited to, a
merger, other business combination, reorganization, consolidation,
recapitalization, dissolution or liquidation involving Smartflex, (ii) a sale or
transfer of a material amount of assets of Smartflex or any of its subsidiaries,
(iii) any change in the board of directors of Smartflex, (iv) any material
change in the capitalization of Smartflex, (v) any change in the charter,
by-laws or other organizational or constitutive documents of Smartflex, or (v)
any other material change in the corporate structure or business of Smartflex.
This proxy will be binding upon the heirs, successors and assigns of the
undersigned (including any transferee of any of the Shares).
9
<PAGE> 10
Any term or provision of this proxy which is invalid or unenforceable, in
any jurisdiction will, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this proxy or affecting the validity or
enforceability of any of the terms or provisions of this proxy in any other
jurisdiction. If any provision of this proxy is so broad as to be unenforceable,
the provision will be interpreted to be only so broad as is enforceable.
This proxy will terminate immediately upon the earlier of the valid
termination of the Merger Agreement pursuant to Section 8.01 thereof or the
Effective Time.
Dated: July 6, 1999
- -----------------------------
Name: Cheryl Moreno
Number of shares of Common Stock owned of record as of the date of this proxy: 0
10
<PAGE> 1
EXHIBIT 15
SMARTFLEX SYSTEMS, INC.
14312 FRANKLIN AVENUE
TUSTIN, CALIFORNIA 92781-2085
February 3, 1999
Steve Fogolini
Director of New Business Development
Saturn Electronics & Engineering, Inc.
255 Rex Boulevard
Auburn Hills, Michigan 48326
Dear Steve:
We have your fax of February 2, 1999 with which you forwarded the
Confidentiality Agreement executed by you on behalf of Saturn. This letter will
supplement the Confidentiality Agreement, which I have signed and am returning
to you with this letter. The enclosed signed counterpart of the Confidentiality
Agreement is subject to your concurrence with the supplemental provision set
forth below, which will be deemed to be added to the Confidentiality Agreement
as if set forth therein:
Each party agrees that, for a period of two (2) years from the
date of this agreement, unless such shall have been specifically
invited in writing by the other party, neither it nor its respective
affiliates (as such term is defined under the Securities Exchange Act
of 1934, as amended (the "1934 Act")) or representatives will, in any
manner, directly or indirectly, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in
or in any way assist any other person to effect or seek, offer or
propose (whether publicly or otherwise) to effect or participate in (i)
any acquisition of any securities (or beneficial ownership thereof) or
assets of the other or any of the other's subsidiaries; (ii) any tender
or exchange offer, merger or other business combination involving the
other or any of the other's subsidiaries; (iii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary
transaction with respect to the other or any of the other's
subsidiaries; or (iv) any "solicitation" of "proxies" (as such terms
are used in the proxy rules of the Securities and Exchange Commission)
or consents to vote any voting securities of the other; (b) form, join
or in any way participate in a "group" (as defined under the 1934 Act);
(c) otherwise act, alone or in concert with others, to seek to control
or influence the management, Board of Directors or policies of the
other; (d) take any action which might force the other to make a public
announcement regarding any of the types of matters set forth in (a)
above; or (e) enter into any discussions or arrangements with any third
party with respect to any of the foregoing. Each party also agrees
during such period not to request the other (or its directors,
officers, employees or agents), directly or indirectly, to amend or
waive any provision of this paragraph (including this sentence).
<PAGE> 2
February 3, 1999
Page 2
If you agree, please sign a copy of this letter and return it to me, at
which point the Confidentiality Agreement will be fully effective.
Very truly yours,
SMARTFLEX SYSTEMS, INC.
/s/ William L. Healey
William L. Healey,
Chairman, President and CEO
SATURN ELECTRONICS & ENGINEERING, INC.
By: /s/ Steve Fogolini
-------------------------------------
Steve Fogolini,
Director of New Business Development
<PAGE> 3
Bill Healey
Smartflex Systems Inc.
FAX 714-838-3130
February 2, 1999
Attn.: Bill Healey
RE: Confidentiality Agreement
Dear : Bill
In connection with the evaluation of a possible transaction involving
Smartflex Systems Inc. (the "Company") and Saturn Electronics & Engineering,
Inc. ("Saturn"), the Company and Saturn are prepared to furnish to each other
certain confidential and proprietary records and information regarding their
respective businesses. All such records and information, including, but not
limited to, all information or documentation developed, created or acquired by
the receiving party, are hereinafter collectively referred to as "Confidential
Information."
Each party acknowledges and agrees that it is imperative that all
Confidential Information remain confidential. Accordingly, by signing below,
each party agrees to be bound by the terms of this agreement. To maintain the
confidentiality of the Confidential Information, each party agrees:
(1) Not to use or allow the use for any purpose of any Confidential
Information or notes, summaries or other material derived by the receiving party
from the Confidential Information, except to determine whether the parties
desire to enter into a transaction.
(2) Not to disclose or allow disclosure to others of any Confidential
Information or memoranda, notes and other writings prepared by the receiving
party based thereon, except to such persons necessary to enable the receiving
party to determine whether the parties desire to enter into a transaction (it
being understood that such persons who need to know such information for the
purpose of such determination shall be informed by the receiving party of the
confidential nature of such information, shall be directed by the receiving
party to treat such information confidentially and shall be informed that by
receiving such information they are agreeing to be bound by this agreement);
(3) Except copies to such persons necessary to carry out the purpose
stated in (1) above, not to make or allow to be made copies of any Confidential
Information except as the other party may specifically authorize in writing; and
<PAGE> 4
(4)Not to disclose or allow disclosure to persons that the Confidential
Information has been made available to the receiving party, or that the
receiving party has reviewed any Confidential Information, or that the Company
and Saturn may be considering a transaction or have had, are having or propose
to have any discussions with respect thereto.
For purposes of this agreement, the term "Confidential Information"
shall not include information which (a) becomes generally available to the
public other than as a result of a disclosure by the receiving party, (b) was
available to the receiving party on a non-confidential basis prior to its
disclosure to the receiving party by the other party, or (c) becomes available
to the receiving party on a non-confidential basis from a source other than the
other party when such source is entitled to make the disclosure to the receiving
party.
Either party may elect at any time to terminate further access by the
receiving party to Confidential Information. In such event, or in the event a
transaction is not effected between the Company and Saturn, each party agrees to
promptly upon the request of the other party return all Confidential Information
and to destroy all memoranda, notes and other writings prepared by the receiving
party based thereon. The obligation of the parties to maintain the
confidentiality of the Confidential Information, and to not use the Confidential
Information except as provided in this agreement, shall continue for a period of
two (2) years from the date of this agreement except with regard to any
Confidential Information that, after the date hereof, through no action on the
part of the receiving party, becomes generally available to the public.
Each party further agrees that, without the other party's prior written
consent, that party will not, for a period of eighteen (18) months from the date
hereof, directly or indirectly solicit for employment or employ any person who
is now employed by the other party in an executive or management level position
or otherwise considered a key employee; provided, however, that neither party
shall be prohibited from employing any person who (a) contacts the party on his
or her own initiative, or (b) responds to general advertisement or general
recruiting efforts.
In the event that the receiving party shall be legally compelled to
disclose any Confidential Information or to report any information contained in
any Confidential Information, the receiving party agrees to provide the other
party with prompt written notice of such request or requirement. The other party
may then protest any such disclosure, seek an appropriate protective order,
waive the receiving party's compliance with the provisions of this agreement, or
a combination of the foregoing. It is further agreed that after the provision of
such prompt written notice, if, absent a protective order or the receipt of a
waiver hereunder, the receiving party is in the written opinion of counsel,
compelled to disclose or report information concerning the other party, the
receiving party may disclose or report such information without liability
hereunder; provided, however, that the receiving party shall give the other
party advance written notice of the information to be disclosed or reported.
It is further understood and agreed that no failure or delay by either
party in exercising any rights, powers or privileges hereunder shall operate as
a waiver hereof, nor shall any single or partial exercise of any rights, powers
or privileges preclude any other or further exercise thereof or the exercise of
any right, power or privilege hereunder. Each party agrees that money damages
would not be a sufficient remedy for any breach of this agreement by the other
party,
2
<PAGE> 5
and that in addition to all other remedies either party shall be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any such breach.
This agreement shall be governed by and construed in accordance with
the laws of the State of Michigan. This agreement may be amended or modified
only by a written amendment duly executed by the parties. This agreement will
have a term commencing on the date of this letter and ending two (2) years from
the date of this letter.
If you are in agreement with the foregoing, please sign and return one
copy of this letter which shall constitute our agreement with respect to the
subject matter of this letter.
Very truly yours,
SATURN ELECTRONICS & ENGINEERING, INC.
By /s/ Steve Fogolini
--------------------------------------------------------
Steve Fogolini, Director of New Business Development
ACCEPTED AND AGREED THIS 2 DAY OF Feb , 1999:
By /s/ William L. Healey
---------------------------------------------------------
President, Smartflex Systems Inc.
3
<PAGE> 1
EXHIBIT 16
[SG COWEN LETTERHEAD]
July 6, 1999
Board of Directors
Smartflex Systems, Inc.
14312 Franklin Avenue
Tustin, CA 92781-2085
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of common stock, $.0025 par value (the "Company Common
Stock"), of Smartflex Systems, Inc., a Delaware corporation (the "Company")
(other than Parent (as defined below) and its affiliates), of the Consideration
(as defined below) to be received by such holders in the Transaction (as defined
below) pursuant to the terms of that certain Agreement and Plan of Merger, to be
dated as of July 6, 1999 (the "Agreement"), by and among the Company, Saturn
Electronics & Engineering, Inc. ("Parent"), a corporation organized under the
laws of Michigan, and SSI Acquisition Corp. ("Purchaser"), a Delaware
corporation and a wholly owned subsidiary of Parent.
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, Purchaser has agreed, among other things, to purchase
pursuant to a tender offer (the "Tender Offer") all of the outstanding shares of
Company Common Stock at a price of $10.50 per share (the "Consideration").
Following the closing of the Tender Offer, Purchaser will be merged with and
into the Company (the "Merger"), and each outstanding share of Company Common
Stock not acquired by Purchaser in the Tender Offer (other than shares of
Company Common Stock owned by Purchaser, Parent or any direct or indirect wholly
owned subsidiary of Parent or of the Company) will be converted into the right
to receive $10.50 in cash. The Tender Offer and the Merger are referred to
collectively as the "Transaction".
SG Cowen Securities Corporation ("SG Cowen"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. We are
acting as exclusive financial advisor to the Board of Directors of the Company
in connection with the Transaction and will receive a fee from the Company for
our services pursuant to the terms of our engagement letter with the Company,
dated as of May 26, 1999 (the "Engagement Letter"), a portion of which is
payable upon delivery of this Opinion and a significant portion of which is
contingent upon the consummation of the Merger.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things: (i) a draft of the Agreement dated July 6, 1999; (ii) certain publicly
available information for the Company, including the annual report of the
Company filed on Form 10-K for each of the years ended December 31, 1996, 1997
and 1998 and the quarterly report filed on Form 10-Q for the quarter ended March
31, 1999; (iii) financial projections for the quarters ended June 30, 1999,
September 30, 1999, December 31, 1999 and the fiscal years ended December 31,
2000 and 2001 prepared by the management of the Company; (iv) First Call
consensus earnings per share estimates of financial institutions for the Company
("First Call Estimates"); (v) discussions we have had with certain members of
management of the Company concerning the historical and current business
operations, financial conditions and prospects of the Company and such other
matters we deemed relevant; (vi) the reported price and trading statistics of
the shares of Company Common Stock during the last twelve month period and the
period since the Company's initial public offering, in each case through the
period ended July 2, 1999; (vii) the relative stock price performance of Company
Common Stock as compared to the broader market and the stock price performance
of certain publicly traded companies we deemed relevant for the last twelve
month and last three year periods ended July 2, 1999; (viii) the financial
condition of the Company as compared to the financial conditions of certain
other companies we deemed relevant; (ix) certain financial
-1-
<PAGE> 2
terms of the Transaction as compared to the financial terms of selected other
business combinations we deemed relevant; (x) premiums implied by the
Transaction as compared to premiums paid in selected other business combinations
we deemed relevant; (xi) the present value of projected pre-tax operating cash
flow information for the Company provided by management assuming a range of
perpetual growth rates and discount rates; and (xii) such other information,
financial studies, analyses and investigations and such other factors that we
deemed relevant for the purposes of this opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by the Company or which is publicly available, and we have not undertaken any
responsibility for the accuracy, completeness or reasonableness of, or
independently to verify, such information. In addition, we have not conducted
any physical inspection of the properties or facilities of the Company. We have
further relied upon the assurance of management of the Company that they are
unaware of any facts that would make the information provided to us incomplete
or misleading in any respect. We have, with your consent, assumed that the
financial projections which we examined were reasonably prepared by management
of the Company on bases reflecting the best currently available estimates and
good faith judgments of management as to the future performance of the Company.
For certain of our analyses, we have also utilized the First Call Estimates.
Management of the Company has confirmed to us, and we have assumed, with your
consent, that the financial projections provided to us and the First Call
Estimates provide a reasonable basis for our opinion. We have not made or
obtained any independent evaluations, valuations or appraisals of the assets or
liabilities of the Company nor have we been furnished with such materials. We
have not opined, nor have we been asked to opine, on Parent's or Purchaser's
ability to obtain funds necessary to consummate the Transaction, and we have
assumed with your consent that such financing will be available. With respect to
all legal matters relating to the Company and the Transaction, we have relied on
the advice of legal counsel to the Company. Our services to the Company in
connection with the Transaction have been comprised of rendering an opinion from
a financial point of view with respect to the Consideration. Our opinion is
necessarily based upon economic and market conditions and other circumstances as
they exist and can be evaluated by us on the date hereof. It should be
understood that although subsequent developments may affect our opinion, we do
not have any obligation to update, revise or reaffirm our opinion and we
expressly disclaim any responsibility to do so. Additionally, we have not been
authorized or requested to, and did not, solicit alternative offers for the
Company or its assets, nor have we investigated any other alternative
transactions that may be available to the Company.
For purposes of rendering our opinion we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Tender Offer and
the Merger will be satisfied without waiver thereof. We have assumed that the
final form of the Agreement will be substantially similar to the last draft
reviewed by us. We have also assumed that all governmental, regulatory and other
consents and approvals contemplated by the Agreement will be obtained and that
in the course of obtaining any of those consents no restrictions will be imposed
or waivers made that would have an adverse effect on the contemplated benefits
of the Transaction.
It is understood that this letter is intended for the benefit and use of
the Board of Directors of the Company in its consideration of the Transaction
and may not be used for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without our prior
written consent; provided, however, that this letter may be reproduced in its
entirety in any document relating to the proposed Transaction filed by the
Company under the Securities Exchange Act of 1934, as amended, and distributed
to stockholders in accordance therewith, provided that it will be reproduced in
such document in full, and any description of or reference to SG Cowen or
summary of this letter in such document will be in a form acceptable to SG Cowen
and its counsel. This letter does not constitute a recommendation to any
stockholder as to whether such stockholder should tender his or her shares of
Company Common Stock in the Tender Offer or to take any other action in
connection with the Transaction or otherwise. We have not
-2-
<PAGE> 3
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to effect the Transaction.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Consideration to be received by the stockholders of the Company (other than
Parent and its affiliates) in the Transaction is fair, from a financial point of
view, to such stockholders.
Very truly yours,
/s/ SG COWEN SECURITIES CORPORATION
--------------------------------------
SG Cowen Securities Corporation
-3-
<PAGE> 1
EXHIBIT 17
FOR IMMEDIATE RELEASE
CONTACT:
WILLIAM HEALEY (CEO, SMARTFLEX)
JOHN HOHENER (CFO, SMARTFLEX)
714-838-8737
SATURN ELECTRONICS AND ENGINEERING, INC.
TO ACQUIRE SMARTFLEX SYSTEMS, INC.
TUSTIN, CALIFORNIA -- JULY 7, 1999--SMARTFLEX SYSTEMS, INC. (NASDAQ:
SFLX) announced today that it has entered into a definitive agreement pursuant
to which all of the outstanding shares of common stock of Smartflex Systems,
Inc. ("Smartflex") will be acquired by Saturn Electronics & Engineering, Inc.
("Saturn"). Under the agreement, which has been approved unanimously by
Smartflex's board of directors, Saturn will commence a tender offer for all
outstanding shares of common stock of Smartflex for $10.50 per share in cash.
The tender offer will be followed by a merger in which any shares not acquired
by Saturn in the tender offer will be acquired for the same amount of cash in
the merger. The directors and executive officers of Smartflex, who own
approximately 5% of the outstanding shares of Smartflex, have agreed to tender
their shares and to vote in favor of the merger.
The tender offer will commence no later than Wednesday, July 14, 1999,
and will be conditioned on a majority of the outstanding shares of Smartflex
being tendered as well as other customary conditions. SG Cowen Securities
Corporation has acted as financial advisor to Smartflex in connection with the
transaction.
Based in Tustin, California and founded in 1985, Smartflex is an
electronics manufacturing services (EMS) expert in precision, automated
manufacturing. The services of Smartflex optimize and accelerate product
realization - the process from product concept through volume manufacturing. For
the 12 months ended December 31, 1998, Smartflex achieved net earnings after
taxes of $1.5 million on sales of approximately $107 million.
Specializing in precision interconnect-based packaging enables
Smartflex to design and manufacture significantly smaller products at reduced
cost. Smartflex's specialty manufacturing skills allow the company to help its
telecommunications, computer, and medical electronics customers meet their goals
of smaller packaging, reduced cost, and faster delivery to the
<PAGE> 2
marketplace. Smartflex serves customers worldwide from its factories and
technology centers in Cebu, Philippines; Monterrey and Guadalajara, Mexico;
Singapore; West Long Branch, New Jersey; Hudson, New Hampshire; and Santa Clara,
Fremont, and Tustin, California. For more information about Smartflex, visit its
website at www.smartflex.com.
Saturn, whose corporate headquarters are located in Auburn Hills,
Michigan, is a privately-held company providing electronic and electromechanical
systems for automotive and non-automotive applications. Since its inception in
1985, Saturn has filled a niche in the electronics marketplace by offering
innovative products and solutions to Fortune 500 firms. Saturn is well known for
its flexible and high-reliability manufacturing, and is positioned as a
full-service global supplier to the automotive, commercial and defense markets.
Saturn's worldwide facilities include its headquarters, Innovation Center (Tech
Center), sales offices and manufacturing facilities in Auburn Hills, Rochester
Hills, Oxford, and Coopersville, Michigan; Rocky Mount, North Carolina; Marks,
Mississippi; Juarez and Monterrey, Mexico.
William L. Healey, President, Chief Executive Officer and Chairman of
the Board of Smartflex, commented, "The extensive sales, service and
manufacturing resources of Saturn are extremely complementary with those of
Smartflex. We feel confident that these synergies will fuel the growth of the
Smartflex business to a new level."
Wallace K. Tsuha (pronounced "su ha"), founder, President and Chief
Executive Officer of Saturn, was quoted to say "Smartflex has become a
recognized technical leader in precision automated manufacturing and specialty
electronic manufacturing services. It is known for its design, engineering and
prototyping expertise. We are excited about the growth prospects this proposed
acquisition adds to Saturn's position as a full-service global supplier. The
merger of our two businesses will enhance our growth prospects and provide a
viable electronics platform to build upon in the automotive, commercial,
telecommunications, medical and defense markets," added Tsuha.
"The acquisition fits our strategic plans of product diversification,
global growth, and expansion into other markets. Our combined strengths will
provide opportunities for new technologies, exceptional engineering
capabilities, expanded global presence, and expertise in a more diversified
marketplace," added Tsuha.
2
<PAGE> 3
Saturn is a high-growth company with industry recognition for quality
and competitiveness. It is driven by a strong corporate culture of providing
customers with high-quality, competitive products with innovation being at the
heart of its success. Working in a team environment, employees are recognized
and encouraged to contribute to the growth and success of the company. For more
information, visit Saturn's website at www.saturnee.com.
This release contains forward-looking statements, including each statement of
management's opinions, expectations, plans, and objectives for future operations
that involve risks and uncertainties. Actual results could differ materially
from these expectations as a result of various factors, and therefore we caution
investors against ascribing undue weight thereto. The factors include, but are
not limited to, the ability to effectively identify, investigate, conclude,
integrate and manage acquisitions or large-scale projects, to manage the
transition of manufacturing operations, qualification of manufacturing
processes, efficient utilization of manufacturing facilities and financial
resources, the ability to retain and attract qualified personnel, international
currency fluctuations, and future financial, economic, competitive and market
conditions and their potential direct or indirect effect, including
cancellations of orders included in backlog. These and other factors are also
discussed in Smartflex Systems' 10-K, 10-Q and other filings made previously or
from time to time with the Securities and Exchange Commission.
3
<PAGE> 1
EXHIBIT 18
LOGO
I N C O R P O R A T E D
July 14, 1999
To Our Stockholders:
We are pleased to inform you that pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"), dated as of July 6, 1999, by and among Saturn
Electronics & Engineering, Inc., a Michigan corporation ("Saturn"), SSI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Saturn (the "Purchaser") and Smartflex Systems, Inc. (the "Company"), Saturn and
the Purchaser have commenced today a tender offer to purchase all of the
Company's shares of Common Stock at $10.50 per share, net to the seller in cash,
upon the terms and subject to the conditions set forth in an Offer to Purchase
and related Letter of Transmittal dated July 14, 1999 (the "Offer to Purchase"),
which are enclosed with this letter. The tender offer is currently scheduled to
expire at 12:00 midnight, New York City time, on August 11, 1999. The Merger
Agreement provides that each outstanding share of Common Stock not acquired in
the tender offer will be converted into the right to receive $10.50 in cash in
the merger of Purchaser with and into the Company. Subject to certain terms and
conditions, the merger of Purchaser and the Company will be consummated as soon
as practicable after the expiration of the tender offer.
In approving the Merger Agreement, the Company's Board of Directors
considered many factors, including the opinion of SG Cowen Securities
Corporation that, as of the date of such opinion, the consideration to be
received by the stockholders of the Company pursuant to the tender offer and
merger was fair to such stockholders from a financial point of view. A more
complete description of the factors considered is set forth in the attached
Schedule 14D-9.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER.
A more complete description of the tender offer and the merger is contained
in the Offer to Purchase and related materials, including forms of transmittal
to be used for tendering shares. These documents set forth in detail the terms
and conditions of the offer and provide instructions on how to tender your
shares.
We thank you for your loyalty and support during the time that we have been
a publicly-held company.
Sincerely,
/s/ William L. Healey
William L. Healey
President, Chief Executive Officer
and Chairman of the Board of Directors
14312 Franklin Avenue - P.O. Box 2085 - Tustin, CA 92781-2085 - (714)
838-8737 - FAX (714) 838-8787
