-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O3ursykGmpdwJ9oSJWkGuC0BZUQHIgF8OXGtOrg+chpbTCcQS6xQF3gziJQe0Jmm Ah56m9K+mBgoFnbHm63tpQ== 0001047469-98-023068.txt : 19980608 0001047469-98-023068.hdr.sgml : 19980608 ACCESSION NUMBER: 0001047469-98-023068 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980605 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SIGMA CIRCUITS INC CENTRAL INDEX KEY: 0000746549 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 770107167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-47397 FILM NUMBER: 98642876 BUSINESS ADDRESS: STREET 1: 393 MATHEW ST CITY: SANTA CLARA STATE: CA ZIP: 95050 BUSINESS PHONE: 4087279169 MAIL ADDRESS: STREET 1: 393 MATHEW STREET CITY: SANTA CLARA STATE: CA ZIP: 95050 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SIGMA CIRCUITS INC CENTRAL INDEX KEY: 0000746549 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 770107167 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 393 MATHEW ST CITY: SANTA CLARA STATE: CA ZIP: 95050 BUSINESS PHONE: 4087279169 MAIL ADDRESS: STREET 1: 393 MATHEW STREET CITY: SANTA CLARA STATE: CA ZIP: 95050 SC 14D9 1 SC 14D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 SIGMA CIRCUITS, INC. (Name of Subject Company) SIGMA CIRCUITS, INC. (Name of Person Filing Statement) COMMON STOCK, PAR VALUE $.001 PER SHARE (Title of Class of Securities) 826559106 (CUSIP Number of Class of Securities) ------------------------ B. KEVIN KELLY PRESIDENT AND CHIEF EXECUTIVE OFFICER SIGMA CIRCUITS, INC. 393 MATHEW STREET SANTA CLARA, CALIFORNIA 95050 (408) 727-9169 (Name, address and telephone number of person authorized to receive notice and communications on behalf of the person filing statement) COPIES TO: MARK P. TANOURY COOLEY GODWARD LLP 3000 SAND HILL ROAD BUILDING 3, SUITE 230 MENLO PARK, CALIFORNIA 94025 (650) 843-5000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND SUBJECT COMPANY. The name of the subject company is Sigma Circuits, Inc., a Delaware corporation (the "Company"), and the address of the principal executive offices of the Company is 393 Mathew Street, Santa Clara, California 95050. The title of the class of equity securities to which this statement relates is the Company's Common Stock, par value $.001 per share (the "Shares"). ITEM 2. TENDER OFFER OF THE BIDDER. This statement relates to the tender offer (the "Offer") described in the Tender Offer Statement on Schedule 14D-1, dated June 5, 1998 (as amended or supplemented, the "Schedule 14D-1"), filed by Tyco International Ltd., a Bermuda company ("Tyco"), and its indirect wholly owned subsidiary, T10 Acquisition Corp., a Delaware corporation (the "Purchaser"), with the Securities and Exchange Commission (the "Commission"), relating to an offer by the Purchaser to purchase all the issued and outstanding Shares at a price of $10.50 per Share, net to the seller in cash, without interest thereon (the "Offer Price"), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated June 5, 1998, and the related Letter of Transmittal (together the "Offer Documents"). The Offer Documents indicate that the principal executive offices of the Purchaser are located at One Tyco Park, Exeter, New Hampshire 03833, and of Tyco are located at The Gibbons Building, 10 Queens Street, Suite 301, Hamilton, Bermuda HM11. The Offer is being made pursuant to the Agreement and Plan of Merger, dated as of June 1, 1998 (the "Merger Agreement"), among the Company, Tyco and the Purchaser. A copy of the Merger Agreement is filed as Exhibit 2 to this Schedule 14D-9, and is incorporated herein by reference in its entirety. Pursuant to the Merger Agreement, as soon as practicable following the consummation of the Offer and the satisfaction or waiver of certain conditions, the Purchaser will be merged with and into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"). In the Merger, each Share outstanding at the Effective Time (as defined below) (other than Shares held in the treasury of the Company, Shares owned by Tyco, the Purchaser or any other subsidiary of Tyco or shares held by stockholders who properly exercise their dissenters' rights under the Delaware General Corporation Law ("Delaware Law" or "DGCL")) will, by virtue of the Merger and without any action by the holder thereof, be converted into the right to receive $10.50 per Share, net to the Seller in cash, without interest thereon (the "Merger Consideration"), upon the surrender of the certificate formerly representing such Share ("Certificate"). The Merger Agreement is summarized in Item 3 of this Schedule 14D-9. ITEM 3. IDENTITY AND BACKGROUND. (a) The name and address of the Company, which is the person filing this Schedule 14D-9, are set forth in Item 1 above. (b) Certain contracts, agreements, arrangements or understandings between the Company or its affiliates and certain of its executive officers, directors or affiliates are described in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders filed as Exhibit 1 to this Schedule 14D-9 under the headings "Security Ownership of Certain Beneficial Owners and Management," "Executive Compensation," "Stock Option Grants and Exercises," "Option Grants in Last Fiscal Year," "Change-in-Control Severance Agreements," and "Certain Transactions." The Company also maintains a bonus program for its executive officers based on achievement of annual financial performance targets and other management objectives established annually, but subject to adjustment by the Compensation Committee of the Board of Directors of the Company (the "Compensation Committee"). During fiscal 1998 the Company has paid out approximately $215,000 in bonuses to the Company's executive officers and may pay out an additional $120,000 in the remainder of fiscal 1998 ending June 27, 1998. 1 On December 19, 1997, the Compensation Committee granted to B. Kevin Kelly, President, Chief Executive Officer and a Director of the Company, and Philip Bushnell, Senior Vice President, Finance and Administration, Secretary, CFO and a Director of the Company, options to purchase 100,000 and 50,000 shares, respectively, of the Company's common stock for $6.875 per share (the fair market value of the common stock on the date of grant) under the Company's Amended and Restated 1997 Stock Option Plan (the "1997 Plan"). Under the terms of the Company Option Plans, all unvested options outstanding upon a Change in Control of the Company (as defined in the Company Option Plans) will become fully exercisable unless they are assumed by the person acquiring control of the Company. Under the terms of the Merger, none of the options outstanding under the Company Option Plans will be assumed by the Purchaser or Tyco. As such, all such unvested options will be immediately and fully vested upon effectiveness of the Merger. In May 1998 the Board of Directors approved forgiveness of the principal and accrued interest on certain loans extended to Mr. Kelly and Mr. Hardwick in connection with their hiring, in the amounts of approximately $60,000 and $50,000, respectively. Such forgiveness is contingent on the closing of the Merger. THE MERGER AGREEMENT The following summary of the Merger Agreement is qualified in its entirety by reference to the Merger Agreement, a copy of which is filed as Exhibit 2 to this Schedule 14D-9. The Merger Agreement should be read in its entirety for a more complete description of the matters summarized below. Capitalized terms used in the following summary and not otherwise defined in this Schedule 14D-9 shall have the meanings set forth in the Merger Agreement. THE OFFER. Pursuant to the Merger Agreement, the Purchaser has made the Offer to purchase all outstanding Shares at $10.50 per Share in cash, without interest, upon the terms and subject to the conditions set forth in the Offer Documents. The Merger Agreement provides that the Purchaser will commence the Offer and that, upon the terms and subject to the prior satisfaction or waiver of the conditions of the Offer, the Purchaser will purchase all Shares validly tendered pursuant to the Offer. The Merger Agreement provides that, without the prior written consent of the Company, the Purchaser will not (i) impose conditions to the Offer in addition to the Offer Conditions, (ii) modify or amend the Offer Conditions or any other term of the Offer in a manner adverse to the holders of Shares, (iii) waive or amend the Minimum Condition, (iv) reduce the number of Shares subject to the Offer, (v) reduce the Per Share Amount, (vi) except as provided in the following sentences, extend the Offer, if all of the Offer Conditions are satisfied or waived, or (vii) change the form of consideration payable in the Offer. The Merger Agreement provides that the Purchaser may extend the Offer at any time, and from time to time, without the consent of the Company (i) if at the then scheduled expiration date of the Offer any of the conditions to the Purchaser's obligation to accept for payment and pay for Shares shall not have been satisfied or waived, until such time as such conditions are satisfied or waived; (ii) for any period required by any rule, regulation, interpretation or position of the Commission or its staff applicable to the Offer; or (iii), if all Offer Conditions are satisfied or waived but the number of Shares tendered is less than 90% of the then outstanding number of Shares, for an aggregate period of not more than 10 business days (for all such extensions) beyond the latest expiration date that would be permitted under clause (i) or (ii) of this sentence. CONDITIONS OF THE OFFER. Notwithstanding any other term of the Offer or the Merger Agreement, the Purchaser shall not be required to accept for payment or pay for, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) of the Exchange Act, any Shares not theretofore accepted for payment or paid for and may terminate or amend the Offer as to such Shares, unless (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of Shares which would represent at least a majority of the outstanding Shares on a fully diluted basis (the 2 "Minimum Condition"), and (ii) any waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer shall have expired or been terminated; PROVIDED, HOWEVER, that Tyco and Purchaser shall extend the expiration date of the Offer from time to time until July 31, 1998 if, when and as necessary to satisfy any request for additional information by the Antitrust Division of the United States Department of Justice (the "Antitrust Division") or the Federal Trade Commission (the "FTC") pursuant to the HSR Act. Furthermore, notwithstanding any other term of the Offer of the Merger Agreement, the Purchaser shall not be required to accept for payment or, subject as aforesaid, to pay for any Shares not theretofore accepted for payment or paid for, and may terminate or amend the Offer, if at any time on or after the date of the Merger Agreement and before the acceptance of such Shares for payment or the payment therefor, any of the following conditions exist or shall occur and remain in effect: (a) there shall have been instituted, pending or threatened any action or proceeding by any court or other Governmental Entity, which (i) seeks to challenge the acquisition by Tyco or the Purchaser (or any of its affiliates) of Shares pursuant to the Offer, restrain, prohibit or delay the making or consummation of the Offer or the Merger, or obtain damages in connection therewith in an amount which would reasonably be expected to have a Material Adverse Effect, (ii) seeks to make the purchase of or payment for some or all of the Shares pursuant to the Offer or the Merger illegal, (iii) seeks to impose limitations on the ability of Tyco (or any of its affiliates) effectively to acquire or hold, or to require Tyco or the Company or any of their respective affiliates or subsidiaries to dispose of or hold separate, any portion of the assets or the business of Tyco and its affiliates or any material portion of the assets or the business of the Company, (iv) seeks to impose material limitations on the ability of Tyco (or its affiliates) to exercise full rights of ownership of the Shares purchased by it, including, without limitation, the right to vote the Shares purchased by it on all matters properly presented to the stockholders of the Company, or (v) seeks to restrict any future business activity by Tyco (or any of its affiliates) in the United States electronic interconnect industry, including, without limitation, requiring the prior consent of any person or entity (including any Governmental Entity) to future transactions by Tyco (or any of its affiliates); or (b) there shall have been promulgated, enacted, entered, enforced or deemed applicable to the Offer of the Merger, by any statute, rule, regulation, judgment, decree, order or injunction, that is reasonably likely to directly or indirectly result in any of the consequences referred to clauses (i) through (v) of subsection (a) above; or (c) the Merger Agreement shall have been terminated in accordance with its terms; or (d) any of the representations and warranties made by the Company in the Merger Agreement (1) shall not have been true and correct in all material respects when made, or (2) other than where the failure to be true and correct will not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, shall thereafter have ceased to be true and correct in all material respects as if made as of such later date (other than representations and warranties made as of a specified date), or the Company shall not in all material respects have performed in a timely manner each obligation and agreement and complied in a timely manner with each covenant to be performed and complied with by it under the Merger Agreement; or (e) the Company's Board of Directors shall have modified or amended its recommendation of the Offer in any manner adverse to Tyco or shall have withdrawn its recommendation of the Offer, or shall have recommended acceptance of any Acquisition Proposals or shall have resolved to do any of the foregoing; or (f) (i) any corporation, entity or "group" (as defined in Section 13(d)(3) of the Exchange Act) (a "person"), other than Tyco and the Purchaser, shall have acquired beneficial ownership of more than 20% of the outstanding Shares, or shall have been granted any options or rights, conditional or otherwise, to acquire a total of more than 20% of the outstanding Shares; (ii) any new group shall have been formed which beneficially owns more than 20% of the outstanding Shares; or (iii) any 3 person (other than Tyco or one or more of its affiliates) shall have entered into an agreement in principle or definitive agreement with the Company with respect to a tender or exchange offer for any Shares or a merger, consolidation or other business combination with or involving the Company; or (g) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) a commencement or escalation of a war, armed hostility or other international or national calamity directly involving the United States, (iv) any material limitation (whether or not mandatory) by any Governmental Equity on, or any other event that is reasonably likely materially and adversely to affect the extension of credit by banks or other lending institutions in the United States, (v) any decline in either the Dow Jones Industrial Average or the Standard and Poor's 500 Index by an amount in excess of 15% measured from the close of business on the date of the Merger Agreement, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (h) any change, development, effect or circumstance shall have occurred or be threatened that would reasonably be expected to have a Material Adverse Effect; or (i) the Company shall commence a case under any chapter of Title XI of the United States Code or any similar law or regulation; or a petition under any chapter of Title XI of the United States Code or any similar law or regulation is filed against the Company which is not dismissed within 10 business days. Notwithstanding anything to the contrary contained in this section or any other provision of the Offer, the Purchaser shall pay for or return tendered Shares promptly after expiration, termination or withdrawal of the Offer, and the occurrence or continuation of any of the circumstances referred to in the conditions described in this section following such expiration, termination or withdrawal shall not affect the obligation of the Purchaser promptly to pay for or return all Shares duly tendered and not theretofore withdrawn in accordance with the terms of the Offer. The foregoing conditions are for the sole benefit of Tyco and the Purchaser and may be asserted by Tyco or the Purchaser regardless of the circumstances giving rise to any such condition and may be waived by Tyco or the Purchaser, in whole or in part, at any time and from time to time, in the sole discretion of Tyco. The failure by Tyco or the Purchaser at any time to exercise any of the foregoing rights will not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances will not be deemed a waiver with respect to any other facts or circumstances, and each right will be deemed an ongoing right which may be asserted at any time and from time to time. THE MERGER. The Merger Agreement provides that, upon the terms and subject to the conditions of the Merger Agreement, and in accordance with the DGCL, the Purchaser shall be merged with and into the Company. Following the Merger, the separate corporate existence of the Purchaser will cease and the Company will continue as the Surviving Corporation and will succeed to and assume all the rights and obligations of the Purchaser in accordance with the DGCL. Unless otherwise determined by Tyco prior to the Effective Time, the Certificate of Incorporation and Bylaws of the Purchaser, as in effect immediately prior to the Effective Time, will be the Certificate of Incorporation and Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. CONVERSION OF SHARES. At the Effective Time, each Share issued and outstanding immediately prior thereto (other than Shares held by the Company as treasury Shares, Shares owned by Tyco, the Purchaser or any wholly owned subsidiary of Tyco and Dissenting Shares) will be converted into the right to receive from Tyco the Merger Consideration upon the surrender of the certificate formerly representing such Share. Each Share so converted will no longer be outstanding and will automatically be cancelled and retired. 4 STOCK OPTIONS, WARRANTS AND NOTES. Each option outstanding at the Effective Time to purchase Shares (a "Stock Option") granted under the Company's (i) Amended and Restated 1997 Stock Option Plan, (ii) 1994 Non-employee Director's Stock Option Plan, and (iii) any other option plan or agreement (collectively, the "Company Option Plans") shall be converted into the right to receive, upon the exercise of such Stock Option in accordance with the terms thereof, including the provisions providing for full vesting of all unvested shares in the event that such options are not assumed following a Change-in-Control (as defined in the Company Option Plans), an amount of cash equal to the Merger Consideration multiplied by such number of shares of Common Stock underlying such option. The warrant expiring June 10, 1999 to purchase 200,000 Shares at a price of $3.30 per share (the "Warrant") shall be exercisable, from and after the Effective Time and in accordance with the terms thereof, for an amount of cash equal to the Merger Consideration multiplied by 200,000. The $1.8 million 10.0% convertible subordinated note due 2001 (the "Note") shall be convertible, from and after the Effective Time and pursuant to the terms thereof, for an amount of cash equal to the Merger Consideration multiplied by such number of Shares as the Note was convertible into prior to the Effective Time assuming that the Note was fully convertible at that time. DISSENTING SHARES. The Merger Agreement provides that, if required by the DGCL, Dissenting Shares will not be exchangeable for the right to receive the Merger Consideration, and holders of such Dissenting Shares will be entitled to receive payment of the appraised value of such Dissenting Shares in accordance with the provisions of Section 262 of the DGCL unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the DGCL. If, after the Effective Time, any holder fails to perfect or effectively withdraws or loses such right, such Dissenting Shares will thereupon be treated as if they had been converted into and have become exchangeable for, at the Effective Time, the right to receive the Merger Consideration, without any interest thereon. SHORT-FORM MERGER. The Merger Agreement provides that in the event that the Purchaser, or any other direct or indirect subsidiary of Tyco, acquires at least 90% of the outstanding Shares, Tyco, the Purchaser and the Company will take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a meeting of stockholders of the Company, in accordance with Section 253 of the DGCL. REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, the Company has made customary representations and warranties to Tyco and the Purchaser relating to the Company including, among other things, organization and qualification, Certificate of Incorporation and Bylaws, capitalization, authority relative to the Merger Agreement, contracts, the absence of conflicts, required filings and consents, premises, compliance with law, filings with the Commission, financial statements, absence of certain changes or events, undisclosed liabilities, litigation, employee benefit matters, labor matters, limitation on business conduct, title to property, real property, taxes, environmental matter, intellectual property, insurance, accounts receivable, customers, interested party transactions, the absence of certain payments, the applicability of the Delaware takeover statute, the opinion of J.C. Bradford, brokers and full disclosure. Tyco and the Purchaser have also made customary representations and warranties to the Company relating to Tyco and the Purchaser, including, without limitation, organization and qualification, authority relative to the Merger Agreement, the absence of conflicts, required filings and consent, brokers, the activities of Purchaser, the availability of sufficient funds to consummate the Offer and the Merger and full disclosure. COVENANTS RELATING TO THE CONDUCT OF BUSINESS. Pursuant to the Merger Agreement, the Company has agreed that, except as otherwise expressly contemplated by the Merger Agreement or consented to in advance by Tyco (which consent is in writing or subsequently confirmed in writing), which consent shall not be unreasonably withheld, it will in all material respects, carry on its business in, and not enter into any 5 material transaction other than in accordance with, the regular and ordinary course and, to the extent consistent therewith, use its reasonable best efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it. The Company has agreed that except as expressly contemplated by the Merger Agreement it will not, without the prior consent of Tyco (which consent is in writing or subsequently confirmed in writing), which consent shall not be unreasonably withheld: (a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to stockholders of the Company in their capacity as such, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or equity equivalent (other than the issuance of Shares during the period from the date of the Merger Agreement through the Effective Time upon the exercise of options or warrants or other rights to purchase Shares outstanding on the date of the Merger Agreement in accordance with their current terms); (c) amend or change its Certificate of Incorporation or Bylaws; (d) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets, in each case that are material, individually or in the aggregate, to the Company (e) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets that are material, individually or in the aggregate, to the Company; (f) make any commitment or enter into any contract or agreement except (i) in the ordinary course of business consistent with past practice or (ii) for capital expenditures to be made in fiscal 1998 as identified in a capital expenditure budget previously delivered to Tyco; (g) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others, except in the ordinary course of business consistent with past practice under financing arrangements in existence on the date of the Merger Agreement, or make any loans, advances or capital contributions to, or investments in, any other person, other than in the ordinary course of business consistent with past practice; (h) except as may be required as a result of a change in law or pursuant to generally accepted accounting principles, change any of the accounting principles or practices used by the Company; (i) make any tax election or settle or compromise any material income tax liability; (j) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (k) increase in any manner the compensation or fringe benefits of any directors, officers or other key employees of the Company or pay any pension or retirement allowance not required by an existing plan or agreement to any such employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than increases in the compensation of employees who are not officers or directors of the Company made in the ordinary course of business consistent with past practice, or (except pursuant to the terms of preexisting plans or agreements) accelerate the vesting of any compensation or benefit; (l) except in connection with the exercise of its fiduciary duties by the Board of Directors of the Company, waive, amend or allow to lapse any term or condition of any confidentiality or "standstill" agreement to which the Company or any subsidiary is a party; or (m) take, or agree to take, any of the foregoing actions or any action which would make any of the 6 representations or warranties of the Company contained in the Merger Agreement untrue or incorrect at or prior to the Effective Time of the Merger. COMPANY STOCKHOLDER APPROVAL. Pursuant to the Merger Agreement, the Company will, if required by applicable law, call a meeting of its stockholders (the "Stockholder Meeting") as soon as practicable following the purchase of Shares pursuant to the Offer for the purpose of voting upon the Merger. The Company will recommend to its stockholders the approval of the Merger through its Board of Directors and will use its reasonable best efforts to obtain stockholder approval of the Merger. In addition, if required by applicable law, the Company has agreed to prepare and file with the Commission, as soon as practicable following the expiration of the Offer, a proxy statement to be sent to the stockholders of the Company in connection with the Stockholders Meeting, or, if applicable, an information statement, satisfying all requirement under the Exchange Act. ACQUISITION PROPOSALS. The Company has agreed in the Merger Agreement, from the date of the Merger Agreement and prior to the Effective Time, (a) the Company will not, and the Company will direct and use its reasonable best efforts to cause its officers, directors, employees and authorized agents and representatives (including any investment banker, attorney or accountant retained by it) not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including any proposal or offer to its stockholders) with respect to a merger, acquisition, consolidation or similar transaction involving, or any purchase of, any equity securities (except pursuant to the exercise of outstanding opinions, warrants or other rights) or all or any significant portion of the assets of, the Company (any such proposal or offer being referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any person or entity relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (b) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any person or entity conducted previously with respect to any of the foregoing and will take the necessary steps to inform the person or entity referred to above of the obligations undertaken pursuant to this provision; and (c) that it will notify Tyco immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, the Company (but the Company shall not be required to disclose the identity of the other party or the terms of its proposals); provided, however, that the foregoing provisions will not prohibit the Board of Directors of the Company from (i) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide proposal in writing to engage in an Acquisition Proposal transaction which the Board of Directors of the Company in good faith determines represents a financially superior transaction for the stockholders of the Company as compared to the Offer and the Merger if, and only to the extent that, (A) the Board of Directors determines, after consultation with outside counsel of national reputation (which may be the Company's regularly engaged counsel) in corporate and securities matters as the Company shall select ("Company Counsel"), that failure to take such action would be inconsistent with the compliance by the Board of Directors with its fiduciary duties to stockholders imposed by law, (B) prior to or concurrently with furnishing such information to, or entering into discussions or negotiations with, such a person or entity, the Company provides written notice to Tyco to the effect that it is furnishing information to, or entering into discussions or negotiations with, such a person or entity, and (C) the Company keeps Tyco informed of the status (excluding, however, the identity of such person or entity) of any such discussions or negotiations; and (ii) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing contained in the foregoing provisions will (x) permit the Company to terminate the Merger Agreement (except as provided below under "Termination"), (y) permit the Company to enter into any agreement with respect to an Acquisition Proposal during the term of the Merger Agreement, or (z) affect any other obligation of any party under the Merger Agreement. 7 ANNUAL MEETING. The Company has agreed pursuant to the Merger Agreement that it will defer and/or postpone the holding of its 1998 annual meeting of stockholders indefinitely pending the consummation of the Merger, unless the Company is otherwise required to hold such meeting by an order from a court of competent jurisdiction. STOCK PLANS AND WARRANTS. The Company has agreed pursuant to the Merger Agreement that, prior to the Effective Time, it will take all such actions as shall be necessary to effect the provisions of the Merger Agreement relating to the Company Option Plans, the Warrant and the Note. The Company has also agreed to take such action as is necessary to cause the ending date of the then current offering period under the Company's 1994 Employee Stock Purchase Plan to be prior to the Effective Time and to terminate such plan as of the Effective Time. The Company also agreed to give written notice of the Merger to the holder of the Warrant at least 20 days prior to the Effective Time or by such other time required pursuant to the terms thereof. REASONABLE BEST EFFORTS. Upon the terms and subject to the conditions set forth in the Merger Agreement, each of the parties thereto has agreed to use its reasonable best efforts to take, or cause to be taken, all actions (including entering into transactions), and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger, and the other transactions contemplated by the Merger Agreement, including (a) making its respective filings (including under the HSR Act) and thereafter making any other required submission with respect to the Offer and the Merger, (b) obtaining all additional necessary actions or non-actions, waivers, consents and approvals from any applicable Governmental Entity and making all necessary registrations and filings (including filings with Governmental Entities) and taking all reasonable steps as may be necessary to obtain an approval or waiver from any Governmental Entity, (c) obtaining all necessary consents, approvals or waivers from third parties, (d) defending any lawsuits or other legal proceedings, whether judicial or administrative, challenging the Merger Agreement or the consummation of the transactions contemplated thereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (e) executing and delivering any additional instruments necessary to consummate the transactions contemplated by the Merger Agreement. Neither Tyco, Purchaser nor the Company, however, will be required to take any action pursuant to clauses (b), (c), (d) or (e) above that would in any event have a Material Adverse Effect, in the case of the Company, or any similar effect on Tyco and/or its subsidiaries. In addition, neither Tyco, Purchaser nor any of their affiliates will be required to enter into any transaction or take any other action that would require a waiver of, or that is inconsistent with satisfaction of, the conditions of the Offer set forth in clauses (a)(iii), (iv) or (v) of the section above entitled "Conditions of the Offer." PUBLIC ANNOUNCEMENTS. The Merger Agreement provides that Tyco, the Purchaser and the Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by the Merger Agreement, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange. INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that, from and after the Effective Time, the Surviving Corporation will indemnify and hold harmless all past and present officers and directors (the "Indemnified Parties") of the Company and of its subsidiaries to the full extent such persons may be indemnified by the Company pursuant to Delaware law, the Company's Certificate of Incorporation and Bylaws as in effect from time to time for acts and omissions occurring at or prior to the Effective Time and has agreed to advance reasonable litigation expenses incurred by such persons in connection with defending any action arising out of such acts or omissions, provided that such persons provide the requisite affirmations and undertaking, as set forth in Section 145(e) of the DGCL. Tyco has agreed to provide, or cause the Surviving Corporation to provide, for a period of not less than six years after the 8 Effective Time, the Company's current directors and officers an insurance and indemnification policy that provides coverage for events occurring at or prior to the Effective Time (the "D&O Insurance") that is no less favorable than the Company's existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; PROVIDED, HOWEVER, that Tyco and the Surviving Corporation will not be required to pay an annual premium for the D&O Insurance in excess of 200% of the annual premium currently paid by the Company for such insurance, but in such case will purchase as much coverage as possible for such amount. Tyco has agreed to absolutely and unconditionally guarantee the performance of the Surviving Corporation under these provisions. BOARD REPRESENTATION. The Merger Agreement provides that, promptly upon the purchase of Shares pursuant to the Offer, Tyco will be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Tyco, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors equal to the product of (a) the total number of directors on the Board of Directors and (b) the percentage that the number of Shares purchased by the Purchaser bears to the number of Shares outstanding. The Company has agreed that, upon request by Tyco, it will promptly increase the size of the Board of Directors and/or exercise its reasonable best efforts to secure the resignations of such number of directors as is necessary to enable Tyco's designees to be elected to the Board of Directors and will cause Tyco's designees to be so elected. The Company has agreed to take, at its expense, all actions required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder to effect any such election and shall include in the Schedule 14D-9 or otherwise timely mail to its stockholders the information required to be disclosed pursuant thereto. Tyco will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. Pursuant to the Merger Agreement, following the election of designees of the Purchaser, prior to the Effective Time, any amendment of the Merger Agreement or the Certificate of Incorporation or Bylaws of the Company, any termination of the Merger Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Tyco or the Purchaser or waiver of any of the Company's rights or obligations under the Merger Agreement will require the concurrence of a majority of the directors of the Company then in office who were directors as of the date of the Merger Agreement or persons designated by such directors and neither were designated by Tyco nor are employees of the Company ("Continuing Directors"). Prior to the Effective Time, the Company and Tyco will use all reasonable efforts to ensure that the Company's Board of Directors at all times includes at least three Continuing Directors. If the Purchaser acquires at least a majority of the Shares, it will have sufficient voting power to approve the Merger, even if no other stockholder votes in favor of the Merger. CONDITIONS PRECEDENT TO MERGER. The respective obligations of Tyco, the Purchaser and the Company to effect the Merger are subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) if required by applicable law, the Merger Agreement shall have been approved by the requisite vote of the stockholders of the Company; and (b) no court or other Governmental Entity shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree or injunction which prohibits or has the effect of prohibiting the consummation of the Merger; PROVIDED, HOWEVER, the Company, Tyco and the Purchaser have agreed that, prior to invoking this provision, they shall use their reasonable best efforts (subject to the other terms and conditions of the Merger Agreement) to have any such order, decree or injunction vacated. TERMINATION. The Merger Agreement may be terminated at any time prior to the Effective Time, whether before or after any approval by the stockholders of the Company: A. by mutual written consent of Tyco and the Company; 9 B. by the Company if: (i) the Offer has not been timely commenced (except as a result of actions or omissions by the Company); or (ii) there is an Acquisition Proposal which the Board of Directors of the Company in good faith determines represents a financially superior transaction for the stockholders of the Company as compared to the Offer and the Merger, and the Board of Directors of the Company determines, after consultation with Company Counsel, that failure to terminate the Merger Agreement would be inconsistent with the compliance by the Board of Directors with its fiduciary duties to stockholders imposed by law; PROVIDED, HOWEVER, that such right to terminate the Merger Agreement shall not be available (1) if the Company has breached in any material respect its obligations concerning Acquisition Proposals or (2) if, prior to or concurrently with any purported termination pursuant to this clause, the Company shall not have paid the fees and expenses contemplated under the provisions set forth below under "Fees and Expenses"; or (iii) any representation or warranty of Tyco or the Purchaser shall not have been true and correct in all material respects as if made at such later date; or (iv) Tyco or the Purchaser fails to comply in any material respect with any of its material obligations or covenants contained in the Merger Agreement, including the obligation of the Purchaser to purchase Shares pursuant to the Offer; C. by Tyco if (i) the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn, modified or amended in any material respect its approval or recommendations of the Offer or the Merger or shall have resolved to do any of the foregoing; or (ii) any representation or warranty of the Company shall not have been true and correct (1) in all material respects when made or (2) other than where the failure to be true and correct would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, shall have ceased at any later date to be true and correct in all material respects as if made at such later date, except that the right to terminate the Merger Agreement pursuant to this clause shall not be available to Tyco if the Purchaser or any affiliate of the Purchaser shall acquire Shares pursuant to the Offer; or (iii) the Company shall have failed to comply in any material respect with any of its material obligations or covenants contained in the Merger Agreement, except that the right to terminate the Merger Agreement pursuant to this clause shall not be available to Tyco if the Purchaser or any affiliate of the Purchaser shall acquire Shares pursuant to the Offer; or D. by either Tyco or the Company if: (i) either (x) as the result of the failure of the Minimum Condition or any of the other Offer Conditions, the Offer shall have terminated or expired in accordance with its terms without Purchaser having purchased any Shares, or (y) the Offer shall not have been consummated on or before October 31, 1998; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this clause shall not be available to any party whose failure to fulfill any of its obligations under this Agreement results in the failure of any such condition; or (ii) any court of competent jurisdiction or any governmental, administrative or regulatory authority, agency or body shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the Merger Agreement and such order, decree, ruling or other action shall have become final and nonappealable. FEES AND EXPENSES. Except as described in the following sentences, whether or not the Merger is consummated, all costs and expenses incurred in connection with the Merger Agreement and the transactions contemplated thereby shall be paid by the party incurring such costs and expenses. The Company has agreed in the Merger Agreement that, if the Merger Agreement is terminated pursuant to: (i) clause D(i) set forth above under "Termination" and at the time of such termination (1)(x) the Offer has remained open for a minimum of 20 business days, (y) the Minimum Condition has not been satisfied and (z) an Acquisition Proposal existed during such 20 day period, or (2) at the time of such termination any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act) (other than Tyco or any of its affiliates) shall have become the beneficial owner of more than 20% of the outstanding Shares and such person, entity or group (or any affiliate of such person, entity or group) thereafter (x) shall make an Acquisition Proposal at a price per share of at least $10.50, and, in the case of a consensual transaction 10 with the Company, shall substantially have negotiated the terms thereof, at any time on or prior to the date which is six months after such termination of the Merger Agreement, and (y) shall consummate such Acquisition Proposal at any time on or prior to the date which is one year after termination of Merger Agreement, in the case of a consensual transaction, or six months after termination of the Merger Agreement, in the case of a non-consensual transaction, in each case with a value per share of Common Stock of at least $10.50 (with appropriate adjustments for reclassification of capital stock, stock dividends, stock splits, reverse stock splits and similar events); (ii) clause B(ii) set forth above under "Termination"; (iii) clause C(i) set forth above under "Termination"; or (iv) clause C(iii) set forth above under "Termination," the Company will pay to Tyco (such payment, with respect to clause (iv) above only, to be Tyco's sole and exclusive remedy), the sum of (a) $2.0 million, plus (b) the amount of all documented out-of-pocket costs and expenses incurred by Tyco, the Purchaser or their affiliates in connection with the Merger Agreement or the transactions contemplated thereby in an aggregate amount not to exceed $150,000. Such payment will be made as promptly as practicable but in no event later than five business days following termination of the Merger Agreement pursuant to the immediately preceding sentence, or, in the case of clause (v) of the immediately preceding sentence, upon consummation of such Acquisition Proposal and will be made by wire transfer of immediately available funds to an account designated by Tyco. The Company further agrees that if the Merger Agreement is terminated pursuant to clause C(ii)(1) set forth above under "Termination," the Company shall pay to Tyco the amount of all documented out-of-pocket costs and expenses incurred by Tyco, the Purchaser or their affiliates in an aggregate amount not to exceed $150,000 in connection with the Merger Agreement or the transactions contemplated hereby. THE STOCKHOLDER AGREEMENT As an inducement to Tyco and the Purchaser entering into the Merger Agreement with the Company, certain executive officers and directors of the Company (the "Stockholders"), who beneficially own 458,146 issued and outstanding Shares, constituting approximately 7.2% of the Shares on a fully diluted basis (approximately 21.9% of the Shares on a fully diluted basis including 942,219 Shares issuable to them upon the exercise of options and other rights to acquire Shares) and other rights to acquire Shares, have entered into a Stockholder Agreement (the "Stockholder Agreement") with Tyco and the Purchaser, pursuant to which they have agreed to tender their Shares in the Offer. The following summary of certain provisions of the Stockholder Agreement, a copy of which is filed as an exhibit to this Schedule 14D-9, is qualified in its entirety by reference to the text of the Stockholder Agreement. AGREEMENT TO TENDER. Each of the Stockholders has agreed to tender its Shares, whether held now or acquired any time prior to the expiration or termination of the Offer, in the Offer and not to withdraw any Shares so tendered unless the Offer (i) is withdrawn in accordance with the terms of the Merger Agreement or (ii) expires without such Shareholder's Shares being purchased and the conditions set forth in Section 15 have not been satisfied or waived by Tyco or the Purchaser. In connection therewith, the Company has agreed with, and covenanted to, Tyco that the Company will not register the transfer of any certificate or agreement representing any Stockholder's Shares, unless such transfer is made to Tyco or the Purchaser or otherwise in compliance with the Stockholder Agreement. GRANT OF IRREVOCABLE PROXY. Each of the Stockholders has irrevocably granted to, and appointed, Tyco and individuals designated by Tyco as such Stockholder's proxy and attorney-in-fact, to vote such Stockholders' Shares, or grant a consent or approval in respect of such Shares, at any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which such Stockholders' vote, consent or other approval is sought, against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) any amendment of the Company's Certificate of Incorporation or Bylaws or other proposal or transaction (including any consent solicitation to remove or elect any directors of the Company) involving the 11 Company or any of its subsidiaries, which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to, the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement. REPRESENTATIONS, WARRANTIES, COVENANTS AND OTHER AGREEMENTS. Each of the Stockholders has made certain representations and warranties in the Stockholder Agreement, including with respect to (i) ownership of his Shares, (ii) the absence of liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances on or in respect of his Shares, and (iii) an acknowledgement of Tyco's reliance upon such Stockholders' execution of the Stockholder Agreement in entering into, and causing the Purchaser to enter into, the Merger Agreement. In addition, each of the Stockholders has agreed not to (i) transfer, or consent to any transfer of, any or all of such Stockholder's Shares or any interest therein (except as contemplated by the Stockholder Agreement and except for certain charitable contributions), (ii) enter into any contract, option or other agreement or understanding with respect to any transfer of any or all of such Shares or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization or consent in or with respect to such Shares, (iv) deposit such Shares into a voting trust or enter into a voting agreement or arrangement with respect to such Shares or (v) take any other action that would in any way restrict, limit or interfere with the performance of his obligations under the Stockholder Agreement or the transactions contemplated thereby. The Stockholders have also agreed not to, directly or indirectly, (i) solicit, initiate or encourage the submission of any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal, provided that the foregoing restrictions shall not be applicable in any case to the extent that, pursuant to the Merger Agreement, such restrictions would not be applicable to the Company. TERMINATION. The Stockholder Agreement, and all rights and obligations thereunder and the proxy provided therein, shall terminate upon the earlier of (i) the date upon which the Merger Agreement is terminated in accordance with its terms, (ii) with respect to each Stockholder, the date that Tyco or the Purchaser shall have purchased and paid for the Shares of such Stockholder pursuant to the terms of the Stockholder Agreement, or (iii) the date of the termination or expiration of the Offer. ITEM 4. THE SOLICITATION OR RECOMMENDATION (a) The Company's Board of Directors has determined unanimously that the Offer and the Merger are fair to and in the best interests of the stockholders of the Company and recommends that all stockholders of the Company accept the Offer and tender all their Shares pursuant to the Offer. This recommendation is based in part upon an opinion (the "Fairness Opinion") received by the Company from J.C. Bradford & Co., L.L.C. ("J.C. Bradford") that the consideration to be received by the Company's stockholders in the Offer and the Merger is fair to the stockholders from a financial point of view. No limitations were imposed by the Board of Directors or management of the Company on J.C. Bradford with respect to the investigations made, or the procedures followed by it, in rendering the Fairness Opinion. For purposes of its opinion, J.C. Bradford relied, without independent investigation, on the accuracy, completeness and fairness of all financial and other information reviewed by it. The Fairness Opinion contains a description of the factors considered the assumptions made and the scope of review undertaken by J.C. Bradford in rendering its opinion. THE FULL TEXT OF THE FAIRNESS OPINION RECEIVED BY THE COMPANY FROM J.C. BRADFORD IS ATTACHED AS SCHEDULE 1 TO THIS SCHEDULE 14D-9. STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. The Offer is conditioned upon, among other things, there being validly tendered and not withdrawn prior to the expiration of the Offer at least that number of Shares which would constitute a majority of the 12 total number of outstanding Shares on a fully diluted basis (the "Minimum Condition"). Pursuant to the Stockholder Agreement described above, beneficial owners of approximately 7.2% of the shares on a fully diluted basis (21.9% on a fully diluted basis, including 942,219 shares issuable to them upon the exercise of options and other rights to acquire shares) of the total outstanding Shares have agreed to tender all of their Shares pursuant to this Offer. Under Delaware Law, the approval of the Board and the affirmative vote of the holders of a majority of the outstanding Shares are required to approve the Merger. Accordingly, if the Minimum condition is satisfied, the Purchaser will have sufficient voting power to cause the approval of the Merger without the affirmative vote of any other stockholder. The Offer is scheduled to expire at 12:00 Midnight, New York City time on July 2, 1998, unless the Purchaser, subject to certain limitations, elects to extend the period of time for which the Offer is open. A copy of the press release issued jointly by the Company and the Purchaser on June 2, 1998 announcing the Merger and the Offer is filed as Exhibit 5 to this Schedule 14D-9 and is incorporated herein by reference in its entirety. (b) Since its initial public offering in early June 1994 (the "IPO"), the Company has regularly reviewed acquisition prospects that would augment or complement the Company's operations or offer significant growth opportunities. In addition, the Company's Board of Directors and senior management have reviewed the Company's strategic position in the electronic interconnect industry, near and longer term prospects for that industry and the Company's potential in it and strategic alternatives available to the Company, with a view to maximizing stockholder value. As part of that review, the Company had periodic discussions with representatives of J.C. Bradford, the Company's financial advisor. Among other discussions, representatives of senior management asked J.C. Bradford to informally inquire as to whether any potential purchasers would be interested in a possible acquisition of the Company. J.C. Bradford identified a list of the most likely potential acquirers of the Company. Since June 1996, either the Company or J.C. Bradford, or both, has contacted approximately 10 participants in the electronics industry to assess their interest in pursuing a potential transaction with the Company. In late March 1998, management of Tyco's Printed Circuit Group contacted the Company to solicit its interest in a possible acquisition of the Company by Tyco. On March 26, 1998, Tyco and the Company executed a confidentiality agreement regarding the furnishing of non-public information concerning the Company to Tyco. At the beginning of April 1998, representatives of Tyco visited the Company's facilities and met with senior management to preliminarily review the Company's operations. Several days later, Tyco conducted a preliminary review of the Company's environmental compliance. On April 24, 1998, representatives of Tyco met with the Company and J.C. Bradford and presented a non-binding offer to acquire the Company in an all cash transaction at a price of $12.50 per Share, subject to the negotiation of definitive documentation, regulatory approvals and the approval of the transaction by the Tyco Board. The offer was also subject to satisfactory conclusion of Tyco's due diligence investigation of the Company's operations, facilities and management. The Company responded with a counter offer to Tyco on the afternoon of April 24, 1998, and, on April 27, 1998, Tyco offered an increased price of $12.75 per Share, subject to the conditions of its offer of April 24, 1998. On May 5, 1998, the Company granted to Tyco the exclusive right through May 28, 1998, to negotiate for the acquisition of the Company. From May 11 through May 14, 1998, representatives of Tyco met with the Company's management and conducted a diligence review of the Company. This review included discussion of the Company's results of operations for April and the forecast for the balance of the Company's fourth quarter, both of which were below the Company's projections previously furnished to Tyco. At a meeting of the Board of Directors of Tyco held on May 18, 1998, Tyco management made a presentation concerning the acquisition of the Company based on the results of the completed due diligence investigation. The Board approved the acquisition and authorized management to complete the transaction on terms that in management's view were consistent with the results of due diligence. 13 Based upon the results of Tyco's due diligence efforts and its review of the Company's recent operating results and revised forecasts, on May 20, 1998, Tyco called the Company and J.C. Bradford and proposed to acquire the Company for $10.50 per Share in a cash tender offer followed by a merger at the same cash price. On May 22, 1998, the Board of Directors of the Company met to consider the Tyco offer. J.C. Bradford delivered its preliminary oral opinion to the Company's Board that, as of such date, the consideration proposed to be paid to the stockholders of the Company pursuant to the Tyco offer was fair to the stockholders from a financial point of view. Thereafter, the Company's Board of Directors authorized the Company's officers and legal counsel to enter into negotiations concerning a definitive merger agreement. Representatives of Tyco and the Company and their respective counsel conducted negotiations concerning the Merger Agreement during the week of May 26, 1998 and concluded such negotiations on June 1, 1998. On May 29, 1998, the Company's Board of Directors met to consider the Tyco offer and discuss the changes made to Merger Agreement from the draft previously discussed by the Board. J.C. Bradford reconfirmed its oral opinion to the Company's Board (subsequently confirmed in writing) that as of such date, the consideration proposed to be paid to the stockholders of the Company pursuant to the Tyco offer was fair to the stockholders from a financial point of view. Thereafter, the Company's Board of Directors unanimously approved the Offer and the Merger, determined to recommend the Offer and the Merger to the Company's stockholders and authorized the officers of the Company to finalize and execute definitive documentation for the transaction. A representative of the Company then contacted Tyco to inform it of the Board's determination. The Merger Agreement and the Stockholder Agreement were executed by the respective parties on June 1, 1998. A joint press release announcing the execution of the Merger Agreement was released by the parties prior to the opening of the U.S. financial markets on June 2, 1998. In arriving at its decision to approve the Offer and Merger and recommend that the Company's stockholders accept the Offer and tender their shares, the Board of Directors of the Company considered a number of factors, including, without limitation, the following: (i) the financial and other terms and conditions of the Offer and Merger Agreement, including, without limitation, that the Company's fourth quarter financial results, which are expected to be below prior projections, would not, by the terms of the Merger Agreement, result in a Material Adverse Effect that might otherwise permit Tyco to terminate the Offer; (ii) the fact that the $10.50 per Share to be received by the Company's stockholders in both the Offer and the Merger represents a substantial premium over the historical trading prices for the Shares since the Company's June 3, 1994 initial public offering of $2.75 per share (adjusted for a subsequent stock split), including a premium over the closing market price of $8.75 on the last full trading day prior to the approval and execution of the Merger Agreement; (iii) the written opinion of J.C. Bradford that the consideration to be received by the Company's stockholders pursuant to the Offer and the Merger is fair to such stockholders from a financial point of view. J.C. Bradford's written opinion is attached to this Schedule 14D-9 as Schedule 1 and is incorporated herein by reference. Such opinion should be read in its entirety for a description of the procedures followed, assumptions and qualification made, matters considered and limitations of the review conducted by J.C. Bradford; (iv) the presentation of J.C. Bradford to the Board of directors at its meeting on May 22, 1998, as to various financial and other matters deemed relevant to the Board of Directors consideration, including, among other things, (a) an analysis of the Company's historical and projected operating 14 performance, (b) a review of public information with respect to certain other companies in the electronics interconnect business, (c) a review of the historical stock prices and trading volumes of Shares, (d) a hypothetical public market valuation of the Company, (e) an analysis of the Offer Price as a multiple of various measures of the Company's operating performance, and (f) the terms of the recent comparable business combinations in the electronics interconnect industry in comparison with the terms of the proposed transaction; (v) the results of the process undertaken by the Company and J. C. Bradford to identify and solicit indications of interest with respect to a possible purchase of the Company, including the fact that no other potential strategic partner expressed an interest in engaging in a business combination or other strategic transaction that would likely be on terms as favorable to the Company's stockholders as those of the Offer and Merger; (vi) the fact that, to the extent required by fiduciary obligations of the Board of Directors of the Company to the stockholders under Delaware Law, the Company may terminate the Merger Agreement in order to approve a tender offer or exchange offer for the Shares or other proposed business combination by a third party on terms more favorable to the Company's stockholders than the Offer and the Merger taken together, upon the payment of a $2.0 million termination fee plus documented fees and expenses of Tyco and the Purchaser up to $150,000 (see "Fees and Expenses" under the description of the Merger Agreement above); (vii) the effect of the Offer and the Merger on the Company's relationships with its employees and customers; (viii) the advice of the Company's legal advisors with respect to the terms and conditions of the Merger Agreement, the Offer and the Merger; and (ix) the Board of Directors' knowledge of the Company's business, operations, prospects and competitive position and current trends in the electronic interconnect industry, including the advantages in a competitive environment of strategically aligning with a large, well-capitalized company. The Board of Directors recognized that consummation of the Offer and the Merger will deprive current stockholders of the Company of the opportunity to participate in future growth prospects of the Company and, therefore, in reaching its conclusion to approve the Offer and the Merger, determined that historical results of operations and future prospects of the Company are adequately reflected in the $10.50 price per Share. In light of all the factors set forth above, the Board of Directors approved the Offer and the Merger. In view of the variety of factors considered in connection with its evaluation, the Board of Directors did not assign relative weight to the specific factors in reaching its decision or determine that any factor was of particular importance. Rather, the Board of Directors viewed its position and recommendations as being based on the totality of the information presented to it and considered by it. ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The Company retained J.C. Bradford to provide the Fairness Opinion in connection with the proposed Offer and Merger. Pursuant to a letter agreement, dated November 25, 1996, between the Company and J.C. Bradford, the Company has agreed to pay J.C. Bradford a fee of $150,000 upon delivery of the Fairness Opinion. In the even that J.C. Bradford is requested to deliver an updated Fairness Opinion, the Company has agreed to pay an additional fee of $50,000. In addition, upon the closing of the Merger, J.C. Bradford shall be paid a transaction fee equal to $430,000. The fees paid in relation to the Fairness Opinion will be credited against the transaction fee. The Company has also agreed to indemnify J.C. Bradford and its directors, offices, agents, employees and controlling persons for certain costs, expenses and liabilities to which it may be subjected arising out of or related to its engagement. 15 Except as set forth above, neither the Company nor any person acting on its behalf has or currently intends to employ, retain or compensate any person to make solicitations or recommendations to the stockholders of the Company on its behalf with respect to the Offer. ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES. (a) During the past sixty (60) days, no transactions in the Shares have been effected by the Company or, to the best of the Company's knowledge, by any executive officer, director, affiliate or subsidiary of the Company. (b) To the best of the Company's knowledge, all of the Stockholders (see Item 3, "Identity and Background--The Stockholder Agreement," above) and all of the Company's other executive officers and directors who own Shares of Common Stock currently intend to tender all of their Shares pursuant to the Offer. ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY. (a) Except as set forth herein, no negotiation is being undertaken or is underway by the Company in response to the Offer which relates to or would result in (i) an extraordinary transaction, such as a merger or reorganization, involving the Company or any subsidiary thereof; (ii) a purchase, sale or transfer of a material amount of assets by the Company or any subsidiary thereof; (iii) a tender offer for or other acquisition of securities by or of the Company; or (iv) any material change in the present capitalization or dividend policy of the Company. (b) Except as set forth herein, there is no transaction, board resolution, agreement in principle or signed contract in response to the Offer that relates to, or would result in, one or more of the events referred to in Item 7(a) above. ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED. The information contained in Exhibits 1-6 referred to in Item 9 below is incorporated herein by reference. ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------------- 1 The Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, held on December 16, 1997 2 Agreement and Plan of Merger, dated as of June 1, 1998, among Tyco, the Purchaser and the Company 3 Stockholder Agreement, dated June 1, 1998, among Tyco, the Purchaser and the Stockholders identified therein 4 Letter to Stockholders, dated June 5, 1998, from B. Kevin Kelly, Chief Executive Officer and President of the Company* 5 Joint press release issued by the Company and Tyco on June 2, 1998 6 Fairness Opinion of J.C. Bradford dated May 29, 1998*
- ------------------------ * Included in a Schedule to the 14D-9
[SIGNATURE PAGE FOLLOWS] 16 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. June 5, 1998 SIGMA CIRCUITS, INC. By: /s/ B. KEVIN KELLY ------------------------------------------ B. Kevin Kelly PRESIDENT AND CHIEF EXECUTIVE OFFICER
17 SCHEDULE I J. C. BRADFORD & CO. CORPORATE FINANCE 330 COMMERCE STREET NASHVILLE, TN 37201 May 29, 1998 The Board of Directors Sigma Circuits, Inc. 393 Matthew Street Santa Clara, CA 95050 Gentlemen: Sigma Circuits, Inc. (the "Company"), Tyco International Ltd. ("Tyco") and T10 Acquisition Corp., an indirect wholly-owned subsidiary of Tyco (the "Sub"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides for the commencement by the Sub of a tender offer (the "Offer") for all of the outstanding shares of Common Stock of the Company, par value $0.001 per share (the "Shares"), at a price of $10.50 per Share, net to the seller in cash, followed by a merger (the "Merger") of Sub with and into the Company pursuant to which each outstanding Share (other than Shares held in the treasury of the Company or by any wholly-owned subsidiary of the Company and any shares owned by Tyco, Sub or any other wholly-owned subsidiary of Tyco) will be converted into the right to receive $10.50 in cash. You have asked us whether, in our opinion, the cash consideration to be received by the stockholders of the Company in the Offer and the Merger is fair to such stockholders from a financial point of view. J.C. Bradford & Co., L.L.C., as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We have acted as financial advisor to the Board of Directors of the Company in connection with the proposed Offer and Merger and will receive a fee from the Company for our services, a significant portion of which is contingent upon consummation of the Offer. In conducting our analysis and arriving at our opinion, we have considered such financial and other information as we deemed appropriate including, among other things, the following: (i) the Merger Agreement; (ii) the historical and current financial position and results of operations of the Company; (iii) certain internal financial analyses and forecasts of the Company prepared by senior management, and provided to us as reasonable forecasts appropriate for use in rendering our opinion; (iv) certain financial, securities and research data of certain other companies in businesses similar to the Company, the securities of which are publicly traded; (v) prices and premiums paid in certain other acquisitions and transactions that we believed to be relevant; (vi) historical and current price and trading activity for the Common Stock; and (vii) such other financial studies, analyses and investigations as we deemed appropriate for purposes of our opinion. We also have held discussions with members of the senior management of the Company regarding the past and current business operations, financial condition and future prospects of the Company. With your permission, we have assumed that financing for the Offer and the Merger has been irrevocably obtained, and that the Merger Agreement has been executed and delivered by the parties thereto on the terms contained in the most recent draft of the Merger Agreement supplied to and reviewed by us. I-1 We have taken into account our assessment of general economic, market, financial and other conditions and our experience in other transactions, as well as our experience in securities valuation and our knowledge of the industry in which the Company operates generally. Our opinion is necessarily based upon the information made available to us and conditions as they currently exist and can be evaluated as of the date hereof. We have relied upon the accuracy and completeness of all of the financial and other information reviewed by us for purposes of our opinion and have not assumed any responsibility for, nor undertaken an independent verification of, such information. With respect to the internal operating data and financial analyses and forecasts supplied to us, we have assumed that such data, analyses and forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the Company's senior management as to the recent and likely future performance of the Company. Accordingly, we express no opinion with respect to such analyses or forecasts or the assumptions on which they are based. Our opinion does not address the relative merits of the proposed Offer and Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transactions in which the Company might engage. Furthermore, we have not made an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor have we been furnished with any such evaluations or appraisals. In the ordinary course of our business, we may actively trade the equity securities of the Company and Tyco for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. It is understood that this letter is for the information of the Board of Directors in connection with its consideration of the Offer and the Merger, does not constitute a recommendation to any stockholder as to whether such stockholder should tender shares pursuant to the Offer or vote to approve the Merger, and is not to be quoted or referred to, in whole or in part, in any proxy statement, nor shall this letter be used for any other purposes, without our prior written consent. Based upon and subject to the foregoing, and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the cash consideration to be received by the stockholders of the Company in the Offer and the Merger is fair to such stockholders from a financial point of view. Very truly yours, J.C. BRADFORD & CO., L.L.C. I-2 SCHEDULE II SIGMA CIRCUITS, INC. 393 MATHEW STREET SANTA CLARA, CALIFORNIA 95050 INFORMATION PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER The following information is being furnished to holders of the common stock, par value $.001 per share (the "Shares"), of Sigma Circuits, Inc., a Delaware corporation (the "Company" or "Sigma"), in connection with the possible designation by Tyco International Ltd., a Bermuda company ("Tyco"), of at least a majority of the members of the Board of Directors of the Company pursuant to the terms of an Agreement and Plan of Merger, dated as of June 1, 1998 (the "Merger Agreement"), by and among the Company, Tyco and T10 Acquisition Corp. ("Purchaser"), a Delaware corporation and an indirect wholly owned subsidiary of Tyco. THIS INFORMATION IS BEING PROVIDED SOLELY FOR INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS. The Merger Agreement provides that promptly following the purchase of any Shares pursuant to the Offer, Tyco may request that the Company take all actions necessary to cause persons designated by Tyco to become directors of the Company (the "Tyco Designees") so that the total number of directorships held by such persons is proportionate to the percentage calculated by dividing (i) the number of Shares accepted for payment pursuant to the Offer plus Shares beneficially owned by Tyco or any affiliate thereof by (ii) the total number of Shares outstanding; provided that prior to the consummation of the Merger, the Board of Directors of the Company (the "Board of Directors") shall always have at least three members who are directors as of the date hereof or persons designated by such directors and are neither employees of the Company nor designees of Tyco. The Company has also agreed to increase the size of the Board of Directors or exercise reasonable best efforts to secure the resignation of existing directors so as to enable Tyco's designees to be elected to the Board of Directors in accordance with such provisions. The information contained in this Schedule II concerning Tyco and Purchaser has been furnished to the Company by Tyco, and the Company assumes no responsibility for the accuracy or completeness of any such information. VOTING SECURITIES OF THE COMPANY As of May 23, 1998, there were issued and outstanding 4,252,985 shares of Common Stock, each of which entitles the holder to one vote. II-1 BOARD OF DIRECTORS, TYCO DESIGNEES AND EXECUTIVE OFFICERS BOARD BIOGRAPHICAL INFORMATION The persons named below are the current members of the Board of Directors. The following sets forth as to each director his age (as of June 6, 1998), principal occupation and business experience, the period during which he has served as a director and the expiration of his term as a director.
EXPIRATION OF TERM AS A NAME AGE DIRECTOR SINCE DIRECTOR - ------------------------------------------------------------------------ ----- --------------------- --------------- B. Kevin Kelly.......................................................... 45 1992 1998 Robert P. Cummins (1)................................................... 44 1996 1998 Philip S. Bushnell...................................................... 47 1993 2000 Thomas J. Bernard (1)(2)................................................ 66 1995 1999 William H. Boyle (2).................................................... 64 1996 1999 Carl H.R. Brockl........................................................ 52 1997 2000
- ------------------------ (1) Member of Compensation Committee (2) Member of Audit Committee ROBERT P. CUMMINS Mr. Cummins has been a Director since April 1986 and Chairman of the Board since August 1992. Mr. Cummins is currently the President, Chief Executive Officer and a Director of Cyberonics, Inc., a medical device company. He was a general partner of Vista Partners, L.P., a venture capital partnership which he joined in 1984 until December 1994. Mr. Cummins was also Vice President and a director of Vista Ventures, Inc., a venture capital advisory firm. B. KEVIN KELLY Mr. Kelly has served as President and Chief Executive Officer and a Director since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice President of Operations at Lundahl Astro Circuits Inc., a high volume manufacturer of printed circuit boards, from December 1991 to October 1992. Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder and President of Vitesse Engineering, a supplier of electrical test fixtures for the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly was Vice President of Sales and Operations at West Coast Circuits, Inc., a quick-turn manufacturer of printed circuit boards. PHILIP S. BUSHNELL Mr. Bushnell has served as Senior Vice President, Finance and Administration since January 1994. From August 1992 until January 1994, Mr. Bushnell served as Vice President, Finance. He was elected Secretary and Chief Financial Officer in October 1992 and has been a Director since June 1993. From July 1987 to August 1992, Mr. Bushnell was employed in various finance positions with the Company. Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian Associates, a diversified electronics company, from 1978 until 1986. II-2 THOMAS J. BERNARD Mr. Bernard has been a Director since April 1995. Mr. Bernard is currently Senior Vice President and General Manager of Wireless Infrastructure Products with QUALCOMM Inc., a digital wireless communications company. From 1986 until his temporary retirement in May 1994, Mr. Bernard served with QUALCOMM Inc. as Senior Vice President and General Manager of OmniTRACS-TM-. Prior to that he served as Executive Vice President and General Manager of the M/A-COM Telecommunication Division of M/A-COM LINKABIT, a manufacturer of telecommunications interconnects. WILLIAM H. BOYLE Mr. Boyle has been a Director since May 1996. Mr. Boyle is currently the Chief Financial Officer of Cubic Corporation, an aerospace and defense contractor and the largest manufacturer of automated revenue collection systems for the mass transit industry. Prior to that he served as Vice President and Treasurer of Wickes Corporation, from 1972 until 1983. Mr. Boyle currently serves as a director of Cubic Corporation and the West Coast Advisory Board of Protection Mutual Insurance Company. CARL H.R. BROCKL Mr. Brockl has been a Director since June 1997. From September 1995 until June 1996, Mr. Brockl served as a General Manager at the Company. From their founding in 1984 until their acquisition by the Company in September 1995, Mr. Brockl was the President and a Director of Citation Circuits, Inc., Citation Enterprises, Inc. and Citron, Inc. INFORMATION CONCERNING TYCO DESIGNEES TO THE BOARD OF DIRECTORS Tyco has informed the Company that it will select the Tyco Designees from among L. Dennis Kozlowski (age 51), Joshua M. Berman (age 59), Jerry R. Boggess (age 54), David B. Brownell (age 54), Irving Gutin (age 66), Robert P. Mead (age 47), Richard J. Meelia (age 48), M. Brian Moroze (age 54) and Mark H. Swartz (age 37), each of whom is a director or executive officer of Tyco, certain subsidiaries of Tyco or the Purchaser. Information concerning the Tyco Designees is contained in Annex I and Annex II to the Offer to Purchase, a copy of which is being mailed to the Company's stockholders with this Schedule 14D-9. The information in such Annexes is incorporated herein by reference. In addition to the information concerning Mr. Kozlowski in such Annexes, Mr. Kozlowski is a director of Applied Power, Inc., Raytheon Company and RJR Nabisco Holdings Corp. Tyco has also informed the Company that each of such directors and executive officers has consented to act as a Director of the Company, if so designated. It is expected that none of the Tyco Designees will receive any compensation for services performed in his capacity as a Director of the Company. BOARD COMMITTEES AND MEETINGS During the fiscal year ended June 30, 1997(1) the Board of Directors held six meetings. The Board has an Audit Committee and a Compensation Committee. The Audit Committee meets with the Company's independent auditors at least annually to review the results of the annual audit and discuss the financial statements; recommends to the Board the independent auditors to be retained; and receives and considers the accountants' comments as to controls, adequacy of staff and management performance, and procedures in connection with audit and financial controls. The Audit Committee is composed of two non-employee directors, Messrs. Cummins and Boyle. It met once during such fiscal year. - ------------------------ (1) The Company operates on thirteen week quarterly periods each ending on the Saturday closest to the end of the calendar month. For purposes of presentation, the Company has indicated its accounting year as ending on June 30. II-3 The Compensation Committee makes recommendations concerning salaries and incentive compensation, awards stock options to employees and consultants under the Company's stock option plans and otherwise determines compensation levels and performs such other functions regarding compensation as the Board may delegate. The Compensation Committee is composed of two non-employee directors, Messrs. Cummins and Bernard. It met once during such fiscal year. During the fiscal year ended June 30, 1997, each Board member attended 75% or more of the aggregate of the meetings of the Board and of the committees on which he served, held during the period for which he was a director or committee member, respectively. COMPENSATION OF DIRECTORS In accordance with Company policy, all members of the Board of Directors are eligible for reimbursement for their expenses incurred in connection with attendance at Board meetings. In addition, each non-employee Director of the Company received annual compensation of $5,000 for his service as a Board member during fiscal 1997. On December 31, 1996, Mr. Cummins, Mr. Bernard and Mr. Boyle, the only non-employee directors incumbent at the time, were each automatically granted an option to purchase 3,000 shares of the Company's Common Stock in accordance with the Company's 1994 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). Under the Directors' Plan, each non-employee director receives an option for 3,000 shares of the Company's Common Stock each year. On June 9, 1997, the date Mr. Brockl was first elected to the Board of Directors, Mr. Brockl was granted an option to purchase 10,000 shares of the Company's Common Stock pursuant to the Directors' Plan. On July 1, 1995, the Company entered into a consulting agreement with Mr. Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in exchange for certain consulting services. The Company renewed such agreement for one-year periods on July 1, 1996 and July 1, 1997. After the consummation of the Merger, it is expected that the Company's Board of Directors will act to appoint new members to the Audit and Compensation Committees. To the Company's knowledge, no decision has been made by the Tyco Designees regarding the membership of any such committees of the Board. II-4 EXECUTIVE OFFICERS Executive officers serve at the discretion of the Board of Directors. The following table sets forth certain information concerning the executive officers of the Company (as of June 5, 1998) who are expected to serve in such capacity until the consummation of the Merger (none of whom has a family relationship with any other executive officer):
NAME POSITION - -------------------------------------------------------- -------------------------------------------------------- B. Kevin Kelly.......................................... President and Chief Executive Officer Philip S. Bushnell...................................... Senior Vice President, Finance and Administration, Chief Financial Officer and Secretary W. Kent Hardwick........................................ Senior Vice President, General Counsel and Secretary
The following is a brief summary of the background of each executive officer of the Company: B. KEVIN KELLY Mr. Kelly has served as President and Chief Executive Officer and a Director since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice President of Operations at Lundahl Astro Circuits Inc., a high volume manufacturer of printed circuit boards, from December 1991 to October 1992. Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder and President of Vitesse Engineering, a supplier of electrical test fixtures for the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly was Vice President of Sales and Operations at West Coast Circuits, Inc., a quick-turn manufacturer of printed circuit boards. PHILIP S. BUSHNELL Mr. Bushnell has served as Senior Vice President, Finance and Administration since January 1994. From August 1992 until January 1994, Mr. Bushnell served as Vice President, Finance. He was elected Secretary and Chief Financial Officer in October 1992 and has been a Director since June 1993. From July 1987 to August 1992, Mr. Bushnell was employed in various finance positions with the Company. Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian Associates, a diversified electronics company, from 1978 until 1986. W. KENT HARDWICK Mr. Hardwick has served as Vice President, Sales and Marketing since March 1997. From 1996 until March 1997, Mr. Hardwick served as Vice President of Business Development. From 1995 until 1996, Mr. Hardwick held the position of Director of Business Development. From 1985 to 1994 he served as Southwestern Regional Sales Manager. From 1983 to 1985 he served as a Customer Service Representative. II-5 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of the Company's Common Stock as of May 23, 1998 by (i) each director; (ii) each of the executive officers named in the Summary Compensation Table employed by the Company in that capacity on May 23, 1998; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its Common Stock.
BENEFICIAL OWNERSHIP (1) ---------------------- NUMBER OF PERCENT OF NAME SHARES TOTAL - ------------------------------------------------------------------------ --------- ----------- Carl H. R. Brockl (2)................................................... 791,786 17.0% Entities affiliated with Metropolitan Capital Advisors, Inc. (3)........ 257,800 6.1% B. Kevin Kelly (4)...................................................... 355,814 7.7% Philip S. Bushnell (5).................................................. 202,311 4.6% W. Kent Hardwick (6).................................................... 95,186 2.2% Robert P. Cummins (7)................................................... 50,454 1.2% Thomas J. Bernard (8)................................................... 24,000 * William H. Boyle (9).................................................... 16,000 * All directors and officers as a group (7 persons)(10)................... 1,783,551 28.9%
- ------------------------ * Less than 1% (1) This table is based upon information supplied by officers, directors and principal shareholders. Unless otherwise indicated in the footnotes to this table and subject to the community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned by him. Percentage of beneficial ownership is based on 4,252,985 shares of Common Stock outstanding as of May 23, 1998, adjusted as required by rules promulgated by the Commission. (2) Includes 400,000 shares of Common Stock issuable to Carl and Linda Brockl pursuant to the terms of a $1,800,000 Convertible Subordinated Note issued to Carl and Linda Brockl as partial consideration for the purchase of substantially all the assets and certain liabilities of Citation. Also includes 13,000 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (3) Based solely on information obtained from a filing made on Schedule 13G with the SEC. Includes 7,800 shares held by KJ Advisors, Inc. ("KJA") and 69,100 shares held by Metropolitan Capital III, Inc. ("MC III"). Jeffrey E. Schwarz and Karen Finerman are directors and officers of Metropolitan Capital Advisors, Inc., KJA and MC III. (4) Represents 355,814 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (5) Includes (i) 450 shares held by the Philip S. Bushnell Trust and (ii) 152,951 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (6) Includes 90,000 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (7) Includes 20,454 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (8) Includes 19,000 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. II-6 (9) Represents 16,000 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. (10) Includes 1,067,219 shares issuable upon the exercise of options, as such options are immediately exercisable upon completion of the Merger. COMPENSATION OF EXECUTIVE OFFICERS The following table shows for the fiscal years ending June 30, 1997, 1996 and 1995, compensation awarded or paid to, or earned by the Company's Chief Executive Officer and its three other most highly compensated executive officers whose salary and bonus compensation exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------ SECURITIES BONUS ALL OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION($)(2) OPTIONS(3) - ----------------------------------------------- --------- ---------- --------- ------------------- ------------- B. Kevin Kelly................................. 1997 $ 211,538 $ -- $ 9,160 -- President, Chief Executive 1996 199,039 75,872 9,150 80,000 Officer and Director 1995 175,006 15,500 8,766 53,526 Philip S. Bushnell............................. 1997 $ 150,000 $ -- $ 9,160 -- Senior Vice President, 1996 143,500 57,110 9,150 60,000 Finance and Administration, 1995 125,000 7,750 8,838 41,268 Chief Financial Officer, Secretary and Director W. Kent Hardwick............................... 1997 $ 153,846 $ 46,476 $ 9,160 70,000 Vice President, Sales and 1996 106,014 15,354 9,150 10,000 Marketing 1995 74,574 11,885 8,838 306 Douglas B. Crerar.............................. 1997 $ 136,964 $ -- $ 5,325 -- Former Vice President, 1996 81,346 16,250 5,250 75,000 Sales and Marketing 1995 -- -- -- --
- ------------------------ (1) Bonuses awarded to Messrs. Kelly and Bushnell in fiscal 1995 were paid in the first quarter of fiscal 1996. (2) Consists of automobile allowance and premiums for health insurance benefits. (3) These options become exercisable in 54 equal monthly installments beginning with the seventh month from the date of grant. STOCK OPTION GRANTS AND EXERCISES The Company has granted options to its executive officers under its 1988 Stock Option Plan (the "1988 Plan"), adopted in May 1988 and amended in October 1993, March 1994, June 1995 and September 1995. At June 30, 1997, options (net of canceled or expired options) covering an aggregate of 952,720 shares of the Company's Common Stock were outstanding under the 1988 Plan, and only 199,483 shares (plus any shares that might in the future be returned to the 1988 Plan as a result of cancellations or expiration of options) remained available for future grant under the 1988 Plan. The Board of Directors voted in October 1997 to amend and restate the 1988 Plan as the 1997 Stock Option Plan (the "Option Plan"), II-7 subject to stockholder approval, to increase the number of shares of Common Stock authorized for issuance under the Option Plan by 200,000, bringing the total shares authorized for issuance under the Option Plan to 1,500,000, and to make certain other changes. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth each grant of stock options made during the fiscal year ended June 30, 1997 to each of the Named Executive Officers:
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF INDIVIDUAL STOCK GRANTS PRICE ------------- APPRECIATION NUMBER OF PERCENTAGE OF FOR SECURITIES TOTAL OPTIONS OPTION UNDERLYING GRANTED IN EXERCISE MARKET TERM($)(3) OPTIONS FISCAL PRICE PRICE EXPIRATION --------- NAME (1) GRANTED(1) 1997(2) ($/SH) ($/SH) DATE 5% - -------------------------------------------- ------------- --------------- ----------- ----------- ----------- --------- W. Kent Hardwick............................ 70,000 28.23 6.1875 6.1875 10/13/2006 272,390 NAME (1) 10% - -------------------------------------------- ---------- W. Kent Hardwick............................ 690,290
- ------------------------ (1) These options become exercisable in 54 equal monthly installments beginning with the seventh month from the date of grant. (2) Based on a total of 248,000 options granted to employees during the fiscal year ended June 30, 1997. (3) The potential realizable value is based on the term of the option at the time of grant (ten years). Assumed stock price appreciation of five percent and ten percent used pursuant to rules promulgated by the Commission. The potential realizable value is calculated by assuming that the market price per share appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. The following tables show for the fiscal year ended June 30, 1997, certain information regarding options granted to, exercised by and held at year end by the Named Executive Officers: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND JUNE 30, 1997 OPTION VALUES
NUMBER OF SECURITIES -------------------------- UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT JUNE 30, IN-THE-MONEY OPTIONS AT SHARES VALUE 1997(#) JUNE 30, 1997($)(2) ACQUIRED ON REALIZED -------------------------- -------------------------- NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------- ------------- ----------- ----------- ------------- ----------- ------------- B. Kevin Kelly............................. -- -- 152,898 126,916 527,270 234,561 Philip S. Bushnell......................... 6,000 27,533 39,614 81,930 83,693 117,298 W. Kent Hardwick........................... -- -- 13,910 76,090 40,305 17,481
- ------------------------ (1) Based on the fair market value of the Company's Common Stock on the dates of exercise minus the exercise price. (2) Based on the closing price of the Company's Common Stock on June 30, 1997 ($4.875 per share) minus the exercise price. COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A) Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. II-8 To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended June 30, 1997, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. CHANGE-IN-CONTROL SEVERANCE AGREEMENTS In October 1995, the Company entered into change-in-control severance agreements (the "Severance Agreements") with Mr. Kelly and Mr. Bushnell. Pursuant to the Severance Agreements, if the employment of Mr. Kelly or Mr. Bushnell is either involuntarily terminated by the Company without cause, or voluntarily terminated by resignation of Mr. Kelly or Mr. Bushnell for good reason within 12 months following a change-in-control, then the terminated executive will be entitled to severance compensation and benefits, including a lump sum payment of 18 months of base salary for Mr. Kelly and 12 months of base salary for Mr. Bushnell (an aggregate amount equal to $300,000 for Mr. Kelly and $150,000 for Mr. Bushnell, subject to salary adjustments), payment of health benefit premiums for 18 months for Mr. Kelly and 12 months for Mr. Bushnell, a severance bonus (equal to the bonus that would have been payable had the executive worked the entire year, pro rated by the number of days worked), and acceleration of vesting of all outstanding stock options. As set forth in more detail in the Severance Agreements, a "change-in-control" transaction is defined as any capital transaction or reorganization in which ownership of more than 50% of the Company's voting shares changes; "cause" is defined as conviction of a crime or participation in fraud against the Company or gross unfitness to serve as determined by the Board of Directors; and "good reason" is a reduction in compensation, benefits or responsibilities. In October 1997, the Company entered into a change-in-control severance agreement (the "Severance Agreement") with Mr. Hardwick. Pursuant to the Severance Agreement, if the employment of Mr. Hardwick is either involuntarily terminated by the Company without cause, or voluntarily terminated by resignation of Mr. Hardwick for good reason within 13 months following a change-in-control, then Mr. Hardwick will be entitled to severance compensation and benefits, including a lump sum payment of 13 months of base salary (an aggregate amount equal to $173,334, subject to salary adjustments), payment of health benefit premiums for 13 months, a severance bonus (equal to the bonus that would have been payable had the executive worked the entire year, pro rated by the number of days worked), and acceleration of vesting of all outstanding stock options. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION (1) The Compensation Committee of the Board of Directors (the "Committee") is composed of Messrs. Bernard and Cummins, neither of whom has been an officer or employee of the Company. The Committee is responsible for establishing the Company's compensation programs for executive officers. COMPENSATION PHILOSOPHY The goals of the compensation program are to align compensation with business objectives and performance and to enable the Company to attract, retain and reward executive officers and other key employees who contribute to the long-term success of the Company and to establish an appropriate relationship between executive compensation and the creation of long-term stockholder value. To meet - ------------------------ (1) The material in this report is not "soliciting material," is not deemed filed with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (the "1993 Act"), or the Securities Exchange Act of 1934 (the "1934 Act"), whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing. II-9 these goals, the Committee has adopted a mix among the compensation elements of salary, bonus and stock options, with a bias toward stock options to emphasize the link between executive incentives and the creation of stockholder value as measured by the equity markets. BASE SALARY. The Committee annually reviews each executive officer's base salary. When reviewing base salaries, the Committee considers individual and corporate performance, levels of responsibility, prior experience, breadth of knowledge and competitive pay practices. In general, the salaries of executive officers are not determined by the Company's achievement of specific corporate performance criteria. Instead the Committee determines the salaries for executive officers based upon a review of salary surveys of other publicly traded electronics manufacturing companies with capitalizations similar to that of the Company. Based upon such surveys, the executive officers' salaries are in the middle of the range established by comparable companies in the electronics manufacturing industry. BONUS. The Company adopted a formal bonus program in fiscal 1995 and continued such program in 1996 and 1997. The bonus program is a variable pay program through which executive officers and key managers of the Company may earn additional compensation. It is the Committee's philosophy that bonuses when combined with salaries create total compensation which is competitive with other similar electronics manufacturing companies. Bonus awards depend on the extent to which Company and individual performance objectives are achieved. The Company's performance objectives include operating, strategic and financial goals considered critical to the Company's fundamental long-term goal of building stockholder value. In fiscal 1997, the Compensation Committee adopted a formula for awarding executive bonuses. Based on the Company's performance in fiscal 1997, bonuses were not awarded under the bonus program in any quarter. The Company did award a relocation bonus to Mr. Hardwick in connection with his relocation to Northern California. For fiscal 1998, the primary objective of the bonus program is the attainment of certain levels of pre-tax income and earnings per share. OPTION PLAN. The Option Plan offered by the Company has been established to provide all employees of the Company with an opportunity to share, along with stockholders of the Company, in the long-term performance of the Company. Periodic grants of stock options are generally made to all eligible employees, with additional grants being made to certain employees upon commencement of employment and occasionally following a significant change in job responsibilities, scope or title. Stock options granted generally have a five-year vesting schedule and expire ten years from the date of grant. The exercise price of options granted under the stock option plans is usually 100% of fair market value of the underlying stock on the date of grant. Guidelines for the number of stock options for each participant in the periodic grant program generally are determined by a formula established by the Committee whereby several factors are applied to the salary and performance level of each participant and then related to the approximate market price of the stock at the time of grant. In awarding stock options, the Committee considers individual performance, overall contribution to the Company, officer retention, the number of unvested stock options and the total number of stock options to be awarded. After considering the criteria relating to awarding stock options, the Committee awarded options to the Named Executive Officers in October 1993 (fiscal 1994), September 1994 (fiscal 1995) and September 1995 (fiscal 1996). Only Mr. Hardwick was granted an option during fiscal 1997 in connection with his appointment as Vice President, Sales and Marketing. No other executive officers were awarded stock options during fiscal 1997. Section 162(m) of the Internal Revenue Code (the "Code") limits the Company to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1 million may be deducted if it is "performance-based compensation" within the meaning of the Code. The stockholders approved an amendment to the Option Plan which allows compensation recognized as a result of stock options granted under the plan with an II-10 exercise price at least equal to the fair market value of the Company's common stock on the date of grant to be treated as "performance-based compensation" and thus deductible by the Company. CEO COMPENSATION The Committee uses the same procedures described above in setting the annual salary, bonus and stock option awards for the CEO. The CEO's salary is determined based on comparisons with other public electronics manufacturing companies as described above and is set in the middle of the range established by those companies. In awarding stock options, the Committee considers the CEO's performance, overall contribution to the Company, retention, the number of unvested options and the total number of options to be granted. The CEO's salary was not increased during fiscal 1997. The CEO was awarded stock options in October 1993 (fiscal 1994), September 1994 (fiscal 1995) and November 1995 (fiscal 1996). The CEO was not awarded stock options in fiscal 1997. The CEO was not granted a bonus in fiscal 1997 as the Company did not meet the criteria of the bonus program described above. As described above, in determining where the CEO's total compensation is set within the middle of the ranges and in light of the considerations described above, the Committee by necessity makes certain subjective evaluations. Compared to other companies surveyed by the Company, the CEO's salary, bonus and stock options are in the mid-range. CONCLUSION Through the plans described above, a significant portion of the Company's compensation program and the CEO's and the other executive officers' compensation are contingent on Company performance, and realization of benefits by the CEO and the other executive officers is closely linked to increases in long-term stockholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company's business may result in highly variable compensation. COMPENSATION COMMITTEE Thomas J. Bernard, Chairman Robert P. Cummins COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. See "Certain Transactions" for a description of transactions between the Company and entities affiliated with members of the Compensation Committee. II-11 PERFORMANCE MEASUREMENT COMPARISON (1) The following chart shows the value of an investment of $100 on June 3, 1994 (the date of the Company's initial public offering) in cash of (i) the Company's Common Stock, (ii) the Nasdaq Stock market index, and (iii) an index based on companies in a group of public companies in the Company's industry (Standard Industrial Classification Code 3670--Electronic Components). All values assume reinvestment of the full amount of all dividends and are calculated as of June 30, 1997. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SIGMA NASDAQ 3670 June 3, 1994 $100.00 $100.00 $100.00 June 30, 1994 $90.91 $96.34 $94.40 June 30, 1995 $109.09 $128.60 $194.58 June 30, 1996 $236.36 $165.11 $205.72 June 30, 1997 $177.27 $200.78 $337.44
DATA POINTS USED IN PRINTED GRAPHIC
SIGMA NASDAQ 3670 --------- ----------- --------- June 3, 1994..................................................................... $ 100.00 $ 100.00 $ 100.00 June 30, 1994.................................................................... $ 90.91 $ 96.34 $ 94.40 June 30, 1995.................................................................... $ 109.09 $ 128.60 $ 194.58 June 30, 1996.................................................................... $ 236.36 $ 165.11 $ 205.72 June 30, 1997.................................................................... $ 177.27 $ 200.78 $ 337.44
- ------------------------ (1) This Section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. II-12 CERTAIN TRANSACTIONS The Company's Bylaws provide that the Company shall indemnify its directors and may indemnify its officers, employees and other agents to the fullest extent not prohibited by Delaware law. The Company is also empowered under its Bylaws to enter into indemnification contracts with its directors and officers and to purchase insurance on behalf of any person it is required or permitted to indemnify. Pursuant to this provision, the Company has entered into indemnity agreements with each of its directors and executive officers. In addition, the Company's Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company or its stockholders. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company or its stockholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit and for improper distributions to stockholders. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. On July 1, 1995, the Company entered into a consulting agreement with Mr. Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in exchange for certain consulting services. The Company has renewed such agreement for one year periods on July 1, 1996 and July 1, 1997. On September 30, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Citation Circuits, Inc., Citation Enterprises, Inc. and Citron, Inc. (collectively, the "Citation Companies"), all of which were owned by Mr. Brockl. The purchase price for the Citation Companies included two 12% subordinated notes totaling $4,092,000, of which $1,500,000 was convertible to 200,000 shares of Common Stock. On May 21, 1997, in connection with a debt refinancing (including unpaid interest), the Company paid to Mr. Brockl $3,025,906 of the $4,825,906 and issued a four-year $1,800,000 convertible subordinated note for the balance due (the "Note"). This subordinated note is convertible into a maximum of 400,000 shares of the Company's Common Stock at $4.50 per share at the option of Mr. Brockl based upon certain defined criteria. The maximum number of shares that may be converted is 200,000 in each of the two-year periods of the note's contractual term. The Company can repay Brockl $900,000 prior to the two year period (it has the option to avoid conversion on 200,000 shares which are convertible after May 21, 1999). The Note bears interest of 10% per annum paid monthly in arrears. In connection with the issuance of the $1,800,000 convertible subordinated note, the Company paid to Mr. Brockl an $18,000 loan fee equal to 1% of the principal amount. In connection with the Acquisition of the Citation Companies, Mr. Brockl became an employee of the Company. Mr. Brockl is no longer an employee of the Company. Mr. Brockl's annual salary was $150,000 as an employee of Sigma and he received an option to purchase 60,000 shares of Common Stock at an exercise price of $6.875 per share. Upon termination of Mr. Brockl's employment, he was granted severance pay equal to three months salary. Mr. Brockl also entered into a noncompetition agreement with the Company pursuant to which Mr. Brockl has agreed not to compete with the Company for a period of two years from the date of his termination as either an employee of, or consultant to, the Company. The Company believes that the foregoing transactions were in its best interests. As a matter of policy these transactions were, and all future transactions between the Company and any of its officers, directors or principal stockholders will be, approved by a majority of the disinterested members of the Board of Directors, will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes of the Company. II-13 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------------- 1 The Company's Proxy Statement for its 1997 Annual Meeting of Stockholders, held on December 16, 1997 2 Agreement and Plan of Merger, dated as of June 1, 1998, among Tyco, the Purchaser and the Company 3 Stockholder Agreement, dated June 1, 1998, among Tyco, the Purchaser and the Stockholders identified therein 4 Letter to Stockholders, dated June 5, 1998, from B. Kevin Kelly, Chief Executive Officer and President of the Company 5 Joint Press Release issued by the Company and Tyco on June 2, 1998 6 Fairness Opinion of J.C. Bradford dated May 29, 1998
EX-1 2 1997 PROXY STATEMENT SIGMA CIRCUITS, INC. 393 MATHEW STREET SANTA CLARA, CALIFORNIA 95050 --------------------- NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 16, 1997 ------------------------ TO THE STOCKHOLDERS OF SIGMA CIRCUITS, INC.: NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of SIGMA CIRCUITS, INC., a Delaware corporation (the "Company"), will be held on Tuesday, December 16, 1997 at 10:00 a.m. local time at the principal executive offices of the Company, 393 Mathew Street, Santa Clara, California 95050, for the following purpose: 1. To elect two directors to hold office until the 2000 Annual Meeting of Stockholders and until their successors are elected. 2. To approve the Company's Amended and Restated 1997 Stock Option Plan, including provisions for (i) the transferability of Supplemental Stock Options, (ii) acceleration of vesting and exercisability of options for employees involuntarily terminated without cause within thirteen months after a change in control, (iii) extension of the term of the plan until October 2007, and (iv) an increase in the number of shares of Common Stock authorized for issuance under such plan by 200,000 shares. 3. To approve the Company's Employee Stock Purchase Plan, as amended, to increase the aggregate number of shares of Common Stock authorized for issuance under such plan by 159,092 shares. 4. To ratify the selection of Deloitte & Touche LLP as independent auditors of the Company for its fiscal year ending June 30, 1998. 5. To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice. The Board of Directors has fixed the close of business on October 24, 1997, as the record date for the determination of stockholders entitled to notice of and to vote at this Annual Meeting and at any adjournment or postponement thereof. By Order of the Board of Directors [SIGNATURE] Philip S. Bushnell SECRETARY Santa Clara, California November 6, 1997 ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME. SIGMA CIRCUITS, INC. 393 MATHEW STREET SANTA CLARA, CALIFORNIA 95050 --------------------- PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS ------------------------ DECEMBER 16, 1997 INFORMATION CONCERNING SOLICITATION AND VOTING GENERAL The enclosed proxy is solicited on behalf of the Board of Directors of SIGMA CIRCUITS, INC., a Delaware corporation (the "Company"), for use at the Annual Meeting of Stockholders to be held on Tuesday, December 16, 1997, at 10:00 a.m. local time (the "Annual Meeting"), or at any adjournment or postponement thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting. The Annual Meeting will be held at the executive offices of the Company, 393 Mathew Street, Santa Clara, California 95050. The Company intends to mail this proxy statement and accompanying proxy card on or about November 6, 1997, to all stockholders entitled to vote at the Annual Meeting. SOLICITATION The Company will bear the entire cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional information furnished to stockholders. Copies of solicita-tion materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of Common Stock beneficially owned by others to forward to such beneficial owners. The Company may reimburse persons representing beneficial owners of Common Stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of the Company. No additional compensation will be paid to directors, officers or other regular employees for such services. VOTING RIGHTS AND OUTSTANDING SHARES Only holders of record of Common Stock at the close of business on October 24, 1997 will be entitled to notice of and to vote at the Annual Meeting. At the close of business on October 24, 1997, the Company had outstanding and entitled to vote 4,143,565 shares of Common Stock. Each holder of record of Common Stock on such date will be entitled to one vote for each share held on all matters to be voted upon at the Annual Meeting. All votes will be tabulated by the inspector of election appointed for the meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions will be counted towards the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether a matter has been approved. REVOCABILITY OF PROXIES Any person giving a proxy pursuant to this solicitation has the power to revoke it at any time before it is voted. It may be revoked by filing with the Secretary of the Company at the Company's principal executive office, 393 Mathew Street, Santa Clara, California 95050, a written notice of revocation or a duly executed proxy bearing a later date, or it may be revoked by attending the meeting and voting in person. Attendance at the meeting will not, by itself, revoke a proxy. SHAREHOLDER PROPOSALS Proposals of stockholders that are intended to be presented at the Company's 1998 Annual Meeting of Stockholders must be received by the Company not later than July 8, 1998, in order to be included in the proxy statement and proxy relating to that Annual Meeting. Stockholders are also advised to review the Company's Bylaws, which contain additional requirements with respect to advance notice of stockholder proposals and director nominations. PROPOSAL 1 ELECTION OF DIRECTORS The Company's Restated Certificate of Incorporation and Bylaws provide that the Board of Directors shall be divided into three classes, each class consisting, as nearly as possible, of one-third of the total number of directors, with each class having a three-year term. Vacancies on the Board may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board to fill a vacancy (including a vacancy created by an increase in the Board of Directors) shall serve for the remainder of the full term of the class of directors in which the vacancy occurred and until such director's successor is elected and qualified. The Board of Directors is presently composed of six members. There are two directors in the class whose term of office expires in 1997. Each of the nominees for election to this class is currently a director of the Company. Mr. Bushnell was previously elected by the stockholders while Mr. Brockl was elected to the Board by the Board of Directors to fill a vacancy created by an increase in the Board of Directors during the previous year. If elected at the Annual Meeting, each of the nominees would serve until the 2000 annual meeting and until his successor is elected and has qualified, or until such director's earlier death, resignation or removal. Directors are elected by a plurality of the votes present in person or represented by proxy and entitled to vote at the meeting. Set forth below is biographical information for each person nominated and each person whose term of office as a director will continue after the Annual Meeting. NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING Mr. Bushnell has served as Senior Vice President, Finance and Administration since January 1994. From August 1992 until January 1994, Mr. Bushnell served as Vice President, Finance. He was elected Secretary and Chief Financial Officer in October 1992 and has been a Director since June 1993. From July 1987 to August 1992, Mr. Bushnell was employed in various finance positions with the Company. Prior to joining Sigma, Mr. Bushnell held various finance positions at Varian Associates, a diversified electronics company from 1978 until 1986. Mr. Bushnell is 46 years old. Mr. Brockl has been a Director since June 1997. From September 1995 until June 1996, Mr. Brockl served as a General Manager at the Company. From their founding in 1984 until their acquisition by the Company in September 1995, Mr. Brockl was the President and a Director of Citation Circuits, Inc., Citation Enterprises, Inc. and Citron, Inc. Mr. Brockl is 51 years old. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE. 2 DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING Mr. Kelly has served as President and Chief Executive Officer and a Director since October 1992. Prior to joining Sigma, Mr. Kelly held the position of Vice President of Operations at Lundahl Astro Circuits Inc., a high volume manufacturer of printed circuit boards, from December 1991 to October 1992. Prior to that time, from December 1990 to December 1991, Mr. Kelly was a founder and President of Vitesse Engineering, a supplier of electrical test fixtures for the printed circuit board industry. From March 1988 to December 1990, Mr. Kelly was Vice President of Sales and Operations at West Coast Circuits, Inc., a quick-turn manufacturer of printed circuit boards. Mr. Kelly is 44 years old. Mr. Cummins has been a Director since April 1986 and Chairman of the Board since August 1992. Mr. Cummins is currently the President, Chief Executive Officer and a Director of Cyberonics, Inc., a medical device company. He was a general partner of Vista Partners, L.P., a venture capital partnership which he joined in 1984 until December 1994. Mr. Cummins was also Vice President and a director of Vista Ventures, Inc., a venture capital advisory firm. Mr. Cummins is 43 years old. DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING Mr. Bernard has been a Director since April 1995. Mr. Bernard is currently Senior Vice President and General Manager of Wireless Infrastructure Products with QUALCOMM Inc., a digital wireless communications company. From 1986 until his temporary retirement in May 1994, Mr. Bernard served with QUALCOMM Inc. as Senior Vice President and General Manager of OmniTRACS-TM-. Prior to that he served as Executive Vice President and General Manager of the M/A-COM Telecommunication Division of M/A-COM LINKABIT, a manufacturer of telecommunications interconnects. Mr. Bernard is 65 years old. Mr. Boyle has been a Director since May 1996. Mr. Boyle is currently the Chief Financial Officer of Cubic Corporation, an aerospace and defense contractor and the largest manufacturer of automated revenue collection systems for the mass transit industry. Prior to that he served as Vice President and Treasurer of Wickes Corporation, from 1972 until 1983. Mr. Boyle currently serves as a director of Cubic Corporation and the West Coast Advisory Board of Protection Mutual Insurance Company. Mr. Boyle is 63 years old. BOARD COMMITTEES AND MEETINGS During the fiscal year ended June 30, 1997(1) the Board of Directors held six meetings. The Board has an Audit Committee and a Compensation Committee. The Audit Committee meets with the Company's independent auditors at least annually to review the results of the annual audit and discuss the financial statements; recommends to the Board the independent auditors to be retained; and receives and considers the accountants' comments as to controls, adequacy of staff and management performance and procedures in connection with audit and financial controls. The Audit Committee is composed of two non-employee directors: Messrs. Cummins and Boyle. It met once during such fiscal year. The Compensation Committee makes recommendations concerning salaries and incentive compensation, awards stock options to employees and consultants under the Company's stock option plans and otherwise determines compensation levels and performs such other functions regarding compensation as the Board may delegate. The Compensation Committee is composed of two non-employee directors: Messrs. Cummins and Bernard. It met once during such fiscal year. During the fiscal year ended June 30, 1997, each Board member attended 75% or more of the aggregate of the meetings of the Board and of the committees on which he served, held during the period for which he was a director or committee member, respectively. - ------------------------ (1) The Company operates on thirteen week quarterly periods each ending on the Saturday closest to the end of the calendar month. For purposes of presentation, the Company has indicated its accounting years as ending on June 30. 3 PROPOSAL 2 APPROVAL OF THE AMENDED AND RESTATED 1997 STOCK OPTION PLAN In May 1988 the Board of Directors adopted, and the stockholders subsequently approved, the Company's 1988 Stock Option Plan (the "1988 Plan"). In October 1997 the Board adopted the Amended and Restated 1997 Stock Option Plan (the "Option Plan") as an amendment and restatement of the 1988 Plan, extended the term of the Option Plan from May 1998 to October 2007, included provisions for the transferability of supplemental stock options and for an acceleration of the vesting and exercisability of options after a change in control and reserved an additional 200,000 shares of the Company's Common Stock for issuance under the Option Plan. The Board adopted the Option Plan to ensure that the Company can continue to grant stock options to eligible recipients at levels determined appropriate by the Board. As a result of a series of amendments, at October 2, 1997 there were 1,500,000 shares of the Company's Common Stock authorized for issuance under the Option Plan. At June 30, 1997, options (net of canceled or expired options) covering an aggregate of 952,720 shares of the Company's Common Stock were outstanding under the Option Plan, and only 199,483 shares (plus any shares that might in the future be returned to the plans as a result of cancellations or expiration of options) remained available for future grant under the Option Plan. During the last fiscal year, under the Option Plan, the Company has granted to one executive officer an option to receive 70,000 shares at an exercise price of $6.1875 per share and to all employees (excluding executive officers) as a group options to receive 178,000 shares at exercise prices of $3.625 to $6.875 per share. Stockholders are requested in this Proposal to approve the amendment and restatement of the 1988 Plan as the Option Plan and to reserve for issuance an additional 200,000 shares of Common Stock. If the stockholders fail to approve this Proposal, the 1988 Plan will continue in the form prior to amendment and restatement as the Option Plan, and will expire in May 1998. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the Option Plan, as amended. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2 The essential features of the Option Plan are outlined below: GENERAL The Option Plan provides for the grant or issuance of incentive stock options to employees and supplemental stock options to employees and consultants. Incentive stock options granted under the Option Plan are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). Supplemental stock options granted under the Option Plan are intended not to qualify as incentive stock options under the Code. See "Federal Income Tax Information" for a discussion of the tax treatment of the various options included in the Option Plan. PURPOSE The Option Plan was adopted to provide a means by which selected employees of and consultants to the Company and its affiliates could be given an opportunity to receive stock in the Company, to secure and retain the services of persons capable of filling such positions, to assist in retaining the services of 4 employees holding key positions and to provide incentives for such persons to exert maximum efforts for the success of the Company. FORMS OF BENEFIT The Option Plan provides for incentive stock options and supplemental stock options (collectively "options"). ADMINISTRATION The Option Plan is administered by the Board unless and until the Board delegates administration to a committee composed of one or more members of the Board. If administration is delegated to a committee, such committee will have, in connection with the administration of the Option Plan, the powers possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Option Plan, as may be adopted from time to time by the Board. The Board or the committee may delegate to a committee of one or more members of the Board the authority to grant options to eligible persons who are not then subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and/or who are either (i) not then employees covered by Section 162(m) of the Code and are not expected to be covered by Section 162(m) of the Code at the time of recognition of income resulting from such option, or (ii) not persons with respect to whom the Company wishes to avoid the application of Section 162(m) of the Code. The Board may abolish such committee at any time and revest in the Board the administration of the Option Plan. The Board has the power to construe and interpret the Option Plan and, subject to the provisions of the Option Plan, to determine the persons to whom and the dates on which options will be granted, what type of option will be granted, the number of shares to be subject to each option, the time or times during the term of each option within which all or a portion of such option may be exercised, the exercise price, the type of consideration and other terms of the option. SHARES SUBJECT TO THE PLAN The common stock that may be sold pursuant to options under the Option Plan will not exceed in the aggregate one million five hundred thousand (1,500,000) shares of the Company's common stock. If any option expires or terminates, in whole or in part, without having been exercised in full, the stock not purchased under such option will revert to and again become available for issuance under the Option Plan. The common stock subject to the Option Plan may be unissued shares or reacquired shares, bought on the market or otherwise. ELIGIBILITY Incentive stock options may be granted only to employees. Supplemental stock options may be granted to employees and consultants. No person is eligible for the grant of an incentive stock option if, at the time of grant, such person owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company unless the exercise price of such option is at least one hundred ten percent (110%) of the fair market value of such common stock subject to the option at the date of grant and the option is not exercisable after the expiration of five (5) years from the date of grant. No person will be eligible to be granted options covering more than one hundred thousand (100,000) shares of the Company's common stock in any calendar year (the "per-employee limitation"). TERM AND TERMINATION No option is exercisable after the expiration of ten (10) years from the date it was granted. 5 In the event an optionee's service with the Company or an affiliate (as an employee, director or consultant) is terminated, the optionee may exercise his or her option (to the extent that the optionee was entitled to exercise it at the time of termination) but only within the earlier of (i) the date three (3) months after the termination of the optionee's service or (ii) the expiration of the term of the option as set forth in the option agreement. The optionee's service will not be deemed to have terminated merely because of a change in the capacity in which the optionee renders service to the Company or an affiliate or a change in the entity to which the optionee renders such service, provided that there is no interruption or termination of the optionee's service. In the event an optionee's service terminates as a result of the optionee's death or disability, the optionee (or such optionee's estate, heirs or beneficiaries) may exercise his or her option, but only within the period ending on the earlier of (i) twelve (12) months following such termination (or such longer or shorter period as specified in the option agreement) or (ii) the expiration of the term of the option as set forth in the option agreement. In the event an optionee's service is involuntarily terminated at any time without cause either at the time of or within thirteen (13) months following a change in control, then the time during which such optionee's option may be exercised immediately will be accelerated. "Cause" means misconduct, including but not limited to: (i) conviction of any felony or any crime involving moral turpitude or dishonesty, (ii) participation in a fraud or act of dishonesty against the Company, (iii) conduct by the optionee which based upon a good faith and reasonable factual investigation and determination by the Board demonstrates gross unfitness to serve, or (iv) intentional, material violation by the optionee of any contract between the optionee and the Company or any statutory duty of the optionee to the Company that is not corrected within thirty (30) days after written notice to the optionee. Physical or mental disability will not constitute "cause." In the event an optionee voluntarily terminates the optionee's service for good reason either at the time of or within thirteen (13) months following a change in control, then the time during which such optionee's option may be exercised immediately will be accelerated. "Good reason" means (i) reduction of the optionee's rate of compensation as in effect immediately prior to the change in control, (ii) failure to provide a package of welfare benefit plans which, taken as a whole, provides substantially similar benefits to those in which the optionee is entitled to participate immediately prior to the change in control (except that employee contributions may be raised to the extent of any cost increases imposed by third parties) or any action by the Company which would adversely affect the optionee's participation or reduce the optionee's benefits under any of such plans, (iii) change in the optionee's responsibilities, authority, title or office resulting in diminution of position, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith which is remedied by the Company promptly after notice thereof is given by the optionee, (iv) request that the optionee relocate to a worksite that is more than thirty-five (35) miles from the optionee's prior worksite, unless the optionee accepts such relocation opportunity, (v) failure or refusal of a successor to the Company to assume the Company's obligations under the optionee's option, or (vi) material breach by the Company or any successor to the Company of any of the material provisions of the optionee's option. EXERCISE PRICE The exercise price of each incentive stock option will not be less than one hundred percent (100%) of the fair market value of the Company's Common Stock on the date of grant. The exercise price of each supplemental stock option will not be less than eighty-five percent (85%) of the fair market value on the date of grant. 6 CONSIDERATION The purchase price of stock acquired pursuant to an option is paid either in cash, by deferred payment, by delivery to the Company of other common stock of the Company or in any other form of legal consideration that may be acceptable to the Board. The form of consideration must be stated in the option agreement for an incentive stock option. In the case of any deferred payment arrangement, interest will be payable at least annually and will be charged at the minimum rate of interest necessary to avoid the treatment as interest of amounts that are not stated to be interest. TRANSFERABILITY An incentive stock option will not be transferable except by will or by the laws of descent and distribution, and will be exercisable during the lifetime of the person to whom the incentive stock option is granted only by such person. A supplemental stock option generally will not be transferable except by will or by the laws of descent and distribution or pursuant to a domestic relations order. Some supplemental stock option agreements may provide for very limited transferability. VESTING The total number of shares of stock subject to an option may, but need not, be allotted in periodic installments. The option agreement may provide that from time to time during each of such installment periods, the option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the option became vested but was not fully exercised. The option agreement may also provide that an optionee may exercise an option prior to full vesting, provided that the Company may have a repurchase right with respect to any unvested shares. ADJUSTMENTS UPON CHANGES IN STOCK If any change is made in the Common Stock subject to the Option Plan, or subject to any option, without receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the class(es) and maximum number of shares subject to the Option Plan, the per-employee limitation applicable under the Option Plan and the class(es) and number of shares and price per share of stock subject to outstanding options will be appropriately adjusted. In the event of a merger, consolidation, liquidation, dissolution or the sale of substantially all of the Company's assets, a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, or the acquisition by any person, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors (collectively, a "change in control"), any surviving corporation will assume any options outstanding under the Option Plan or will substitute similar options for those outstanding under the Option Plan or such options will continue in full force and effect. In the event a surviving corporation refuses to assume such options or substitute similar options, then, with respect to options held by persons then performing services as employees, directors or consultants, the time during which such options may be exercised will be accelerated prior to completion of such transaction and such options terminated if not exercised prior to such transaction. 7 AMENDMENT OF THE OPTION PLAN The Board at any time, and from time to time, may amend the Option Plan. However, no amendment will be effective unless approved by the stockholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will increase the number of shares reserved for issuance under the Option Plan, modify the requirements as to eligibility for participation or in any other way if such modification requires stockholder approval in order for the Option Plan to satisfy the requirements of Section 422 of the Code, Rule 16b-3, or any Nasdaq or securities exchange requirements. The Board may in its sole discretion submit any other amendment to the Option Plan for stockholder approval. TERMINATION OR SUSPENSION OF THE OPTION PLAN The Board may suspend or terminate the Option Plan at any time. Unless sooner terminated, the Option Plan will terminate on October 1, 2007. No options may be granted under the Option Plan while the Option Plan is suspended or after it is terminated. FEDERAL INCOME TAX INFORMATION INCENTIVE STOCK OPTIONS. Incentive stock options under the Option Plan are intended to be eligible for the favorable federal income tax treatment accorded "incentive stock options" under the Code. There generally are no federal income tax consequences to the optionee or the Company by reason of the grant or exercise of an incentive stock option. However, the exercise of an incentive stock option may increase the optionee's alternative minimum tax liability, if any. If an optionee holds stock acquired through exercise of an incentive stock option for at least two years from the date on which the option is granted and at least one year from the date on which the shares are transferred to the optionee upon exercise of the option, any gain or loss on a disposition of such stock will be capital gain or loss. Generally, if the optionee disposes of the stock before the expiration of either of these holding periods (a "disqualifying disposition"), at the time of disposition, the optionee will realize taxable ordinary income equal to the lesser of (a) the excess of the stock's fair market value on the date of exercise over the exercise price, or (b) the optionee's actual gain, if any, on the purchase and sale. The optionee's additional gain, or any loss, upon the disqualifying disposition will be a capital gain or loss, which will be long-term or short-term depending on how long the optionee holds the stock. Capital gains are generally subject to lower tax rates than ordinary income. Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options. To the extent the optionee recognizes ordinary income by reason of a disqualifying disposition, the Company will generally be entitled (subject to the requirement of reasonableness and the satisfaction of a tax reporting obligation) to a corresponding business expense deduction in the tax year in which the disqualifying disposition occurs. SUPPLEMENTAL STOCK OPTIONS. Supplemental stock options granted under the Option Plan generally have the following federal income tax consequences: There are no tax consequences to the optionee or the Company by reason of the grant of a supplemental stock option. Upon exercise of a supplemental stock option, the optionee normally will recognize taxable ordinary income equal to the excess of the stock's fair market value on the date of exercise over the option exercise price. Generally, with respect to employees, the Company is required to withhold from regular wages or supplemental wage payments an amount based on the ordinary income recognized. Subject to the requirement of reasonableness and the satisfaction of a reporting obligation, the Company will generally be entitled to a business expense deduction equal to the taxable ordinary income realized by the optionee. Upon disposition of the stock, the optionee will recognize a capital gain or loss equal to the difference between the selling price and the sum of the amount paid for such stock plus any 8 amount recognized as ordinary income upon exercise of the option. Such gain or loss will be long or short-term depending on how long the optionee holds the stock. Slightly different rules may apply to optionees who acquire stock subject to certain repurchase options or who are subject to Section 16(b) of the Exchange Act. POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. In 1993, the U.S. Congress amended the Code to add Section 162(m) which denies a deduction to any publicly held corporation for compensation paid to certain employees in a taxable year to the extent that compensation exceeds $1 million for a covered employee. It is possible that compensation attributable to options granted in the future under the Option Plan, when combined with all other types of compensation received by a covered employee from the Company, may cause this limitation to be exceeded in any particular year. Certain kinds of compensation, including qualified "performance-based compensation," are disregarded for purposes of the deduction limitation. In accordance with Treasury regulations issued under Section 162(m), compensation attributable to stock options will qualify as performance-based compensation, provided that the option is granted by a compensation committee comprised solely of "outside directors" and either: (i) the Option Plan contains a per-employee limitation on the number of shares for which options may be granted during a specified period, the per-employee limitation is approved by the stockholders and the exercise price of the option is no less than the fair market value of the stock on the date of grant; or (ii) the option is granted (or exercisable) only upon the achievement (as certified in writing by the compensation committee) of an objective performance goal established in writing by the compensation committee while the outcome is substantially uncertain, and the option is approved by stockholders. 9 PROPOSAL 3 APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED In March 1994, the Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan") authorizing the issuance of 290,908 shares of the Company's Common Stock. In October 1997, the Board of Directors of the Company adopted an amendment to the Purchase Plan to increase the number of shares authorized for issuance under the Purchase Plan by 159,092 to 450,000 shares. This amendment is intended to ensure that the Company can continue to provide such incentives at levels determined appropriate by the Board. During the last fiscal year, shares were purchased in the amounts and at the weighted average prices per share under the Purchase Plan as follows: Mr. Bushnell 3,493 shares ($4.13), Mr. Hardwick 3,602 shares ($4.12), all current executive officers as a group 7,095 shares ($4.13), and all employees (excluding executive officers) as a group 87,992 shares ($4.14). Stockholders are requested in this Proposal to approve the Purchase Plan, as amended. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the meeting will be required to approve the Purchase Plan, as amended. Abstentions will be counted toward the tabulation of votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are counted towards a quorum, but are not counted for any purpose in determining whether this matter has been approved. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3 The essential features of the Purchase Plan, as amended, are outlined below: PURPOSE The purpose of the Purchase Plan is to provide a means by which employees of the Company (and any parent or subsidiary of the Company designated by the Board of Directors to participate in the Purchase Plan) may be given an opportunity to purchase Common Stock of the Company through payroll deductions, to assist the Company in retaining the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. The rights to purchase Common Stock granted under the Purchase Plan are intended to qualify as options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. ADMINISTRATION The Purchase Plan is administered by the Board of Directors, which has the final power to construe and interpret the Purchase Plan and the rights granted under it. The Board has the power, subject to the provisions of the Purchase Plan, to determine when and how rights to purchase Common Stock of the Company will be granted, the provisions of each offering of such rights (which need not be identical), and whether any parent or subsidiary of the Company shall be eligible to participate in such plan. The Board has the power, which it has not exercised, to delegate administration of such plan to a committee of not less than two Board members. The Board may abolish any such committee at any time and revest in the Board the administration of the Purchase Plan. OFFERINGS The Purchase Plan is implemented by offerings of rights to all eligible employees from time to time by the Board. Generally, each such offering is of six months in duration. 10 ELIGIBILITY Any person who is customarily employed at least 20 hours per week and five months per calendar year by the Company (or by any parent or subsidiary of the Company designated from time to time by the Board) on the first day of an offering period is eligible to participate in that offering under the Purchase Plan, provided such employee has been in the continuous employ of the Company for at least three months preceding the first day of the offering period. Notwithstanding the foregoing, no employee is eligible for the grant of any rights under the Purchase Plan if, immediately after such grant, the employee would own, directly or indirectly, stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary of the Company (including any stock which such employee may purchase under all outstanding rights and options), nor will any employee be granted rights that would permit him to buy more than $25,000 worth of stock (determined at the fair market value of the shares at the time such rights are granted) under all employee stock purchase plans of the Company in any calendar year. PARTICIPATION IN THE PLAN Eligible employees become participants in the Purchase Plan by delivering to the Company, prior to the date selected by the Board as the offering date for the offering, an agreement authorizing payroll deductions of up to 10% of such employees' earnings during the purchase period. PURCHASE PRICE The purchase price per share at which shares are sold in an offering under the Purchase Plan is the lower of (a) 85% of the fair market value of a share of Common Stock on the date of commencement of the offering, or (b) 85% of the fair market value of a share of Common Stock on the last day of the purchase period. PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS The purchase price of the shares is accumulated by payroll deductions over the offering period. At any time during the purchase period, a participant may reduce or terminate his or her payroll deductions. A participant may not increase or begin such payroll deductions after the beginning of any purchase period, except, if the Board provides, in the case of an employee who first becomes eligible to participate as of a date specified during the purchase period. All payroll deductions made for a participant are credited to his or her account under the Purchase Plan and deposited with the general funds of the Company. A participant may not make any additional payments into such account. PURCHASE OF STOCK By executing an agreement to participate in the Purchase Plan, the employee is entitled to purchase shares under such plan. In connection with offerings made under the Purchase Plan, the Board specifies a maximum number of shares any employee may be granted the right to purchase and the maximum aggregate number of shares which may be purchased pursuant to such offering by all participants. If the aggregate number of shares to be purchased upon exercise of rights granted in the offering would exceed the maximum aggregate number, the Board would make a pro rata allocation of shares available in a uniform and equitable manner. Unless the employee's participation is discontinued, his right to purchase shares is exercised automatically at the end of the purchase period at the applicable price. See "Withdrawal" below. 11 WITHDRAWAL While each participant in the Purchase Plan is required to sign an agreement authorizing payroll deductions, the participant may withdraw from a given offering by terminating his or her payroll deductions and by delivering to the Company a notice of withdrawal from the Purchase Plan. Such withdrawal may be elected at any time prior to the end of the applicable offering period. Upon any withdrawal from an offering by the employee, the Company will distribute to the employee his or her accumulated payroll deductions without interest, less any accumulated deductions previously applied to the purchase of stock on the employee's behalf during such offering, and such employee's interest in the offering will be automatically terminated. The employee is not entitled to again participate in such offering. An employee's withdrawal from an offering will not have any effect upon such employee's eligibility to participate in subsequent offerings under the Purchase Plan. TERMINATION OF EMPLOYMENT Rights granted pursuant to any offering under the Purchase Plan terminate immediately upon cessation of an employee's employment for any reason, and the Company will distribute to such employee all of his or her accumulated payroll deductions, without interest. RESTRICTIONS ON TRANSFER Rights granted under the Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted. DURATION, AMENDMENT AND TERMINATION The Board may suspend or terminate the Purchase Plan at any time. Unless terminated earlier, such plan will terminate in December 2004. The Board may amend the Purchase Plan at any time. Any amendment of the Purchase Plan must be approved by the stockholders within 12 months of its adoption by the Board if the amendment would (a) increase the number of shares of Common Stock reserved for issuance under the Purchase Plan, (b) modify the requirements relating to eligibility for participation in the Purchase Plan, or (c) modify any other provision of the Purchase Plan in a manner that would materially increase the benefits accruing to participants under the Purchase Plan, if such approval is required in order to comply with the requirements of Rule 16b-3 under the Exchange Act. Rights granted before amendment or termination of the Purchase Plan will not be altered or impaired by any amendment or termination of such plan without consent of the person to whom such rights were granted. EFFECT OF CERTAIN CORPORATE EVENTS In the event of a dissolution, liquidation or specified type of merger of the Company, the surviving corporation either will assume the rights under the Purchase Plan or substitute similar rights, or the exercise date of any ongoing offering will be accelerated such that the outstanding rights may be exercised immediately prior to, or concurrent with, any such event. STOCK SUBJECT TO PURCHASE PLAN If rights granted under the Purchase Plan expire, lapse or otherwise terminate without being exercised, the Common Stock not purchased under such rights again becomes available for issuance under such plan. 12 FEDERAL INCOME TAX INFORMATION Rights granted under the Purchase Plan are intended to qualify for favorable federal income tax treatment associated with rights granted under an employee stock purchase plan which qualifies under provisions of Section 423 of the Code. A participant will be taxed on amounts withheld for the purchase of shares as if such amounts were actually received. Other than this, no income will be taxable to a participant until disposition of the shares acquired, and the method of taxation will depend upon the holding period of the purchase shares. If the stock is disposed of at least two years after the beginning of the offering period and at least one year after the stock is transferred to the participant, then the lesser of (a) the excess of the fair market value of the stock at the time of such disposition over the exercise price or (b) the excess of the fair market value of the stock as of the beginning of the offering period over the exercise price (determined as of the beginning of the offering period) will be treated as ordinary income. Any further gain or any loss will be taxed as a capital gain or loss, which will be long-term or short-term depending on how long the optionee holds the stock. Long-term capital gains currently are generally subject to lower tax rates than short-term capital gains or ordinary income. If the stock is sold or disposed of before the expiration of either of the holding periods described above, then the excess of the fair market value of the stock on the exercise date over the exercise price will be treated as ordinary income at the time of such disposition, and the Company may, in the future, be required to withhold income taxes relating to such ordinary income from other payments made to the participant. The balance of any gain will be treated as capital gain. Even if the stock is later disposed of for less than its fair market value on the exercise date, the same amount of ordinary income is attributed to the participant, and a capital loss is recognized equal to the difference between the sales price and the fair market value of the stock on such exercise date. Any capital gain or loss will be long-term or short-term depending on how long the optionee has held the stock. There are no federal income tax consequences to the Company by reason of the grant or exercise of rights under the Purchase Plan. The Company is entitled to a deduction to the extent amounts are taxed as ordinary income to a participant (subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation). 13 PROPOSAL 4 RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS The Board of Directors has selected Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending June 30, 1998 and has further directed that management submit the selection of independent auditors for ratification by the stockholders at the Annual Meeting. Deloitte & Touche LLP has audited the Company's financial statements since 1983. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions. Stockholder ratification of the selection of Deloitte & Touche LLP as the Company's independent auditors is not required by the Company's Bylaws or otherwise. However, the Board is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee and the Board will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee and the Board in their discretion may direct the appointment of different independent auditors at any time during the year if they determine that such a change would be in the best interests of the Company and its stockholders. The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Deloitte & Touche LLP. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4 14 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of the Company's Common Stock as of September 12, 1997 by: (i) each director and nominee for director; (ii) each of the executive officers named in the Summary Compensation Table employed by the Company in that capacity on September 12, 1997; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by the Company to be beneficial owners of more than five percent of its Common Stock.
BENEFICIAL OWNERSHIP(1) -------------------------- NUMBER OF PERCENT OF NAME SHARES TOTAL - ---------------------------------------------------------------------- ----------- ------------- Carl H. R. Brockl(2).................................................. 582,952 13.4% 1950 W. Fremont Street Stockton, CA 94023 Entities affiliated with Metropolitan Capital Advisors, Inc.(3)....... 248,000 6.0% B. Kevin Kelly(4)..................................................... 184,824 4.3% Philip S. Bushnell(5)................................................. 104,411 2.5% W. Kent Hardwick(6)................................................... 26,340 * Robert P. Cummins(7).................................................. 46,954 1.1% Thomas J. Bernard(8).................................................. 20,500 * William H. Boyle(9)................................................... 12,500 * All directors and officers as a group (7 persons)(10)................. 978,481 22.1%
- ------------------------ * Less than 1% (1) This table is based upon information supplied by officers, directors and principal shareholders. Unless otherwise indicated in the footnotes to this table and subject to the community property laws where applicable, each of the shareholders named in this table has sole voting and investment power with respect to the shares shown as beneficially owned by him. Percentage of beneficial ownership is based on 4,138,030 shares of Common Stock outstanding as of September 12, 1997, adjusted as required by rules promulgated by the SEC. (2) Includes 200,000 shares of Common Stock issuable to Carl and Linda Brockl pursuant to the terms of a $1,800,000 Convertible Subordinated Note issued to Carl and Linda Brockl as partial consideration for the purchase of substantially all of the assets and certain liabilities of Citation. Also, includes 4,166 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. (3) Based solely on information obtained from a filing made on Schedule 13G with the SEC. Includes 18,700 shares held by KJ Advisors, Inc. ("KJA") and 44,300 shares held by Metropolitan Capital III, Inc. ("MC III"). Jeffrey E. Schwarz and Karen Finerman are directors and officers of Metropolitan Capital Advisors, Inc., KJA and MC III. (4) Includes 176,510 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. (5) Includes 53,405 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. (6) Includes 20,399 shares issuable upon the exercise of options exercisable within 60 days of September 12, 1997. (7) Includes 16,954 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. (8) Includes 15,500 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. (9) Represents 12,500 shares issuable upon the exercise of options exercisable within 60 days of September 12, 1997. (10) Includes 299,434 shares issuable upon exercise of options exercisable within 60 days of September 12, 1997. 15 COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(a) Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act") requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended June 30, 1997, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. EXECUTIVE COMPENSATION COMPENSATION OF DIRECTORS In accordance with Company policy, all members of the Board of Directors are eligible for reimbursement for their expenses incurred in connection with attendance at Board meetings. In addition, each non-employee director of the Company received annual compensation of $5,000 for their service as Board members during fiscal 1997. On December 31, 1996, Mr. Cummins, Mr. Bernard and Mr. Boyle, the only non-employee directors incumbent at the time, were each automatically granted an option to purchase 3,000 shares of the Company's Common Stock in accordance with the Company's 1994 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"). On June 9, 1997, the date Mr. Brockl was first elected to the Board of Directors, Mr. Brockl was automatically granted an option to purchase 10,000 shares of the Company's Common Stock pursuant to the Directors' Plan. On July 1, 1995, the Company entered into a consulting agreement with Mr. Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in exchange for certain consulting services. The Company has renewed such agreement for one year periods on July 1, 1996 and July 1, 1997. 16 COMPENSATION OF EXECUTIVE OFFICERS The following table shows for the fiscal years ending June 30, 1997, 1996 and 1995, compensation awarded or paid to, or earned by the Company's Chief Executive Officer and its three other most highly compensated executive officers whose salary and bonus compensation exceeded $100,000 (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION ------------- -------------------------------- SECURITIES BONUS ALL OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION ($)(2) OPTIONS(3) - --------------------------------------------- --------- ---------- ----------- ------------------- ------------- B. Kevin Kelly 1997 $ 211,538 $ -- $ 9,160 -- President, Chief Executive 1996 199,039 75,872 9,150 80,000 Officer and Director 1995 175,006 15,500 8,766 53,526 Philip S. Bushnell 1997 $ 150,000 $ -- $ 9,160 -- Senior Vice President, 1996 143,500 57,110 9,150 60,000 Finance and Administration, 1995 125,000 7,750 8,838 41,268 Chief Financial Officer, Secretary and Director W. Kent Hardwick 1997 $ 153,846 $ 46,476 $ 9,160 70,000 Vice President, Sales and 1996 106,014 15,354 9,150 10,000 Marketing 1995 74,574 11,885 8,838 306 Douglas B. Crerar 1997 $ 136,964 $ -- $ 5,325 -- Former Vice President, 1996 81,346 16,250 5,250 75,000 Sales and Marketing 1995 -- -- -- --
- ------------------------ (1) Bonuses awarded to Messrs. Kelly and Bushnell in fiscal 1995 were paid in the first quarter of fiscal 1996. (2) Consists of automobile allowance and premiums for health insurance benefits. (3) These options become exercisable in 54 equal monthly installments beginning with the seventh month from the date of grant. STOCK OPTION GRANTS AND EXERCISES The Company has granted options to its executive officers under its 1988 Stock Option Plan (the "1988 Plan"), adopted in May 1988 and amended in October 1993, March 1994, June 1995, September 1995. At June 30, 1997, options (net of canceled or expired options) covering an aggregate of 952,720 shares of the Company's Common Stock were outstanding under the 1988 Plan, and only 199,483 shares (plus any shares that might in the future be returned to the 1988 Plan as a result of cancellations or expiration of options) remained available for future grant under the 1988 Plan. The Board of Directors voted in October 1997 to amend and restate the 1988 Plan as the 1997 Stock Option Plan (the "Option Plan"), subject to stockholder approval, to increase the number of shares of Common Stock authorized for issuance under the Option Plan by 200,000, bringing the total shares authorized for issuance under the Option Plan to 1,500,000, and to make certain other changes. See Proposal 2. 17 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth each grant of stock options made during the fiscal year ended June 30, 1997 to each of the Named Executive Officers:
INDIVIDUAL POTENTIAL REALIZABLE GRANTS VALUE AT ASSUMED ------------- ANNUAL RATES OF NUMBER OF PERCENTAGE OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION FOR UNDERLYING GRANTED IN EXERCISE MARKET OPTION TERM ($)(3) OPTIONS FISCAL PRICE PRICE EXPIRATION -------------------- NAME(1) GRANTED(1) 1997(2) ($/SH) ($/SH) DATE 5% 10% - ------------------------------- ------------- ------------- ----------- --------- ------------ --------- --------- W. Kent Hardwick............... 70,000 28.23 6.1875 6.1875 10/13/2006 272,390 690,290
- ------------------------ (1) These options become exercisable in 54 equal monthly installments beginning with the seventh month from the date of grant. (2) Based on a total of 248,000 options granted to employees during the fiscal year ended June 30, 1997. (3) The potential realizable value is based on the term of the option at the time of grant (ten years). Assumed stock price appreciation of five percent and ten percent used pursuant to rules promulgated by the Commission. The potential realizable value is calculated by assuming that the market price per share appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. The following tables show for the fiscal year ended June 30, 1997, certain information regarding options granted to, exercised by and held at year end by the Named Executive Officers: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND JUNE 30, 1997 OPTION VALUES
NUMBER OF SECURITIES ---------------------------------------------------------------------------------- UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT JUNE 30, IN-THE-MONEY OPTIONS AT SHARES VALUE 1997(#) JUNE 30, 1997($)(2) ACQUIRED ON REALIZED -------------------------- -------------------------- NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ----------------------------------- ------------- ----------- ----------- ------------- ----------- ------------- B. Kevin Kelly..................... -- -- 152,898 126,916 527,270 234,561 Philip S. Bushnell................. 6,000 27,533 39,614 81,930 83,693 117,298 W. Kent Hardwick................... -- -- 13,910 76,090 40,305 17,481
- ------------------------ (1) Based on the fair market value of the Company's Common Stock on the dates of exercise minus the exercise price. (2) Based on the closing price of the Company's Common Stock on June 30, 1997 ($4.875 per share) minus the exercise price. CHANGE-IN-CONTROL SEVERANCE AGREEMENTS In October 1995, the Company entered into change-in-control severance agreements (the "Severance Agreements") with Mr. Kelly and Mr. Bushnell. Pursuant to the Severance Agreements, if the employment of Mr. Kelly or Mr. Bushnell is either involuntarily terminated by the Company without cause, or voluntarily terminated by resignation of Mr. Kelly or Mr. Bushnell for good reason within 12 months following a change-in-control, then the terminated executive will be entitled to severance compensation and benefits, including a lump sum payment of 18 months of base salary for Mr. Kelly and 12 months of base salary for Mr. Bushnell (an aggregate amount equal to $300,000 for Mr. Kelly and $150,000 for Mr. Bushnell, subject to salary adjustments), payment of health benefit premiums for 18 months for 18 Mr. Kelly and 12 months for Mr. Bushnell, a severance bonus (equal to the bonus that would have been payable had the executive worked the entire year, pro rated by the number of days worked), and acceleration of vesting of all outstanding stock options. As set forth in more detail in the Severance Agreements: a "change-in-control" transaction is defined as any capital transaction or reorganization in which ownership of more than 50% of the Company's voting shares changes; "cause" is defined as conviction of a crime or participation in fraud against the Company or gross unfitness to serve as determined by the Board of Directors. "Good reason" is a reduction in compensation, benefits or responsibilities. In October 1997, the Company entered into a change-in-control severance agreement (the "Severance Agreement") with Mr. Hardwick. Pursuant to the Severance Agreement, if the employment of Mr. Hardwick is either involuntarily terminated by the Company without cause, or voluntarily terminated by resignation of Mr. Hardwick for good reason within 13 months following a change-in-control, then Mr. Hardwick will be entitled to severance compensation and benefits, including a lump sum payment of 13 months of base salary (an aggregate amount equal to $173,334, subject to salary adjustments), payment of health benefit premiums for 13 months, a severance bonus (equal to the bonus that would have been payable had the executive worked the entire year, pro rated by the number of days worked), and acceleration of vesting of all outstanding stock options 19 REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1) The Compensation Committee of the Board of Directors (the "Committee") is composed of Messrs. Bernard and Cummins, none of whom has been an officer or employee of the Company. The Committee is responsible for establishing the Company's compensation programs for executive officers. COMPENSATION PHILOSOPHY The goals of the compensation program are to align compensation with business objectives and performance and to enable the Company to attract, retain and reward executive officers and other key employees who contribute to the long-term success of the Company and to establish an appropriate relationship between executive compensation and the creation of long-term stockholder value. To meet these goals, the Committee has adopted a mix among the compensation elements of salary, bonus and stock options, with a bias toward stock options to emphasize the link between executive incentives and the creation of stockholder value as measured by the equity markets. BASE SALARY. The Committee annually reviews each executive officer's base salary. When reviewing base salaries, the Committee considers individual and corporate performance, levels of responsibility, prior experience, breadth of knowledge and competitive pay practices. In general, the salaries of executive officers are not determined by the Company's achievement of specific corporate performance criteria. Instead the Committee determines the salaries for executive officers based upon a review of salary surveys of other publicly traded electronics manufacturing companies with capitalizations similar to that of the Company. Based upon such surveys, the executive officers' salaries are in the middle of the range established by comparable companies in the electronics manufacturing industry. BONUS. The Company adopted a formal bonus program in fiscal 1995 and continued such program in 1996 and 1997. The bonus program is a variable pay program through which executive officers and key managers of the Company may earn additional compensation. It is the Committee's philosophy that bonuses when combined with salaries create total compensation which is competitive with other similar electronics manufacturing companies. Bonus awards depend on the extent to which Company and individual performance objectives are achieved. The Company's performance objectives include operating, strategic and financial goals considered critical to the Company's fundamental long-term goal of building stockholder value. In fiscal 1997, the Compensation Committee adopted a formula for awarding executive bonuses. Based on the Company's performance in fiscal 1997, bonuses were not awarded under the bonus program in any quarter. The Company did award a relocation bonus to Mr. Hardwick in connection with his relocation to Northern California. For fiscal 1998, the primary objective of the bonus program is the attainment of certain levels of pre-tax income and earnings per share. OPTION PLAN. The Option Plan offered by the Company has been established to provide all employees of the Company with an opportunity to share, along with stockholders of the Company, in the long-term performance of the Company. Periodic grants of stock options are generally made to all eligible employees, with additional grants being made to certain employees upon commencement of employment and occasionally following a significant change in job responsibilities, scope or title. Stock options granted generally have a five-year - ------------------------ (1) The material in this report is not "soliciting material," is not deemed filed with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended (the "1993 Act"), or the Securities Exchange Act of 1934 (the "1934 Act"), whether made before or after the date hereof and irrespective of any general incorporation language contained in any such filing. 20 vesting schedule and expire ten years from the date of grant. The exercise price of options granted under the stock option plans is usually 100% of fair market value of the underlying stock on the date of grant. Guidelines for the number of stock options for each participant in the periodic grant program generally are determined by a formula established by the Committee whereby several factors are applied to the salary and performance level of each participant and then related to the approximate market price of the stock at the time of grant. In awarding stock options, the Committee considers individual performance, overall contribution to the Company, officer retention, the number of unvested stock options and the total number of stock options to be awarded. After considering the criteria relating to awarding stock options, the Committee awarded options to the Named Executive Officers in October 1993 (fiscal 1994), September 1994 (fiscal 1995) and September 1995 (fiscal 1996). Only Mr. Hardwick was granted an option during fiscal 1997 in connection with his appointment as Vice President, Sales and Marketing. No other executive officers were awarded stock options during fiscal 1997. Section 162(m) of the Internal Revenue Code (the "Code") limits the Company to a deduction for federal income tax purposes of no more than $1 million of compensation paid to certain Named Executive Officers in a taxable year. Compensation above $1 million may be deducted if it is "performance-based compensation" within the meaning of the Code. The stockholders approved an amendment to the Option Plan which allows compensation recognized as a result of stock options granted under the plan with an exercise price at least equal to the fair market value of the Company's common stock on the date of grant to be treated as "performance-based compensation" and thus deductible by the Company. CEO COMPENSATION The Committee uses the same procedures described above in setting the annual salary, bonus and stock option awards for the CEO. The CEO's salary is determined based on comparisons with other public electronics manufacturing companies as described above and is set in the middle of the range established by those companies. In awarding stock options, the Committee considers the CEO's performance, overall contribution to the Company, retention, the number of unvested options and the total number of options to be granted. The CEO's salary was not increased during fiscal 1997. The CEO was awarded stock options in October 1993 (fiscal 1994), September 1994 (fiscal 1995) and November 1995 (fiscal 1996). The CEO was not awarded stock options in fiscal 1997. The CEO was not granted a bonus in fiscal 1997 as the Company did not meet the criteria of the bonus program described above. As described above, in determining where the CEO's total compensation is set within the middle of the ranges and in light of the considerations described above, the Committee by necessity makes certain subjective evaluations. Compared to other companies surveyed by the Company, the CEO's salary, bonus and stock options are in the mid-range. CONCLUSION Through the plans described above, a significant portion of the Company's compensation program and the CEO's and the other executive officers' compensation are contingent on Company performance, and realization of benefits by the CEO and the other executive officers is closely linked to increases in long-term stockholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company's business may result in highly variable compensation. COMPENSATION COMMITTEE Thomas J. Bernard, Chairman Robert P. Cummins 21 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No member of the Compensation Committee of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. See "Certain Transactions" for a description of transactions between the Company and entities affiliated with members of the Compensation Committee. PERFORMANCE MEASUREMENT COMPARISON(1) The following chart shows the value of an investment of $100 on June 3, 1994 (the date of the Company's initial public offering) in cash of (i) the Company's Common Stock, (ii) the Nasdaq Stock market index, and (iii) an index based on companies in a group of public companies in the Company's industry (Standard Industrial Classification--Electronic Components). All values assume reinvestment of the full amount of all dividends and are calculated as of June 30, 1997. EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
SIGMA NASDAQ 3670 June 3, 1994 $100.00 $100.00 $100.00 June 30, 1994 $90.91 $96.34 $94.40 June 30, 1995 $109.09 $128.60 $194.58 June 30, 1996 $236.36 $165.11 $205.72 June 30, 1997 $177.27 $200.78 $337.44
- ------------------------ (1) This Section is not "soliciting material," is not deemed "filed" with the SEC and is not to be incorporated by reference in any filing of the Company under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 22 CERTAIN TRANSACTIONS The Company's Bylaws provide that the Company shall indemnify its directors and may indemnify its officers, employees and other agents to the fullest extent not prohibited by Delaware law. The Company is also empowered under its Bylaws to enter into indemnification contracts with its directors and officers and to purchase insurance on behalf of any person it is required or permitted to indemnify. Pursuant to this provision, the Company has entered into indemnity agreements with each of its directors and executive officers. In addition, the Company's Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, the Company's directors will not be liable for monetary damages for breach of the directors' fiduciary duty of care to the Company or its stockholders. This provision in the Certificate of Incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware law. Each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company or its stockholders, for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for any transaction from which the director derived an improper personal benefit and for improper distributions to stockholders. This provision also does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. On July 1, 1995, the Company entered into a consulting agreement with Mr. Cummins which provides for a monthly payment of $2,500 to Mr. Cummins in exchange for certain consulting services. The Company has renewed such agreement for one year periods on July 1, 1996 and July 1, 1997. On September 30, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of Citation Circuits, Inc., Citation Enterprises, Inc. and Citron Inc. (collectively, the "Citation Companies"), all of which were owned by Mr. Brockl. The purchase price for the Citation Companies included two 12% subordinated notes totaling $4,092,000, of which $1,500,000 was convertible to 200,000 shares of Common Stock. On May 21, 1997, in connection with a debt refinancing (including unpaid interest), the Company paid to Mr. Brockl $3,025,906 of the $4,825,906 and issued a four year $1,800,000 convertible subordinated note for the balance due (the "Note"). This subordinated note is convertible into a maximum of 400,000 shares of the Company's Common Stock at $4.50 per share at the option of Mr. Brockl based upon certain defined criteria. The maximum number of shares that may be converted are 200,000 in each of the two year periods of the note's contractual term. The Company can repay Brockl $900,000 prior to the two year period (it has the option to avoid conversion on 200,000 shares which are convertible after May 21, 1999). The Note bears interest of 10% per annum paid monthly in arrears. In connection with the issuance of the $1,800,000 convertible subordinated note, the Company paid to Mr. Brockl an $18,000 loan fee equal to 1% of the principal amount. In connection with the Citation Acquisition, Mr. Brockl became an employee of the Company. Mr. Brockl is no longer an employee of the Company. Mr. Brockl's annual salary was $150,000 as an employee of Sigma and he received an option to purchase 60,000 shares of Common Stock at an exercise price of $6.875 per share. Upon termination of Mr. Brockl's employment, he was granted severance pay equal to three months salary. Mr. Brockl also entered into a noncompetition agreement with the Company pursuant to which Mr. Brockl has agreed not to compete with the Company for a period of two years from the date of his termination as either an employee of, or consultant to, the Company. The Company believes that the foregoing transactions were in its best interests. As a matter of policy these transactions were, and all future transactions between the Company and any of its officers, directors or principal stockholders will be, approved by a majority of the disinterested members of the Board of Directors, will be on terms no less favorable to the Company than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes of the Company. 23 OTHER MATTERS The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment. By Order of the Board of Directors [SIGNATURE] Philip S. Bushnell SECRETARY November 6, 1997 A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997, IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, SIGMA CIRCUITS, INC., 393 MATHEW STREET, SANTA CLARA, CALIFORNIA 95050. 24 EX-2 3 AGREEMENT AND PLAN OF MERGER ------------------------------ AGREEMENT AND PLAN OF MERGER AMONG TYCO INTERNATIONAL LTD., T10 ACQUISITION CORP. AND SIGMA CIRCUITS, INC. DATED AS OF JUNE 1, 1998 ------------------------------ TABLE OF CONTENTS
PAGE ---- ARTICLE I THE OFFER Section 1.1 The Offer.................................................... 1 Section 1.2 Company Actions.............................................. 3 ARTICLE II THE MERGER Section 2.1 The Merger....................................................4 Section 2.2 Effective Time................................................4 Section 2.3 Effects of the Merger.........................................4 Section 2.4 Certificate of Incorporation and Bylaws; Directors and Officers..................................................4 Section 2.5 Conversion of Securities......................................5 Section 2.6 Payment of Certificates.......................................6 Section 2.7 Dissenting Shares.............................................7 Section 2.8 Merger Without Meeting of Stockholders........................7 Section 2.9 No Further Ownership Rights in Common Stock...................7 Section 2.10 Closing of Company Transfer Books............................8 ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Section 3.1 Organization and Qualification...............................8 Section 3.2 Authority Relative to this Agreement.........................8 Section 3.3 No Conflict; Required Filings and Consents...................8 Section 3.4 Brokers......................................................9 Section 3.5 Ownership of Sub; No Prior Activities........................9 Section 3.6 Financing....................................................9 Section 3.7 Full Disclosure.............................................10 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY Section 4.1 Organization and Qualification; Subsidiaries................10 Section 4.2 Certificate of Incorporation and Bylaws.....................10 Section 4.3 Capitalization..............................................10 Section 4.4 Authority Relative to this Agreement........................11 Section 4.5 Contracts; No Conflict; Required Filings and Consents.......11 Section 4.6 Compliance; Permits.........................................12 Section 4.7 SEC Filings; Financial Statements...........................13 Section 4.8 Absence of Certain Changes or Events........................13 Section 4.9 No Undisclosed Liabilities..................................13 Section 4.10 Absence of Litigation.......................................14 Section 4.11 Employee Benefit Plans; Employment Agreements...............14 Section 4.12 Labor Matters...............................................17 Section 4.13 Limitation on Business Conduct..............................17 Section 4.14 Title to Property...........................................17 Section 4.15 Real Property; Leased Premises..............................18 Section 4.16 Taxes.......................................................18 i
PAGE ---- Section 4.17 Environmental Matters.......................................20 Section 4.18 Intellectual Property.......................................21 Section 4.19 Insurance...................................................22 Section 4.20 Accounts Receivable.........................................22 Section 4.21 Customers...................................................22 Section 4.22 Interested Party Transactions...............................22 Section 4.23 Absence of Certain Payments.................................22 Section 4.24 Takeover Statute............................................23 Section 4.25 Opinion of Financial Advisor................................23 Section 4.26 Brokers.....................................................23 Section 4.27 Full Disclosure.............................................23 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.1 Conduct of Business by the Company Pending the Merger....... 23 Section 5.2 Acquisition Proposals........................................25 Section 5.3 Annual Meeting of Stockholders...............................26 Section 5.4 Conduct of Business of Sub Pending the Merger................26 ARTICLE VI ADDITIONAL AGREEMENTS Section 6.1 Company Stockholder Approval; Proxy Statement................27 Section 6.2 Access to Information; Confidentiality.......................28 Section 6.3 Fees and Expenses............................................28 Section 6.4 Stock Plans and Warrants.....................................29 Section 6.5 Reasonable Best Efforts......................................29 Section 6.6 Public Announcements.........................................30 Section 6.7 Indemnification; Directors and Officers Insurance............30 Section 6.8 Board Representation.........................................31 Section 6.9 Notification of Certain Matters..............................31 ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation to Effect the Merger.......................................................32 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination..................................................32 Section 8.2 Effect of Termination........................................34 Section 8.3 Amendment....................................................34 Section 8.4 Waiver.......................................................34 ARTICLE IX GENERAL PROVISIONS Section 9.1 Non-Survival of Representations and Warranties...............34 Section 9.2 Notices......................................................35 Section 9.3 Interpretation...............................................36 Section 9.4 Counterparts.................................................36 Section 9.5 Entire Agreement; No Third-Party Beneficiaries...............36
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PAGE ---- Section 9.6 Governing Law................................................36 Section 9.7 Assignment...................................................36 Section 9.8 Severability.................................................36 Section 9.9 Enforcement of this Agreement; Attorneys Fees................36 Section 9.10 Material Adverse Effect......................................37 EXHIBIT A Conditions of the Offer
iii AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of June 1, 1998 (this "Agreement"), among Tyco International Ltd., a Bermuda company ("Parent"), T10 Acquisition Corp., a Delaware corporation ("Sub") and an indirect, wholly owned subsidiary of Parent, and Sigma Circuits, Inc., a Delaware corporation (the "Company"). W I T N E S S E T H: WHEREAS, the respective Boards of Directors of Parent, Sub and the Company each have approved the acquisition of the Company by Parent pursuant to a tender offer (the "Offer") by Sub for all of the outstanding shares of Common Stock, par value $.001 per share ("Common Stock"), of the Company at a price of $10.50 per share (the "Per Share Amount"), net to the seller in cash, without interest, followed by a merger (the "Merger") of Sub with and into the Company, all upon the terms and subject to the conditions set forth herein; WHEREAS, the Board of Directors of the Company has adopted resolutions approving the Offer and the Merger and recommending that the Company's stockholders accept the Offer; and WHEREAS, pursuant to the Merger, each issued and outstanding share of Common Stock not owned directly or indirectly by Parent or the Company, except shares of Common Stock held by holders who comply with the provisions of Delaware law regarding the right of stockholders to dissent from the Merger and require appraisal of their shares of Common Stock, will be converted into the right to receive the per share consideration paid pursuant to the Offer. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, Parent, Sub and the Company hereby agree as follows: ARTICLE I THE OFFER Section 1.1 The Offer. (a) Subject to the provisions of this Agreement, within five business days after the first public announcement of this Agreement, Sub shall, and Parent shall cause Sub to, commence, within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (including the rules and regulations promulgated thereunder, the "Exchange Act"), the Offer. The obligation of Sub to, and of Parent to cause Sub to, commence the Offer and accept for payment, and pay for, any shares of Common Stock tendered pursuant to the Offer shall be subject to the conditions set forth in Exhibit A (the "Offer Conditions"). The Offer shall initially expire twenty (20) business days after the date of its commencement, unless this Agreement is terminated in accordance with Article VIII, in which case the Offer (whether or not previously extended in accordance with the terms hereof) shall expire on such date of termination. Without the prior written consent of the Company, Sub shall not (i) impose conditions to the Offer in addition to the Offer Conditions, (ii) modify or amend the Offer Conditions or any other term of the Offer in a manner adverse to the holders of shares of Common Stock, (iii) waive or amend the Minimum Condition (as defined in Exhibit A), (iv) reduce the number of shares of Common Stock subject to the Offer, (v) reduce the Per Share Amount, (vi) except as provided in the following sentence, extend the Offer, if all of the Offer Conditions are satisfied or waived, or (vii) change the form of consideration payable in the Offer. Notwithstanding the foregoing, Sub may, without the consent of the Company, extend the Offer at any time, and from time to time, (i) if at the then scheduled expiration date of the Offer any of the conditions to Sub's obligation to accept for payment and pay for shares of Common Stock shall not have been satisfied or waived, until such time as such conditions are satisfied or waived; (ii) for any period required by any rule, regulation, interpretation or position of the Securities and Exchange Commission (the "SEC") or its staff applicable to the Offer; or (iii) if all Offer Conditions are satisfied or waived but the number of shares of Common Stock tendered is less than 90% of the then outstanding number of shares of Common Stock, for an aggregate period of not more than 10 business days (for all such extensions) beyond the latest expiration date that would be permitted under clause (i) or (ii) of this sentence. So long as this Agreement is in effect and the Offer Conditions have not been satisfied or waived, Sub shall, and Parent shall cause Sub to, cause the Offer not to expire. Subject to the terms and conditions of the Offer (but subject to the right of termination in accordance with Article VIII), Sub shall, and Parent shall cause Sub to, pay for all shares of Common Stock validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the expiration of the Offer. (b) On the date of commencement of the Offer, Parent and Sub shall file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer, which shall contain an offer to purchase and a related letter of transmittal (such Schedule 14D-1 and the documents therein pursuant to which the Offer will be made, together with any supplements or amendments thereto, the "Offer Documents"). The Company and its counsel shall be given an opportunity to review and comment upon the Offer Documents prior to the filing thereof with the SEC. The Offer Documents shall comply as to form in all material respects with the requirements of the Exchange Act, and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, the Offer Documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by Parent or Sub with respect to information supplied by the Company in writing for inclusion in the Offer Documents. Each of Parent, Sub and the Company agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect, and each of Parent and Sub further agrees to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of shares of Common Stock, in each case as and to the extent required by applicable federal securities laws. Parent and Sub agree to provide the Company 2 and its counsel in writing with any comments Parent, Sub or their counsel may receive from the SEC or its staff with respect to the Offer Documents promptly upon receipt of such comments. Section 1.2 Company Actions. (a) The Company hereby approves of and consents to the Offer and represents that the Board of Directors of the Company at a meeting duly called and held has duly adopted resolutions (i) approving this Agreement, the Offer and the Merger, (ii) determining that the terms of the Offer and Merger are fair to, and in the best interests of, the Company and its stockholders, and (iii) recommending that the Company's stockholders accept the Offer and tender their shares of Common Stock and approve the Merger and this Agreement. The Company hereby consents to the inclusion in the Offer Documents of such recommendation of the Board of Directors of the Company. The Company represents that its Board of Directors has received the written opinion (the "Fairness Opinion") of J.C. Bradford & Co. (the "Financial Advisor") that the proposed consideration to be received by the holders of shares of Common Stock pursuant to the Offer and the Merger is fair to such holders from a financial point of view. The Company has been authorized by the Financial Advisor to permit, subject to the prior review and consent by the Financial Advisor (such consent not to be unreasonably withheld), the inclusion of the Fairness Opinion (or a reference thereto) in the Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy Statement (as hereinafter defined). Notwithstanding the foregoing, the Company may withdraw, modify or amend its recommendation (and the Financial Advisor may withdraw, modify or amend its Fairness Opinion) in accordance with the provisions of Section 5.2 of this Agreement. (b) On the date the Offer Documents are filed with the SEC, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from time to time, including the exhibits thereto, the "Schedule 14D-9") containing the recommendations described in paragraph (a) of Section 1.2 above (subject to the provisions of Section 5.2 of this Agreement) and shall mail the Schedule 14D-9 to the stockholders of the Company as required by Rule 14D-9 promulgated under the Exchange Act. Parent and its counsel shall be given an opportunity to review and comment upon the Schedule 14D-9 prior to the filing thereof with the SEC. The Schedule 14D-9 shall comply as to form in all material respects with the requirements of the Exchange Act and, on the date filed with the SEC and on the date first published, sent or given to the Company's stockholders, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent or Sub in writing for inclusion in the Schedule 14D-9. Each of the Company, Parent and Sub agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect, and the Company further agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to the holders of shares of Common Stock, in each case as and to the extent required by applicable federal securities laws. The Company agrees to provide Parent and Sub and their counsel in writing with any comments the Company or its 3 counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 promptly after the receipt of such comments. (c) In connection with the Offer, the Company shall cause its transfer agent to promptly furnish Sub with a list, as of a recent date, of the holders of Common Stock and mailing labels containing the names and addresses of the record holders of Common Stock and of those persons becoming record holders subsequent to such date, together with copies of all lists of stockholders, security position listings (including shares of Common Stock held by depositories) and computer files and all other information in the Company's possession or control regarding the beneficial owners of Common Stock, and shall furnish to Sub such information and assistance (including updated lists of stockholders, security position listings and computer files) as Sub may reasonably request in communicating the Offer to the Company's stockholders. ARTICLE II THE MERGER Section 2.1 The Merger. Upon the terms and subject to the conditions hereof, and in accordance with the General Corporation Law of the State of Delaware, as amended (the "DGCL"), Sub shall be merged with and into the Company at the Effective Time (as hereinafter defined). Following the Merger, the separate corporate existence of Sub shall cease and the Company shall continue as the surviving corporation (the "Surviving Corporation") and shall succeed to and assume all the rights and obligations of Sub in accordance with the DGCL. Section 2.2 Effective Time. The Merger shall become effective when the Certificate of Merger or, if applicable, the Certificate of Ownership and Merger (each, the "Certificate of Merger"), executed in accordance with the relevant provisions of the DGCL, are accepted for record by the Secretary of State of the State of Delaware. When used in this Agreement, the term "Effective Time" shall mean the later of the date and time at which the Certificate of Merger is accepted for record or such later time established by the Certificate of Merger. The filing of the Certificate of Merger shall be made as soon as reasonably practicable (but not later than the third business day) after the satisfaction or waiver of the conditions to the Merger set forth herein. Section 2.3 Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Section 2.4 Certificate of Incorporation and Bylaws; Directors and Officers. Unless otherwise determined by Parent prior to the Effective Time, the Certificate of Incorporation and Bylaws of Sub, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. 4 (a) The directors of Sub at the Effective Time shall, from and after the Effective Time, be the directors of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal, in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws. (b) The officers of the Company at the Effective Time and such other persons as designated by Parent shall, from and after the Effective Time, be the officers of the Surviving Corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal, in accordance with the Surviving Corporation's Certificate of Incorporation and Bylaws. Section 2.5 Conversion of Securities. As of the Effective Time, by virtue of the Merger and without any action on the part of any stockholder of the Company: (a) All shares of Common Stock that are held in the treasury of the Company or by any wholly owned subsidiary of the Company and any shares of Common Stock owned by Parent, Sub or any other wholly owned subsidiary of Parent shall be canceled and no consideration shall be delivered in exchange therefor. (b) Each share of Common Stock issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 2.5(a) and other than Dissenting Shares (as defined in Section 2.7)) shall be converted into the right to receive from Parent in cash, without interest, the Per Share Amount (the "Merger Consideration"). All such shares of Common Stock, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and each holder of a certificate or certificates (the "Certificates") representing any such shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration for such shares upon surrender of such Certificates. (c) Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of Common Stock of the Surviving Corporation. (d) Each option outstanding at the Effective Time to purchase shares of Common Stock (a "Stock Option") granted under the Company's (i) Amended and Restated 1997 Stock Option Plan, (ii) 1994 Non-employee Director's Stock Option Plan, and (iii) any other option plan or agreement including stock options granted outside the Company's stock option plans (collectively, the "Company Option Plans") shall be converted into the right to receive, upon the exercise of such Stock Option in accordance with the terms thereof (including the provisions providing for full vesting of all unvested shares in the event that such options are not assumed following a Change-in-Control (as defined in the Company Option Plans)), an amount of cash equal to the Merger Consideration multiplied by such number of shares of Common Stock underlying such option. 5 (e) The warrant expiring June 10, 1999 to purchase 200,000 shares of Common Stock at a price of $3.30 per share (the "Warrant"), shall be exercisable, from and after the Effective Time and in accordance with the terms thereof, for an amount of cash equal to the Merger Consideration multiplied by 200,000. (f) The Company's $1.8 million 10.0% convertible subordinated note due 2001 (the "Note"), convertible into a maximum of 400,000 shares of Common Stock, shall be convertible, from and after the Effective Time and in accordance with the terms thereof, for an amount of cash equal to the Merger Consideration multiplied by such number of shares of Common Stock as such note was convertible into prior to the Effective Time assuming that the Note was fully convertible at that time. Section 2.6 Payment of Certificates. (a) Paying Agent. Prior to the Effective Time, Parent shall appoint ChaseMellon Shareholder Services LLC or such other commercial bank or trust company designated by Parent and reasonably acceptable to the Company to act as paying agent hereunder (the "Paying Agent") for the payment of the Merger Consideration upon surrender of Certificates. All of the fees and expenses of the Paying Agent shall be borne by Parent. (b) Surviving Corporation to Provide Funds. Parent shall take all steps necessary to enable and cause the Surviving Corporation to provide the Paying Agent with cash in amounts necessary to pay for all of the shares of Common Stock pursuant to Section 2.5 (determined as though there are no Dissenting Shares (as hereinafter defined)), when and as such amounts are needed by the Paying Agent. (c) Payment Procedures. As soon as practicable after the Effective Time, the Paying Agent shall mail to each holder of record of a Certificate, other than Parent, the Company and any wholly owned subsidiary of Parent or the Company, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon actual delivery of the Certificates to the Paying Agent and shall be in a form and have such other provisions as Parent may reasonably specify) and (ii) instructions for the use thereof in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Paying Agent or to such other agent or agents as may be appointed by the Surviving Corporation, together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Paying Agent, the holder of such Certificate shall be entitled to receive in exchange therefor the amount of cash into which the shares of Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 2.5, and the Certificates so surrendered shall forthwith be canceled. No interest will be paid or will accrue on the cash payable upon the surrender of any Certificate. If payment is to be made to a person other than the person in whose name the Certificate so surrendered is registered, it shall be a condition of payment that such Certificate shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay any transfer or other taxes required by reason of the transfer of such Certificate or establish to the satisfaction of 6 the Surviving Corporation that such tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.6, each Certificate (other than Certificates representing Dissenting Shares and Certificates representing any shares of Common Stock owned by Parent or any wholly owned subsidiary of Parent or held in the treasury of the Company or by any wholly owned subsidiary of the Company) shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the amount of cash, without interest, into which the shares of Common Stock theretofore represented by such Certificate shall have been converted pursuant to Section 2.5. Notwithstanding the foregoing, none of the Paying Agent, the Surviving Corporation or any party hereto shall be liable to a former stockholder of the Company for any cash or interest delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. In the event any Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition precedent to the payment of the Merger Consideration in respect of the shares represented by such Certificate, require the owner of such lost, stolen or destroyed Certificate to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent or the Paying Agent. Section 2.7 Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, if required by the DGCL (but only to the extent required thereby), shares of Common Stock which are issued and outstanding immediately prior to the Effective Time and which are held by holders of such shares of Common Stock who have properly exercised appraisal rights with respect thereto in accordance with Section 262 of the DGCL (the "Dissenting Shares") will not be exchangeable for the right to receive the Merger Consideration, and holders of such shares of Common Stock will be entitled to receive payment of the appraised value of such shares of Common Stock in accordance with the provisions of such Section 262 unless and until such holders fail to perfect or effectively withdraw or lose their rights to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such right, such shares of Common Stock will thereupon be treated as if they had been converted into and have become exchangeable for, at the Effective Time, the right to receive the Merger Consideration, without any interest thereon. The Company will give Parent prompt notice of any demands received by the Company for appraisals of shares of Common Stock, and Parent shall have the right to participate in all negotiations and proceedings with respect to any such demands. Neither the Company nor the Surviving Corporation shall, except with the prior written consent of Parent, make any payment with respect to any demands for appraisal or offer to settle or settle any such demands. Section 2.8 Merger Without Meeting of Stockholders. Notwithstanding the foregoing in this Article II, in the event that Sub, or any other direct or indirect subsidiary of Parent, shall acquire at least 90 percent of the outstanding shares of Common Stock, the parties hereto agree to take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the expiration of the Offer without a meeting of stockholders of the Company, in accordance with Section 253 of the DGCL. Section 2.9 No Further Ownership Rights in Common Stock. From and after the Effective Time, the holders of shares of Common Stock which were outstanding immediately 7 prior to the Effective Time shall cease to have any rights with respect to such shares of Common Stock except as otherwise provided in this Agreement or by applicable law. All cash paid upon the surrender of Certificates in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the shares of Common Stock. Section 2.10 Closing of Company Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of shares of Common Stock shall thereafter be made. If, after the Effective Time, Certificates are presented to the Surviving Corporation, they shall be canceled and exchanged as provided in this Article II. ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub hereby represent and warrant to the Company as follows: Section 3.1 Organization and Qualification. Each of Parent and Sub is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except as would not reasonably be expected to prevent or delay consummation of the Merger, or otherwise materially and adversely affect the ability of Parent or Sub to perform their respective obligations under this Agreement. Section 3.2 Authority Relative to this Agreement. Each of Parent and Sub has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Parent and Sub, and no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. The Board of Directors of Parent has determined that it is advisable and in the best interest of Parent's stockholders for Parent to enter into this Agreement and to consummate, upon the terms and subject to the conditions of this Agreement, the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Parent and Sub and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of Parent and Sub. Section 3.3 No Conflict; Required Filings and Consents. The execution and delivery of this Agreement by Parent and Sub do not, and the performance of this Agreement by Parent and Sub will not, (i) conflict with or violate Parent's Memorandum of Association or Sub's Certificate of Incorporation or the Bylaws of Parent or Sub, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or any of its subsidiaries or by which its or their respective properties are bound or affected, or (iii) result 8 in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or impair Parent's or any of its subsidiaries' rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Parent or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or its or any of their respective properties are bound or affected, except in any such case for any such conflicts, violations, breaches, defaults or other occurrences that would not reasonably be expected to prevent or delay consummation of the Merger, or otherwise materially and adversely affect the ability of Parent or Sub to perform their respective obligations under this Agreement. (b) The execution and delivery of this Agreement by Parent and Sub does not, and the performance of this Agreement by Parent and Sub will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the Exchange Act, the pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), and the filing and recordation of appropriate merger or other documents as required by the DGCL, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not reasonably be expected to prevent or delay consummation of the Merger, or otherwise materially and adversely affect the ability of Parent or Sub to perform their respective obligations under this Agreement. Section 3.4 Brokers. No broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub. Section 3.5 Ownership of Sub; No Prior Activities. (a) Sub is an indirect, wholly-owned subsidiary of Parent and was formed solely for the purpose of engaging in the transactions contemplated by this Agreement. (b) As of the date hereof and the Effective Time, except for obligations or liabilities incurred in connection with its incorporation or organization and the transactions contemplated by this Agreement and except for this Agreement and any other agreements or arrangements contemplated by this Agreement, Sub has not and will not have incurred, directly or indirectly, through any subsidiary or affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any person. Section 3.6 Financing. Parent or Sub have sufficient funds available to enable Sub to purchase all outstanding shares, on a fully diluted basis, of Common Stock and to pay all fees and expenses related to the transactions contemplated by this Agreement. 9 Section 3.7 Full Disclosure. No statement contained in any certificate or schedule furnished or to be furnished by Parent or Sub to the Company in, or pursuant to the provisions of, this Agreement contains or shall contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Sub as follows: Section 4.1 Organization and Qualification; Subsidiaries. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power and authority would not reasonably be expected to have a Material Adverse Effect (as defined in Section 9.10 of this Agreement). The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not reasonably be expected to have a Material Adverse Effect. The Company does not have any subsidiaries. Except as set forth in Section 4.1 of the written disclosure schedule previously delivered by the Company to Parent (the "Disclosure Schedule") or the SEC Reports (as defined below), the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity, with respect to which interest the Company has invested or is required to invest $100,000 or more, excluding securities in any publicly traded company held for investment by the Company and comprising less than five percent of the outstanding stock of such company. Section 4.2 Certificate of Incorporation and Bylaws. The Company has heretofore furnished to Parent a complete and correct copy of its Certificate of Incorporation and Bylaws as most recently restated and subsequently amended to date. Such Certificate of Incorporation and Bylaws are in full force and effect. The Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. Section 4.3 Capitalization. The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"). As of May 23, 1998, 4,252,985 shares of Common Stock were issued and outstanding, all of which are validly issued, fully paid and nonassessable, and no shares were held in treasury, (ii) no shares of Preferred Stock were outstanding or held in treasury, (iii) 1,535,044 shares of Common Stock were reserved for 10 future issuance pursuant to outstanding stock options granted under the Company's Option Plans, (iv) 191,283 shares of Common Stock were reserved for future issuance pursuant to the Company's 1994 Employee Stock Purchase Plan (the "ESPP"), (v) 200,000 shares of Common Stock were reserved for future issuance pursuant to the Warrant, and (vi) 400,000 shares of Common Stock were reserved for future issuance pursuant to the Note. No material change in such capitalization has occurred since May 23, 1998. Except as set forth in Section 4.1, this Section 4.3 or Section 4.11 or in Section 4.3 or Section 4.11 of the Disclosure Schedule or the SEC Reports, there are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or obligating the Company to issue or sell any shares of capital stock of, or other equity interests in, the Company. All shares of Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, shall be duly authorized, validly issued, fully paid and nonassessable. Except as disclosed in Section 4.3 of the Disclosure Schedule or the SEC Reports, there are no obligations, contingent or otherwise, of the Company to repurchase, redeem or otherwise acquire any shares of Common Stock or to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity. Section 4.4 Authority Relative to this Agreement. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated (other than the adoption of this Agreement by the holders of at least a majority of the outstanding shares of Common Stock entitled to vote in accordance with the DGCL and the Company's Certificate of Incorporation and Bylaws). The Board of Directors of the Company has determined that it is advisable and in the best interest of the Company's stockholders for the Company to enter into this Agreement and to consummate, upon the terms and subject to the conditions of this Agreement, the transaction contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Sub, as applicable, constitutes a legal, valid and binding obligation of the Company. Section 4.5 Contracts; No Conflict; Required Filings and Consents. (a) Section 4.5(a) of the Disclosure Schedule includes a list of (i) all loan agreements, indentures, mortgages, pledges, conditional sale or title retention agreements, security agreements, equipment obligations, guaranties, standby letters of credit, equipment leases or lease purchase agreements, each in an amount equal to or exceeding $100,000, to which the Company is a party or by which any of them is bound; and (ii) all agreements which, as of the date hereof, are required to be filed as "material contracts" pursuant to the requirements of the Exchange Act, as amended, and the SEC's rules thereunder (each of the foregoing and any contract or agreement of the Company with any customer listed on Schedule 4.21 of the Disclosure Schedule, being referred to as a "Material Contract"). Except as set forth in Section 4.5(a) of the Disclosure Schedule, the Company is not in default or violation (and to 11 the Company's best knowledge, no event has occurred which with notice or lapse of time or both would constitute a default or violation) of any Material Contract, nor, to the knowledge of the Company, is any other party to any Material Contract in default or violation thereof (and no event has occurred which with notice or lapse of time or both would constitute such a default or violation), except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (b) Except as set forth in Section 4.5(b) of the Disclosure Schedule, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, (i) conflict with or violate the Certificate of Incorporation or Bylaws of the Company, (ii) conflict with or violate any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties are bound or affected, or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default), or impair the Company's rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of the Company pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or its properties is bound or affected, except for any such conflicts, violations, breaches, defaults or other occurrences that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (c) The execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, domestic or foreign, except (i) for applicable requirements, if any, of the Exchange Act, the pre-merger notification requirements of the HSR, and the filing and recordation of appropriate merger or other documents as required by the DGCL, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not reasonably be expected to prevent or delay consummation of the Merger, or otherwise prevent or delay the Company from performing its obligations under this Agreement, or would not otherwise reasonably be expected to have a Material Adverse Effect. Section 4.6 Compliance; Permits. (a) Except as disclosed in Section 4.6 of the Disclosure Schedule, the Company is not in conflict with, or in default or violation of, any law, rule, regulation, order, judgment or decree applicable to the Company or by which its properties is bound or affected, except for any such conflicts, defaults or violations which would not reasonably be expected to have a Material Adverse Effect. (b) Except as disclosed in Section 4.6 of the Disclosure Schedule or the SEC Reports, the Company holds all franchises, grants, authorization, permits, licenses, easements, variances, exemptions, consents, certificates, orders and approvals which are material to the operation of the business of the Company as it is now being conducted 12 ("Permits"). The Company is in compliance with the terms of the Permits, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect. Section 4.7 SEC Filings; Financial Statements. (a) The Company has filed all forms, reports and documents required to be filed with the SEC since July 1, 1995 and has made available to Parent (i) its Annual Reports on Form 10-K for the fiscal years ended July 1, 1995, June 29, 1996 and June 28, 1997, (ii) all proxy statements relating to the Company's meetings of stockholders (whether annual or special) held since July 1, 1995, (iv) all other reports or registration statements filed by the Company with the SEC since July 1, 1997, and (v) all amendments and supplements to all such reports and registration statements filed by the Company with the SEC ((i) - (v) collectively, the "SEC Reports"). Except as disclosed in Section 4.7 of the Disclosure Schedule or the SEC Reports, the SEC Reports (i) were prepared in all material respects in accordance with the requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, or the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (b) Each of the financial statements (including, in each case, any related notes thereto) contained in the SEC Reports was prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), and each fairly in all material respects presents the financial position of the Company as at the respective dates thereof and the results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. Section 4.8 Absence of Certain Changes or Events. Except as set forth in Section 4.8 of the Disclosure Schedule or the SEC Reports, since March 31, 1998 the Company has conducted its business in the ordinary course and there has not occurred: (i) any Material Adverse Effect; (ii) any amendments or changes in the Certificate of Incorporation or Bylaws of the Company; (iii) any damage to, destruction or loss of any asset of the Company (whether or not covered by insurance) that would reasonably be expected to have a Material Adverse Effect; (iv) any material change by the Company in its accounting methods, principles or practices; (v) any material revaluation by the Company of any of its assets, including writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business; (vi) any other action or event that would have required the consent of Parent pursuant to Section 5.1 had such action or event occurred after the date of this Agreement; or (vii) any sale of a material amount of property of the Company, except in the ordinary course of business. Section 4.9 No Undisclosed Liabilities. Except as set forth in Section 4.9 of the Disclosure Schedule or the SEC Reports, the Company does not have any liabilities (absolute, accrued, contingent or otherwise). Since March 31, 1998, the Company has not 13 incurred any liabilities (absolute, accrued, contingent or otherwise) other than those liabilities incurred in the ordinary course of business consistent with past practice, incurred in connection with this Agreement or which would not reasonably be expected to have a Material Adverse Effect. Section 4.10 Absence of Litigation. Except as set forth in Section 4.10 of the Disclosure Schedule or the SEC Reports, there are no claims, actions, suits, proceedings or investigations pending or, to the knowledge of the Company, overtly threatened against the Company, or any properties or rights of the Company, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that would reasonably be expected to have a Material Adverse Effect. Except as set forth in Section 4.10 of the Disclosure Schedule or the SEC Reports, since August 27, 1993, there have been no actions, suits or proceedings made or pending against the Company alleging (x) any Environmental Claims (as defined in Section 4.17) or (y) any breach by the Company of applicable standards of conduct in rendering any engineering, construction, design, operation, maintenance, management, assessment, cleanup or remediation services, except for such actions, suits or proceedings which, in the case of either clause (x) or (y) above, would not reasonably be expected to result in liability to the Company of $25,000, in any individual case, or $100,000 in the aggregate. Section 4.11 Employee Benefit Plans; Employment Agreements. (a) Section 4.11(a) of the Company Disclosure Schedule lists all employee pension benefit plans (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), all employee welfare benefit plans (as defined in Section 3(1) of ERISA, and all other bonus, stock option, stock purchase, incentive, deferred compensation, supplemental retirement, severance and other similar fringe or employee benefit plans, programs or arrangements, and any employment, executive compensation or severance agreements, written or otherwise, as amended, modified or supplemented, for the benefit of, or relating to, any former or current employee, officer or consultant (or any of their beneficiaries) of the Company or any other entity (whether or not incorporated) which is a member of a controlled group including the Company or which is under common control with the Company (an "ERISA Affiliate") within the meaning of Sections 414(b), (c), (m) or (o) of the Code or Section 4001(a) (14) or (b) of ERISA, as well as each plan with respect to which the Company or an ERISA Affiliate could incur liability under Title IV of ERISA or Section 412 of the Internal Revenue Code of 1986, as amended (the "Code") (together for the purposes of this Section 4.11, the "Employee Plans"). Prior to the date of this Agreement, the Company has provided to Parent copies of (i) each such written Employee Plan (or a written description of any Employee Plan which is not written) and all related trust agreements, insurance and other contracts (including policies), summary plan descriptions, summaries of material modifications and communications distributed to plan participants, (ii) the three most recent annual reports on Form 5500 series, with accompanying schedules and attachments, filed with respect to each Employee Plan required to make such a filing, (iii) the most recent actuarial valuation for each Employee Plan subject to Title IV of ERISA, (iv) the latest reports which have been filed with the Department of Labor with respect to each Employee Plan required to make such filing and (v) the most recent favorable determination letters issued for each Employee Plan and related trust which is subject to Parts 1, 2 and 4 of 14 the Subtitle B of Title I of ERISA (and, if an application for such determination is pending, a copy of the application for such determination). For purposes of this Section 4.11, the term "material," when used with respect to (i) any Employee Plan, shall mean that the Company or an ERISA Affiliate has incurred or may incur obligations in an amount exceeding $100,000 with respect to such Employee Plan, and (ii) any liability, obligation, breach or non-compliance, shall mean that the Company or an ERISA Affiliate has incurred or may incur obligations in an amount exceeding $50,000, with respect to any one such or series of related liabilities, obligations, breaches, defaults, violations or instances of non-compliance. (b) Except as set forth in Section 4.11(b) of the Company Disclosure Schedule, (i) none of the Employee Plans promises or provides retiree medical or other retiree welfare benefits to any person, and none of the Employee Plans is a "multiemployer plan" as such term is defined in Section 3(37) of ERISA; (ii) no party in interest or disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of the Code) has at any time engaged in a transaction with respect to any Employee Plan which could subject the Company or any ERISA Affiliate, directly or indirectly, to a tax, penalty or other material liability for prohibited transactions under ERISA or Section 4975 of the Code; (iii) no fiduciary of any Employee Plan has breached any of the responsibilities or obligations imposed upon fiduciaries under Title I of ERISA, which breach could result in any material liability to the Company or any ERISA Affiliate; (iv) all Employee Plans have been established and maintained substantially in accordance with their terms and have operated in compliance in all material respects with the requirements prescribed by any and all statutes (including ERISA and the Code), orders, or governmental rules and regulations currently in effect with respect thereto (including all applicable requirements for notification to participants or the Department of Labor, Internal Revenue Service (the "IRS") or Secretary of the Treasury), and may by their terms be amended and/or terminated at any time subject to applicable law, and the Company has performed all material obligations required to be performed by it under, is not in any material respect in default under or violation of, and has no knowledge of any default or violation by any other party to, any of the Employee Plans; (v) each Employee Plan which is subject to Parts 1, 2 and 4 of Subtitle B of ERISA is the subject of a favorable determination letter from the IRS, and nothing has occurred which may reasonably be expected to impair such determination; (vi) all contributions required to be made with respect to any Employee Plan pursuant to Section 412 of the Code, or the terms of the Employee Plan or any collective bargaining agreement, have been made on or before their due dates; (vii) with respect to each Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA (excluding any such event for which the 30 day notice requirement has been waived under the regulations to Section 4043 of ERISA) or any event described in Section 4062, 4063 or 4041 of ERISA has occurred for which there is any material outstanding liability to the Company or any ERISA Affiliate nor would the consummation of the transaction contemplated hereby (including the execution of this agreement) constitute a reportable event for which the 30-day requirement has not been waived; and (viii) neither the Company nor any ERISA Affiliate has incurred or reasonably expects to incur any liability under Title IV of ERISA (other than liability for premium payments to the Pension Benefit Guaranty Corporation (the "PBGC") arising in the ordinary course). 15 (c) Section 4.11(c) of the Company Disclosure Schedule sets forth a true and complete list of each current or former employee, officer or director of the Company who holds (i) any option to purchase Company Common Stock as of the date hereof, together with the number of shares of Company Common Stock subject to such option, the option price of such option (to the extent determined as of the date hereof), whether such option is intended to qualify as an incentive stock option within the meaning of Section 422(b) of the Code (an "ISO"), and the expiration date of such option; (ii) any shares of Company Common Stock that are restricted; and (iii) any other right, directly or indirectly, to receive Company Common Stock, together with the number of shares of Company Common Stock subject to such right. Section 4.11(c) of the Company Disclosure Schedule also sets forth the total number of any such ISOs and any such nonqualified options and other such rights. (d) Section 4.11(d) of the Company Disclosure Schedule sets forth a true and complete list of (i) all employment agreements with officers of the Company; (ii) all agreements with consultants who are individuals obligating the Company to make annual cash payments in an amount exceeding $50,000; (iii) all agreements with respect to the services of independent contractors or leased employees whether or not they participate in any of the Employee Plans; (iv) all officers of the Company who have executed a non-competition agreement with the Company; (v) all severance agreements, programs and policies of the Company with or relating to its employees, in each case with outstanding commitments exceeding $750,000, excluding programs and policies required to be maintained by law; and (vi) all plans, programs, agreements and other arrangements of Company which contain change in control provisions. (e) Except as set forth in Section 4.11(e) of the Company Disclosure Schedule, no employee of the Company has participated in any employee pension benefit plans (as defined in Section 3(2) of ERISA) maintained by or on behalf of the Company. The PBGC has not instituted proceedings to terminate any Employee Benefit Plan that is subject to Title IV of ERISA (each, a "Defined Benefit Plan"). The Defined Benefit Plans have no accumulated or waived funding deficiencies within the meaning of Section 412 of the Code nor have any extensions of any amortization period within the meaning of Section 412 of the Code or 302 of ERISA been applied for with respect thereto. The present value of the benefit liabilities (within the meaning of Section 4041 of ERISA) of the Defined Benefit Plans, determined on a termination basis using actuarial assumptions that would be used by the PBGC does not exceed by more than $100,000 the value of the Plans' assets. All applicable premiums required to be paid to the PBGC with respect to the Defined Benefit Plans have been paid. No facts or circumstances exist with respect to any Defined Benefit Plan which would give rise to a lien on the assets of the Company under Section 4068 of ERISA or otherwise. All the assets of the Defined Benefit Plans are readily marketable securities or insurance contracts. (f) Except as provided in Schedule 4.11(f) of the Company Disclosure Schedule, (i) the Company has never maintained an employee stock ownership plan (within the meaning of Section 4975(e)(7) of the Code) or any other Employee Plan that invests in Company stock; (ii) the Company has not proposed nor agreed to any increase in benefits under any Employee Plan (or the creation of new benefits) or change in employee coverage 16 which would increase the expense of maintaining any Employee Plan; (iii) the consummation of the transactions contemplated by this Agreement will not result in an increase in the amount of compensation or benefits or accelerate the vesting or timing of payment of any benefits or compensation payable in respect of any employee; (iv) no person will be entitled to any severance benefits under the terms of any Employee Plan solely by reason of the consummation of this transaction contemplated by this Agreement. All actions required to be taken by a fiduciary of any Employee Plan in order to effectuate the transactions contemplated by this Agreement shall comply with the terms of such Plan, ERISA and all other applicable laws. All actions required to be taken by a trustee of any Employee Plan that owns Company stock shall have been duly authorized by the appropriate fiduciaries of such Plan, and shall comply with the terms of Plan, ERISA and other applicable laws. (g) Each Employee Plan covering non-U.S. employees (an "International Plan") has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all applicable Laws (including any special provisions relating to registered or qualified plans where such International Plan was intended to so qualify) and has been maintained in good standing with applicable regulatory authorities. The fair market value of the assets of each funded International Plan (or the liability of each funded International Plan funded through insurance) is sufficient to procure or provide for the benefits accrued thereunder through the Closing Date according to the actuarial assumptions and valuations most recently used to determine employer contributions to the International Plan. (h) The Company has fiduciary liability insurance of at least $1,000,000 in effect covering the fiduciaries of the Employee Plans (including the Company) with respect to whom the Company may have liability. Section 4.12 Labor Matters. Except as set forth in Section 4.12 of the Disclosure Schedule or the SEC Reports, (i) there are no controversies pending or, to the knowledge of the Company, threatened, between the Company and its employees, which controversies would reasonably be expected to have a Material Adverse Effect; (ii) the Company is not a party to any material collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor does the Company know of any activities or proceedings of any labor union to organize any such employees; and (iii) the Company does not have any knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with respect to any employees of the Company which would reasonably be expected to have a Material Adverse Effect. Section 4.13 Limitation on Business Conduct. Except as set forth in Section 4.13 of the Disclosure Schedule or the SEC Reports, the Company is not a party to, and has no obligation under, any contract or agreement, written or oral, which contains any covenants currently or prospectively limiting in any material respect the freedom of the Company to engage in any line of business or to compete with any entity. Section 4.14 Title to Property. Except as set forth in Section 4.14 of the Disclosure Schedule or the SEC Reports, the Company owns the properties and assets that it purports to 17 own free and clear of all liens, charges, mortgages, security interests or encumbrances of any kind ("Liens"), except for Liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such properties or assets or Liens for taxes not yet due. With respect to the property and assets it leases, the Company and to the best of the Company's knowledge each of the other parties thereto, is in material compliance with such leases and the Company holds a valid leasehold interest free of any Liens. The rights, properties and assets presently owned, leased or licensed by the Company include all rights, properties and assets necessary to permit the Company to conduct its business in all material respects in the same manner as its businesses has been conducted prior to the date hereof. Section 4.15 Real Property; Leased Premises. (a) Each of the buildings, improvements and structures located upon any real property and land owned by the Company (collectively, the "Real Property"), and each of the buildings, structures and premises leased by the Company (the "Leased Premises"), is in reasonably good repair and operating condition, except as would not reasonably be expected to have a Material Adverse Effect. (b) Except as set forth in Section 4.15 of the Disclosure Schedule, the Company has not received any notice of or writing referring to any requirements by any insurance company that has issued a policy covering any part of any Real Property or Leased Premises or by any board of fire underwriters or other body exercising similar functions, requiring any repairs or work to be done on any part of any Real Property or Leased Premises, except as would not reasonably be expected to have a Material Adverse Effect. (c) Except as set forth in Section 4.15 of the Disclosure Schedule, all public utilities used in the operation of each Real Property or Leased Premises in the manner currently operated are installed and operating, and all installation and connection charges have been paid in full or provided for; and the plumbing, electrical, heating, air conditioning, ventilating, septic and all other structural or material mechanical systems in the buildings upon the Real Property and Leased Properties are in good working order and working condition, so as to be adequate for the operation of the business of the Company as heretofore conducted, except as would not reasonably be expected to have a Material Adverse Effect. Section 4.16 Taxes. (a) The Company has filed, or caused to be filed, all material Tax Returns (as hereinafter defined) required to be filed by it, and has paid, collected or withheld, or caused to be paid, collected or withheld, all material amounts of Taxes (as hereinafter defined) required to be paid, collected or withheld, other than such Taxes for which adequate reserves in the Company Financial Statements have been established or which are being contested in good faith. All such Tax Returns are complete and correct in all material respects. There are no material claims or assessments pending against the Company for any alleged deficiency in any Tax, there are no pending or, to the Company's best knowledge, threatened audits or investigations for or relating to any liability in respect of any Taxes, and the Company has not been notified in writing of any proposed Tax claims or assessments against the Company (other than in each case, claims or assessments that have been satisfied, claims or assessments for which adequate reserves in the Company Financial 18 Statements have been established or which are being contested in good faith or are immaterial in amount). The Company has not executed any waivers or extensions of any applicable statute of limitations to assess any material amount of Taxes. There are no outstanding requests by the Company for any extension of time within which to file any material Tax Return or within which to pay any material amounts of Taxes shown to be due on any Tax Return. To the best knowledge of the Company, there are no liens for material amounts of Taxes on the assets of the Company except for statutory liens for current Taxes not yet due and payable. (b) For purposes of this Agreement, the term "Tax" shall mean any federal, state, local, foreign or provincial income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty imposed by any Governmental Authority. The term "Tax Return" shall mean a report, return or other information (including any attached schedules or any amendments to such report, return or other information) required to be supplied to or filed with a governmental entity with respect to any Tax, including an information return, claim for refund, amended return or declaration or estimated Tax. (c) Except as set forth in Section 4.16 of the Company's Disclosure Schedule: (i) the Company has never been a member of an affiliated group within the meaning of Section 1504 of the Code or filed or been included in a combined, consolidated or unitary Tax Return; (ii) the Company is not liable for Taxes of any other Person, nor is it currently under any contractual obligation to indemnify any person with respect to Taxes (except for customary agreements to indemnify lenders or security holders in respect of taxes other than income taxes), nor is it a party to any tax sharing agreement or any other agreement providing for payments by the Company with respect to Taxes; (iii) the Company is not a party to any joint venture, partnership or other arrangement or contract which could be treated as a partnership for federal income tax purposes; (iv) the Company has not entered into any sale leaseback or any leveraged lease transaction that fails to satisfy the requirements of Revenue Procedure 75-21 (or similar provisions of foreign law); (v) the Company has not agreed nor is it required, as a result of a change in method of accounting or otherwise, to include any adjustment under Section 481 of the Code (or any corresponding provision of state, local or foreign law) in taxable income; (vi) the Company is not a party to any agreement, contract, arrangement or plan that would result (taking into account the transactions contemplated by this Agreement), separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (vii) the Company is not liable with respect to any indebtedness the interest of which is not deductible for applicable federal, foreign, state or local income tax purposes; (viii) the Company is not a "consenting corporation" under Section 341(F) of the Code or any corresponding provision of state, local or foreign law; and (ix) none of the assets owned by the Company is property that is required to be treated as owned by any other person pursuant to Section 168(g)(8) of the Internal Revenue Code of 1954, as amended, as in effect immediately prior to the enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of Section 168(h) of the Code; provided that each of the 19 statements made in clauses (i) through (ix) above shall be deemed true and correct for purposes of this Agreement unless in any such case any failure of such statement to be true or correct would reasonably be expected to result in a Material Adverse Effect. Section 4.17 Environmental Matters. (a) Except as set forth in Section 4.17 to the Company's Disclosure Schedule, the operations and properties of the Company are in material compliance with the Environmental Laws (as hereinafter defined), which compliance includes the possession by the Company of all permits and governmental authorizations required under applicable Environmental Laws, and compliance with the terms and conditions thereof. The Company has not received any communication (written or oral), whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company is not in such compliance, and, to the Company's best knowledge, there are no circumstances or conditions related to the operations or properties of the Company that may give rise to any such non-compliance in the future. (b) Except as set forth in Section 4.17 of the Company's Disclosure Schedule, there are no Environmental Claims (as hereinafter defined), including claims based on "arranger liability," pending or, to the best knowledge of the Company, threatened against the Company or against any person or entity whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law. (c) To the Company's best knowledge, there are no past or present actions, inactions, activities, circumstances, conditions, events or incidents, including the release, emission, discharge, presence or disposal of any Material of Environmental Concern (as hereinafter defined), that would form the basis of any Environmental Claim against the Company or against any person or entity whose liability for any Environmental Claim the Company has retained or assumed either contractually or by operation of law, except for such Environmental Claims that would not reasonably be expected to have a Material Adverse Effect. (d) No off-site locations where the Company has stored, disposed or arranged for the disposal of Materials of Environmental Concern has been listed on the National Priority List, CERCLIS, state Superfund site list or state analog to CERCLIS, and the Company has not been notified that it is a potentially responsible party at any such location; (ii) there are no underground storage tanks located on property owned or leased by the Company; (iii) to the Company's best knowledge, there is no asbestos containing material contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Company; and (iv) there are no polychlorinated biphenyls (PCB's) or PCB-containing items contained in or forming part of any building, building component, structure or office space owned, leased or operated by the Company. (e) For purposes of this Agreement: (i) "Environmental Claim" means any claim, action, cause of action, investigation or notice (written or oral) by any person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response 20 costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (x) the presence, or release into the environment, of any Material of Environmental Concern at any location, whether or not owned or operated by the Company, or (y) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. (ii) "Environmental Laws" means all Federal, state, local and foreign laws, regulations, codes, ordinances, any guidance or directive relating to pollution or protection of human health and the environment (including ambient air, surface water, ground water, land surface or sub- surface strata), including laws and regulations relating to emissions, discharges, releases or threatened releases of Materials of Environmental Concern, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern, including, but not limited to CERCLA, RCRA, TSCA, OSHA, the Clean Air Act, the Clean Water Act, each as amended or supplemented, and any applicable transfer statutes or laws. (iii) "Materials of Environmental Concern" means chemicals, pollutants, contaminants, hazardous materials, hazardous substances and hazardous wastes, toxic substances, petroleum and petroleum products, asbestos-containing materials, poly chlorinated biphenyls, and any other chemicals, pollutants or substances regulated under any Environmental Law. Section 4.18 Intellectual Property. (a) The Company owns, or is licensed or otherwise possesses legally enforceable rights to use all patents, trademarks, trade names, service marks, copyrights, and any applications therefor, technology, know-how, computer software programs or applications, and tangible or intangible proprietary information or material that are used in the business of the Company as currently conducted, except as would not reasonably be expected to have a Material Adverse Effect. (b) To the best knowledge of the Company, there are no valid grounds for any bona fide claims (i) to the effect that the business of the Company infringes on any copyright, patent, trademark, service mark or trade secret; (ii) against the use by the Company, of any trademarks, trade names, trade secrets, copyrights, patents, technology, know-how or computer software programs and applications used in the business of the Company as currently conducted; (iii) challenging the ownership, validity or effectiveness of any of the patents, registered and material unregistered trademarks and service marks, registered copyrights, trade names and any applications therefor owned by the Company (the "Company Intellectual Property Rights") or other trade secret material to the Company; or (iv) challenging the license or legally enforceable right to use of any third-party patents, trademarks, service marks and copyrights by the Company, except, in each case, for claims that, if determined adversely to the Company, would not reasonably be expected to have a Material Adverse Effect. (c) To the best knowledge of the Company, all material patents, registered trademarks, service marks and copyrights held by the Company are valid and subsisting. Except as set forth in Section 4.18(c) of the Disclosure Schedule or the SEC Reports, to the 21 Company's knowledge, there is no material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property by any third party, including any employee or former employee of the Company. Section 4.19 Insurance. All material fire and casualty, general liability, professional liability, business interruption, product liability and sprinkler and water damage insurance policies maintained by the Company are with reputable insurance carriers, are in full force and effect with no premium delinquencies, provide full and adequate coverage for all normal risks incident to the business of the Company and its properties and assets and are in character and amount at least equivalent to that carried by persons engaged in similar businesses and subject to the same or similar perils or hazards, except as would not reasonably be expected to have a Material Adverse Effect. Section 4.20 Accounts Receivable. The accounts receivable of the Company as reflected in the most recent financial statements contained in the SEC Reports, to the extent uncollected on the date hereof, and the accounts receivable reflected on the books of the Company are valid and existing and represent monies due, and the Company has made reserves reasonably considered adequate for receivables not collectible in the ordinary course of business, and (subject to the aforesaid reserves) are not subject to any refunds or other adjustments or to any defenses, rights of set-off, assignments, restrictions, encumbrances or conditions enforceable by third parties on or affecting any thereof, except for such refunds, adjustments, defenses, rights of set-off, assignments, restrictions, encumbrances or conditions as would not reasonably be expected to have a Material Adverse Effect. Section 4.21 Customers. Section 4.21 of the Disclosure Schedule sets forth a list of the Company's twenty five (25) largest customers (detailed, in the case of government agencies, by separate government agency) in terms of gross sales for the fiscal year ended June 28, 1997. Except as set forth in Section 4.21 of the Disclosure Schedule, since June 28, 1997 there have not been any adverse changes in the business relationships of the Company with any of the customers named therein that would constitute a Material Adverse Effect. Section 4.22 Interested Party Transactions. Except as set forth in Section 4.22 of the Disclosure Schedule or the SEC Reports, since the date of the Company's proxy statement dated November 6, 1997, no event has occurred that would be required to be reported as a Certain Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K promulgated by the SEC, except for contracts entered into in the ordinary course of business of the Company, on an arms-length basis, with terms no less favorable to the Company than would reasonably be expected in a similar transaction with an unaffiliated third party. Section 4.23 Absence of Certain Payments. None of the Company or any of its affiliates or any of their respective officers, directors, employees or agents or other people acting on behalf of any of them have (i) engaged in any activity prohibited by the United States Foreign Corrupt Practices Act of 1977 or any other similar law, regulation, decree, directive or order of any other country and (ii) without limiting the generality of the preceding clause (i), used any corporate or other funds for unlawful contributions, payments, 22 gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials or others. None of the Company or any of its affiliates or any of their respective directors, officers, employees or agents of other persons acting on behalf of any of them, has accepted or received any unlawful contributions, payments, gifts or expenditures. Section 4.24 Takeover Statute. The Board of Directors of the Company has taken all appropriate action so that neither Parent nor Sub will be an "interested stockholder" within the meaning of Section 203 of the DGCL. Section 4.25 Opinion of Financial Advisor. The Company has been advised by its financial advisor, J. C. Bradford & Co. that in its opinion, as of the date hereof, the Merger Consideration is fair to the holders of the Common Stock. Section 4.26 Brokers. No broker, finder or investment banker (other than J. C. Bradford, the fees and expenses of whom will be paid by the Company) is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. The Company has heretofore furnished to Parent a complete and correct copy of all agreements between the Company and J. C. Bradford & Co. pursuant to which such firm would be entitled to any payment relating to the transactions contemplated hereunder. Section 4.27 Full Disclosure. (i) No statement contained in any certificate or schedule furnished or to be furnished by the Company to Parent or Sub in, or pursuant to the provisions of, this Agreement and (ii) none of the monthly consolidated financial statements for April, 1998 furnished by the Company to Parent, including the accompanying commentary, contains or shall contain any untrue statement of a material fact or omits to state any material fact necessary, in the light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS Section 5.1 Conduct of Business by the Company Pending the Merger. Except as otherwise expressly contemplated by this Agreement or consented to in advance by Parent (which consent is in writing or subsequently confirmed in writing), which consent shall not be unreasonably withheld, during the period from the date of this Agreement through the earlier of the time that the change in composition of the Board of Directors of the Company contemplated by Section 6.8 has occurred and the Effective Time, the Company shall in all material respects carry on its business in, and not enter into any material transaction other than in accordance with, the regular and ordinary course and, to the extent consistent therewith, use its reasonable best efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers and others having business dealings with it. Without limiting the generality of the foregoing, and except as otherwise expressly contemplated by this 23 Agreement (including the time period specified above), the Company shall not, without the prior consent of Parent (which consent is in writing or subsequently confirmed in writing), which consent shall not be unreasonably withheld: (a) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of its capital stock, or otherwise make any payments to stockholders of the Company in their capacity as such, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (b) issue, deliver, sell, pledge, dispose of or otherwise encumber any shares of its capital stock, any other voting securities or equity equivalent or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or equity equivalent (other than the issuance of Common Stock during the period from the date of this Agreement through the Effective Time upon the exercise of Stock Options or Warrants outstanding on the date of this Agreement in accordance with their current terms); (c) amend or change its Certificate of Incorporation or Bylaws; (d) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the assets of or equity in, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets, in each case that are material, individually or in the aggregate, to the Company; (e) sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets that are material, individually or in the aggregate, to the Company; (f) make any commitment or enter into any contract or agreement except (i) in the ordinary course of business consistent with past practice or (ii) for capital expenditures to be made in fiscal 1998 as identified in a capital expenditure budget previously delivered to Parent; (g) incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or guarantee any debt securities of others, except for borrowings or guarantees incurred in the ordinary course of business consistent with past practice under financing arrangements in existence on the date hereof, or make any loans, advances or capital contributions to, or investments in, any other person, other than in the ordinary course of business consistent with past practice; 24 (h) except as may be required as a result of a change in law or pursuant to GAAP, change any of the accounting principles or practices used by it; (i) make any tax election or settle or compromise any material income tax liability; (j) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in, or contemplated by, the financial statements (or the notes thereto) of the Company or incurred in the ordinary course of business consistent with past practice; (k) increase in any manner the compensation or fringe benefits of any of its directors, officers and other key employees or pay any pension or retirement allowance not required by any existing plan or agreement to any such employees, or become a party to, amend or commit itself to any pension, retirement, profit-sharing or welfare benefit plan or agreement or employment agreement with or for the benefit of any employee, other than increases in the compensation of employees who are not officers or directors of the Company made in the ordinary course of business consistent with past practice, or (except pursuant to the terms of preexisting plans or agreements) accelerate the vesting of any compensation or benefit; (l) except in connection with the exercise of its fiduciary duties by the Board of Directors of the Company as set forth in Section 5.2, waive, amend or allow to lapse any term or condition of any confidentiality or "standstill" agreement to which the Company is a party; or (m) take, or agree in writing or otherwise to take, any of the foregoing actions or any action which would make any of the representations or warranties of the Company contained in this Agreement untrue or incorrect at or prior to the Effective Time. Section 5.2 Acquisition Proposals. From and after the date of this Agreement and prior to the Effective Time, except as provided below, the Company agrees (i) that the Company shall not, and the Company shall direct and use its reasonable best efforts to cause its officers, directors, employees and authorized agents and representatives (including any investment banker, attorney or accountant retained by it) not to, initiate, solicit or encourage, directly or indirectly, any inquiries or the making or implementation of any proposal or offer (including any proposal or offer to its stockholders) with respect to a merger, acquisition, consolidation or similar transaction involving, or any purchase of, any equity securities (except pursuant to the exercise of the outstanding options, warrants or other rights set forth in Section 4.3 of this Agreement, including, Section 4.3 of the Disclosure Schedule) or all or any significant portion of the assets of, the Company (any such proposal or offer being hereinafter referred to as an "Acquisition Proposal") or engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, 25 any person or entity relating to an Acquisition Proposal, or otherwise facilitate any effort or attempt to make or implement an Acquisition Proposal; (ii) that it will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any person or entity conducted heretofore with respect to any of the foregoing and will take the necessary steps to inform the person or entity referred to above of the obligations undertaken in this Section 5.2; and (iii) that it will notify Parent immediately if any such inquiries or proposals are received by, any such information is requested from, or any such negotiations or discussions are sought to be initiated or continued with, it (but the Company shall not be required to disclose the names of any party making or the terms of any such proposal); provided, however, that nothing contained in this Section 5.2 shall prohibit the Board of Directors of the Company from (x) furnishing information to, or entering into discussions or negotiations with, any person or entity that makes an unsolicited bona fide proposal in writing to engage in an Acquisition Proposal transaction which the Board of Directors of the Company in good faith determines represents a financially superior transaction for the stockholders of the Company as compared to the Offer and the Merger if, and only to the extent that, (A) the Board of Directors determines, after consultation with outside counsel of national reputation (which may be the Company's regularly engaged counsel) for its expertise in corporate and securities law matters as the Company shall select ("Company Counsel"), that failure to take such action would be inconsistent with the compliance by the Board of Directors with its fiduciary duties to stockholders imposed by law, (B) prior to or concurrently with furnishing such information to, or entering into discussions or negotiations with, such a person or entity, the Company provides written notice to Parent to the effect that it is furnishing information to, or entering into discussions or negotiations with, such a person or entity, and (C) the Company keeps Parent informed of the status (excluding, however, the identity of such person) of any such discussions or negotiations; and (y) to the extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal. Nothing in this Section 5.2 shall (t) permit the Company to terminate this Agreement (except as contemplated by Section 8.1(b)(ii)), (u) permit the Company to enter into any agreement with respect to an Acquisition Proposal during the term of this Agreement, or (v) affect any other obligation of any party under this Agreement. Section 5.3 Annual Meeting of Stockholders. The Company shall defer and/or postpone the holding of its 1998 Annual Meeting of Stockholders (the "Annual Meeting") indefinitely pending consummation of the Merger unless the Company is otherwise required to hold the Annual Meeting by an order from a court of competent jurisdiction. Section 5.4 Conduct of Business of Sub Pending the Merger. During the period from the date of this Agreement through the Effective Time, Sub shall not engage in any activities of any nature except as provided in or contemplated by this Agreement. ARTICLE VI ADDITIONAL AGREEMENTS 26 Section 6.1 Company Stockholder Approval; Proxy Statement. (a) If approval or action in respect of the Merger by the stockholders of the Company is required by applicable law, the Company shall (i) if appropriate, call a meeting of its stockholders (the "Stockholder Meeting") for the purpose of voting upon the Merger and shall use its reasonable best efforts to obtain stockholder approval of the Merger, (ii) hold the Stockholder Meeting as soon as practicable following the purchase of shares of Common Stock pursuant to the Offer, (iii) recommend to its stockholders the approval of the Merger through its Board of Directors, and (iv) use its reasonable best efforts to obtain the necessary approvals by its stockholders of the Merger, this Agreement and the transactions contemplated hereby, but subject in each case to the fiduciary duties of its Board of Directors under applicable law as determined by the Board of Directors in good faith after consultation with Company Counsel. The record date for the Stockholder Meeting shall be a date subsequent to the date Parent or Sub becomes a record holder of Common Stock purchased pursuant to the Offer. (b) If required by applicable law, the Company will, as soon as practicable following the expiration of the Offer, prepare and file a preliminary version of the proxy statement to be sent to the stockholders of the Company in connection with the Stockholders Meeting (the "Proxy Statement"), or, if applicable, an information statement in lieu of a proxy statement pursuant to Rule 14C under the Exchange Act (with all references herein to the Proxy Statement being deemed to refer to such information statement, to the extent applicable) with the SEC with respect to the Stockholders Meeting and will use its reasonable best efforts to respond to any comments of the SEC or its staff and to cause the Proxy Statement to be cleared by the SEC. The Company will notify Parent of the receipt of any comments from the SEC or its staff and of any request by the SEC or its staff for amendments or supplements to the Proxy Statement or for additional information and will supply Parent with copies of all correspondence between the Company or any of its representatives, on the one hand, and the SEC or its staff, on the other hand, with respect to the Proxy Statement or the Merger. The Company shall give Parent and its counsel the opportunity to review the Proxy Statement prior to its being filed with the SEC and shall give Parent and its counsel the opportunity to review all amendments and supplements to the Proxy Statement and all responses to requests for additional information and replies to comments prior to their being filed with, or sent to, the SEC. Each of the Company and Parent agrees to use its reasonable best efforts, after consultation with the other parties hereto, to respond promptly to all such comments of and requests by the SEC. As promptly as practicable after the Proxy Statement has been cleared by the SEC, the Company shall mail the Proxy Statement to the stockholders of the Company. If at any time prior to the approval of this Agreement by the Company's stockholders there shall occur any event that should be set forth in an amendment or supplement to the Proxy Statement, the Company will prepare and mail to its stockholders such an amendment or supplement. The Company represents and warrants to Parent and Sub that the Proxy Statement (x) will not, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders, at the time of the Stockholders Meeting, or at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading; and (y) will comply in all material respects with the requirements of the Exchange Act. Notwithstanding the foregoing, the Company makes 27 no representation or warranty with respect to any information supplied by Parent or Sub in writing for inclusion in the Proxy Statement. (c) Parent agrees to cause all shares of Common Stock purchased pursuant to the Offer and all other shares of Common Stock owned by Sub or any other subsidiary or affiliate of Parent to be voted in favor of the approval of the Merger. (d) Parent and Sub represent and warrant to the Company that the information supplied by Parent or Sub in writing for inclusion in the Proxy Statement (or any amendment or supplement thereto) will not, on the date the Proxy Statement is first mailed to stockholders, at the time of the Stockholders Meeting or at the Effective Time contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 6.2 Access to Information; Confidentiality. The Company shall afford to Parent, and to Parent's accountants, counsel, financial advisers and other representatives, reasonable access and permit them to make such inspections as they may reasonably require during normal business hours during the period from the date of this Agreement through the Effective Time to all their respective properties, books, contracts, commitments and records and, during such period, the Company shall furnish promptly to Parent (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws and (ii) all other information concerning its business, properties and personnel as Parent may reasonably request. Section 6.3 Fees and Expenses. (a) Except as provided in subsections (b) and (c) below, whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. (b) The Company agrees that if this Agreement is terminated pursuant to: (i) Section 8.1(d)(i) and (I) (x) the Offer has remained open for a minimum of twenty (20) business days, (y) the Minimum Condition has not been satisfied and (z) an Acquisition Proposal existed during such twenty day period; or (II) at the time of such termination any person, entity or group (as defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its affiliates) shall have become the beneficial owner of more than 20% of the outstanding shares of Common Stock and such person, entity or group (or any affiliate of such person, entity or group) thereafter (x) shall make an Acquisition Proposal at a price per share of at least $10.50, and, in the case of a consensual transaction with the Company, shall substantially have negotiated the terms thereof, at any 28 time on or prior to the date which is six months after such termination of this Agreement, and (y) shall consummate such Acquisition Proposal at any time on or prior to the date which is one year after termination of this Agreement, in the case of a consensual transaction, or six months after termination of this Agreement, in the case of a non-consensual transaction, in each case with a value per share of Common Stock of at least $10.50 (with appropriate adjustments for reclassifications of capital stock, stock dividends, stock splits, reverse stock splits and similar events); (ii) Section 8.1(b)(ii); (iii) Section 8.1(c)(i); or (iv) Section 8.1(c)(iii), then the Company shall pay to Parent (such payment, with respect to clause (iv) above only, to be Parent's sole and exclusive remedy) the sum of (a) $2 million, plus (b) the amount of all documented out-of-pocket costs and expenses incurred by Parent, Sub or their affiliates in an aggregate amount not to exceed $150,000 in connection with this Agreement or the transactions contemplated hereby. Such payment shall be made as promptly as practicable but in no event later than five business days following termination of this Agreement pursuant to the immediately preceding sentence, or, in the case of clause (i)(II) of the immediately preceding sentence, upon consummation of such Acquisition Proposal, and shall be made by wire transfer of immediately available funds to an account designated by Parent. (c) The Company agrees that if this Agreement is terminated pursuant to Section 8.1(c)(ii)(1), the Company shall pay to Parent the amount of all documented out-of-pocket costs and expenses incurred by Parent, Sub or their affiliates in an aggregate amount not to exceed $150,000 in connection with this Agreement or the transactions contemplated hereby. Section 6.4 Option Plans etc.. Prior to the Effective Time, the Company shall take all such actions as shall be necessary to effectuate the provisions of Sections 2.5(d), (e) and (f). The Company shall take such action as is necessary to cause the ending date of the then current offering period under the ESPP to be prior to the Effective Time and to terminate the ESPP as of the Effective Time. The Company shall give written notice of the Merger to the registered holder of the Warrant at least twenty (20) days prior to the Effective Time or by such other time required pursuant to the terms thereof. Section 6.5 Reasonable Best Efforts. Subject to Section 5.2 of this Agreement, upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its reasonable best efforts to take, or cause to be taken, all actions (including entering into transactions), and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Merger, and the other transactions 29 contemplated by this Agreement, including (a) the prompt making of their respective filings (including under the HSR Act) and thereafter the making of any other required submission with respect to the Offer and the Merger, (b) the obtaining of all additional necessary actions or non-actions, waivers, consents and approvals from any applicable federal, state, foreign or supranational court, commission, governmental body, regulatory or administrative agency, authority or tribunal of competent jurisdiction (a "Governmental Entity") and the making of all necessary registrations and filings (including filings with Governmental Entities) and the taking of all reasonable steps as may be necessary to obtain an approval or waiver from any Governmental Entity, (c) the obtaining of all necessary consents, approvals or waivers from third parties, (d) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging this Agreement or the consummation of the transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (e) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by this Agreement; provided, however, that neither Parent, Sub nor the Company shall be required to take any action pursuant to clauses (b), (c), (d) or (e) above that would in any event have a Material Adverse Effect, in the case of the Company, or any similar effect on Parent and/or its subsidiaries; and provided further that neither Parent, Sub nor any of their affiliates shall be required to enter into any transaction or take any other action that would require a waiver of, or that is inconsistent with satisfaction of, the conditions of the Offer set forth in clauses (a)(iii), (iv) or (v) in Exhibit A hereto. Section 6.6 Public Announcements. Parent and Sub, on the one hand, and the Company, on the other hand, will consult with each other before issuing any press release or otherwise making any public statements with respect to the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law or by obligations pursuant to any listing agreement with any national securities exchange. Section 6.7 Indemnification; Directors and Officers Insurance. (a) From and after the Effective Time, the Surviving Corporation shall indemnify and hold harmless all past and present officers and directors (the "Indemnified Parties") of the Company to the full extent such persons may be indemnified by the Company pursuant to Delaware law, the Company's Certificate of Incorporation and Bylaws as in effect from time to time for acts and omissions occurring at or prior to the Effective Time and shall advance reasonable litigation expenses incurred by such persons in connection with defending any action arising out of such acts or omissions, provided that such persons provide the requisite affirmations and undertaking, as set forth in Section 145(e) of the DGCL. (b) In addition, Parent will provide, or cause the Surviving Corporation to provide, for a period of not less than six years after the Effective Time, the Company's current directors and officers an insurance and indemnification policy that provides coverage for events occurring at or prior to the Effective Time (the "D&O Insurance") that is no less favorable than the existing policy or, if substantially equivalent insurance coverage is unavailable, the best available coverage; provided, however, that Parent and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess 30 of 200% of the annual premium currently paid by the Company for such insurance, but in such case shall purchase as much such coverage as possible for such amount. (c) This Section 6.7 is intended to benefit the Indemnified Parties and shall be binding on all successors and assigns of Parent, Sub, the Company and the Surviving Corporation. Parent hereby guarantees the performance by the Surviving Corporation of the indemnified obligations pursuant to this Section 6.7, which guaranty is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the bankruptcy or insolvency of the Surviving Corporation or any other person. The Indemnified Parties shall be intended third-party beneficiaries of this Section 6.7. Section 6.8 Board Representation. (a) Promptly upon the purchase of shares of Common Stock pursuant to the Offer, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors of the Company as will give Parent, subject to compliance with Section 14(f) of the Exchange Act, representation on the Board of Directors equal to the product of (a) the total number of directors on the Board of Directors and (b) the percentage that the number of shares of Common Stock purchased by Sub bears to the number of shares of Common Stock outstanding, and the Company shall, upon request by Parent, promptly increase the size of the Board of Directors and/or exercise its reasonable best efforts to secure the resignations of such number of directors as is necessary to enable Parent's designees to be elected to the Board of Directors and shall cause Parent's designees to be so elected. The Company shall take, at its expense, all action required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.8 and shall include in the Schedule 14D-9 or otherwise timely mail to its stockholders such information with respect to the Company and its officers and directors as is required by Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 6.8. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. (b) Following the election of designees of Parent pursuant to this Section 6.8, prior to the Effective Time, any amendment of this Agreement or the Certificate of Incorporation or Bylaws of the Company, any termination of this Agreement by the Company, any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Sub or waiver of any of the Company's rights or obligations hereunder shall require the concurrence of a majority of the directors of the Company then in office who are directors as of the date hereof or persons designated by such directors and neither were designated by Parent nor are employees of the Company ("Continuing Directors"). Prior to the Effective Time, the Company and Parent shall use all reasonable efforts to ensure that the Company's Board of Directors at all times includes at least three Continuing Directors. Section 6.9 Notification of Certain Matters. The Company shall give prompt notice to Parent and Sub, and Parent and Sub shall give prompt notice to the Company, of (i) the occurrence or nonoccurrence of any event the occurrence or nonoccurrence of which would be likely to cause any representation or warranty contained in this Agreement to be untrue or 31 inaccurate in any material respect at or prior to the Effective Time, or (ii) any material failure of the Company, Parent or Sub, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 6.9 shall not cure such breach or non-compliance or limit or otherwise affect the remedies available hereunder to the party receiving such notice. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the fulfillment at or prior to the Effective Time of the following conditions: (a) Stockholder Approval. If approval of the Merger by the holders of the Common Stock is required by applicable law, the Merger shall have been approved by the requisite vote of such holders. (b) No Order. No court or other Governmental Entity shall have enacted, issued, promulgated, enforced or entered any law, rule, regulation, executive order, decree or injunction which prohibits or has the effect of prohibiting the consummation of the Merger; provided, however, that, prior to invoking this provision, the Company, Parent and Sub shall use their reasonable best efforts (subject to the other terms and conditions of this Agreement) to have any such order, decree or injunction vacated. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after any approval by the stockholders of the Company: (a) by mutual written consent of Parent and the Company; (b) by the Company if: (i) the Offer has not been timely commenced (except as a result of actions or omissions by the Company) in accordance with Section 1.1(a); or (ii) there is an Acquisition Proposal which the Board of Directors of the Company in good faith determines represents a financially superior transaction for the stockholders of the Company as compared to the Offer and the Merger, and the Board of Directors of the Company determines, after 32 consultation with Company Counsel, that failure to terminate this Agreement would be inconsistent with the compliance by the Board of Directors with its fiduciary duties to stockholders imposed by law; provided, however, that the right to terminate this Agreement pursuant to this clause shall not be available (x) if the Company has breached in any material respect its obligations under Section 5.2, or (y) if, prior to or concurrently with any purported termination pursuant to this clause, the Company shall not have paid the fees and expenses contemplated by Section 6.3(b); or (iii) any representation or warranty of Parent or Sub shall not have been true and correct in all material respects when made or shall have ceased at any later date to be true and correct in all material respects as if made at such later date; or (iv) Parent or Sub fails to comply in any material respect with any of its material obligations or covenants contained herein, including the obligation of Sub to purchase shares of Common Stock pursuant to the Offer; (c) by Parent if: (i) the Board of Directors of the Company shall have failed to recommend, or shall have withdrawn, modified or amended in any material respect its approval or recommendations of the Offer or the Merger or shall have resolved to do any of the foregoing; or (ii) any representation or warranty of the Company shall not have been true and correct (1) in all material respects when made or (2) other than where the failure to be true and correct would not reasonably be expected, individually, or in the aggregate, to have a Material Adverse Effect, shall have ceased at any later date to be true and correct as if made at such later date; provided, however, that the right to terminate this Agreement pursuant to this clause shall not be available to Parent if Sub or any affiliate of Sub shall acquire shares of Common Stock pursuant to the Offer; or (iii) the Company shall have failed to comply in any material respect with any of its material obligations or covenants contained herein; provided, however, that the right to terminate this Agreement pursuant to this clause shall not be available to Parent if Sub or any affiliate of Sub shall acquire shares of Common Stock pursuant to the Offer; (d) by either Parent or the Company if: (i) either (x) as the result of the failure of the Minimum Condition or any of the other conditions set forth in Exhibit A hereto, the Offer shall have terminated or expired in accordance with its terms without Sub having purchased any shares of Common Stock pursuant to the Offer, or (y) the Offer 33 shall not have been consummated on or before October 31, 1998; provided, however, that the right to terminate this Agreement pursuant to this clause shall not be available to any party whose failure to fulfill any of its obligations under this Agreement results in the failure of any such condition; or (ii) any court of competent jurisdiction or any governmental, administrative or regulatory authority, agency or body shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable. Section 8.2 Effect of Termination. In the event of termination of this Agreement by either Parent or the Company, as provided in Section 8.1, this Agreement shall forthwith become void and there shall be no liability or further obligation hereunder on the part of the Company, Parent or Sub or their respective officers or directors (except for Section 6.3, which shall survive the termination); provided, however, that nothing contained in this Section 8.2 shall relieve any party hereto from any liability for any willful and material breach of this Agreement. Section 8.3 Amendment. This Agreement may be amended by the parties hereto, by or pursuant to action taken by their respective Boards of Directors, at any time before or after any approval of the Merger by the stockholders of the Company but, after the purchase of shares of Common Stock pursuant to the Offer, no amendment shall be made which decreases the Merger Consideration or which in any way materially adversely affects the rights of such stockholders, without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Section 8.4 Waiver. At any time prior to the Effective Time, the parties hereto may (i) subject to Section 1.1 of this Agreement, extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (iii) waive compliance with any of the agreements or conditions contained herein which may legally be waived. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. ARTICLE IX GENERAL PROVISIONS Section 9.1 Non-Survival of Representations and Warranties. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the termination of this Agreement in accordance with Article VIII or the Effective Time; provided, however, that termination of this Agreement shall not 34 relieve any party hereto from any liability for any willful and material breach by such party of any such representations or warranties. Section 9.2 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent by overnight courier or telecopied (with a confirmatory copy sent by overnight courier) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Parent or Sub, to: Tyco International Ltd. c/o Tyco International (US) Inc. One Tyco Park Exeter, New Hampshire 03833 Attn: General Counsel, Tyco International (US) Inc. Fax: (603) 778-7700 Conf: (603) 778-9700 with a copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attn: Joshua M. Berman, Esq. Fax: (212) 715-8000 Conf: (212) 715-9100 (b) if to the Company to: Sigma Circuits, Inc. 393 Mathew Street Santa Clara, CA 95050 Attn: Philip S. Bushnell Fax: (408) 727-0319 Conf: (408) 727-9169 with a copy to: Cooley Godward LLP 3000 Sand Hill Road Menlo Park, California 94025 Attn: Mark P. Tanoury, Esq. Fax: (650) 854-2691 Conf: (650) 843-5000 35 Section 9.3 Interpretation. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." As used in this Agreement, (i) "business day" shall have the meaning ascribed thereto in Rule 14d-1(c)(6) under the Exchange Act, and (ii) "subsidiary" shall have the meaning ascribed thereto in Rule 12b-2 under the Exchange Act. Section 9.4 Counterparts. This Agreement may be executed in counterparts, each such counterpart being deemed to be an original instrument and all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement, including the documents and instruments referred to herein, (a) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except for the provisions of Section 6.7 is not intended to confer upon any person other than the parties any rights or remedies hereunder. Section 9.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 9.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties without the prior written consent of the other parties, except that Sub may assign, in its sole discretion, any of or all its rights, interests and obligations under this Agreement to Parent or to any direct or indirect wholly owned subsidiary of Parent, but no such assignment shall relieve Sub of any of its obligations hereunder. Subject to the preceding sentence, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 9.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Section 9.9 Enforcement of this Agreement; Attorneys Fees. (a) The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and 36 provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. (b) The prevailing party in any judicial action shall be entitled to receive from the other party reimbursement for the prevailing party's reasonable attorneys' fees and disbursements, and court costs. The provisions of this Section 9.9(b) shall survive the termination of this Agreement in accordance with Article VIII. Section 9.10 Material Adverse Effect. When used in this Agreement, the term "Material Adverse Effect" means any change, effect or circumstance that is or is reasonably likely to be materially adverse to the business, assets (including intangible assets), financial condition, prospects or results of operations of the Company; provided, however, that the following shall be excluded from the definition of "Material Adverse Effect" and from any determination as to whether a Material Adverse Effect has occurred or may occur with respect to the Company: the effects of changes that are applicable to (i) the Company's results of operations for the fiscal quarter ending June 27, 1998, (ii) the United States electronic interconnect industry generally, (iii) the United States economy generally or (iv) the United States securities markets generally. [SIGNATURE PAGE FOLLOWS] 37 IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement to be signed by their respective officers thereunto duly authorized all as of the date first written above. TYCO INTERNATIONAL LTD. By: /s/ Mark H.. Swartz ------------------------------- Name: Mark H. Swartz Title: Executive Vice President T10 ACQUISITION CORP. By: /s/ Mark H. Swartz ------------------------------- Name: Mark H. Swartz Title: Vice President SIGMA CIRCUITS, INC. By: /s/ B. Kevin Kelly ------------------------------- Name: B. Kevin Kelly Title: President and Chief Executive Officer 38 EXHIBIT A CONDITIONS OF THE OFFER Notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or pay for, subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) of the Exchange Act, any shares of Common Stock not theretofore accepted for payment or paid for and may terminate or amend the Offer as to such shares of Common Stock, unless (i) there shall have been validly tendered and not withdrawn prior to the expiration of the Offer that number of shares of Common Stock which would represent at least a majority of the outstanding shares of Common Stock on a fully diluted basis (the "Minimum Condition"), and (ii) any waiting period under the HSR Act applicable to the purchase of shares of Common Stock pursuant to the Offer shall have expired or been terminated; provided, however, that Parent and Sub shall extend the expiration date of the Offer from time to time until July 31, 1998 if, when and as necessary to satisfy any request for additional information by the DOJ or FTC pursuant to the HSR Act. Furthermore, notwithstanding any other term of the Offer or this Agreement, Sub shall not be required to accept for payment or, subject as aforesaid, to pay for any shares of Common Stock not theretofore accepted for payment or paid for, and may terminate or amend the Offer if at any time on or after the date of this Agreement and before the acceptance of such shares of Common Stock for payment or the payment therefor, any of the following conditions exist or shall occur and remain in effect: (a) there shall have been instituted, pending or threatened any action or proceeding by any court or other Governmental Entity, which (i) seeks to challenge the acquisition by Parent or Sub (or any of its affiliates) of shares of Common Stock pursuant to the Offer, restrain, prohibit or delay the making or consummation of the Offer or the Merger, or obtain damages in connection therewith in an amount which would reasonably be expected to have a Material Adverse Effect, (ii) seeks to make the purchase of or payment for some or all of the shares of Common Stock pursuant to the Offer or the Merger illegal, (iii) seeks to impose limitations on the ability of Parent (or any of its affiliates) effectively to acquire or hold, or to require Parent or the Company or any of their respective affiliates or subsidiaries to dispose of or hold separate, any portion of the assets or the business of Parent and its affiliates or any material portion of the assets or the business of the Company and its subsidiaries taken as a whole, (iv) seeks to impose material limitations on the ability of Parent (or its affiliates) to exercise full rights of ownership of the shares of Common Stock purchased by it, including, without limitation, the right to vote the shares purchased by it on all matters properly presented to the stockholders of the Company, or (v) seeks to materially restrict any future business activity by Parent (or any of its affiliates) in the United States electronic interconnect industry, including, without limitation, requiring the prior consent of any person or entity (including any Governmental Entity) to future transactions by Parent (or any of its affiliates); or (b) there shall have been promulgated, enacted, entered, enforced or deemed applicable to the Offer or the Merger, by any statute, rule, regulation, 39 judgment, decree, order or injunction, that is reasonably likely to directly or indirectly result in any of the consequences referred to in clauses (i) through (v) of subsection (a) above; or (c) the Merger Agreement shall have been terminated in accordance with its terms; or (d) any of the representations and warranties made by the Company in the Merger Agreement (1) shall not have been true and correct in all material respects when made, or (2) other than where the failure to be true and correct will not reasonably be expected, individually or in the aggregate to have a Material Adverse Effect, shall thereafter have ceased to be true and correct in all material respects as if made as of such later date (other than representations and warranties made as of a specified date), or the Company shall not in all material respects have performed in a timely manner each material obligation and agreement and complied in a timely manner with each covenant to be performed and complied with by it under the Merger Agreement; or (e) the Company's Board of Directors shall have modified or amended its recommendation of the Offer in any manner adverse to Parent or shall have withdrawn its recommendation of the Offer, or shall have recommended acceptance of any Acquisition Proposal or shall have resolved to do any of the foregoing; or (f) (i) any corporation, entity or "group" (as defined in Section 13(d)(3) of the Exchange Act) ("person"), other than Parent and Sub, shall have acquired beneficial ownership of more than 20% of the outstanding shares of Common Stock, or shall have been granted any options or rights, conditional or otherwise, to acquire a total of more than 20% of the outstanding shares of Common Stock; (ii) any new group shall have been formed which beneficially owns more than 20% of the outstanding shares of Common Stock; or (iii) any person (other than Parent or one or more of its affiliates) shall have entered into an agreement in principle or definitive agreement with the Company with respect to a tender or exchange offer for any shares of Common Stock or a merger, consolidation or other business combination with or involving the Company; or (g) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the New York Stock Exchange, the American Stock Exchange or The Nasdaq Stock Market, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) a commencement or escalation of a war, armed hostilities or other inter national or national calamity directly involving the United States (that materially and adversely effect the Company and/or Parent's electronic interconnect business, (iv) any material limitation (whether or not mandatory) by any Governmental Entity on, or any other event that is reasonably likely materially and adversely to affect the extension of credit by banks or other lending institutions in the 40 United States, (v) any decline in either the Dow Jones Industrial Average or the Standard and Poor's 500 Index by an amount in excess of 15% measured from the close of business on the date of this Agreement, or (vi) in the case of any of the foregoing existing at the time of the commencement of the Offer, a material acceleration or worsening thereof; or (h) any change, development, effect or circumstance shall have occurred or be threatened that would reasonably be expected to have a Material Adverse Effect; or (i) the Company shall commence a case under any chapter of Title XI of the United States Code or any similar law or regulation; or a petition under any chapter of Title XI of the United States Code or any similar law or regulation is filed against the Company which is not dismissed within 10 business days. The foregoing conditions are for the sole benefit of Parent and Sub and may be asserted by Parent or Sub regardless of the circumstances giving rise to any such condition and may be waived by Parent or Sub, in whole or in part, at any time and from time to time, in the sole discretion of Parent. The failure by Parent or Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any right, the waiver of such right with respect to any particular facts or circumstances shall not be deemed a waiver with respect to any other facts or circumstances, and each right shall be deemed an ongoing right which may be asserted at any time and from time to time. Should the Offer be terminated pursuant to the foregoing provisions, all tendered shares of Common Stock not theretofore accepted for payment shall forthwith be returned by the Paying Agent to the tendering stockholders. 41 EX-3 4 STOCKHOLDER AGREEMENT STOCKHOLDER AGREEMENT THIS STOCKHOLDER AGREEMENT is made and entered into as of this 1st day of June, 1998, among TYCO INTERNATIONAL LTD., a Bermuda company ("Parent"), T10 ACQUISITION CORP., a Delaware corporation and an indirect, wholly owned subsidiary of Parent ("Purchaser"), and the other parties signatory hereto (each, a "Stockholder"). WHEREAS each Stockholder desires that SIGMA CIRCUITS, INC., a Delaware corporation (the "Company"), Parent and Purchaser enter into an Agreement and Plan of Merger dated as of the date hereof (as the same may be amended or supplemented, the "Merger Agreement") with respect to the merger of Purchaser with and into the Company (the "Merger"); and WHEREAS each Stockholder is executing this Agreement as an inducement to Parent to enter into and execute, and to cause Purchaser to enter into and execute, the Merger Agreement. NOW, THEREFORE, in consideration of the execution and delivery by Parent and Purchaser of the Merger Agreement and the mutual covenants, conditions and agreements contained herein and therein, the parties agree as follows: SECTION 1. Representations and Warranties. Each Stockholder severally, and not jointly, represents and warrants to Parent and Purchaser as follows: (a) Such Stockholder (individually or together with such other Stockholders as indicated on Schedule A hereto) is the record or beneficial owner of the number of shares of Common Stock, par value $.001 per share, of the Company (the "Company Common Stock") and options or rights to acquire shares of Company Common Stock, set forth opposite such Stockholder's name in Schedule A hereto (as may be adjusted from time to time pursuant to Section 5, such Stockholder's "Securities"). Except for such Stockholder's Securities and any other securities of the Company subject hereto, such Stockholder does not have dispositive or voting power over any other securities of the Company. (b) Such Stockholder's Securities and the certificates or agreements representing such Securities are now and at all times during the term hereof will be held by such Stockholder, or by a nominee or custodian for the benefit of such Stockholder, free and clear of all liens, claims, security interests, proxies, voting trusts or agreements, understandings or arrangements or any other encumbrances whatsoever, except for any such encumbrances or proxies arising hereunder. (c) Such Stockholder understands and acknowledges that Parent is entering into, and causing Purchaser to enter into, the Merger Agreement in reliance upon such Stockholder's execution and delivery of this Agreement. Such Stockholder acknowledges that the irrevocable proxy set forth in Section 4 is granted in consideration for the execution and delivery of the Merger Agreement by Parent and Purchaser. SECTION 2. Agreement to Tender. Each Stockholder hereby severally agrees that it shall tender its all of its shares of Company Common Stock, whether now held or acquired anytime prior to expiration or termination of the Offer, into the Offer (as defined in the Merger Agreement) and that it shall not withdraw any Securities so tendered unless the Offer (i) is terminated in accordance with the terms of the Merger Agreement or (ii) expires without such Stockholder's Securities being purchased SECTION 3. Covenants. Each Stockholder severally, and not jointly, agrees with, and covenants to, Parent and Purchaser as follows: (a) Such Stockholder shall not, except as contemplated by the terms of this Agreement, (i) transfer (the term "transfer" shall include, without limitation, for the purposes of this Agreement, any sale, gift, pledge or other disposition), or consent to any transfer of, any or all of such Stockholder's Securities or any interest therein, (ii) enter into any contract, option or other agreement or understanding with respect to any transfer of any or all of such Securities or any interest therein, (iii) grant any proxy, power-of-attorney or other authorization or consent in or with respect to such Securities, (iv) deposit such Securities into a voting trust or enter into a voting agreement or arrangement with respect to such Securities or (v) take any other action that would in any way restrict, limit or interfere with the performance of its obligations hereunder or the transactions contemplated hereby; provided, however, that nothing in this Agreement shall prohibit a Stockholder from making charitable contributions of up to a total of 10% of the number of shares of Company Common Stock set forth for such Stockholder on Schedule A. (b) Such Stockholder shall not, nor shall it permit any investment banker, attorney or other adviser or representative of such Stockholder acting on its behalf to, directly or indirectly, (i) solicit, initiate or encourage the submission of, any Acquisition Proposal (as defined in the Merger Agreement) or (ii) participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal, provided that the foregoing restrictions shall not be applicable in any case to the extent that, pursuant to the Merger Agreement, such restrictions would not be applicable to the Company. SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Each Stockholder hereby irrevocably (except in accordance with the provisions of Section 8) grants to, and appoints, Parent or its assignee and Jeff Mattfolk, Brian Moroze and any other individual who shall hereafter be designated by Parent or its assignee, such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote all of such Stockholder's Securities that are voting securities, or grant a consent or approval in respect of such Securities, at any meeting of stockholders of the Company or at any adjournment thereof or in any other circumstances upon which their vote, consent or other approval is sought, against (i) any merger agreement or merger (other than the Merger Agreement and the Merger), consolidation, combination, sale of substantial assets, reorganization, joint venture, recapitalization, dissolution, liquidation or winding up of or by the Company and (ii) any amendment of the Company's Certificate of Incorporation or By-laws or other proposal or transaction (including any consent solicitation to remove or elect any directors of the Company) involving the Company or any of its subsidiaries which amendment or other proposal or transaction would in any manner impede, frustrate, prevent or nullify, or result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under or with respect to, the Offer, the Merger, the Merger Agreement or any of the other transactions contemplated by the Merger Agreement (each of the foregoing in clause (i) or (ii) above, a "Competing Transaction"). (b) Such Stockholder represents that any proxies heretofore given in respect of such Stockholder's Securities are not irrevocable, and that any such proxies are hereby revoked. (c) Such Stockholder hereby affirms that the irrevocable proxy set forth in this Section 4 is given in connection with the execution of the Merger Agreement, and that such irrevocable proxy is given to secure the performance of the duties of the Stockholder under this Agreement. Such Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest and may under no circumstances be revoked (except in accordance with the provisions of 2 Section 8). Such Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable in accordance with the provisions of Section 212 of the Delaware General Corporation Law (the "DGCL"). SECTION 5. Certain Events. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to such Stockholder's Securities and shall be binding upon any person or entity to which legal or beneficial ownership of such Securities shall pass, whether by operation of law or otherwise, including without limitation such Stockholder's heirs, guardians, administrators or successors. In the event of any stock split, stock dividend, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the Company Common Stock, or the acquisition of additional shares of Company Common Stock or other securities or rights of the Company by any Stockholder, the number of Securities listed on Schedule A beside the name of such Stockholder shall be adjusted appropriately and this Agreement and the obligations hereunder shall attach to any additional shares of Company Common Stock or other securities or rights of the Company issued to or acquired by such Stockholder. SECTION 6. Stop Transfer. The Company agrees with, and covenants to, Parent that the Company shall not register the transfer of any certificate or agreement representing any Stockholder's Securities, unless such transfer is made to Parent or Purchaser or otherwise in compliance with this Agreement. Each Stockholder acknowledges that its Securities will be placed by the Company on the "stop-transfer list" maintained by the Company's transfer agent until this Agreement is terminated pursuant to its terms. SECTION 7. Further Assurances. Each Stockholder shall, upon request of Parent or Purchaser execute and deliver any additional documents and take such further actions as may reasonably be deemed by Parent or Purchaser to be necessary or desirable to carry out the provisions hereof and to vest the power to vote such Stockholder's Securities that are voting securities as contemplated by Section 4 in Parent and the other irrevocable proxies described therein. SECTION 8. Termination. This Agreement, and all rights and obligations of the parties hereunder and the proxy provided in Section 4, shall terminate upon the earlier of (a) the date upon which the Merger Agreement is terminated in accordance with its terms, (b) with respect to each Stockholder, the date that Parent or Purchaser shall have purchased and paid for the Company Common Stock Securities of each Stockholder pursuant to Section 2 or (c) upon termination or expiration of the Offer. SECTION 9. Miscellaneous. (a) Capitalized terms used and not otherwise defined in this Agreement shall have the respective meanings assigned to such terms in the Merger Agreement. (b) All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Parent or Purchaser, to the addresses set forth in Section 9.2 of the Merger Agreement; and (ii) if to a Stockholder, to the address set forth on Schedule A hereto, or such other address as may be specified in writing by such Stockholder. (c) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 3 (d) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become effective (even without the signature of any other Stockholder) as to any Stockholder when one or more counterparts have been signed by each of Parent, Purchaser and such Stockholder and delivered to Parent, Purchaser and such Stockholder. (e) This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. (f) This Agreement shall be governed by, and construed in accordance with, the laws of the state of New York and, to the extent expressly provided herein, the DGCL, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. (g) Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties without the prior written consent of the other parties, except (i) by laws of descent and (ii) Parent may assign, in its sole discretion, any and all of its rights, interests or obligations under this Agreement to any entity controlling, controlled by or under common control with Parent. Any assignment in violation of the foregoing shall be void. (h) If any term, provision, covenant or restriction herein, or the application thereof to any circumstance, shall, to any event, be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions herein and the application thereof to any other circumstances, shall remain in full force and effect, shall not in any way be affected, impaired or invalidated, and shall be enforced to the fullest extent permitted by law. (i) Each Stockholder agrees that irreparable damage would occur and that Parent and Purchaser would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that Parent and Purchaser shall be entitled to an injunction or injunctions to prevent breaches by any Stockholder of this Agreement and to enforce specifically the terms and provisions of this Agreement. Each of the parties hereto (i) consents to submit such party to the personal jurisdiction of any Federal court located in the State of New York in the event any dispute arises out of this Agreement or any of the transactions contemplated hereby, (ii) agrees that such party will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (iii) agrees that such party will not bring any action relating to this Agreement or any of the transactions contemplated hereby in any court other than a Federal court located in the State of New York. The prevailing party in any judicial action shall be entitled to receive from the other party reimbursement for the prevailing party's reasonable attorneys' fees and disbursements, and court costs. (j) No amendment, modification or waiver in respect of this Agreement shall be effective against any party unless it shall be in writing and signed by such party. [The Remainder of this Page is Blank] 4 IN WITNESS WHEREOF, Parent, Purchaser and the Stockholders have caused this Agreement to be duly executed and delivered as of the date first written above. TYCO INTERNATIONAL LTD. By: /s/ Mark H. Swartz ---------------------------- Name: Mark H. Swartz Title: Executive Vice President T10 ACQUISITION CORP. By: /s/ Mark H. Swartz ---------------------------- Name: Mark H. Swartz Title: Vice President ACKNOWLEDGED AND AGREED TO AS TO SECTION 6: SIGMA CIRCUITS, INC. By: /s/ B. Kevin Kelly -------------------------- Name: B. Kevin Kelly Title: President and Chief Executive Officer 5 Schedule A
Number of Shares of Number of Common Stock Options or other Name, Address and Signature of Stockholder Owned Rights Owned - ------------------------------------------ ----- ------------ Carl H.R. Brockl 378,786 413,000 Linda Brockl 1950 W. Fremont Street Stockton, CA 94023 /s/ Carl H.R. Brockl - ------------------------- CARL H.R. BROCKL /s/ Linda Brockl - ------------------------- LINDA BROCKL /s/ Kevin Kelly - ------------------------- B. Kevin Kelly 355,814 c/o Sigma Circuits, Inc. /s/ Philip S. Bushnell - ------------------------- Philip S. Bushnell 49,360 152,951 c/o Sigma Circuits, Inc. /s/ Robert P. Cummins - ------------------------- Robert P. Cummins 30,000 20,454 c/o Sigma Circuits, Inc.
6 EX-4 5 STOCKHOLDER LETTER [LOGO] 393 Mathew Street Santa Clara, CA 95050 (408) 727-9169 June 5, 1998 DEAR SIGMA CIRCUITS, INC. STOCKHOLDER: We are pleased to inform you that on June 1, 1998, Sigma Circuits, Inc. ("Sigma") entered into an agreement with Tyco International Ltd. ("Tyco") and T10 Acquisition Corp., a wholly owned subsidiary of Tyco ("Purchaser"), which provides for the acquisition of Sigma by means of a cash tender offer and a subsequent merger. As the first step of this acquisition, Purchaser is making a cash tender offer for any and all outstanding shares of Sigma's common stock (the "Shares") at a price of $10.50 per Share, net to the seller in cash. Subject to certain conditions, Purchaser and Sigma will be merged subsequent to the completion of the tender offer, and the remaining outstanding Shares will be converted into the right to receive $10.50 per Share. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TENDER OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF SIGMA'S STOCKHOLDERS AND RECOMMENDS THAT EVERY STOCKHOLDER OF THE COMPANY ACCEPT THE TENDER OFFER AND TENDER HIS OR HER SHARES. In arriving at its recommendation, the Board of Directors gave careful consideration to the factors described in the Schedule 14D-9 that is being filed today with the Securities and Exchange Commission, including the opinion of J.C. Bradford & Co., L.L.C., the Company's financial advisor, to the effect that the consideration to be received by the stockholders pursuant to the offer and the merger is fair to such holders from a financial point of view. In addition to the attached Schedule 14D-9, also enclosed with this letter is the Purchaser's Offer to Purchase, dated June 5, 1998, together with related materials, including a Letter of Transmittal to be used for tendering your Shares. The Offer to Purchase and the Letter of Transmittal set forth in detail the terms and conditions of the tender offer and provide instructions as to how to tender your shares. I urge you to read the enclosed material carefully. If you desire assistance in completing the Letter of Transmittal or tendering your Shares, please call Morrow & Co., Inc., the Information Agent, collect at (212) 754-8000 or call toll-free at (800) 566-9061. Very truly yours, [LOGO] B. KEVIN KELLY PRESIDENT AND CHIEF EXECUTIVE OFFICER EX-5 6 JOINT PRESS RELEASE EXHIBIT 5 JOINT PRESS RELEASE OF TYCO AND THE COMPANY CONTACT: CONTACT: B. Kevin Kelly J. Brad McGee President and Chief Executive Officer Senior Vice President Sigma Circuits, Inc. Tyco International (US) Inc. (408) 727-9169 (603) 778-9700 TYCO INTERNATIONAL TO ACQUIRE SIGMA CIRCUITS HAMILTON, Bermuda and SANTA CLARA, Calif., June 2 (PR Newswire) -- Tyco International Ltd. (NYSE: TYC, LSE: TYI, BSX: TYC)(Tyco), a diversified manufacturing and service company, and Sigma Circuits, Inc. (Nasdaq: SIGA) (Sigma), a leading manufacturer of electronic interconnect products, announced today that they have entered into a definitive Merger Agreement pursuant to which Tyco will purchase all of the outstanding common shares of Sigma. Under the Agreement, a subsidiary of Tyco will shortly commence a tender offer to purchase all of Sigma's approximately 5.5 million shares of common stock and common stock equivalents for $10.50 per share in cash. The offer is conditioned on the tender of a majority of the outstanding shares of common stock on a fully diluted basis, regulatory approvals, and certain other conditions. Sigma, with estimated fiscal 1998 revenues of approximately $94 million, is headquartered in Santa Clara, California. They have four manufacturing facilities in California, three in Santa Clara, and one in Stockton. Sigma is a leading quick-turn manufacturer of specialized electronic interconnect products, including multilayer rigid printed circuit boards, backplane assemblies and subassemblies and flexible circuits. It will become part of the Tyco Printed Circuit Group, headquartered in Stafford, CT, one of the country's largest independent circuit board manufacturers. "The Tyco Printed Circuit Group's significant organic growth over the last three years has created a need for additional capacity. Sigma is an excellent fit with the Tyco Printed Circuit Group as it provides us with the capacity to expand our business organically. Sigma gives us west coast locations to produce complex multilayer circuit boards, backplanes and flexible circuits which readily complement the product lines and customer base of our printed circuit operations," said L. Dennis Kozlowski, Tyco's Chairman and Chief Executive Officer. Mr. Kozlowski also noted that the acquisition will provide an immediate positive contribution to Tyco's earnings. B. Kevin Kelly, President and Chief Executive Officer of Sigma stated, "This transaction provides superior value to our shareholders. We are a natural complement to the Tyco Printed Circuit Group, providing strategically located manufacturing capacity through which the Tyco Printed Circuit Group can continue its high rate of growth." Tyco International Ltd., a diversified manufacturing and service company, is the world's largest manufacturer and installer of fire protection systems, the largest provider of electronic security services, and has strong leadership positions in disposable medical products, packaging materials, flow control products, electrical and electronic components and undersea telecommunications systems. The company operates in more than 80 countries around the world and has expected annual revenues in excess of $13 billion. EX-6 7 FAIRNESS OPINION SCHEDULE I J. C. BRADFORD & CO. CORPORATE FINANCE 330 COMMERCE STREET NASHVILLE, TN 37201 May 29, 1998 The Board of Directors Sigma Circuits, Inc. 393 Matthew Street Santa Clara, CA 95050 Gentlemen: Sigma Circuits, Inc. (the "Company"), Tyco International Ltd. ("Tyco") and T10 Acquisition Corp., an indirect wholly-owned subsidiary of Tyco (the "Sub"), propose to enter into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides for the commencement by the Sub of a tender offer (the "Offer") for all of the outstanding shares of Common Stock of the Company, par value $0.001 per share (the "Shares"), at a price of $10.50 per Share, net to the seller in cash, followed by a merger (the "Merger") of Sub with and into the Company pursuant to which each outstanding Share (other than Shares held in the treasury of the Company or by any wholly-owned subsidiary of the Company and any shares owned by Tyco, Sub or any other wholly-owned subsidiary of Tyco) will be converted into the right to receive $10.50 in cash. You have asked us whether, in our opinion, the cash consideration to be received by the stockholders of the Company in the Offer and the Merger is fair to such stockholders from a financial point of view. J.C. Bradford & Co., L.L.C., as part of its investment banking business, engages in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We have acted as financial advisor to the Board of Directors of the Company in connection with the proposed Offer and Merger and will receive a fee from the Company for our services, a significant portion of which is contingent upon consummation of the Offer. In conducting our analysis and arriving at our opinion, we have considered such financial and other information as we deemed appropriate including, among other things, the following: (i) the Merger Agreement; (ii) the historical and current financial position and results of operations of the Company; (iii) certain internal financial analyses and forecasts of the Company prepared by senior management, and provided to us as reasonable forecasts appropriate for use in rendering our opinion; (iv) certain financial, securities and research data of certain other companies in businesses similar to the Company, the securities of which are publicly traded; (v) prices and premiums paid in certain other acquisitions and transactions that we believed to be relevant; (vi) historical and current price and trading activity for the Common Stock; and (vii) such other financial studies, analyses and investigations as we deemed appropriate for purposes of our opinion. We also have held discussions with members of the senior management of the Company regarding the past and current business operations, financial condition and future prospects of the Company. With your permission, we have assumed that financing for the Offer and the Merger has been irrevocably obtained, and that the Merger Agreement has been executed and delivered by the parties thereto on the terms contained in the most recent draft of the Merger Agreement supplied to and reviewed by us. I-1 We have taken into account our assessment of general economic, market, financial and other conditions and our experience in other transactions, as well as our experience in securities valuation and our knowledge of the industry in which the Company operates generally. Our opinion is necessarily based upon the information made available to us and conditions as they currently exist and can be evaluated as of the date hereof. We have relied upon the accuracy and completeness of all of the financial and other information reviewed by us for purposes of our opinion and have not assumed any responsibility for, nor undertaken an independent verification of, such information. With respect to the internal operating data and financial analyses and forecasts supplied to us, we have assumed that such data, analyses and forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the Company's senior management as to the recent and likely future performance of the Company. Accordingly, we express no opinion with respect to such analyses or forecasts or the assumptions on which they are based. Our opinion does not address the relative merits of the proposed Offer and Merger as compared to any alternative business strategies that might exist for the Company or the effect of any other transactions in which the Company might engage. Furthermore, we have not made an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company, nor have we been furnished with any such evaluations or appraisals. In the ordinary course of our business, we may actively trade the equity securities of the Company and Tyco for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. It is understood that this letter is for the information of the Board of Directors in connection with its consideration of the Offer and the Merger, does not constitute a recommendation to any stockholder as to whether such stockholder should tender shares pursuant to the Offer or vote to approve the Merger, and is not to be quoted or referred to, in whole or in part, in any proxy statement, nor shall this letter be used for any other purposes, without our prior written consent. Based upon and subject to the foregoing, and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the cash consideration to be received by the stockholders of the Company in the Offer and the Merger is fair to such stockholders from a financial point of view. Very truly yours, J.C. BRADFORD & CO., L.L.C. I-2 -----END PRIVACY-ENHANCED MESSAGE-----