Exhibit 99.2
Celeritek, Inc.
3236 Scott Boulevard
Santa Clara, CA 95054
May 18, 2003
Celeritek Shareholder Protective Committee
c/o B. Riley and Co., Inc.
11150 Santa Monica Blvd., Suite 750
Los Angeles, CA 90025
RE: TERMS OF SETTLEMENT
Gentlemen:
As you know, the Celeritek Shareholder Protective Committee (the
"Committee") has requested that Celeritek, Inc. (the "Company") call a special
meeting of its shareholders (the "Special Meeting") to consider and vote on a
proposal to remove all of the current members of the Company's board of
directors (the "Board") and a proposal to elect six new directors nominated by
the Committee (the "Proposals"). The Company and the Committee have determined
that it is in the best interest of the Company's shareholders to resolve their
dispute with respect to the Special Meeting and the composition of the Board on
the general terms set forth herein.
1. Special Meeting. Upon the execution and delivery of the definitive
agreement contemplated by Section 14 hereof (the "Definitive Agreement"), the
Committee shall immediately withdraw the Proposals and its request that the
Company call and hold the Special Meeting. The Company shall cancel the Special
Meeting promptly thereafter.
2. Standstill. Commencing with the execution of this letter agreement by
each of the parties hereto, the Committee, the Company and each of their
respective directors, officers, employees, affiliates, representatives and other
agents shall immediately discontinue any solicitation of proxies in connection
with the Special Meeting.
3. Board Composition. The Board shall, effective as of the execution and
delivery of the Definitive Agreement, increase the size of the Board to be
comprised of seven (7) directors. Immediately thereafter, and effective as of
the execution and delivery of the Definitive Agreement, (i) William D. Rasdal,
Thomas Hubbs and Donald Cox shall resign from the Board, and (ii) the Board
shall appoint Bryant Riley, Lloyd I. Miller and Michael Targoff (collectively,
the "Committee Directors") and J. Michael Gullard as directors of the Company
(together with Tamer Husseini, Charles Waite and Robert Gallagher, the
"Continuing Directors"). The Company shall take all action to re-nominate and
recommend the re-election of the Continuing Directors to the Board at the 2003
annual meeting of the Company's shareholders. In the event that the members of
the Committee and their respective affiliates hold of record or beneficially, in
the aggregate: (i) less than 50% of the shares of Company common stock that they
hold as of
Celeritek Shareholder Protective Committee
May 18, 2003
Page 2
the date hereof (as reflected in the Schedule 13Ds filed with the SEC prior to
the date hereof), one Committee Director (as chosen by Committee Directors)
shall resign; (ii) less than 25% of the shares of Company common stock that they
hold as of the date hereof (as reflected in the Schedule 13Ds filed with the SEC
prior to the date hereof), the second Committee Director (as chosen by Committee
Directors) shall resign; and (iii) less than 10% of the shares of Company common
stock that they hold as of the date hereof (as reflected in the Schedule 13Ds
filed with the SEC prior to the date hereof), the remaining Committee Director
shall resign.
4. Board Committees.
(a) The Board shall appoint at least one (1) Committee Director to
serve on each committee of the Board, which, in the case of the audit committee,
shall include Bryant Riley, provided that he is qualified to serve on such
committee under applicable legal requirements.
(b) The Board shall, effective as of the execution and delivery of
the Definitive Agreement, create a "Strategy Committee" to explore strategic
alternatives available to the Company (including, without limitation,
repurchasing shares of Company common stock through an open market repurchase
program, a self tender or otherwise) and to make recommendations to the Board in
respect thereof, it being understood and hereby agreed that the Strategy
Committee shall not have any delegated authority to take any action for or on
behalf of the Company or the Board without specific authorization from the
Board. The Strategy Committee shall be composed of all directors of the Company
other than any director(s) employed by the Company.
5. Standstill and Related Provisions.
(a) Until the 2004 annual meeting of the Company's shareholders is
adjourned (the "Standstill Period"), neither the Committee nor any persons or
entities affiliated with the Committee shall (i) acquire any shares of voting
stock of the Company; provided, however, that the foregoing restriction shall
not restrict or otherwise limit the right of (A) any Committee Director to
acquire shares of Company common stock (or options to acquire shares of Company
common stock) pursuant to the compensation arrangements provided to Continuing
Directors in their capacity as directors of the Company, and (B) Michael Targoff
to acquire shares of Company common stock at any time when it is appropriate for
directors of the Company to make such purchases, provided that he is a director
of the Company at the time of any such purchase, (ii) join a group of persons
who are unaffiliated with the Committee in any manner that would be required to
be disclosed under Section 13(d) of the Securities Exchange Act of 1934, (iii)
submit any shareholder proposals, call a meeting of shareholders or otherwise
solicit proxies in favor of proposals that are not approved by the Board, (iv)
other than through communications with members of the Company Board, seek to
become involved in the business, management or operations of the Company, (v)
engage in, offer, solicit or otherwise facilitate any proposal to acquire the
Company, whether by merger, consolidation or other business
Celeritek Shareholder Protective Committee
May 18, 2003
Page 3
combination transaction, purchase of securities or assets, or otherwise, or (vi)
assist or act in concert with any third party with respect to the actions set
forth in the foregoing clauses (i) through (v); provided, however, that none of
the foregoing restrictions shall be deemed to (A) restrict the authority or
right of any of the Continuing Directors to take any action that they are
required to take in order to fulfill their fiduciary duties to the Company and
its shareholders, or (B) restrict the authority or activities of any of the
Continuing Directors when acting in their capacity as a director of the Company
or as an officer of the Company, if and when elected as an officer (except that
they shall vote for the nomination of the Continuing Directors in accordance
with the terms of this letter agreement), or (C) require any Continuing Director
to vote, or refrain from voting, on any matter as they deem appropriate and in
the best interests of the Company and its shareholders. During the Standstill
Period, the restrictions set forth in the foregoing clauses (ii), (iii), (v) and
(vi) shall, subject to the foregoing proviso, apply to all Continuing Directors,
each of whom shall execute the Definitive Agreement to evidence their agreement
thereto.
(b) During the Standstill Period, neither the Committee nor any
persons or entities affiliated with the Committee shall transfer, sell or
otherwise dispose of any of their shares of Company common stock, including,
without limitation, pursuant to a tender or exchange offer in respect of shares
of Company common stock, unless the party proposing to transfer, sell or
otherwise dispose of such shares shall first offer such shares for sale to the
Company under the terms of a customary right of first refusal; provided,
however, that notwithstanding the foregoing, either the Committee or any persons
or entities affiliated with the Committee shall be entitled, without limitation
of any kind, to (i) sell any shares of Company common stock in open market
transactions, and (ii) tender any shares of Company common stock into a tender
or exchange offer in respect of shares of Company common stock that includes an
offer price that reflects at least a 20% premium to the average closing price of
Company common stock during the 20-consecutive trading days ending on the
trading day immediately prior to public announcement of such tender or exchange
offer.
(c) During the Standstill Period, the Committee and all persons or
entities affiliated with the Committee shall vote or deliver a proxy to the
Company in respect of all of their shares of Company common stock (i) in favor
of the slate of director nominees proposed by the Board, provided such slate of
director nominees includes the Committee Directors then in office, and (ii)
against any slate of director nominees proposed by any person other than the
Board, provided that the slate of directors nominees supported by the Board
includes the Committee Directors then in office. During the Standstill Period,
neither the Committee nor any persons or entities affiliated with the Committee
shall vote or deliver a proxy to any person other than the Company in respect of
any of their shares of Company common stock in favor of any slate of director
nominees that is not supported by the Board, provided that the slate of
directors nominees supported by the Board includes the Committee Directors then
in office.
6. Confidentiality. Subject to their fiduciary duties and other
obligations under applicable law, the Continuing Directors shall keep
confidential all information that becomes
Celeritek Shareholder Protective Committee
May 18, 2003
Page 4
available to them in their capacity as directors of the Company or is otherwise
discussed by the Board, and shall not use such information to contest any action
or determination of the Board. Each of the Continuing Directors shall execute an
agreement affirming the foregoing obligation.
7. Public Disclosure. The parties shall agree upon a joint press release
announcing the terms of this letter agreement. In addition, during the
Standstill Period, no party to this letter agreement shall issue any press
release or make any other public statement or announcement to any third party or
file any document with any governmental authority regarding (i) the Special
Meeting, the solicitation of proxies in connection therewith, this letter
agreement or the Definitive Agreement, or (ii) other than in the ordinary course
of business, the Company, the Board or Company management, in the case of the
foregoing clauses (i) and (ii), without the prior approval of the other party or
parties hereto, which consent shall not be unreasonably withheld or delayed. The
parties hereto acknowledge and hereby agree that certain members of the
Committee will file with the Securities and Exchange Commission an amendment to
their previously filed Schedule 13Ds which discloses the settlement arrangements
contemplated hereby and includes, as exhibits thereto, this letter agreement and
the joint press release contemplated by this Section 7.
8. Non-Disparagement. During the Standstill Period, neither the Committee
nor any persons or entities affiliated with the Committee shall publicly
disparage, criticize or make any negative statements regarding the Company, the
Board, management or the Company's policies. During the Standstill Period, the
Company shall not publicly disparage, criticize or make any negative statements
regarding the Committee or any persons or entities affiliated with the
Committee.
9. Chairman and CEO. Tamer Husseini shall remain Chairman and CEO of the
Company.
10. Shareholder Rights Agreement. The Board shall take appropriate action
to terminate the shareholder rights agreement as promptly as practicable and in
no event later than June 15, 2003. During the Standstill Period, the Board shall
not adopt or otherwise implement a new or replacement shareholder rights plan
without the consent of a majority of the Committee Directors then in office,
which consent shall not be unreasonably withheld or delayed.
11. Bylaws. During the Standstill Period, the Company will not amend its
bylaws in any manner to impose any additional standards or conditions regarding
the ability of directors to call, or otherwise make it more difficult to call,
meetings of the Board.
12. Reimbursement of Expenses. The Company shall reimburse the Committee
for up to $275,000 of the expenses it incurred in connection with the Special
Meeting and the solicitation of proxies in connection therewith.
Celeritek Shareholder Protective Committee
May 18, 2003
Page 5
13. Change of Control Agreements. The parties hereby acknowledge that the
change of control agreements between the Company and each of Tamer Husseini and
Margaret Smith are valid and enforceable in accordance with their respective
terms, and that the transactions and other arrangements contemplated pursuant to
this letter agreement will constitute a "Change of Control" as such term is
defined in each of such change of control agreements.
14. Definitive Documentation. As promptly as practicable (and in any event
by 9:59 a.m. (California time) on May 28, 2003), the parties shall prepare and
enter into a definitive agreement reflecting the terms set forth herein (which
shall provide for the specific performance of all obligations arising
thereunder). The Committee and the Company hereby consent to the postponement of
the Special Meeting until 10:00 a.m. (California time) on May 28, 2003 to permit
the drafting and execution of such definitive agreement.
15. Termination. This letter agreement shall automatically terminate and
be of no further force or effect, without any action on the part of any party
hereto, upon the earlier to occur of (i) the execution and delivery of the
Definitive Agreement, and (ii) 9:59 a.m. (California time) on May 28, 2003.
16. Counterparts. This letter agreement may be executed in two or more
counterparts, each of which shall be deemed to be original and all of which
shall constitute one and the same instrument.
* * *
If the foregoing meets the Committee's approval, please countersign below.
Sincerely,
CELERITEK, INC.
/s/ Tamer Husseini
Tamer Husseini
Chairman of the Board and
Chief Executive Officer
Celeritek Shareholder Protective Committee
May 18, 2003
Page 6
AGREED AND ACCEPTED
(IT BEING UNDERSTOOD AND HEREBY AGREED THAT EACH OF THE FOLLOWING SIGNATORIES IS
EXECUTING THIS LETTER AGREEMENT IN ITS OR HIS CAPACITY AS A MEMBER OF THE
CELERITEK SHAREHOLDER PROTECTIVE COMMITTEE, AND IN ITS OR HIS INDEPENDENT OR
INDIVIDUAL CAPACITY, AS THE CASE MAY BE.)
SACC PARTNERS LP
By: Riley Investment Management LLC,
its General Partner
By: /s/ Bryant R. Riley
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Bryant R. Riley, President
RILEY INVESTMENT MANAGEMENT LLC
By: /s/ Bryant R. Riley
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Bryant R. Riley, President
B. RILEY AND CO. INC.
By: /s/ Bryant R. Riley
-----------------------------------
Bryant R. Riley, President
B. RILEY AND CO. HOLDINGS, LLC
By: /s/ Bryant R. Riley
-----------------------------------
Bryant R. Riley, President
/s/ Bryant R. Riley
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BRYANT R. RILEY, AN INDIVIDUAL
BRICOLEUR CAPITAL MANAGEMENT LLC
By: /s/ Robert M. Poole
-----------------------------------
Robert Poole, Management
Committee Member
Celeritek Shareholder Protective Committee
May 18, 2003
Page 7
/s/ Lloyd I. Miller
- ------------------------------------
LLOYD I. MILLER, III, AN INDIVIDUAL
/s/ Kevin Douglas
KEVIN DOUGLAS, AN INDIVIDUAL
/s/ James E. Douglas
- ------------------------------------
JAMES E. DOUGLAS, III, AN INDIVIDUAL
DOUGLAS FAMILY TRUST
By: /s/ James E. Douglas
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James E. Douglas, Jr., Trustee
By: /s/ Jean A. Douglas
-----------------------------------
Jean A. Douglas, Trustee
JAMES DOUGLAS AND JEAN DOUGLAS
IRREVOCABLE DESCENDANTS' TRUST
By: /s/ Kevin Douglas
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Kevin Douglas, Trustee
By: /s/ Michelle Douglas
-----------------------------------
Michelle Douglas, Trustee