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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SIGMA CIRCUITS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
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2. Form, Schedule or Registration Statement No.:
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3. Filing Party:
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4. Date Filed:
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SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 16, 1997
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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.
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SIGMA CIRCUITS, INC.
393 MATHEW STREET
SANTA CLARA, CALIFORNIA 95050
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
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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
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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.
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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.
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(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.
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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
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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.
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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.
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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.
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------
NUMBER OF PERCENT OF
NAME SHARES TOTAL
- ---------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
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%
</TABLE>
- ------------------------
* 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
<PAGE>
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
<PAGE>
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 $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -------------
-------------------------------- SECURITIES
BONUS ALL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) ($)(1) COMPENSATION ($)(2) OPTIONS(3)
- --------------------------------------------- --------- ---------- ----------- ------------------- -------------
<S> <C> <C> <C> <C> <C>
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 -- -- -- --
</TABLE>
- ------------------------
(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
<PAGE>
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:
<TABLE>
<CAPTION>
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) ($/SH) DATE 5% 10%
- ------------------------------- ------------- ------------- ----------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Kent Hardwick............... 70,000 28.23 6.1875 6.1875 10/13/2006 272,390 690,290
</TABLE>
- ------------------------
(1) These options become exercisable in 54 equal monthly installments beginning
with the seventh month from the date of grant.
(2) Based on a total of 248,000 options granted to employees during the fiscal
year ended June 30, 1997.
(3) The potential realizable value is based on the term of the option at the
time of grant (ten years). Assumed stock price appreciation of five percent
and ten percent used pursuant to rules promulgated by the Commission. The
potential realizable value is calculated by assuming that the market price
per share appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold on
the last day of its term at the appreciated price.
The following tables show for the fiscal year ended June 30, 1997, certain
information regarding options granted to, exercised by and held at year end by
the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND JUNE 30, 1997 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
----------------------------------------------------------------------------------
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT JUNE 30, IN-THE-MONEY OPTIONS AT
SHARES VALUE 1997(#) JUNE 30, 1997($)(2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------------------
(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
<PAGE>
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
<PAGE>
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
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(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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
SIGMA NASDAQ 3670
<S> <C> <C> <C>
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
</TABLE>
- ------------------------
(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
<PAGE>
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
<PAGE>
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
<PAGE>
SIGMA CIRCUITS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 16, 1997
The undersigned hereby appoints B. Kevin Kelly and Philip S. Bushnell, and
each of them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Sigma Circuits, Inc.
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Sigma Circuits, Inc. to be held at 393 Mathew Street, Santa
Clara, CA 95050 on Tuesday, December 16, 1997 at 10:00 a.m., local time, and
at any and all postponements, continuations and adjournments thereof, with
all powers that the undersigned would possess if personally present, upon and
in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters
that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
<PAGE>
Please mark
your votes /X/
as indicated in
this example
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
1. To elect two directors FOR all nominees WITHHOLD AUTHORITY
to hold office until the listed below (except to vote for all
2000 Annual Meeting of as marked to the nominees listed
Stockholders. contrary below). below.
NOMINEES: Philip S. Bushnell / / / /
and Carl H. R. Brockl
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
_______________________________________________________________________________
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2, 3 AND 4.
FOR AGAINST ABSTAIN
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.
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 as / / / / / /
independent auditors of the Company for its fiscal
year ending June 30, 1998.
DATED________________________________,1997
__________________________________________
__________________________________________
SIGNATURE(S)
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
HEREON. IF THE STOCK IS REGISTERED IN THE
NAMES OF TWO OR MORE PERSONS, EACH SHOULD
SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES,
GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD
THEIR TITLES. IF SIGNER IS A CORPORATION,
PLEASE GIVE FULL CORPORATE NAME AND HAVE A
DULY AUTHORIZED OFFICER SIGN, STATING
TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE
SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS
PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE
UNITED STATES.
