<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the Com-
mission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or
Rule 14a-12
CIRCUIT SYSTEMS
-------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CIRCUIT SYSTEMS, INC.
-------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
$125.00
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
(3) Filing party:
------------------------------------------------------------------------
(4) Date filed:
August 8, 1995
------------------------------------------------------------------------
<PAGE> 2
CIRCUIT SYSTEMS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 15, 1995
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Circuit Systems, Inc., an Illinois
corporation (the "Company"), to be voted at the Annual Meeting of Shareholders
to be held September 15, 1995, as stated in the foregoing notice.
Solicitations will be made by mail, and expenses incurred in connection with
the solicitations will be borne by the Company.
Anyone giving a proxy may revoke it at any time before it is exercised. If
the enclosed proxy is properly executed and returned to American Stock Transfer
& Trust Company, 40 Wall Street, New York, N.Y. 10005, all shares represented
thereby will be voted for the proposals described in this Proxy Statement.
Each outstanding share of Common Stock of the Company is entitled to one
vote on each matter submitted to a vote at the meeting. In addition, in the
election of Directors, each shareholder will have the right to cumulate his
shares and distribute his votes among one or more of the Directors to be
elected, in the manner authorized by the laws of Illinois. The Board of
Directors has fixed July 17, 1995, as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting, or any
adjournment or adjournments thereof.
The Company had 5,321,973 shares of Common Stock, without par value,
outstanding on June 30, 1995.
It is anticipated that the mailing to shareholders of this Proxy Statement
and the enclosed proxy will commence on or about August 4, 1995.
MATTERS TO BE CONSIDERED AT THE MEETING
The Company's shareholders are being asked to consider and act upon the
following proposals:
1. The election of seven directors.
2. Such other business as may come before the Meeting or any adjournments
thereof.
<PAGE> 3
-- PROPOSAL 1 --
ELECTION OF DIRECTORS
At the meeting, seven Directors will be elected for a term of one year, or
until their successors have been elected and qualified. Five of the nominees
are currently members of the Board of Directors. Martin Henderson has decided
not to stand for reelection following the expiration of his term at the 1995
annual meeting. Gary R. Fairhead and C. Joseph Incrocci have been nominated by
the Board of Directors to stand for election.
The shares represented by the proxies given pursuant to this solicitation
will be voted, and may be cumulated, in the manner authorized by the laws of
Illinois, for the nominees listed below (unless such authorization is withheld
in the proxy). Cumulative voting entitles each shareholder to give one
candidate the number of votes equal to the number of Directors multiplied by
the number of his shares or to distribute such votes on the same principle
among as many candidates as the shareholder chooses. IN THE ABSENCE OF
CONTRARY DIRECTION, THE PROXIES WILL CAST VOTES IN SUCH MANNER AS TO ELECT ALL
OR AS MANY NOMINEES AS POSSIBLE. In the event any nominee should become
unavailable for any reason presently unknown, the proxies will be voted for
substitute nominees. The nominees of the Company are Richard J. Augustine,
Gary R. Fairhead, C. Joseph Incrocci, D. S. Patel, Magan H. Patel, Thomas W.
Rieck and Dilip S. Vyas. Information with respect to the nominees is as
follows:
<TABLE>
<CAPTION>
NAME, POSITION WITH THE COMPANY; PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY FIRST BECAME DIRECTOR AGE
--------------------------------------------------------------------------------
<S> <C>
Richard J. Augustine 1992 52
Director; President, R. J. Augustine & Associates, Ltd., Certified
Public Accountants, from 1978 to present.
Gary R. Fairhead - 43
President; SigmaTron International, Inc. and predecessor companies
from 1990 to present.
C. Joseph Incrocci - 52
President, Alkco Lighting Company, a division of J.J.I. Lighting
Company from 1984 to present.
D.S. Patel 1987 54
Chairman of the Board of Directors; President and Chief Executive
Officer of the Company from February, 1987 to present.
Magan H. Patel 1987 49
Director; Executive Vice President and Assistant Secretary of
the Company from February, 1987 to present.
</TABLE>
2
<PAGE> 4
Thomas W. Rieck 1987 50
Director; Secretary of the Company from February, 1987 to present;
Partner, Rieck and Crotty, P.C., the Company's legal counsel.
Dilip S. Vyas 1987 47
Director; Vice President-Business Development of the Company
from February, 1987 to present.
Messrs. Gary R. Fairhead, D.S. Patel, Thomas W. Rieck and Dilip S. Vyas are
directors of SigmaTron International, Inc. ("SigmaTron"). Mr. Fairhead is
also President of SigmaTron, which is a customer of the Company. The Company
owns 20.3% of the Common Stock of SigmaTron, which is traded on the NASDAQ
National Market System under the symbol "SGMA."
Compensation of Directors. For the fiscal year ended April 30, 1995,
Directors were entitled to cash compensation in the amount of $2,000 for each
meeting up to an aggregate $12,000 per Director per year. The compensation
arrangement was changed by the Board of Directors at one of its recent
meetings. For the twelve-month period commencing with the date of the annual
meeting of the shareholders, non-employee Directors will be entitled to receive
Directors' fees at the rate of $8,000 per annum and all Directors will be
entitled to receive $1,000 for each meeting attended. Non-employee Directors'
compensation may not exceed $14,000 per annum and employee Directors'
compensation may not exceed $6,000 per annum. Directors are also entitled to
reimbursement of reasonable expenses incurred in attending meetings of the
Board of Directors. In addition, pursuant to the 1994 Directors' Stock Option
Plan, non-employee Directors in office at the adjournment of the annual
shareholder meeting are granted an option to purchase 5,000 shares of the
Company's Common Stock at an exercise per share equal to the fair market value
of a share of the Company's Common Stock on the date of grant.
Meetings and Committees of the Board of Directors. The Board of Directors
held seven meetings during the fiscal year ended April 30, 1995, which were
attended by all of the incumbent Directors.
The Board of Directors has an Audit Committee, Compensation Committee and
Executive Committee.
The Company's Executive Committee, which consists of D.S. Patel (Chairman),
Magan H. Patel and Dilip S. Vyas, and which is empowered, between Board
meetings, to exercise all the powers of the Board in the management of the
Company, met on numerous occasions during 1995.
The Company's Audit Committee, which consists of Richard J. Augustine
(Chairman), Martin Henderson and Thomas W. Rieck, meets with the Company's
independent public accountants, reviews the scope and results of their audit,
reviews management response to advisory comments and inquiries into various
matters such as adequacy of internal controls and security, application of new
regulatory policies and accounting rules and other issues that may from time to
time be of concern to the Committee or its members. The Audit Committee met
three times during the preceding year.
The Company's Compensation Committee, which consists of Richard J. Augustine,
Martin Henderson and Thomas W. Rieck (Chairman), is responsible for reviewing
and approving the salary and bonus paid to the executive officers of the
Company.
3
<PAGE> 5
The Compensation Committee also administers the 1993 Stock Option Plan. The
Compensation Committee met two times during the preceding year.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Martin Henderson, currently serving as a Director, is President of Over and
Over, Inc., which acted as a sales representative of the Company in 1995 and
which is expected to perform such services for the Company during 1996. During
fiscal year ended April 30, 1995, the Company paid approximately $459,236 in
commissions to Over and Over, Inc.
Beginning in 1987, through the present, the Company has retained the law firm
of Rieck and Crotty, P.C., to perform certain legal services and anticipates
that the firm will perform similar services in 1996. During fiscal year ended
April 30, 1995, the Company paid approximately $199,888 in legal fees to Rieck
and Crotty, P.C.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1995, the number and percentage
of outstanding shares of the Company's Common Stock beneficially owned by (i)
each Director, (ii) all Executive Officers and Directors as a group, (iii) all
persons known by Company to own beneficially more than 5% of the Company's
Common Stock. Beneficial ownership has been determined in accordance with Rule
13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to
be beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition, shares
are deemed to be beneficially owned by a person if the person has the right to
acquire the shares (for example, upon exercise of an option) within 60 days of
the date as of which the information is provided; in computing the percentage
ownership of any person, the amount of shares is deemed to include the amount
of shares beneficially owned by such person (and only such person) by reason of
these acquisition rights. As a result, the percentage of outstanding shares of
any person as shown in the following table does not necessarily reflect the
person's actual voting power at any particular date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL SHARES OF
NAME ADDRESS OWNERSHIP COMMON STOCK
--------------------------------------------------------------------------------
<S> <C> <C> <C>
D.S. Patel 2350 E. Lunt Avenue 1,822,607(1,3,4) 33.38%
Elk Grove Village, IL 60007
FMR Corp. 82 Devonshire Street 501,500(5) 9.19%
Boston, MA 02109
Magan H. Patel 2350 E. Lunt Avenue 281,149(1,3) 5.15%
Elk Grove Village, IL 60007
Dilip S. Vyas 2350 E. Lunt Avenue 43,592(1,3,6) *
Elk Grove Village, IL 60007
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C> <C> <C>
Richard J. Augustine 999 Plaza Drive 700(7) *
Schaumburg, IL 60073
Thomas W. Rieck 55 W. Monroe Street 200(8,9) *
Chicago, IL 60603
Martin Henderson 13530 South Ridge Drive -0- -0-
Charlotte, NC 28273
All Executive Officers and
Directors as a group
(6 persons) 2,148,248(2) 39.35%
</TABLE>
An asterisk (*) indicates less than 1%.
1 Includes shares held by the Circuit Systems, Inc. Employee Stock Ownership
Plan and beneficially owned by the following officers: Mr. D.S. Patel,
6,154 shares; Mr. Magan H. Patel, 4,468 shares; and Mr. Dilip S. Vyas, 3,592
shares; and all executive officers as a group, 14,214 shares.
2 As of June 30, 1995, the ESOP Trustee held 233,714 shares, which represents
4.39% of the outstanding Common Stock of the Company. Each Trustee has
shared voting and investment power with respect to this stock. Hence, D.S.
Patel, Magan H. Patel, Dilip S. Vyas and Thomas W. Rieck, the trustees,
each disclaim any beneficial ownership of such shares.
3 Includes shares reserved for issuance under immediately exercisable options
and options which will become exercisable within 60 days after July 17,
1995, as follows: Mr. D.S. Patel, 75,000 shares; Mr. Magan H. Patel, 37,500
shares; Mr. Dilip S. Vyas, 25,000 shares; and all executive officers as a
group, 137,500 shares.
4 Includes 200,000 shares held by Mr. Patel's spouse. Mr. Patel has sole
voting and investment power over these shares.
5 Based on information provided in Schedule 13G filed with the Securities and
Exchange Commission on February 13, 1995, these shares are beneficially held
by FMR Corporation ("FMR") and certain of its affiliates and associates.
Fidelity Management & Research Company, a registered investment adviser and
a wholly owned subsidiary of FMR, is the beneficial owner of 501,500 shares
as a result of acting as investment adviser to the Fidelity Low-Priced Stock
Fund, voting power over which resides with the Fund's Board of Trustees.
Edward C. Johnson 3d owns 24.9% of the outstanding voting stock of FMR and
serves as Chairman.
6 Does not include 191,658 shares held in trust for, among others, members of
the family of D.S. Patel and Magan H. Patel, neither of whom have investment
nor voting power of such shares. Beneficial ownership of such shares is
disclaimed.
7 Includes 500 shares held in retirement account.
8 Includes 200 shares held in trust for a family member.
5
<PAGE> 7
9 Does not include 1,000 shares held by Rieck and Crotty, P.C. Profit Sharing
Plan, for which voting and investment power is shared. Beneficial ownership
of such shares is disclaimed.
Under the federal securities laws, the Company's directors, executive
officers, and any persons holding more than 10% of the Company's Common Stock
are required to report their ownership of the Company's Common Stock and any
changes in that ownership to the Company and the SEC. Specific due dates for
these reports have been established by regulation and the Company is required
to report in this Proxy Statement any failure to file by these dates during
fiscal 1995. All of these filing requirements were satisfied by the Company's
Directors, Executive Officers and 10% holders during fiscal year 1995.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth in the format required by applicable
regulations of the Securities and Exchange Commission the compensation for
Executive Officers of the Company who served in such capacities as of April 30,
1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL LONG-TERM
YEAR ANNUAL COMPENSATION COMPENSATION ALL OTHER
ENDED ------------------- ------------ COMPENSATION
NAME AND TITLE APRIL 30 SALARY BONUS AWARDS PAYOUTS (4)
-------------- -------- ------------------- ------ ------- ------------
SECURITIES LONG-TERM
(1) UNDERLYING INCENTIVE
OPTIONS (#) PLAN PAY
OUTS ($)
-------------------------
<S> <C> <C> <C> <C> <C> <C>
D. S. Patel, 1995 $520,000 $ -0- 50,000 -0- $84,858
President and Chief 1994 $312,000 $442,750 50,000 -0- $70,729
Executive Officer 1993 $312,000 $216,200(2) -0- -0- $41,372
Magan H. Patel, 1995 $124,800 $ 24,000 30,000 -0- $30,591
Executive Vice 1994 $117,000 $ 57,313 30,000 -0- $26,121
President and 1993 $104,000 $ 53,400 -0- -0- $18,536
Assistant Secretary
Dilip S. Vyas, Vice 1995 $109,200 $ 21,000 20,000 -0- $17,558
President-Business 1994 $ 93,600 $ 58,800(3) 20,000 -0- $ 8,924
Development 1993 $ 83,200 $ 57,720(3) -0- -0- $ 4,996
</TABLE>
(1) A description of the Company's bonus arrangements is contained below the
caption "The Report of the Compensation Committee on Executive
Compensation."
(2) Includes interest forgiveness on the Company's loan to D.S. Patel of
$14,345 in fiscal year 1993.
(3) Includes the value on December 3, 1993 and December 1992 (grant date) of a
grant of 5,000 and 10,000 shares, respectively, of the Company's Common
Stock based on the average price of such stock ($5.50 and $4.00,
respectively) as reported by NASDAQ.
(4) The amounts disclosed in this column include:
6
<PAGE> 8
(a) Company contributions of the following amounts in fiscal 1995, 1994
and 1993 under the Company's Employee Stock Ownership Plan, on behalf
of Mr. D.S. Patel, $2,591, $3,407 and $7,172; Mr. Magan H. Patel,
$2,591, $2,421 and $6,536; and Mr. Dilip S. Vyas, $2,308, $2,124 and
$4,996.
(b) Payment by the Company in each fiscal year of premiums on whole life
insurance policies for Mr. D.S. Patel of $34,200 and for Mr. Magan
H. Patel of $12,000.
(c) Payment by the Company in fiscal 1995, 1994 and 1993 of $10,000,
$5,000 and $5,000, respectively, in Director fees.
(d) Payment by the Company in fiscal 1995 of $24,401 on behalf of D.S.
Patel for tax and financial planning advice pursuant to employment
agreement.
STOCK OPTIONS
The Company has in effect the 1993 Stock Option Plan pursuant to which
options to purchase common stock may be granted to employees (including
executive officers) of the Company. The following table sets forth certain
information relating to stock options granted to the named executive officers
in fiscal 1995.
OPTION GRANTS DURING FISCAL YEAR 1995
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------ Potential Realizable Value
% of Total at Assumed Annual Rates of
Number of Options Stock Price Appreciation
Shares Granted to for Option Term(2)
Underlying Employees --------------------
Options in Fiscal Exercise Expiration 5% 10%
Name Granted (#)(1) Year Price Date -- ---
---- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
D. S. Patel 50,000 50% $5.9125 09/16/04 $142,140 $401,443
Magan H. Patel 30,000 30% $5.375 09/16/04 $101,409 $256,991
Dilip S. Vyas 20,000 20% $5.375 09/16/04 $ 67,606 $171,327
</TABLE>
(1) Options vest 25% every six months after the date of grant. The option
exercise price is 100% (110% for Mr. D.S. Patel) of the fair market value
on the date of grant. Options are exercisable for a period of 90 days
after a voluntary termination to the extent vested at that time.
(2) Amounts represent hypothetical gains that could be achieved if exercised
at end of the option term. The dollar amounts under these columns assume
5% and 10% compounded annual appreciation in the Common Stock from the
date the respective options were granted. These calculations and assumed
realizable values are required to be disclosed under Securities and
Exchange Commission rules and, therefore, are not intended to forecast
possible future appreciation of Common Stock or amounts that may be
ultimately realized upon exercise.
YEAR-END OPTION TABLE
The following table sets forth certain information regarding the value of
unexercised options held as of April 30, 1995. No options were exercised in
fiscal 1995.
7
<PAGE> 9
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares Underlying Value of Unexercised In-The-Money
Unexercised Options at April 30, 1995 Options at April 30, 1995(1)
------------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
D. S. Patel 50,000 50,000 $0 $0
Magan H. Patel 22,500 37,500 $0 $0
Dilip S. Vyas 15,000 25,000 $0 $0
</TABLE>
(1) Represents the difference between the exercise price of the outstanding
options and the closing price of the Common Stock on April 28, 1995, which
was $3.125 per share. Options that have an exercise price greater than
the fiscal year-end market value are not included in the value
calculation.
EMPLOYMENT AGREEMENT
On April 16, 1994, the Company entered into a new employment agreement
with Mr. D.S. Patel for a continuous term of twenty-four months, which provides
for a base salary of $520,000 per year. On May 15, 1995, Mr. Patel voluntarily
agreed to a 30% reduction in salary; there were no other changes made in his
employment agreement at that time. In addition, the agreement provides that he
be paid a performance bonus in an amount which the Board of Directors, in its
absolute discretion, determines to be proper in relation to, among other
things, attainment of the fiscal objectives of the Company. In addition,
pursuant to the terms of the agreement, Mr. Patel is entitled to reimbursement
for tax and financial planning advice in an amount not to exceed $25,000
annually and to the use of an automobile for business purposes. The agreement
is terminable upon 90 days written notice by Mr. Patel or immediately by the
Company at anytime. Mr. Patel is also entitled to participate in any other
cash or deferred bonus, profit sharing or retirement plans which the Company
now has or which may be adopted by the Company. The Company also advances, on
behalf of Mr. Patel, annual premiums of $34,200 for a whole life insurance
policy on his life.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 1989, the Company adopted the Circuit Systems, Inc.
Employee Stock Ownership Plan ("ESOP") covering substantially all employees.
The ESOP is administered by the Board of Directors of the Company and the
trustees are D.S. Patel, Magan H. Patel, Dilip S. Vyas and Thomas W. Rieck.
The ESOP is a noncontributory plan designed to invest primarily in the Common
Stock of Company and to distribute retirement benefits (or benefits in event of
death or disability) in the form of such Common Stock or cash.
The Company may make contributions to the ESOP in the form of cash,
Company Common Stock or other property, solely at the discretion of the Board
of Directors. For the fiscal year ended April 30, 1995, the Company accrued a
contribution of $125,000 to the ESOP.
COMPARATIVE PERFORMANCE GRAPH
The SEC requires that the Company include in this Proxy Statement a
line-graph presentation comparing cumulative, five-year shareholder returns for
the Company's Common Stock with a broad-based market index and either a
nationally recognized industry standard or an
8
<PAGE> 10
index of peer companies selected by the Company. The Company has compared its
performance with the NASDAQ Market Value Index and a peer group of companies
selected by the Company engaged in the printed circuit board industry comprised
of Sheldahl, Inc., Hadco Corporation, Advanced Circuits, Inc., Altron
Incorporated and Parlex Corporation.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CIRCUIT SYSTEMS, INC., THE NASDAQ MARKET
INDEX AND A SELECTED PEER GROUP OF COMPANIES
<TABLE>
<CAPTION>
FISCAL YEAR
COMPANY 1990 1991 1992 1993 1994 1995
--------------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Circuit Systems, Inc. 100.00 22.34 68.09 117.02 108.51 53.19
Peer Group 100.00 98.71 139.37 179.99 209.09 314.29
NASDAQ Market Index 100.00 111.17 114.03 136.25 152.93 166.98
</TABLE>
The comparison of total return on investment based upon the changes in
year end price plus reinvested dividends for each period is calculated assuming
$100 was invested on May 1, 1990 in Circuit Systems, Inc., the companies which
comprise the NASDAQ Market Index and the selected peer group companies.
9
<PAGE> 11
THE REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible
for reviewing and approving the compensation paid to the executive officers of
the Company, including salaries and bonuses. Following review and approval by
the Committee, actions pertaining to executive compensation are reported to the
full Board of Directors.
It is the philosophy of the Company to ensure that executive
compensation be linked directly to continuous improvements in corporate
performance and increases in shareholder value. The Committee believes that
corporate performance includes, in addition to financial performance, and
appreciation in the stock price, such factors as the quality of the Company's
products and the timeliness of its services, monitoring and improving the
Company's environmental performance and maintaining equitable opportunities
for the Company's employees.
The following objectives have been adopted by the Committee as
guidelines for compensation decisions:
- provide a competitive total compensation program that enables
the Company to attract and retain key executives
- provide variable compensation opportunities that are directly
linked with the performance of the Company and align executive
renumeration with the interests of the shareholders
- integrate all pay programs with the Company's annual and
long-term business strategies and objectives and focus
executive behavior on the fulfillment of those objectives
The Committee does not use a quantative method or use mathematical
formulas exclusively in setting any element of compensation. The Committee
uses discretion, guided in large part by the concept of pay for performance,
and considers all elements of an executive's compensation package when setting
each portion of compensation. Further, the focus on pay for performance may
cause individual compensation amounts to change significantly from year to
year.
The key elements of the Company's executive compensation program
presently consists of salary, a short-term incentive in the form of an annual
bonus and a long-term incentive in the form of stock options and participation
in the ESOP, which ties the retirement income of the executive officers closely
to the long-term performance of the Company's Common Stock. The Compensation
Committee's philosophy on each of these elements, including the basis for the
compensation awarded to the CEO, are discussed below.
Salaries. Salaries for executive officers are determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the comparative marketplace for executive
talent, including a comparison to base salaries for comparable positions at
comparable companies. The Compensation Committee receives the recommendations
of the CEO for the compensation to be paid to executive officers (other than
himself) and after due deliberations determines the compensation of such
executive officers and the CEO.
10
<PAGE> 12
Each year recommendations for future salary levels for executive officers
(other than himself) are prepared by the CEO and are reviewed with, modified
where appropriate, and approved by the Committee.
Bonus. Bonus payments for the Company's executive officers are
discretionary and are based upon the individual's performance, responsibility
and position, as well as corporate results.
Stock Options. The Committee believes that stock options are
advantageous to the Company because they foster a long-term commitment by the
recipient to the Company and motivate the executives to seek to improve the
long-term market performance of the Company's stock. The Committee believes
the grant of the options serves to align the interests of the executives with
those of the shareholders. The 1993 Stock Option Plan provides an incentive for
superior performance by officers and key employees who have the most impact on
the management and success of the Company's businesses.
Compensation of the Chief Executive Officer . The Committee reviews the
total annual compensation of Mr. D.S. Patel and takes into account his role and
responsibilities as president and chief executive officer of the Company. Mr.
Patel's salary and bonus are paid in accordance with his employment agreement
which is described on page 8.
Salary. In April, 1994, Mr. D.S. Patel's salary was increased to
$520,000, effective May 1, 1994. In increasing Mr. Patel's salary at that
time, the Committee considered his individual tireless performance, his
accomplishments in previous assignments, the size and complexity of the Company
and SigmaTron and in recognition of his contribution to the Company's
performance. The Committee made no change in Mr. Patel's base salary at its
recent meetings; however, Mr. Patel volunteered to take a 30% decrease in
salary as of May 15, 1995.
Bonus. The Company did not attain its earnings and sales growth
objectives for the year, despite overall favorable trends within the industry,
and there were operating problems that were not, in the Committee's opinion,
properly addressed by management. As a result, the Committee did not award any
bonus to Mr. Patel for the fiscal year ended April 30, 1995. (The entire
management team at the Company has rededicated itself to achieving certain
goals to enhance shareholder equity).
Stock Options. At the meeting held on June 21, 1995, Mr. Patel was
awarded an option to purchase 50,000 shares of the Company's common stock at
110% of the price then prevailing. The Committee is of the opinion that the
grant of this stock option should provide substantial incentive to increase
shareholder value.
Deductibility of Certain Executive Compensation . Section 162(m) added
to the federal Internal Revenue Code by the Omnibus Budget Reconciliation Act of
1993 (the "Act"), denies publicly held corporations a deduction for compensation
in excess of $1 million per year paid or accrued with respect to certain
executives in taxable years beginning on or after January 1, 1994, except to the
extent that such compensation qualifies for an exemption from that limitation.
Exempt compensation includes only the following: (a) performance-based
compensation (provided that certain outside directors, shareholder approval, and
certification requirements are met); (b) commissions; (c) payments from certain
tax-qualified retirement plans; (d) health and other fringe benefits that are
reasonably believed to be excludable from gross income; and (e) compensation
payable under a binding written contract in effect February 17, 1993.
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The new deduction limitation has no effect on the Company's ability to
deduct payments made (or deemed made for tax purposes) in fiscal 1995 to the
named executive officers listed in the Summary Compensation Table. The new
limitation, however, could affect the ability of the Company and its
subsidiaries to deduct compensation paid to such officers in fiscal 1995 and
subsequent years. The Company intends to take appropriate action to comply
with Act so that deductions will be available to it for all compensation paid
to its executive officers.
Compensation Committee Interlocks and Insider Participation. In
respect of deliberations concerning executive officers' compensation, all
members of the Board of Directors participated in its deliberations, except
that Mr. Patel did not participate in votes concerning his compensation
deliberations.
There are no interlocking relationships, as defined in the regulations
of the Securities and Exchange Commission, involving members of the Board of
Directors or its Committee.
AUDITORS
Grant Thornton LLP acted as independent certified public accountants
to audit the financial statements of the Company for the current fiscal year
and to perform other appropriate accounting services. Grant Thornton LLP has
examined the financial statements of the Company since 1985. Representatives
of Grant Thornton LLP will be present at the Annual Meeting, and will have the
opportunity to make a statement, if they desire to do so, and respond to
appropriate questions. The Board of Directors expects to select an independent
certified public accountant for the next fiscal year at its Annual Meeting.
SHAREHOLDER PROPOSALS
A proper proposal submitted by a shareholder for presentation at the
Company's 1996 Annual Meeting and received by the Company at its principal
executive offices no later than May 1, 1996, will be included in the Company's
Proxy Statement and form of proxy relating to the 1996 Annual Meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors is not
aware of any business which will be presented for consideration at the meeting
other than the foregoing. However, if other matters not now known properly
come before the meeting it is intended that the persons named as proxies, or
their substitutes, will vote the stock in accordance with their best judgment
on such matters.
By Order of the Board of Directors,
__________________________________
D. S. Patel, President and Chief
Executive Officer
Elk Grove Village, Illinois
August 4, 1995
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