<PAGE>
CIRCUIT SYSTEMS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 13, 1996
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 13, 1996, 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 15, 1996, 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, 1996.
It is anticipated that the mailing to shareholders of this Proxy
Statement and the enclosed proxy will commence on or about August 2,
1996.
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>
-- 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.
All of the nominees are currently members of the Board of Directors.
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 Augustine, Gary R. Fairhead, C. Joseph J.
Incrocci, D. S. Patel, Magan H. Patel, Thomas W. Rieck and Dilip S.
Vyas. Information with respect to the nominees is as follows:
<TABLE>
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 53
Director; President,
R. J. Augustine & Associates, Ltd., Certified
Public Accountants, from 1978 to present.
Gary R. Fairhead 1995 44
President; SigmaTron International, Inc.
and predecessor company from 1990 to present.
C. Joseph Incrocci 1995 53
President, Alkco Lighting Company,
a division of J.J.I. Lighting Company from 1984 to present.
D.S. Patel 1987 55
Chairman of the Board of Directors;
President and Chief Executive Officer of
the Company from February, 1987 to present.
Magan H. Patel 1987 50
Director; Executive Vice President and
Assistant Secretary of the Company
from February, 1987 to present.
Thomas W. Rieck 1987 51
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 48
Director; Vice President-Business Development
of the Company from February, 1987 to present.
</TABLE>
<PAGE>
Messrs. Gary R. Fairhead, D.S. Patel, Thomas W. Rieck and Dilip
S. Vyas are directors of SigmaTron International, Inc. ("SigmaTron").
The Company owns approximately 20% of the Common Stock of SigmaTron,
which is traded on the NASDAQ National Market System under the symbol
"SGMA."
Compensation of Directors. Non - employee Directors are
entitled to receive Directors' fees at the rate of $8,000 per annum
and all Directors are 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 nine meetings during the fiscal year ended April 30,
1996, which were attended by all of the Directors then in office.
The Board of Directors has an Audit Committee, Compensation
Committee and Strategic Planning Committee. The Board decided to
discontinue the Executive Committee during fiscal year 1996.
The Company's Audit Committee, which consists of Richard J.
Augustine (Chairman), Gary R. Fairhead 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 two times during the fiscal 1996.
The Company's Compensation Committee, which consists of Thomas
W. Rieck (Chairman), Richard J. Augustine, and C. Joseph Incrocci, is
responsible for reviewing and approving the salary and bonus paid to
the executive officers of the Company. The Compensation Committee
also administers the 1993 Stock Option Plan. The Compensation
Committee met two times during the fiscal 1996.
The Company's Strategic Planning Committee, which consists of
D.S. Patel (Chairman), Gary R. Fairhead, C. Joseph Incrocci and
Thomas W. Rieck, and which is empowered to establish the growth plan
of the Company, met on two occasions during the fiscal 1996.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended April 30, 1996, SigmaTron purchased raw
materials of approximately $ 4,755,000 for the year ended
April 30, 1996. Trade accounts receivable related to these purchases
was approximately $629,000 at April 30, 1996. SigmaTron also leases
a portion of the 2201 Landmeier Road premises in Elk Grove Village,
Illinois from the Company at a base rental of $26,000 per month as
of March 1, 1996. The lease requires SigmaTron to pay real estate
taxes, maintenance and utility expenses. Rental income was
approximately $302,000 for the year ended April 30, 1996. The
Company owns approximately 20% of SigmaTron's outstanding Common
Stock.
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 1997. During fiscal year ended April 30, 1996, the Company paid
approximately $128,000 in legal fees to Rieck and Crotty, P.C.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 30, 1996, 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>
Amount and Nature Percent of
of Beneficial Shares of
Name Address Ownership Common Stock
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1,3,4
D.S. Patel 2350 E. Lunt Avenue 1,714,277 30.60%
Elk Grove Village, IL 60007
5
FMR Corp. 82 Devonshire Street 532,200 9.50%
Boston, MA 02109
1,3
Magan H. Patel 2350 E. Lunt Avenue 260,874 4.66%
Elk Grove Village, IL 60007
1,3,6
Dilip S. Vyas 2350 E. Lunt Avenue 68,792 1.22%
Elk Grove Village, IL 60007
7,10
Richard J. Augustine 999 Plaza Drive 10,700 *
Schaumburg, IL 60073
8,9,10
Thomas W. Rieck 55 W. Monroe Street 10,200 *
Chicago, IL 60603
10
C. Joseph Incrocci 11500 West Melrose Avenue 5,000 *
Franklin Park, IL 60131
10,11
Gary R. Fairhead 2201 Landmeier Road 9,000 *
Elk Grove Village, IL 60007
All Executive Officers and Directors 2
as a group (7 persons) 2,078,843 37.11%
</TABLE>
An asterisk (*) indicates less than 1%.
<PAGE>
1
Includes shares held by the Circuit Systems, Inc. Employee Stock
Ownership Plan and beneficially owned by the following officers:
Mr. D.S. Patel, 6,490 shares; Mr. Magan H. Patel, 4,693 shares;
and Mr. Dilip S. Vyas, 3,792 shares; and all executive officers as
a group, 14,975 shares.
2
As of June 30, 1996, 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 15, 1996, as follows: Mr. D.S. Patel,
125,000 shares; Mr. Magan H. Patel, 75,000 shares; Mr. Dilip S.
Vyas, 50,000 shares; and all executive officers as a group,
250,000 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 14, 1996, 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 532,200 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 140,438 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.
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.
10
Includes 5,000 shares subject to options granted to Directors in
office in September 1994 and 1995 under the 1994 Directors' Stock
Option Plan. All options are deemed exercised solely for the
purpose of showing total shares owned by each non-employee
director.
11
Includes 2,000 shares held in retirement account.
<PAGE>
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 1996.
All of these filing requirements were satisfied by the Company's
Directors, Executive Officers and 10% holders during fiscal year 1996.
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, 1996.
<TABLE>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------
I FISCAL I I LONG-TERM I
I YEAR I ANNUAL I COMPENSATION I ALL OTHER
I ENDED I COMPENSATION I I COMPENSATION
NAME I APRIL I I I (3)
& I 30 I-------------------I I
TITLE I I SALARY I BONUS I AWARDS PAYOUTS I AWARDS
I I I (1) I-------------------------I
I I I I SECURITIES I LONG-TERM I
I I I I UNDERLYING I INCENTIVE I
I I I I OPTIONS I PLAN I
I I I I (#) I PAYOUTS I
I I I I I ($) I
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D.S. Patel, President and Chief Executive Officer
1996 I $414,000 I $ 17,500 I 50,000 I -0- I $61,892
1995 I $520,000 I $ -0- I 50,000 I -0- I $84,858
1994 I $312,000 I $442,750 I 50,000 I -0- I $70,729
- -------------------------------------------------------------------------------
Magan H. Patel,
Executive Vice President and Assistant Secretary
1996 I $103,200 I $ 4,500 I 30,000 I -0- I $26,487
1995 I $124,800 I $ 24,000 I 30,000 I -0- I $30,591
1994 I $117,000 I $ 57,313 I 30,000 I -0- I $26,121
- ------------------------------------------------------------------------------
Dilip S. Vyas,
Vice President - Business Development
1996 I $ 93,600 I $ 4,200 I 20,000 I -0- I $14,250
1995 I $109,200 I $ 21,000 I 20,000 I -0- I $17,558
1994 I $ 93,600 I $ 58,800 I 20,000 I -0- I $ 8,924
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 the value on December 3, 1993 (grant date) of a grant of
5,000 shares, of the Company's Common Stock based on the average
price of such stock ($5.50) as reported by NASDAQ.
3 The amounts disclosed in this column include:
(a) Company contributions of the following amounts in fiscal 1996,
1995 and 1994 under the Company's Employee Stock Ownership Plan,
on behalf of Mr. D.S. Patel, $1,505, $2,591 and $3,407; Mr.
Magan H. Patel, $1,105, $2,591 and $2,421; and Mr. Dilip S.
Vyas, $1,003, $2,308 and $2,124.
(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 1996, 1995 and 1994 of $12,000,
$10,000, and $5,000, respectively, in Director fees.
(d) Payment by the Company in fiscal 1996 of approximately $12,800 on
behalf of D.S. Patel for legal, tax and financial planning
advice pursuant to employment agreement.
(e) Company match in calendar year 1995 and 1994 to the Company's
401(k) Plan on behalf of D.S. Patel, $1,387 and $2,340, on
behalf of Magan H. Patel, $1,382 and $1,004 and on behalf of
Dilip S. Vyas, $1,247 and $873.
<PAGE>
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 1996.
<TABLE>
OPTION GRANTS DURING FISCAL YEAR 1996
Individual Grants
---------------------------------
% of
Total
Options Potential
Number Granted Realizable Value
of to at Assumed Annual
Shares Employees Rates of Stock
Underlying in Price
Options Fiscal Exercise Expiration Appreciation
Name Granted(#) Year Price Date for Option Term(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
--------------------
D.S. Patel 50,000 50% $3.85 06/21/05 $92,557 $261,405
Magan H. Patel 30,000 30% $3.25 08/18/05 $61,317 $155,390
Dilip S. Vyas 20,000 20% $3.25 08/18/05 $40,878 $103,593
</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.
<PAGE>
Year-End Option Table
The following table sets forth certain information regarding the value
of unexercised options held as of April 30, 1996. No options were
exercised in fiscal 1996.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Shares Underlying Value of Unexercised In-The-Money
Unexercised Options at April 30, 1996 Options at April 30, 1996 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D. S. Patel 100,000 50,000 $14,375 $43,125
Magan H. Patel 60,000 30,000 $13,125 $39,375
Dilip S. Vyas 40,000 20,000 $ 8,750 $26,250
</TABLE>
1
Represents the difference between the exercise price of the
outstanding options and the closing price of the Common Stock on
April 30, 1996, which was $5.00 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 an 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. 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
legal, 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.
<PAGE>
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. The Company accrued a contribution of $125,000 to
the ESOP for the fiscal year ended April 30, 1996.
401(k) PLAN
Effective May 1, 1994, the Company adopted the Circuit Systems, Inc.
401(k) Plan ("Plan"), covering substantially all employees. The Plan
is administered by the Board of Directors of the Company and the
trustee is Fidelity Management Trust Company. The Plan is a defined
contribution plan that permits participants to contribute up to 15% of
pretax annual compensation, as defined in the Plan. The Company
contributes 25% of the first 6% of annual compensation that a
participant contributes to the Plan. Additional matching amounts may
be contributed at the discretion of the Company's Board of Directors.
Plan participants are provided eight optional forms of direct
investment under the Plan.. The Company contributed approximately
$80,000 to the Plan for the fiscal year ended April 30, 1996.
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 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 engaged in the printed circuit board industry comprised of
Sheldahl, Inc., Hadco Corporation, Advanced Circuits, Inc., Altron
Incorporated, Parlex Corporation and Sigma Circuits, Inc. The peer
group differs from that used in the prior year, due to the deletion of
Advanced Circuits, Inc., which was delisted during the Company's
current fiscal year, and replaced by Sigma Circuits, Inc. in the 1996
performance comparison.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CIRCUIT SYSTEMS, INC., THE NASDAQ MARKET
INDEX AND A SELECTED PEER GROUP OF COMPANIES
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
ASSUMES
$100 INVESTED
ON MAY 1, 1991
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR
COMPANY 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Circuit Systems, Inc. 100.00 304.76 523.81 485.71 238.10 380.95
Peer Group 100.00 139.10 181.95 315.72 212.74 549.21
NASDAQ Market Index 100.00 102.58 122.56 137.56 150.21 209.67
</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, 1991 in Circuit
Systems, Inc., the companies which comprise the NASDAQ Market Index and
the selected peer group companies.
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 stock market and
financial performance, 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:
o provide a competitive total compensation program that enables
the Company to attract and retain key executives.
o provide variable compensation opportunities that are directly
linked with the performance of the Company and align
executive renumeration with the interests of the
shareholders.
o 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.
<PAGE>
The Committee does not use a quantitative 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.
In addition, the use of an ESOP in lieu of a defined benefit pension
plan 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 key 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. 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 and
appreciation in the Company's stock price.
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. When the
1993 Stock Option Plan was adopted, it was thought that the Plan would
provide an incentive for superior performance by officers and key
employees who have the most impact on the management and success of the
Company's operations. As the Company's stock is thinly traded, thereby
inhibiting substantial appreciation in the stock price, there has not
been much opportunity for executives to benefit from the Plan.
Accordingly, the Committee has decided to review the Plan and propose
modifications, including the granting of options at less than the
common stock's trading price, which will make option awards a more
meaningful part of compensation.
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.
<PAGE>
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, 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. In May, 1995, Mr. Patel voluntarily reduced his
salary by 30% because of difficult business conditions. His salary was
reinstated to prior levels as of January 1, 1996. The Committee has
recommended to the Board that Mr. Patel's salary remain unchanged at
this time.
The Committee is of the opinion that Mr. Patel's salary, although
in excess of the salary of chief executive officers of similar
companies as the Company, is adequate considering the following facts,
among others: Mr Patel works very long hours every week; he travels
away from home at least 25 nights annually, apart from day trips that
often result in 18-hour days; he personally visits a significant number
of the Company's major customers each year; he has developed
substantial stature within the industry and significant relationships
with key customers of the Company; and the Company has grown
substantially under his direction. In addition, Mr. Patel was
instrumental in the highly successful public offering of SigmaTron
International, Inc. The Company's stock investment in SigmaTron, based
upon SigmaTron's current common stock price, is worth approximately
$5,500,000 as of June 30, 1996, while its cost as reflected on the
Company's accounting records is approximately $2,500,000; the Company
has already recovered its initial investment in SigmaTron. D.S. Patel
continues as a Board member of SigmaTron and devotes a portion of his
daily time to SigmaTron matters. There are few executives who can
boast of such a busy schedule and success record. Notwithstanding the
foregoing, the Committee has recommended to the Board that Mr. Patel
seek to hire a chief operating officer to assist him or replace him in
the event of untimely illness and so Mr. Patel can devote more
attention to long-range planning.
Bonus. Mr. Patel received no bonus in 1995 because of reduced
earnings from the 1994 record sales and earnings year. The Company's
sales and earnings increased 9% and 40%, respectively, for the 1996
fiscal year, which in the opinion of the Committee, entitles Mr. Patel
and his management group to a bonus. While Mr. Patel's employment
agreement provides for a discretionary bonus, the Compensation
Committee has adopted objective goals for D.S. Patel and his management
team to attain, including a condition precedent to the award of any
bonus of a minimum growth of 5% and 7% in sales and EBITDA (earnings
before interest, taxes, depreciation and amortization), respectively.
The thresholds were attained this year, so the Committee has determined
that a bonus of 7% of EBITDA, after adding back executive compensation,
would be appropriate for Mr. Patel and his executive officers. The
Committee recommended that Mr. Patel receive $225,000 as a bonus for
fiscal year 1996 and that the remainder be distributed among his
executive officers as he determines in his sole discretion. The
Committee recommended Mr. Patel's bonus (and stock option plan) to
the full board except for Mr. D.S. Patel (who was not present during
the discussions) at the Board's meeting in June, 1996; the recommended
compensation was approved. Mr. D.S. Patel and his executive officers
have subsequently advised the Board that they declined the bonus
for 1996.
<PAGE>
Finally, Mr. Patel requested, and the Committee recommended to the
Board, a $100,000 interest free loan, payable in full by December 31,
1996.
Stock Options. On June 11, 1996, Mr. Patel was awarded an option
to purchase an additional option to purchase 50,000 shares of the
Company's common stock.
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.
The new deduction limitation has no effect on the Company's
ability to deduct payments made (or deemed made for tax purposes) in
fiscal 1996 to the named executive officers listed in the Summary
Compensation Table. The new limitation, however, could affect the
ability of the Company to deduct compensation paid to such officers in
fiscal 1997 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 its independent
certified public accounting firm for the next fiscal year at its Annual
Meeting.
<PAGE>
SHAREHOLDER PROPOSALS
A proper proposal submitted by a shareholder for presentation at
the Company's 1997 Annual Meeting and received by the Company at its
principal executive offices no later than May 1, 1997, will be included
in the Company's Proxy Statement and form of proxy relating to the 1997
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 2, 1996
<PAGE>
