<PAGE>
CIRCUIT SYSTEMS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 19, 1997
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
19, 1997, as stated in the foregoing notice. Solicitations will
be made by mail, and expenses incurred in connection with the
solicitation 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 21, 1997, 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 5,069,273 shares of Common Stock, without par
value, outstanding on June 30, 1997.
It is anticipated that the mailing to shareholders of this Proxy
Statement and the enclosed proxy will commence on or about August
13, 1997.
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.
--PROPOSAL 1--
ELECTION OF DIRECTORS
<PAGE>
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 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>
Name, Position with the Company; First
Present Principal Occupation or Became
Employment and Five-Year Employment History Director Age
--------------------------------------------------- ------- ----
<S> <C> <C>
Richard J. Augustine 1992 54
Director; President, R.J. Augustine & Associates, Ltd.,
Certified Public Accountants, from 1978 to present.
Gary R. Fairhead 1995 45
President; SigmaTron International, Inc. and
predecessor company from 1990 to present.
C. Joseph Incrocci 1995 54
President, Alkco Lighting Company, a division
of J.J.I. Lighting Company from 1984 to present.
D.S. Patel 1987 56
Chairman of the Board of Directors;
President and Chief Executive Officer of
the Company form February, 1987 to present.
Magan H. Patel 1987 51
Director; Executive Vice President and Assistant
Secretary of the Company from February, 1987 to present.
Thomas W. Rieck 1987 52
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 49
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 17% 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 the grant.
Meetings and Committees of the Board of Directors. The Board of
Directors held nine meetings during the fiscal year ended April
30, 1997, 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 1997.
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 1997.
The Company's Compensation Committee, which consists of C. Joseph
Incrocci (Chairman), Thomas W. Rieck, and Richard J. Augustine, 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 1997.
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, did not meet during the fiscal 1997.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended April 30, 1997, SigmaTron purchased raw
materials of approximately $6,895,000. Trade accounts receivable
related to these purchases was approximately $728,000 at April 30,
1997. SigmaTron also leases a portion of the 2201 Landmeier Road
premises in Elk Grove Village, Illinois from the Company at a base
rental of $30,000 per month as of November 1, 1996. The lease
requires SigmaTron to pay real estate taxes, maintenance and
utility expenses. Rental income was approximately $339,000 for
the year ended April 30, 1997. The Company owns approximately 17%
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 1998. During fiscal year ended April 30, 1997, the
Company paid approximately $189,000 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, 1997, 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.
<PAGE>
<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 57,277 28.47%
Elk Grove Village, IL 60007
1,3
Magan H. Patel 2350 E. Lunt Avenue 90,874 5.32%
Elk Grove Village, IL 60007
1,3,5
Dilip S. Vyas 2350 E. Lunt Avenue 8,792 1.62%
Elk Grove Village, IL 60007
6,9
Richard J. Augustine 999 Plaza Drive 15,700 *
Schaumburg, IL 60073
7,8,9
Thomas W. Rieck 55 W. Monroe Street 15,200 *
Chicago, IL 60603
9
C. Joseph Incrocci 11500 West Melrose Avenue 10,000 *
Franklin Park, IL 60131
9,10
Gary R. Fairhead 2201 Landmeier Road 14,000 *
Elk Grove Village, IL 60007
All Executive Officers and Directors 2
as a group (7 persons) 1,991,843 36.42%
</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, shares.
2
As of June 30, 1997, the ESOP Trustee held 233,714 shares,
which represents 4.61% 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 June 30, 1997, as follows: Mr. D.S.
Patel, 175,000 shares; Mr. Magan H. Patel, 105,000 shares; Mr.
Dilip S. Vyas, 70,000 shares; and all executive officers as a
group, 350,000 shares.
4
Includes 200,000 shares held by Mr. Patel's spouse. Mr.
Patel has sole voting and investment power over these shares.
5
Does not include 140,348 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.
6
Includes 500 shares held in retirement account.
7
Includes 200 shares held in trust for a family member.
8
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.
9
Includes 5,000 shares subject to options granted to Directors
in office in September 1994, 1995, and 1996 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.
10
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 1997. All of these filing requirements were
satisfied by the Company's Directors, Executive Officers and 10%
holders during fiscal year 1997.
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.
SUMMARY COMPENSATION TABLE
<TABLE>
- ----------------------------------------------------------------------------
| | FISCAL | | | |
| | YEAR | ANNUAL | LONG-TERM | |
| NAME AND | ENDED | COMPENSATION | COMPENSATION | ALL OTHER |
| TITLE |APRIL 30| | | COMPENSATION |
| | |----------------|--------------------| 2 |
| | | SALARY | BONUS | AWARDS | PAYOUTS | |
| | | | 1 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | |SECURITIES|LONG-TERM| |
| | | | |UNDERLYING|INCENTIVE| |
| | | | | OPTIONS |PLAN PAY | |
| | | | | (#) | OUTS($) | |
| | | | | | | |
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
D.S. Patel, 1997 $520,000 $ 5,000 50,000 -0- $82,722
President 1996 $414,000 $17,500 50,000 -0- $61,892
and Chief 1995 $520,000 $ -0- 50,000 -0- $84,858
Executive Officer
- ------------------------------------------------------------------------------
Magan H. 1997 $132,680 $ 1,300 30,000 -0- $28,772
Patel, 1996 $103,200 $ 4,500 30,000 -0- $26,487
Executive 1995 $124,800 $24,000 30,000 -0- $30,591
Vice President
and Assistant Secretary
- ------------------------------------------------------------------------------
Dilip S. 1997 $117,080 $ 1,150 20,000 -0- $11,442
Vyas, 1996 $ 93,660 $ 4,200 20,000 -0- $14,250
Vice 1995 $109,200 $21,000 20,000 -0- $17,558
President-Business Development
- ------------------------------------------------------------------------------
</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
The amounts disclosed in this column include:
(a) Company contributions
of the following amounts in calendar year 1996(estimated),
1995 and 1994 under the Company's Employee Stock Ownership
Plan, on behalf of Mr. D.S. Patel, $542, $1,505, and $2,591;
Mr. Magan H. Patel, $398, $1,105, and $2,591; and Mr. Dilip
S. Vyas, $363, $1,003 and $2,308.
(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 1997, 1996 and 1995 of
$7,000, $12,000 and $10,000, respectively in Directors fees.
(d) Payment by the Company in fiscal 1997 of approximately
$17,800 on behalf of D.S. Patel for legal, tax and financial
planning advice pursuant to employment agreement.
(e) Company match in calendar year 1996, 1995 and 1994 to the
Company's 401(k) Plan on behalf of D.S. Patel $1,634, $1,387
and $2,340, on behalf of Magan H. Patel, $1,440, $1,382 and
$1,004 and on behalf of Dilip S. Vyas, $1,265, $1,247 and
$873.
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 1997.
<TABLE>
OPTION GRANTS DURING FISCAL YEAR 1997
Individual Grants
----------------------------
% of
Total Potential
Number of Options of Realizable Value
Shares Granted to at Assumed Annual
Underlying Employees Rates of Stock
Options Fiscal Exercise Expiration Price Appreciation
Name Granted(#)(1) Year Price Date for Option Term(2)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
-------------------
D.S. Patel 50,000 50% $7.0125 06/11/06 $168,585 $476,130
Magan H. Patel 30,000 30% $6.375 06/10/06 $120,276 $304,803
Dilip S. Vyas 20,000 20% $6.375 06/10/06 $ 80,184 $203,202
</TABLE>
<PAGE>
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, 1997. No options
were exercised in fiscal 1997.
<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, 1997 Options at April 30, 1997 (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
D.S. Patel 150,000 50,000 $43,125 $14,375
Magan H. Patel 90,000 30,000 $39,375 $13,125
Dilip S. Vyas 60,000 20,000 $26,250 $ 8,750
</TABLE>
1
Represents the difference between the exercise price of the
outstanding options and the closing price of the Common Stock on
April 30, 1997, 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.
<PAGE>
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 the Company and to distribute retirement benefits (or
benefits in the 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. The Company made no
contribution to the ESOP for the fiscal year ended April 30, 1997.
At the Board of Directors meeting held June 24, 1997, the Board
resolved to terminate the ESOP and distribute all the benefits to
the participants.
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 $78,000 to the Plan for the fiscal year ended April
30, 1997.
<PAGE>
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, Altron Incorporated, M-Wave, Inc., Parlex Corporation
and Sigma Circuits, Inc. The peer group differs from that used in
the prior year, due to the addition of M-Wave, Inc., because of
similar geographic and market capitalization factors in the 1997
performance comparison.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG CIRCUIT SYSTEMS, INC., THE NASDAQ MARKET
INDEX AND A SELECTED PEER GROUP OF COMPANIES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
ASSUMES $100 INVESTED
ON MAY 1, 1992
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR
COMPANY 1992 1993 1994 1995 1996 1997
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Circuit Systems, Inc. 100.00 171.88 159.38 78.13 125.00 125.00
Peer Group 100.00 118.48 151.96 242.31 452.63 414.55
NASDAQ Market Index 100.00 119.48 134.11 146.43 217.88 204.40
</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, 1992 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.
<PAGE>
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:
* 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 remuneration 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 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. 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 determines the compensation of such executive
officers and the CEO after review, modification where appropriate,
and approval by the Committee.
<PAGE>
Bonus. Bonus payments for the Company's executive officers are
discretionary (except for the standard Company-wide bonus) 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. 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 business.
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 and as a member of the Board of
Directors of SigmaTron. Mr. Patel's salary and bonus are paid in
accordance with his employment agreement which is described on
page 8.
During the past year the Company initiated a physical
reorganization to build capacity which would strategically
position the Company for the future. The Company was impacted by
a failed merger attempt and a downturn in the Company's business
and continuous operational issues. The Company has now completed
the acquisition of the pcb operation of Philips Consumer
Electronics Company. This acquisition will significantly add to
the single-sided board offering of the Company. The Philips
"state of the art" facility will allow the Company to be price
competitive on a global basis. This acquisition, along with the
pressures of a more competitive market, require the Company build
its executive resources and talent. In that regard, Mr. D. S.
Patel has requested the Board of Directors of the Company
undertake a search for talented executives to build the Company's
management team, especially those persons experienced with the
management of a multi-division corporation. Mr. Patel believes
the Philips acquisition and the addition of two talented
executives will position the Company to participate in the current
market consolidation and the "one-stop shopping" structure of the
supply base. Because of the operating results of the past year,
Mr. Patel was not awarded a bonus, except for the standard
Company-wide bonus. Further, in anticipation of expanding the
management team, the Committee will study and propose a new
compensation plan to more closely tie executive compensation to
increases in shareholders wealth, including salary, stock options
and any other form of compensation. The Committee recommends that
Mr. Patel's employment contract be extended for an additional year
(until April 30, 1998). Accordingly, the Committee recommends to
the Board that there be no change in executive compensation and no
award of stock options until such time that the Committee has
completed its compensation study. The entire Board discussed the
Committee's report, which was approved.
<PAGE>
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 purpose)
in fiscal 1997 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 1998 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 Compensation 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.
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SHAREHOLDER PROPOSALS
A proper proposal submitted by a shareholder for presentation at
the Company's 1998 Annual Meeting and received by the Company at
its principal executive offices no later than May 1, 1998, will be
included in the Company's Proxy Statement and form of proxy
relating to the 1998 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 this 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,
/s/ D.S. Patel
-----------------------------------
D.S. Patel, President and Chief
Executive Officer
Elk Grove Village, Illinois
August 8, 1997
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