UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[X] Preliminary Proxy Statement.
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RULE 14a-6(e)(2)).
[ ] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Sigmatron International, Inc.
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(Name of Registrant as Specified In Its Charter)
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CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
SIGMATRON INTERNATIONAL, INC.
2201 LANDMEIER ROAD
ELK GROVE VILLAGE, IL 60007
August 16, 2004
Notice of Annual Stockholders Meeting:
You are hereby notified that the 2004 Annual Meeting of Stockholders of
SigmaTron International, Inc. (the "Company") will be held at the Holiday Inn
located at 1000 Busse Road, Elk Grove Village, Illinois at 10:00 a.m. local
time, on Friday, September 17, 2004, for the following purposes:
1. To elect two Class II directors to hold office until the 2007 Annual
Meeting.
2. To consider a proposal to ratify the selection of Grant Thornton LLP
as independent auditors of the Company for the fiscal year ending
April 30, 2005.
3. To consider and act upon a proposal to approve the adoption of the
SigmaTron International, Inc. 2004 Employee Stock Option Plan.
4. To consider and act upon a proposal to approve the adoption of the
SigmaTron International, Inc. 2004 Directors' Stock Option Plan.
5. Proposal to Amend the Certificate of Incorporation to increase the
Number of Authorized Shares of Common Stock of the Company.
6. To transact such other business as may properly come before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on July 28, 2004 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Meeting and/or adjournments thereof.
You are urged to attend the Meeting in person. Whether or not you expect to
be present in person at the Meeting, please mark, date, sign and return the
enclosed proxy in the envelope provided.
By Order of the Board of Directors
LINDA K. BLAKE
Secretary
SIGMATRON INTERNATIONAL, INC.
2201 LANDMEIER ROAD
ELK GROVE VILLAGE, IL 60007
2004 ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 17, 2004
PROXY STATEMENT
GENERAL
This Proxy Statement and the accompanying proxy are furnished to
stockholders of SigmaTron International, Inc. (the "Company") in connection with
the solicitation of proxies by the Company's Board of Directors for use at the
2004 Annual Meeting of Stockholders (the "Meeting") to be held at the Holiday
Inn located at 1000 Busse Road, Elk Grove Village, Illinois, at 10:00 a.m. local
time, on Friday, September 17, 2004, for the purposes set forth in the
accompanying Notice of Meeting. The Proxy Statement, the form of proxy included
herewith and the Company's Annual Report to Stockholders for the fiscal year
ended April 30, 2004 are being mailed to stockholders on or about August 16,
2004.
Stockholders of record at the close of business on July 28, 2004 are
entitled to notice of and to vote at the Meeting. On such date there were
outstanding 3,750,954 shares of Common Stock, par value $.01 per share (the
"Common Stock"). The presence, in person or by proxy, of the holders of a
majority of the shares of Common Stock outstanding and entitled to vote at the
Meeting is necessary to constitute a quorum. In deciding all questions, each
holder of Common Stock shall be entitled to one vote, in person or by proxy, for
each share held on the record date.
Votes cast by proxy or in person at the Meeting will be tabulated by the
election inspector appointed for the Meeting and will determine whether or not a
quorum is present. The election inspector will treat abstentions as shares that
are present and entitled to vote but as not voted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. Abstentions
will have the same effect as negative votes. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter ("Broker Non-Votes"), those shares will not be considered as
present and entitled to vote with respect to that matter.
Properly executed proxies will be voted in the manner directed by the
stockholders. If no direction is made, such proxies will be voted FOR the
election of all nominees named under the caption "Election of Directors" as set
forth therein as directors of the Company, FOR the ratification of the selection
of Grant Thornton LLP as the Company's Independent Auditors, FOR the adoption of
the 2004 Employee Stock Option Plan, FOR the adoption of the 2004 Directors'
Stock Option Plan and FOR the approval of the proposal to amend the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 12,000,000. The ratification of the selection of auditors and
the approval of each of the stock option plans requires an affirmative vote by
holders of a majority of the shares present at the Meeting in person or by proxy
and entitled to vote. The approval of the amendment to the Certificate of
Incorporation to increase the number of authorized shares of Common Stock
requires the affirmative vote of a majority of the outstanding shares of the
Company's Common Stock. On this proposal, Broker Non-Votes will have the same
effect as negative votes. Any proxy may be revoked by the stockholder at any
time prior to the voting thereof by notice in writing to the Secretary of the
Company, either prior to the Meeting (at the above address) or at the Meeting if
the stockholder attends in person. A later dated proxy will revoke a prior dated
proxy.
As of the date of this Proxy Statement, the Board of Directors knows of no
other business which will be presented for consideration at the Meeting. If
other proper matters are presented at the Meeting, however, it is the intention
of the proxy holders named in the enclosed form of proxy to take such actions as
shall be in accordance with their best judgment.
The information contained in this Proxy Statement relating to the
occupations and security holdings of directors and officers of the Company and
their transactions with the Company is based upon information received from each
individual as of July 9, 2004.
HOLDINGS OF STOCKHOLDERS, DIRECTORS
AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of July 9, 2004 by (i) each director of the
Company, (ii) each executive officer of the Company, (iii) each person
(including any "group" as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934) who is known by the Company to own beneficially more than 5% of the
outstanding Common Stock, and (iv) all directors and executive officers as a
group. The address of directors and executive officers is c/o SigmaTron
International, Inc., 2201 Landmeier Road, Elk Grove Village, Illinois 60007.
BENEFICIAL OWNERSHIP
NUMBER OF
NAME SHARES(1) PERCENT
---- --------- -------
BENEFICIAL OWNERS OF 5%
Cyrus Tang Revocable Trust (2).............................. 397,063 10.6%
3773 Howard Hughes Pkwy., Ste. 350N
Las Vegas, NV 89109
Tang Foundation for the Research of Traditional Chinese
Medicine (2).............................................. 252,099 6.7%
3773 Howard Hughes Pkwy., Ste. 350N
Las Vegas, NV 89109
Fidelity Low-Price Stock Fund (5)........................... 254,100 6.8%
82 Devonshire St. Boston, MA 02109
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Gary R. Fairhead (3)........................................ 78,203 2.1%
Gregory A. Fairhead (3)..................................... 40,807 1.1%
John P. Sheehan (3)......................................... 26,566 *
Linda K. Blake (3).......................................... 12,428 *
Daniel P. Camp (3).......................................... 17,833 *
John P. Chen................................................ 200 *
Thomas W. Rieck (6) (8)..................................... 4,099 *
Franklin D. Sove (4)........................................ 1,000 *
Carl A. Zemenick............................................ 0 *
William L. McClelland....................................... 0 *
Dilip S. Vyas............................................... 0 *
All directors and executive officers as a group(11)......... 181,136 4.7%
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* Less than 1 percent.
(1) Unless otherwise indicated in the footnotes to this table, the Company
believes the persons named in this table have sole voting and investment
power with respect to all shares of Common Stock reflected in this table. As
of July 20, 2004, 3,750,954 shares were outstanding, not including certain
options held by various directors and officers as noted in subsequent
footnotes.
(2) The sole beneficiary and trustee of Cyrus Tang Revocable Trust dated March
17, 1997 (the "Trust") is Cyrus Tang. Tang Foundation for the Research of
Traditional Chinese Medicine is a not-for-profit foundation. This entity, as
well as the Trust, whose combined ownership represents in excess of 17% of
the outstanding Common Stock, is controlled by Cyrus Tang.
(3) The number of shares includes 28,203, 29,150, 26,565, 12,028 and 17,833
shares issuable upon the exercise of stock options granted to Gary R.
Fairhead, Gregory A. Fairhead, John P. Sheehan, Linda K. Blake and Daniel P.
Camp, respectively. Said options are deemed exercised solely for purposes of
showing total shares owned by such employees.
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(4) Franklin D. Sove is a former Vice President of Tang Industries, Inc.
(5) Number of shares owned by Fidelity Low-Price Stock Fund at December 31, 2003
as reported by FMR Corp. on Amended Scheduled 13G on February 16, 2004.
(6) Includes 4,099 shares issuable upon the exercise of director stock options
granted in December 2001. Said options are deemed exercised solely for
purposes of showing total shares owned by such non-employee directors.
(7) For purposes of calculating the total number of shares for all directors and
executive officers as a group consists of 63,258 of shares and 117,878 of
options are deemed exercised.
(8) In addition to the number of shares set forth on the Beneficial Ownership
table, Mr. Rieck is also one of three trustees of Rieck and Crotty, P.C.'s
profit sharing plan, which owns 7,000 shares of the Company's Common Stock
as of July 9, 2004. Mr. Rieck abstains from all voting and investment
decisions with respects to such shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is required to report to stockholders those directors, officers
and beneficial owners of more than 10% of any class of the Company's equity
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), who fail to file timely reports of
beneficial ownership and changes in beneficial ownership, as required by Section
16(a) of the Exchange Act. Upon a review of such reports, the Company believes
that all reports were filed on a timely basis during the fiscal year ended April
30, 2004.
I. ELECTION OF DIRECTORS
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is divided into three classes of directors serving three-year terms.
The terms of Class I directors (Messrs. Rieck and McClelland) expire in 2006;
the terms of Class II directors (Messrs. Chen and Zemenick) expire in 2004; and
the terms of Class III directors (Messrs. Gary Fairhead, Sove and Vyas) expire
in 2005. All directors of each class will hold their positions until the annual
meeting of stockholders at which time the terms of the directors in such class
expire, or until their respective successors are elected and qualify.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS AT THE MEETING
Two Class II directors are to be elected by a plurality of the stockholder
votes cast at the Meeting, to serve until the 2007 Annual Meeting of
Stockholders or until their successors shall be elected and shall qualify. The
following persons have been nominated:
DIRECTOR OF
PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS COMPANY
NAME AGE AND OTHER PUBLIC DIRECTORSHIPS SINCE
---- --- ---------------------------------------------- -----------
John P. Chen......................... 50 Chief Financial Officer since 1994 of National 1994
Class II Material L.P., a steel processing, stamping and
distribution company.
Carl A. Zemenick..................... 59 President and CEO since June 1990 of GF Office 2001
Class II Furniture, Ltd. LP, a furniture manufacturer.
The Board of Directors knows of no reason why any of the foregoing nominees
will be unavailable to serve, but, in the event of any such unavailability, the
proxies received will be voted for such substitute
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nominees as the Board of Directors may recommend. THE ENCLOSED PROXY CANNOT BE
VOTED FOR A GREATER NUMBER OF PERSONS THAN TWO, THE NUMBER OF NOMINEES NAMED IN
THIS PROXY STATEMENT.
DIRECTOR WHOSE TERMS EXTEND BEYOND THE MEETING DIRECTOR OF
PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS COMPANY
NAME AGE AND OTHER PUBLIC DIRECTORSHIPS SINCE
---- --- ---------------------------------------------- -----------
Thomas W. Rieck...................... 59 Attorney and President of Rieck and Crotty, 1994
Class I P.C. Mr. Rieck was an executive officer of
Circuit Systems, Inc. (CSI). CSI filed a
petition for relief under Chapter II of the
Bankruptcy Code in September 2000 and ceased to
exist in 2003.
William L. McClelland................ 75 Partner from 1977 to 2001 and has subsequently 2001
Class I retired from Tower Extrusion LTD, which is an
aluminum extrusion, finishing and remelt
company.
Gary R. Fairhead..................... 52 President and Chief Executive Officer. Gary R. 1994
Class III Fairhead has been President of the Company,
since 1990. The Company provides electronic
manufacturing services. Gary R. Fairhead and
Gregory A. Fairhead, the Executive Vice
President and Assistant Secretary of the
Company, are brothers.
Franklin D. Sove..................... 70 Mr. Sove was Vice President from September 1998 1994
Class III through December 2002 and subsequently retired
in 2002 from Tang Industries, Inc., a privately
held company that manufactures and distributes
industrial products.
Dilip S. Vyas........................ 56 President since June 2004 of Wave Zero 1994
Class III Manufacturing LLC, a manufacturer of shielding
devices for components used in the electronic
industry. Mr. Vyas was self-employed from
September 1998 to June 2004 and was a Director
and Vice President of CSI until September 1998.
II. PROPOSAL TO RATIFY SELECTION OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors will recommend at the Meeting that the stockholders
ratify the appointment of the firm of Grant Thornton LLP to audit the accounts
of the Company for the current fiscal year. Representatives of that firm are
expected to be present at the Meeting with the opportunity to make a statement
if they desire to do so and are expected to be available to respond to
appropriate questions. Grant Thornton LLP was recommended by the Audit Committee
and the Board of Directors for the fiscal year 2005.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF RATIFICATION OF THE
SELECTION OF GRANT THORNTON LLP.
FISCAL 2003 AND 2004 AUDIT FIRM FEE SUMMARY
During fiscal years 2003 and 2004, the Company retained its auditor, Grant
Thornton LLP, to provide services in the following categories and amounts:
2003 2004
------- --------
Audit Fees (a)........................................... $73,542 $142,243
Audit-Related Fees (b)................................... 42,410 31,178
Tax Fees (c)............................................. 73,446 91,675
All Other Fees (d)....................................... 6,316 10,038
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(a) Fees for audit services billed in 2003 and 2004 consisted of:
- Audit of the Company's annual financial statements
- Reviews of the Company's quarterly financial statements
- Statutory and regulatory audits, consents and other services related
to Securities and Exchange Commission matters
(b) Fees for audit-related services consisted primarily of services for
Employee 401(k) Retirement Plan, consolidation issues and the startup
of a wholly owned foreign enterprise.
(c) Fees for tax services billed in 2003 and 2004 consisted of tax
compliance and tax planning and advice:
Fees for tax compliance services totaled $73,446 and $91,675 in 2003
and 2004, respectively. Tax compliance services consisted of:
- Federal, state and local income tax return preparation
- Assistance with tax return filings and compliance in certain foreign
jurisdictions
- Assistance with tax audits and amended tax returns
(d) All other fees are general out of pocket expenses for administrative
costs.
As described in Audit Committee Charter, it is the Audit Committee's policy
and procedure to review and consider and ultimately pre-approve, where
appropriate, all audit and non-audit engagement services to be performed by the
independent auditors. The Audit Committee's pre-approval policy is included in
the Audit Committee Charter which has been attached as Appendix A here to.
III. APPROVAL OF 2004 EMPLOYEE STOCK OPTION PLAN
On July 8, 2004, the Board of Directors of the Company adopted, subject to
stockholder approval, the SigmaTron International, Inc. 2004 Employee Stock
Option Plan (the "2004 Employee Plan"). The purpose of the 2004 Employee Plan is
to permit the Company and its subsidiaries to attract and retain employees as
individuals of initiative and ability and to provide additional employee
incentives. If the 2004 Employee Plan is not approved by stockholders, options
will be granted under the 1993 Employee Stock Option Plan to the extent options
are available.
On July 28, 2004 the last reported sale price of the Company's Common Stock
on the Nasdaq Small-Cap Market, on which the Company's stock is listed, was
$9.10 per share.
SUMMARY OF 2004 EMPLOYEE PLAN
The 2004 Employee Plan will be construed, interpreted and administered by
the Compensation Committee ("the Committee"). The Committee has the discretion
to determine the individuals to whom options are granted, the number of shares
subject to the options, the exercise price of the options (but in no event less
than the minimum required in order to comply with applicable law), the period
over which the options become exercisable, the term of the options (including
the period after termination of employment during which an option may be
exercised) and certain other provisions related to the options. Individuals who
are selected to receive options will sign an option agreement with the Company
setting forth the terms and restrictions applicable to their options.
Under the 2004 Employee Plan, the Committee may grant options for an
aggregate maximum of 240,000 shares of the Company's Common Stock to employees
of the Company and its subsidiaries. The number of shares available for grant
options under the Plan and the number of shares included in each outstanding
option are subject to adjustment upon recapitalizations, stock splits or other
similar events that cause changes in the Company's Common Stock. The Company
must retain sufficient authorized but unissued shares of Common Stock to assure
itself of its ability to perform its obligations under the 2004
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Employee Plan. Shares of Common Stock underlying options that expire unexercised
will be available for future option grants under the Plan.
The plan provides for the grant of incentive stock options ("Incentive
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-statutory stock options that do not
qualify as Incentive Options.
The option exercise price per share for each option granted under the 2004
Employee Plan shall be not less than the closing price of the Common Stock on
the Nasdaq Small-Cap Market on the trading day immediately preceding the date of
grant. An option may be exercised by the payment of the exercise price (i) in
cash or by check, (ii) through the exchange of shares of Common Stock already
owned by the optionee having a fair market value equal to the exercise price,
(iii) through a broker-assisted "cashless" exercise transaction or (iv) by any
other payment means approved by the Committee.
The maximum term of options granted under the 2004 Employee Plan is ten
years. Subject to that limitation, the Committee has discretion to decide the
period over which options may be vested and exercised. In addition, unvested
options will terminate immediately upon termination of employment, disability or
death. All outstanding options granted under the 2004 Employee Plan shall
immediately become exercisable in full upon a Corporate Transaction (as defined
in the Plan and generally covering a sale of the Company) provided that the
Corporate Transaction closes. Any options not exercised within that period
expire.
An optionee may exercise a Non-Statutory Option that has vested if the
optionee has been employed by the Company continuously since the date the option
was granted. If an optionee's employment is terminated for cause (as defined in
the 2004 Employee Plan), the optionee has three months (or the remainder of the
original term of the exercise period, whichever is shorter) to exercise any
Non-Statutory Options vested as of the date of termination; all unvested
Non-Statutory Options expire. If an optionee's employment is terminated for a
reason other than for cause, including voluntary termination, death or
disability, all unvested Non-Statutory Options expire while all vested
Non-Statutory Options may be exercised for the remainder of their terms. The
same provisions apply to Incentive Options except that an optionee whose
employment is terminated must exercise vested Incentive Options within three
months after the date of termination or the expiration of the original exercise
period, whichever is shorter.
Except as otherwise provided in the applicable option agreement, all
options granted under the 2004 Employee Plan shall not be transferable unless
(a) the transfer is (i) by will or the laws of descent and distribution, (ii)
pursuant to a qualified domestic relations order, (iii) to a Permitted
Transferee, (as defined in the 2004 Employee Plan), or (iv) to a trust or other
entity controlled by the optionee or a Family Member (as defined in the 2004
Employee Plan; generally family members or trusts or other entities controlled
by the optionee or a family member); (b) the transfer is a gift; and (c) the
option continues to be subject to the same terms as before the transfer.
The Committee is authorized to condition the grant of options upon the
receipt of the agreement by the optionee not to compete with the Company during
the term of employment and for such period thereafter and containing such other
terms as are determined by the Committee.
No options have been granted under the 2004 Employee Plan.
INCOME TAX CONSEQUENCES
Generally, for federal income tax purposes, Non-Statutory Options will not
result in any taxable income to the optionee at the time of grant. The optionee
will realize ordinary income, however, at the time of the exercise of the
option, in an amount measured by the excess of the fair market value of the
optioned shares at the time of exercise over the option exercise price,
regardless of whether the exercise price is paid in cash or shares.
Where ordinary income is recognized in connection with the exercise of an
option, the Company will be entitled to a deduction in the amount of ordinary
income so recognized, provided, among other things, that the Company complies
with applicable tax withholding requirements.
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No income is recognized for federal income tax purposes when an Incentive
Option is exercised and no deduction is available to the Company. Incentive
Options will be taxed as Non-Statutory Options if shares of Common Stock
purchased upon exercise of the Incentive Option are sold within one year after
the exercise or two years after the date the Incentive Option is granted.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE 2004 EMPLOYEE PLAN.
IV. APPROVAL OF 2004 DIRECTORS' STOCK OPTION PLAN
On July 8, 2004 the Board of Directors of the Company adopted, subject to
stockholder approval, the SigmaTron International, Inc. 2004 Directors' Stock
Option Plan (the "2004 Directors' Plan"). The purpose of the 2004 Directors'
Plan is to advance the interests of the Company by affording directors who are
not employees of the Company the opportunity to acquire equity interests or
increase their equity interests in the Company, as well as to encourage them to
continue service as Directors of the Company. All options that are available to
be granted under the 2000, 1997 and 1994 Directors' Stock Option Plans have been
granted. If the 2004 Directors' Plan is not approved by the stockholders, there
will not be any options available to grant to the Company's directors.
On July 28, 2004 the last reported sale price of the Company's Common Stock
on the Nasdaq Small-Cap Market, on which the Company's stock is listed, was
$9.10 per share.
SUMMARY OF 2004 DIRECTORS' PLAN
Under the 2004 Directors' Plan, the Committee will grant options for an
aggregate maximum of 60,000 shares of the Company's Common Stock to Directors of
the Company. Each non-employee director of the Company in office at the annual
meetings of stockholders held in the years 2004 and 2005 will automatically be
granted options to acquire 5,000 shares of Common Stock. The options will be
fully vested when granted. The number of shares available for grant of options
and the number of shares included in each outstanding option are subject to
adjustment upon recapitalizations, stock splits or other similar events that
cause changes in the Company's Common Stock. The Company must retain sufficient
authorized but unissued shares of Common Stock to assure itself of its ability
to perform its obligations under the 2004 Directors' Plan. Shares of Common
Stock underlying options that expire unexercised will be available for future
option grants under the 2004 Directors' Plan.
The option exercise price per share for each option granted under the 2004
Directors' Plan shall be equal to the closing price of the Common Stock on the
Nasdaq Small-Cap Market on the date of grant. An option may be exercised by the
payment of the exercise price (i) in cash or by check, (ii) through the exchange
of shares of Common Stock already owned by the optionee having a fair market
value equal to the exercise price, (iii) through a broker-assisted "cashless"
exercise transaction or (iv) by any other payment means approved by the
Committee.
The exercise period for options granted under the 2004 Directors' Plan is
ten years. Options shall continue to be exercisable pursuant to their terms
notwithstanding the death, disability or retirement of the optionee; provided,
however, that if an optionee's directorship is terminated for one of the reasons
set forth in the 2004 Directors' Plan (similar to termination for cause), the
optionee must exercise the options within three months after the date of
termination or within the original exercise period, whichever is shorter. Also,
all options must be exercised in full within thirty days before the closing of a
Corporate Transaction (as defined in the 2004 Directors' Plan and generally
covering a sale of the Company); any options not exercised within that period
expire.
Options granted under the 2004 Directors' Plan shall not be transferable
unless (a) the transfer is (i) by will or the laws of descent and distribution,
(ii) pursuant to a qualified domestic relations order, (iii) to a Permitted
Transferee, (as defined in the 2000 Directors' Plan), or (iv) to a trust or
other entity controlled by the optionee or a Family Member (as defined in the
2004 Directors' Plan; generally family members or trusts
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or other entities controlled by the optionee or a family member); (b) the
transfer is a gift; and (c) the option continues to be subject to the same terms
as before the transfer.
Had the 2004 Directors' Plan been in effect during the Company's last
fiscal year, then, on the date of last year's annual meeting of stockholders,
which was September 19, 2003, each of the Company's six non-employee directors
(Messrs. Chen, McClelland, Rieck, Sove, Vyas and Zemenick) would have received
an option to purchase 5,000 shares of Common Stock at an exercise price of
$23.10 per share.
INCOME TAX CONSEQUENCES
Options granted under the 2004 Directors' Plan will be non-statutory
options not entitled to special tax treatment under Section 422 of the Code. The
discussion of the tax treatment of the Non-Statutory Options in the section
entitled "Approval of 2004 Employee Stock Option Plan" applies to options
granted under the 2004 Directors' Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ADOPTION OF THE 2004 DIRECTORS' PLAN.
V. INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
INCREASE IN AUTHORIZED COMMON STOCK
Currently, the Company's authorized capital stock under its Certificate of
Incorporation is 6,000,000 shares of Common Stock and 500,000 shares of
preferred stock. As of July 20, 2004, of the 6,000,000 shares of the Company's
Common Stock presently authorized, 3,750,954 shares were issued and outstanding,
and 328,772 share were reserved for issuance to certain members of management
and outside non-management directors under the Company's existing stock option
plans. As a result, there are now only 1,920,274 authorized shares of the
Company's Common Stock that are not reserved and that may be issued for any
future business purposes by the Company as approved by the Company's Board of
Directors.
The Board of Directors recommends that the stockholders vote FOR the
proposal to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock to 12,000,000 for the reasons more
fully set forth below.
No change is being sought in the number of authorized shares of preferred
stock. The Company will continue to have 500,000 authorized shares of preferred
stock, none of which are issued as this time.
REASONS FOR AND EFFECTS OF THE PROPOSAL
The Board of Directors has approved for submission to the Company's
stockholders, and recommends that the Company's stockholders approve, an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 6,000,000 to 12,000,000.
The Company anticipates that it will require in the future a greater number
of authorized shares of Common Stock than is currently available under its
Certificate of Incorporation. The Company's management regularly reviews a range
of possible financing transactions, including the issuance of the Company's
Common Stock.
The availability of additional authorized shares will enable the Company's
Board of Directors to act with flexibility when and as the need arises to issue
additional shares in the future without the delays necessitated by having to
obtain a stockholder vote and to take advantage of changing market and financial
conditions in a more timely manner. Among the reasons for issuing additional
shares would be to employees and directors pursuant to any option, stock
ownership or other benefit plans or employment agreements, in public or private
offerings as a means of obtaining additional capital for the Company's business,
as part or all of the consideration required to be paid for the acquisition of
ongoing businesses or other assets, and to satisfy any current or future
financial obligations of the Company.
8
The Company's Board of Directors has not proposed the increase in the
amount of authorized shares with the intention of discouraging tender offers or
takeover attempts of the Company. However, the availability of additional
authorized shares for issuance could render more difficult or discourage a
merger, tender offer, proxy contest or other attempt to obtain control of the
Company, which may adversely affect the ability of the Company's stockholders to
obtain a premium for their shares of the Company's Common Stock.
The proposed increase in the number of authorized shares of Common Stock
will not change the number of shares of Common Stock outstanding or the rights
of the holders of such stock. Other than for the possibility of issuing new
shares of Common Stock upon the exercise of outstanding stock options, the
Company does not have any immediate plans, arrangements, commitments or
understandings with respect to the issuance of any of the additional shares of
Common Stock that would be authorized by the proposed amendment to the
Certificate of Incorporation. However, the Company may issue shares of Common
Stock in purchasing the interests of the limited partners of SMT Unlimited, L.P.
If such a transaction were to occur, the number of shares involved would not
exceed the current number of authorized shares and the additional shares to be
authorized by this proposal will not be utilized for such a transaction. Any
issuance of additional shares of Common Stock could reduce the current
stockholders' proportionate interests in the Company, depending on the number of
shares issued and the purpose, terms and conditions of the issuance or
experience a temporary increase in market price that could result from such an
attempt. Also, the issuance of stock to persons supportive of the Board of
Directors could make it more difficult to remove incumbent management and
directors from office. Although the Board of Directors intends to issue Common
Stock only when it considers such issuance to be in the best interest of the
Company, the issuance of additional shares of Common Stock may have, among
others, a dilutive effect on earnings per share of Common Stock and on the
equity and voting rights of holders of shares of Common Stock. The Board of
Directors believes, however, that the benefits of providing the flexibility to
issue shares without delay for any business purpose outweigh any such possible
disadvantages.
Ownership of shares of Common Stock entitles each stockholder to one vote
per share of Common Stock. Holders of shares of Common Stock do not have
preemptive rights to subscribe to additional securities that may be issued by
the Company, which means that current stockholders do not have a prior right to
purchase any new issue of capital stock of the Company in order to maintain
their proportionate ownership. Stockholders wishing to maintain their interest,
however, may be able to do so through normal market purchases.
APPRAISAL RIGHTS
Under Delaware law and the Company's Certificate of Incorporation, no
appraisal rights are available to dissenting stockholders with regard to the
corporate action contemplated by the above Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 12,000,000.
CORPORATE GOVERNANCE
Our Board of Directors determined that each of Messrs. Chen, McClelland,
Rieck, Sove and Zemenick are independent under the rules of the Nasdaq Small-Cap
Market. Messrs Gary Fairhead, and Vyas are not independent under those rules. As
a result, our Board currently has a majority of independent directors under the
rules of the Nasdaq Small-Cap Market. In addition, our Board of Directors has
determined that our independent directors will have regularly scheduled meetings
at which only the independent directors are present. Our Board of Directors has
also established an Audit Committee, Compensation Committee and a Nominating
Committee and adopted charters for each of these committees. We believe that the
composition of these committees meets the criteria for independence under, and
the functioning of these committees complies with, the applicable requirements
of, the Sarbanes-Oxley Act of 2002, the current rules of the Nasdaq Small-Cap
Market and Securities and the Exchange Commission rules and regulations.
9
DIRECTOR COMMITTEES; BOARD MEETINGS
The Board of Directors has established an Audit Committee, a Compensation
Committee and a Nominating Committee.
The functions of the Audit Committee include: (1) selection, evaluation,
and where appropriate, replacement of the independent accountants; (2)
pre-approval of audit and permitted non-audit services to be performed by the
independent accountants; (3) review of the scope of the audit; (4) reviewing,
with the independent accountants, the corporate accounting practices and
policies and recommending to whom reports should be submitted within the
Company; (5) reviewing the final report of the independent accountants; (6)
reviewing accounting controls; and (7) being available to the independent
accountants and management for consultation purposes. The Audit Committee is
comprised of three members: Messrs. Rieck, Sove (Chairman) and Vyas. On July 8,
2004 Mr. Chen resigned from the Audit Committee and Mr. Vyas joined the Audit
Committee. The Board of Directors has determined that each of the members is
independent as defined by the Rules of the Securities and Exchange Commission.
The Board also determined that Messrs. Rieck and Sove are independent and Mr.
Vyas is not independent under the Nasdaq listing standards based upon Mr. Vyas'
role as a manager of SMD International L.L.C., which sold real estate to the
Company in November, 2003. The Board of Directors has further determined that
membership of Mr. Vyas on the Audit Committee is in the best interest of the
Company and its stockholders, based upon Mr. Vyas' experience in finance at
another public company and his acumen developed in connection with his own
business ventures. Mr. Rieck has been determined to be an Audit Committee
financial expert as defined in Item 401 of Regulation S-K. The Board of
Directors has adopted a written charter for the Audit Committee, a copy of which
is included as Appendix A to this Proxy Statement.
The functions of the Compensation Committee are to review and recommend to
the Board of Directors annual salaries and bonuses for all executive officers
and review, approve and recommend to the Board of Directors the terms and
conditions of all employee benefit plans or changes thereto and administer the
Company's stock option plans. Messrs. Rieck, Chen and Zemenick are members of
the Compensation Committee. On July 8, 2004 Mr. Vyas resigned from the
Compensation Committee and Mr. Zemenick joined the Committee.
The functions of the Nominating Committee are to review and recommend to
the Board of Directors the size and composition of the Board and a slate of
nominees for each election of members to the Board of Directors, to review and
recommend changes to the number, classification, and term of directors, to
identify and recommend to the Board candidates to fill appointments to Board
committees, to develop, assess and make recommendations to the Board concerning
appropriate corporate policies and to receive and review nominations by
stockholders with regard to the nomination process. The members of the
Nominating Committee are Messrs. Chen, McClelland and Zemenick. The Board of
Directors has determined that each of the members is independent under the
Nasdaq listing standards. The charter for the Nominating Committee is available
on the Company's website at www.sgmaintl.com.
In evaluating and determing whether to recommend a person as a candidate
for election as a director, the Nominating Committee's criteria reflects the
requirements of the recently adopted Nasdaq rules with respect to independence
and the following factors; the needs of the Company with respect to the
particular talents and experience of its directors; personal and professional
integrity of the candidate; level of education and/or business experience;
broad-based business acumen; the level of understanding of the Company's
business and the electronic manufacturing services industry; strategic thinking
and a willingness to share ideas; and diversity of experiences, expertise and
background. The Committee will use these criteria to evaluate all potential
nominees.
The Nominating Committee will consider proposed nominees whose names are
submitted to it by stockholders. It does not have a formal process for that
consideration. The Nominating Committee has not adopted a formal process because
it believes that its information consideration process has been adequate because
historically stockholders have not proposed any nominees. The Nominating
Committee intends to review periodically whether a more formal process should be
adopted. Stockholder nominations, however, must comply with the notice
provisions of the Company's by-laws. Generally, such notice must be received by
10
the Secretary of the Company not less than 60 days and no more than 90 days
prior to a regularly scheduled annual meeting of stockholders, or within 10 days
after receipt of notice of an annual meeting of stockholders if the date of such
meeting has not been publicly disclosed within 70 days prior to the meeting
date.
The Board of Directors held nine meetings either in person or by telephone
conference during the fiscal year ended April 30, 2004. The Compensation
Committee held one meeting in person or by telephone conference and the Audit
Committee held four meetings in person or by telephone conference during fiscal
2004. The Nominating Committee held one meeting during fiscal 2004. All
directors attended at least 75% of the aggregate of the board meetings and
committees of which they were members. The Company has a policy of encouraging
all directors to attend the annual meeting of stockholders. All directors
attended the Company's 2003 annual meeting of stockholders.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders can contact the Board of Directors or any of the individual
directors by contacting: Franklin D. Sove, Chairman of the Board, by e-mail at
invest1@sgmaintl.com. Inquiries will be reviewed, sorted and summarized by the
Chairman of the Board before they will be forwarded to the Board or to an
individual director.
COMPENSATION OF DIRECTORS
Non-employee directors are entitled to be paid $1,500 per month, which has
been increased to $1,750 per month beginning August 1, 2004. Directors who serve
on the Audit Committee are paid an additional $1,000 per month, and directors
who serve on the Compensation Committee are paid an additional $250 per month.
Beginning August 1, 2004 directors who serve on the Nominating Committee are
paid an additional $250 per month. In addition, under the 2000 Directors' Stock
Option Plan, non-employee directors received a grant of options to acquire 7,500
shares of Common Stock at the September 2000, December 2001 and September 2002
annual stockholders' meetings. Such options are exercisable for ten years from
the respective date of grant at a price based on the price of the Common Stock
on the respective grant dates. In addition, under the proposal to approve the
2004 Directors' Stock Option Plan non-employee directors will receive a grant of
options to acquire 5,000 shares of Common Stock at the September 2004 and
September 2005 annual stockholders meeting. Such options are exercisable for ten
years from the respective date of grant at a price based on the price of the
Common Stock on the respective grant dates.
11
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation paid by the
Company for its fiscal years ended April 30, 2004, 2003 and 2002 to the
Company's Chief Executive Officer and each executive officer of the Company
whose total annual salary and bonus for such year exceeded $100,000:
ANNUAL COMPENSATION LONG-TERM
------------------- COMPENSATION ALL OTHER
SALARY BONUS AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) OPTIONS(#) (4)
--------------------------- -------- -------- ------------ ------------
Gary R. Fairhead......................... 2004 172,308 310,000(1) 0 300
President and Chief Executive Officer 2003 172,563 310,000(2) 0 300
2002 166,660 83,000(3) 82,950 300
Gregory A. Fairhead...................... 2004 162,669 285,000(1) 0 300
Executive Vice President -- Operations
and 2003 160,428 260,500(2) 0 300
Assistant Secretary 2002 151,296 73,500(3) 87,450 300
John P. Sheehan.......................... 2004 125,446 220,000(1) 0 300
Vice President-Director of Materials
and 2003 122,599 210,000(2) 0 300
Assistant Secretary 2002 111,452 62,000(3) 79,700 300
Linda K. Blake........................... 2004 118,785 220,000(1) 0 300
Chief Financial Officer, Vice
President- 2003 110,289 210,000(2) 0 300
Finance, Treasurer and Secretary 2002 100,221 62,000(3) 36,200 300
Daniel P. Camp........................... 2004 139,654 175,000(1) 0 300
Vice President-China Operations 2003 136,500 160,000(2) 10,000 300
2002 130,000 56,000(3) 26,500 300
---------------
(1) Represents bonus earned in fiscal 2004 and paid in fiscal 2004 and 2005.
(2) Represents bonus earned in fiscal 2003 and paid in fiscal 2003 and 2004.
(3) Represents bonus earned in fiscal 2002 and paid in fiscal 2002 and 2003.
(4) Represents the matching to the Company's 401(k) plan contribution which the
Company made on behalf of each named officer.
12
OPTION GRANT AND EXERCISES IN LAST FISCAL YEAR
There were no options granted to executive officers of the Company in
fiscal 2004.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information with respect to each
named executive officer of the Company concerning the exercise of options during
the fiscal year ended April 30, 2004, as well as any unexercised options held as
of the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------------------- --------------------
Gary R. Fairhead............... 108,790 1,955,510 28,203/28,203 223,086/223,086
Gregory A. Fairhead............ 108,700 2,317,209 29,150/29,150 230,577/230,577
John P. Sheehan................ 103,534 1,977,638 26,566/26,566 210,134/210,134
Linda K. Blake................. 56,132 906,685 12,068/12,068 95,455/95,455
Daniel P. Camp................. 35,700 761,071 17,833/6,667 135,093/40,802
13
EQUITY COMPENSATION PLAN INFORMATION
The following tables provides information as of the fiscal year ended April
30, 2004 with respect to shares of Common Stock that may be issued under the
Company's existing equity compensation plans, as detailed below:
(A) (B) (C)
--- --- ---
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES FUTURE ISSUANCE UNDER
TO BE ISSUED UPON WEIGHTED-AVERAGE EQUITY COMPENSATION
EXERCISE OF OUTSTANDING EXERCISE PRICE OF PLANS (EXCLUDING
OPTIONS, WARRANTS OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS COLUMN (A)
------------- ----------------------- -------------------- -----------------------
Equity compensation plans approved by
security holders
--Employee Stock Option Plan 1993..... 6,000 $8.71 178,154
--Employee Stock Option Plan 2000..... 140,519 $2.43 0
--Director Stock Option Plan 2000..... 4,099 $3.69 0
------- ----- -------
Equity compensation plans not approved
by Security holders................. * * *
------- ----- -------
Total.......................... 150,618 178,154
---------------
* Not applicable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during the 2004 fiscal year was comprised of
Messrs. Rieck, Chen, and Vyas. Mr. Vyas resigned on July 8, 2004 and was
replaced by Mr. Zemenick. None of the members of the Compensation Committee has
ever been an officer or employee of the Company. No Compensation Committee
interlocking relationships exist as to Messrs. Rieck, Chen and Zemenick. See
"Certain Transactions" for a description of the transactions between the Company
and SMD International, LLC. Mr. Vyas is a Manager of SMD International, LLC.
14
REPORT OF THE AUDIT COMMITTEE
The functions of the Audit Committee include: (1) selection, evaluation,
and where appropriate, replacement of the independent accountants; (2)
pre-approval of audit and permitted non-audit services to be performed by the
independent accountants; (3) review of the scope of the audit; (4) reviewing,
with the independent accountants, the corporate accounting practices and
policies and recommending to whom reports should be submitted within the
Company; (5) reviewing the final report of the independent accountants; (6)
reviewing accounting controls; and (7) being available to the independent
accountants and management for consultation purposes. The Audit Committee is
comprised of three members: Messrs. Rieck, Sove (Chairman) and Vyas. On July 8,
2004 Mr. Chen resigned from the Audit Committee and Mr. Vyas joined the Audit
Committee. The Board of Directors has determined that each of the members is
independent as defined by the Rules of the Securities and Exchange Commission.
The Board also determined that Messrs. Rieck and Sove are independent and Mr.
Vyas is not independent under the Nasdaq listing standards based upon Mr. Vyas'
role as a manager of SMD International L.L.C., which sold real estate to the
Company in November 2003. The Board of Directors has further determined that
membership of Mr. Vyas on the Audit Committee is in the best interest of the
Company and its stockholders, based upon Mr. Vyas' experience in finance at
another public company and his acumen developed in connection with his own
business ventures. Mr. Rieck has been determined to be an Audit Committee
financial expert as defined in Item 401 of Regulation S-K. The Board of
Directors has adopted a written charter for the Audit Committee, a copy of which
is included as Appendix A to this Proxy Statement.
The Audit Committee has reviewed and discussed the audited financial
statements with management, and discussed with the independent accountants the
matters required to be discussed by Statement on Auditing Standards (SAS) No. 61
(Codification of Statements on Auditing Standards, AU sec. 380), as the same may
be modified or supplemented. The Audit Committee has received the written
disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1, as the same may be modified or
supplemented, and has discussed with the independent accountants the independent
accountants' independence. Based on the review and discussions referred to
herein, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual Report on Form
10-K for the last fiscal year for filing with the Securities and Exchange
Commission.
THIS REPORT IS SUBMITTED BY THE MEMBERS OF THE COMMITTEE.
Franklin D. Sove (Chairman)
Thomas W. Rieck
Dilip S. Vyas
15
STOCK PRICE PERFORMANCE GRAPH
The following performance graph compares the percentage change in the
cumulative total stockholder return on the Company's Common Stock during the
period from May 2000 through April 2004 with the cumulative total return on (i)
a group consisting of the Company's peer corporations on a line-of-business (the
"Peer Group") and (ii) the Nasdaq Composite Index (Total Return). The comparison
assumes $100 was invested on May 1, 2000 in the Company's Common Stock, the Peer
Group (allocated equally among each of the Peer Group members), and the Nasdaq
Composite Index and assumes reinvestment of dividends, if any. The Peer Group
consists of IEC Electronics Corp., Nortech Systems Inc., SMTEK International,
Inc., and Simclar Inc. (formerly known as Techdyne, Inc.)
Comparison of five year cumulative total among SigmaTron International,
Inc., the Peer Group, and the Nasdaq Composite Index (Total Return).
[PERFORMANCE GRAPH]
---------------------------------------------------------------------------------------------------------
BASE
PERIOD
COMPANY NAME/INDEX APR 99 APR 00 APR 01 APR 02 APR 03 APR 04
---------------------------------------------------------------------------------------------------------
SIGMATRON INTERNATIONAL INC 100 108.98 24.50 85.25 143.75 252.75
---------------------------------------------------------------------------------------------------------
NASDAQ U.S. INDEX 100 151.46 82.85 66.62 58.18 76.10
---------------------------------------------------------------------------------------------------------
PEER GROUP 100 71.92 69.23 61.77 39.77 86.93
---------------------------------------------------------------------------------------------------------
16
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
OVERVIEW AND PHILOSOPHY
The Company's executive compensation policy is to provide a total
compensation and benefit package to enable it to attract, retain, and
incentivize talented executives. Total compensation includes base salary, annual
cash bonuses, long-term incentives and employee benefits. Guiding principles
include offering an overall competitive package consisting of (a) base salary
and employee benefits; and (b), to assure that management's interest are closely
aligned with those of stockholders, performance-based incentives, including
annual cash bonuses and long-term stock-based incentives based on overall
Company financial results and individual contributions thereto. The Company
seeks to reward outstanding executive performance contributing to superior
Company operating results and enhanced stockholder value.
The Board of Directors administers the Company's executive compensation
policy through its Compensation Committee. The base salary and annual cash
bonuses of the President and the Chief Executive Officer and the executive
officers of the Company is determined by the Board of Directors acting on the
recommendations of its Compensation Committee. Stock Options may be granted to
key employees of the Company as determined by the Compensation Committee
pursuant to the Company's 1993 and 2000 Stock Option Plans. The President and
Chief Executive Officer recommends to the Compensation Committee the base
salaries, annual cash bonuses and stock options, if any, to be paid, and, in the
case of stock options, awarded, to all executive officers, based upon guidelines
prescribed by the Compensation Committee.
REPORT OF 2004 COMPENSATION OF EXECUTIVE OFFICERS
The President and Chief Executive Officer recommended to the Compensation
Committee the base salaries and cash bonuses to be paid to the executive
officers. After discussion, the Compensation Committee approved the base
salaries and cash bonuses recommended, and then the entire Board of Directors
adopted the recommendation. The Compensation Committee did not grant additional
stock options to executive officers during fiscal 2004.
REPORT OF 2004 COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
The compensation for the Company's President and Chief Executive Officer is
set within the philosophy and policy identified above for all executive
officers. In setting the salary and determining the cash bonus of the President
and Chief Executive Officer of the Company, the Compensation Committee
considered many factors, with particular attention given to the Company's most
recent exceptional financial results and aggressive international expansion
program.
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.
The deduction limitation has no effect on the Company's ability to deduct
payments made (or deemed made for tax purposes) in fiscal year 2004 to the named
executive officers listed in the summary compensation table. The limitation,
however, could affect the ability of the Company and its subsidiaries to deduct
compensation paid to such officers in fiscal year 2005 and subsequent years. The
Company intends to take appropriate action to comply with the Act so that
deductions will be available to it for all compensation paid to its executive
officers to the extent practicable in fiscal 2005.
THIS REPORT IS SUBMITTED BY THE MEMBERS OF THE COMMITTEE.
Thomas W. Rieck (Chairman)
John P. Chen
Carl A. Zemenick
17
CERTAIN TRANSACTIONS
The Company had a related-party transaction with Circuit Systems, Inc.,
which filed for protection under Chapter 11 of the Federal bankruptcy code, and
is now known as Circuit Systems, Inc. Liquidating Grantor's Trust, dated October
14, 2001 ("CSI"), a former stockholder of the Company. CSI divested itself of
the investment in Common Stock of the Company in April 2001. The transaction
primarily involved the leasing of operating space. The Company leased space in
Elk Grove Village, Illinois, at a base rental of $33,800 per month, with an
additional $7,000 per month for property taxes. The lease required the Company
to pay maintenance and utility expenses. Subsequent to the renewal agreement,
CSI sold the building to a non-related party. The Company's exercise of the
renewal option was acknowledged by the new owner. Rent and property tax expense
related to the agreement totaled approximately $270,000 from May 2003 through
mid-November 2003 and $495,000 and $493,000 for the twelve month periods ended
April 30, 2003 and 2002, respectively.
On November 19, 2003 the Company purchased the Elk Grove Village, Illinois
property that serves as the Company's corporate headquarters and its midwestern
manufacturing facility from SMD International, L.L.C. ("SMD"). The purchase
price for the land and building was $3,600,000. Mr. Vyas, a director of the
Company was a manager of SMD.
At April 30, 2003 the Company had non-interest bearing receivables of
approximately $114,000 for advances to a company in which an officer of the
Company is an investor. The balance was paid in full during fiscal 2004. This
receivable was guaranteed by an officer of the Company.
During 1996, the Company invested $1,200 in exchange for a 12% limited
partnership interest in Lighting Components, L.P. ("LC") and invested $1,300 in
Lighting Components, Inc., which is the general partner of LC, in exchange for
13% of its capital stock. At April 30, 1998, the Company had also made advances
to LC in exchange for subordinated debentures and promissory notes totaling
$280,000. The subordinated debentures and promissory notes totaling $280,000
were fully reserved at April 30, 1998.
In addition to the subordinated debentures and promissory notes, at April
30, 2000, the Company had recorded miscellaneous receivables, interest and trade
receivables from LC of $1,560,000, against which a reserve of $789,000 was
recorded. The Company wrote off its investment in LC of $2,500 in the statement
of operations for the year ended April 30, 2001. In April 2001, LC sold certain
assets to a third party. In connection with the asset sale, the Company received
a $400,000 promissory note receivable from a third party. Payments were due on
the promissory note as follows: $125,000 plus accrued interest due January 1,
2002, $125,000 plus accrued interest due January 1, 2003, and $150,000 plus
accrued interest due January 1, 2004. The payment obligations for $125,000 due
January 1, 2003, and 2002, plus accrued interest were paid in December 2002 and
2001, respectively. The payment obligation of $150,000 due January 1, 2004 was
paid in January 2004 plus accrued interest. Interest on the promissory note will
accrue at 5% per annum. The third party also agreed to pay LC royalties on
certain sales derived from the purchase of the acquired assets as defined in the
agreement. LC or its successor will receive royalty payments through April 30,
2007. Per the terms of a separate agreement, the Company will receive its share
of the royalty payments. These royalty payments, if any, will be recorded by the
Company as received and reflected as payments on the notes.
MISCELLANEOUS
The Company's 2004 Annual Report to Stockholders is being mailed to
stockholders contemporaneously with this Proxy Statement.
COST OF SOLICITATION
All expenses incurred in the solicitation of proxies will be borne by the
Company. In addition to the use of the mail, proxies may be solicited on behalf
of the Company by directors, officers and employees of the Company by telephone
or telecopy. The Company will reimburse brokers and others holding Common Stock
as nominees for their expenses in sending proxy material to the beneficial
owners of such Common Stock and obtaining their proxies.
18
PROPOSALS OF STOCKHOLDERS
In accordance with the rules of the Securities and Exchange Commission, any
proposal of a stockholder intended to be presented at the Company's 2005 Annual
Meeting of Stockholders must be received by the Secretary of the Company before
April 18, 2005 in order for the proposal to be considered for inclusion in the
Company's notice of meeting, proxy statement and proxy relating to the 2005
Annual Meeting.
Stockholders may present proposals that are proper subjects for
consideration at an annual meeting, even if the proposal is not submitted by the
deadline for inclusion in the proxy statement. The stockholder must comply with
the procedures specified by the Company's by-laws which require all stockholders
who intend to make proposals at an annual stockholders meeting to send a proper
notice which is received by the Secretary not less than 120 or more than 150
days prior to the first anniversary of the date of the Company's consent
solicitation or proxy statement released to stockholders in connection with the
previous year's election of directors or meeting of stockholders; provided, that
if no annual meeting of stockholders or election by consent was held in the
previous year, or if the date of the annual meeting has been changed from the
previous year's meeting, a proposal must be received by the Secretary within 10
days after the Company has publicly disclosed the date of such meeting.
The Company currently anticipates the 2005 Annual Meeting of stockholders
will be held September 16, 2005.
The by-laws also provide that nominations for director may only be made by
or at the direction of the Board of Directors or by a stockholder entitled to
vote who sends a proper notice which is received by the Secretary no less than
60 or more than 90 days prior to the meeting; provided, however, that if the
Company has not publicly disclosed the date of the meeting at least 70 days
prior to the meeting date, notice may be timely made by a stockholder if
received by the Secretary no later than the close of business on the 10th day
following the day on which the Company publicly disclosed the meeting date.
Some brokers and other nominee record holders may be participating in the
practice of "householding" corporate communications to stockholders, such as
proxy statements and annual reports. This means that only one copy of this proxy
statement may have been sent to multiple stockholders in your household. The
Company will promptly deliver a separate copy of this proxy statement to you if
you call or write us at the following address or phone number: SigmaTron
International, Inc., 2201 Landmeier Road, Elk Grove Village, Illinois 60007,
Telephone: (800) 700-9095. If you want to receive separate copies of our
corporate communications to stockholders such as proxy statements and annual
reports in the future, or if you are receiving multiple copies and would like to
receive only one copy for your household, you should contact your broker or
other nominee record holders, or you may contact the Company at the above
address and phone number.
By order of the Board of Directors
LINDA K. BLAKE
Secretary
Dated: August 16, 2004
19
APPENDIX A
CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
SIGMATRON INTERNATIONAL, INC.
I. FUNCTIONS
The functions of the Audit Committee (the "Committee") of SigmaTron
International, Inc. (the "Company") shall include: (1) review of the scope of
the audit; (2) review with the independent accountants the corporate accounting
practices and policies and recommend to whom reports should be submitted within
the Company; (3) review with the independent accountants their final report; (4)
review with the internal and independent accountants overall accounting and
financial controls; and (5) being available to the independent accountants and
management for consultation purposes.
II. COMPOSITION
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall satisfy the independence requirements under
applicable law, rules and regulations, including the rules of the Nasdaq Stock
Market, Inc. ("Nasdaq"). Notwithstanding the foregoing, one director who (a) is
not independent as defined in Nasdaq Rule 4200, (b) meets the criteria set in
Section 301 in the Sarbanes-Oxley Act of 2002 and the rules and regulations
thereunder, (c) does not own or control 20% or more of the Company's voting
securities, and (d) is not a current officer or employee or a family member of
such officer or employee, may be appointed to the Committee, if the Board, under
exceptional and limited circumstances, determines that membership on the
Committee by the individual is required by the best interests of the Company and
its stockholders, and the Board discloses, in the next annual proxy statement
subsequent to such determination, the nature of the relationship and the reasons
for that determination. A member appointed under this exception may not serve
longer than two years and may not chair the Committee.
Each member of the Committee shall be able to read and understand
fundamental financial statements, including a company's balance sheet, income
statement and cash flow statement. At least one member of the Committee shall
have past employment experience in finance or accounting, requisite professional
certification in accounting or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. Committee members may enhance
their familiarity with finance and accounting by participating in educational
programs conducted by the Company or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board and shall serve in such capacity until the
next annual organizational meeting of the Board or until their successors shall
be duly elected and qualified. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, and more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with the chief financial officer and the
independent accountants to discuss any matters that the Committee or either of
these groups believe should be discussed privately. In addition, the Committee
or its Chair should meet in person or by telephone conference call with the
independent accountants and management quarterly to review the Company's
financials consistent with IV.3 below.
20
IV. RESPONSIBILITIES
The Audit Committee shall have the following responsibilities:
Documents/Reports Review
1. Review this Charter annually and update it as conditions dictate.
2. Review the Company's annual financial reports and other financial
information submitted to the Securities and Exchange Commission (the
"SEC"), or the public, including any certification, attestation,
report, opinion or review rendered by the independent accountants, and
the independent accountants' judgment as to the quality of the
Company's accounting principles.
3. Review with the chief financial officer or his/her delegate and, if
the Committee believes it to be advisable, the independent
accountants, quarterly reports on Form 10-Q prior to its filing or
prior to the release of earnings. The Chair of the Committee may
represent the entire Committee for purposes of this review.
4. Issue a report to the Board disclosing whether (a) the Committee has
reviewed and discussed the audited financial statements with
management; (b) the Committee has discussed with the independent
accountants the matters required to be discussed by SAS 61, as may be
modified or supplemented; (c) the Committee has received the written
disclosures and the letter from the independent accountants required
by ISB Standard No. 1, as may be modified or supplemented, and has
discussed with the accountants the accountants' independence; and (d)
whether, based on the review and discussions referred to in (a) -- (c)
above, the Committee recommended to the Board that the financial
statements be included in the Annual Report on Form 10-K or 10-KSB for
the last fiscal year for filing with the SEC. These disclosures shall
appear over the printed names of each member of the Committee, and
shall be included in the Company's proxy statement, if said proxy
statement relates to an annual meeting of stockholders at which
directors are to be elected (or special meeting or written consents in
lieu of such meeting). The disclosures shall be made at least once a
year.
Independent Accountants
5. Select, evaluate, and, where appropriate, replace the independent
accountants, and, if appropriate, nominate the independent accountants
to be proposed for stockholder ratification or approval in any proxy
statement. The independent accountants are ultimately accountable to
the Committee, which has the sole authority and responsibility to
select, evaluate and, where appropriate, replace the independent
accountants.
6. Pre-approve all audit and permitted non-audit services to be performed
by the independent accountants (subject to the de minimis exceptions
under applicable law, rules and regulations). However, the Committee
may delegate to one or more designated members of the Committee the
authority to grant such pre-approvals, and the decisions of any member
to whom such authority is delegated shall be presented to the full
Committee at its next regularly scheduled meeting. In determining
whether to pre-approve permitted non-audit services, the Committee (or
the members with authority to pre-approve) shall consider whether the
independent accountants' performance of such services is compatible
with independence.
7. Approve the fees and other compensation to be paid to the independent
accountants. On at least an annual basis, to determine the
accountants' independence, the Committee should discuss with the
independent accountants all significant relationships or services the
independent accountants have that may impact their objectivity and
independence, taking into consideration the written statement that
shall be obtained from the accountants to determine the accountants'
independence setting forth the relationships between the independent
accountants and the Company consistent with ISB Standard No. 1.
21
8. Review the performance of the independent accountants and discharge
the independent accountants when circumstances warrant.
9. Receive copies of the annual comments from the independent accountants
on accounting practices and policies and systems of control of the
Company, and review with them any questions, comments or suggestions
they may have relating thereto.
10. Oversee regular rotation of the lead audit partner, as required by
applicable law, rules and regulations, and consider whether rotation of
the independent accountants or their lead audit partner is necessary to
ensure independence.
11. Take other appropriate action to oversee the independence of the
independent accountants.
Financial Reporting Processes
12. Review with management and the independent accountants not less than
annually the internal controls, disclosure controls and procedures, and
accounting and audit activities of the Company.
13. Review with management and the independent accountants significant
exposure risks and the plans to appropriately control such risks.
14. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
independent accountants, management or the internal accounting
department.
15. Review with management and the independent accountants accounting
policies which may be viewed as critical, and review significant
changes in the accounting policies of the Company and accounting and
financial reporting proposals that may have a significant impact on the
Company's financial reports. Review with management accounting
estimates in the event (a) an estimate requires the Company to make
assumptions about matters that are highly uncertain at the time the
accounting estimate is made, and (b) different estimates that the
Company reasonably could have used in the current period, or changes in
the accounting estimates that are reasonably likely to occur from
period to period, would have a material impact on the presentation of
the Company's financial condition, changes in financial condition or
results of operations.
16. Make or cause to be made, from time to time, such other examinations or
reviews as the Committee may deem advisable with respect to the
adequacy of the systems of internal controls, accounting practices,
internal audit procedures, and disclosure controls and procedures of
the Company, taking into account current accounting and regulatory
trends and developments, and take such action with respect thereto as
may be deemed appropriate by the Committee. The Committee shall have
the authority to retain outside advisors to assist it in the conduct of
any investigation, examination or review.
17. Review with management and the independent accountants any material
financial or non-financial arrangements of the Company which do not
appear on the financial statements of the Company.
18. Review communications required to be submitted by the independent
accountants concerning (a) critical accounting policies and practices
used, (b) alternative treatments of financial information within
generally accepted accounting principles ("GAAP") that have been
discussed with management and the ramifications of such alternatives
and the accounting treatment preferred by the independent accountants,
and (c) any other material written communications with management.
19. Review with the independent accountants any problems encountered in the
course of their audit, including any change in the scope of the planned
audit work and any restrictions placed on the scope of such work and
any management letter provided by the independent accountants and
management's response to any such letter.
22
Internal Controls and Process Improvement
20. Evaluate whether senior management is setting the appropriate tone at
the top by reviewing their communication with other personnel of the
Company regarding the importance of internal controls and evaluate
whether the members of senior management possess an understanding of
their roles and responsibilities.
21. Establish a regular system of reporting to the Committee and internally
within the Company by management, the independent accountants and the
internal accounting department.
22. Review the scope of the audit to be performed, and the audit procedures
to be used, by the independent accountants, as a part of the annual
audit process.
23. Review and attempt to resolve disagreements between management and the
independent accountants regarding financial reporting.
24. Review, at least annually, the then current and future programs of the
internal accounting department, including the procedure for assuring
implementation of accepted recommendations made by the independent
accountants, and review the implementation of any accepted
recommendations.
25. Consider and approve, upon the recommendation of management or upon its
own motion, any non-audit services to be performed by providers other
than the independent accountants relating to internal controls or
current or future programs, functions, or services that are the
responsibility of the internal accounting department.
26. Establish procedures in accordance with applicable law, rules and
regulations for (a) receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting
controls or auditing matters and (b) the confidential, anonymous
submission by employees of the Company of concerns regarding
questionable accounting or auditing matters.
Other Responsibilities
27. Review and make approval decisions regarding all related-party
transactions, as required by applicable law, rules and regulations.
28. If appropriate, obtain advice and assistance from outside legal,
accounting or other advisors and determine the funding for such advice
and assistance which shall be paid by the Company.
29. If necessary, institute special investigations and, if appropriate,
hire special counsel or experts to assist.
30. Perform any other activities consistent with this Charter, the
Company's By-laws and governing law, rules or regulations as the
Committee or the Board deems necessary or appropriate.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to prepare financial
statements, plan or conduct audits or determine that the Company's financial
statements are complete and accurate and are in accordance with GAAP. This is
the responsibility of management and the independent accountants.
23
APPENDIX B
SIGMATRON INTERNATIONAL, INC.
2004 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Employee Stock Option Plan (the "Plan") is
to enable SigmaTron International, Inc. (the "Company") and any of its
subsidiaries (within the meaning of Section 424(f) of the Internal Revenue Code
of 1986, as amended (the "Code")) to attract and retain as employees people of
initiative and ability, and to provide additional incentives to employees.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided below and
in Paragraph 7, the shares to be offered under the Plan shall consist of common
stock, $0.01 par value, of the Company ("Shares"), and the total number of
Shares that may be issued under the Plan shall not exceed two hundred forty
thousand (240,000) Shares. An Option is a right to purchase Shares, subject to
adjustments as provided herein, pursuant to the terms and conditions of the Plan
("Option"). If an Option granted under the Plan expires, terminates or is
canceled, the unissued Shares subject to such Option shall again be available
under the Plan.
3. EFFECTIVE DATE AND DURATION OF PLAN.
(a) Effective Date. The Plan shall become effective on July 8, 2004,
the date of its adoption by the Board of Directors of the Company (the
"Effective Date"). However, no Option granted under the Plan shall become
exercisable until the Plan is approved by the affirmative vote of the
holders of a majority of the Shares present at, or represented and entitled
to vote at, a stockholders meeting duly held in accordance with the
applicable laws of the state of Delaware, and any awards under the Plan
prior to such approval shall be conditioned on and subject to such
approval. Subject to this limitation and Paragraph 6, Options may be
granted at any time after the Effective Date and before termination of the
Plan.
(b) Duration. Unless terminated earlier, the Plan shall continue in
effect until all Shares available for issuance under the Plan have been
issued. The Board of Directors may suspend or terminate the Plan at any
time except with respect to Options then outstanding under the Plan.
Termination shall not affect any outstanding Options.
4. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company. The Committee
shall be not less than two members and comprised solely of Non-employee
Directors, as defined by Rule 16b-3(b)(3)(i) of the Securities Exchange Act of
1934 (the "1934 Act"), or any successor definition adopted by the Securities and
Exchange Commission, and who shall each also qualify as an Outside Director for
purposes of Section 162(m) of the Code and as an Independent Director under
rules promulgated by Nasdaq. The Committee shall determine and designate from
time to time the employees to whom awards shall be made, the amount of the
awards and the other terms and conditions of the awards, except that only the
Board of Directors may amend, suspend or terminate the Plan as provided in
Paragraphs 3 and 12. Subject to the provisions of the Plan, the Committee may
from time to time adopt and amend rules and regulations relating to
administration of the Plan, advance the lapse of any waiting period, accelerate
any exercise date, waive or modify any restriction applicable to Shares (except
those restrictions imposed by law) and make all other determinations in the
judgment of the Committee necessary or desirable for the administration of the
Plan. The interpretation and construction by the Committee of the provisions of
the Plan, any Option granted under the Plan and any related agreement shall be
final except as otherwise determined by the Board of Directors. The Committee
may correct any defect or supply any omission or reconcile any inconsistency in
the Plan or in any related agreement in the manner and to the extent it shall
deem expedient to carry the Plan into effect, and it shall be the sole and final
judge of such expediency. No member of the Board of Directors or the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted under it.
5. ELIGIBILITY. Any awards may be made to employees, including employees
who are officers or directors, of the Company or a subsidiary thereof; provided,
however, no member of the Committee shall be eligible for selection as a person
to whom awards may be made. The Committee shall select the employees to
24
whom awards shall be made. The Committee shall specify the action taken with
respect to each employee to whom an award is made under the Plan. At the
discretion of the Committee, an employee may be given an election to surrender
an award in exchange for the grant of a new award. The number of Shares subject
to Options granted in a fiscal year to each executive officer whose compensation
is subject to reporting in the Company's annual proxy statement (an "Executive
Officer") shall not exceed 100,000 Shares for any fiscal year in which such
person serves as an Executive Officer.
6. OPTION GRANT.
(a) Grant. An Optionee is an individual that has been granted an
Option by the Company ("Optionee"). The Committee has the authority and
discretion to grant Options under the Plan. With respect to each Option
grant, and subject to the terms of the Plan, the Committee shall determine
the number of Shares subject to the Option, the price at which the Option
may be exercised (the "Option price"), the period of the Option, and the
time or times at which the Option may be exercised. The Option price for a
particular Option shall be such price as may be fixed by the Committee, but
in no event less than the minimum required in order to comply with any
applicable law, rule or regulation. Options shall be evidenced by written
agreements, the form of which shall be approved by the Committee, which
shall, among other things (i) designate the Option as either an Incentive
Stock Option under Section 422 of the Code ("ISO") or a Non-statutory Stock
Option ("NSO"); (ii) specify the number of Shares covered by the Option;
(iii) specify the Option price, determined in accordance with Paragraph 6
hereof, for the Shares subject to the Option; (iv) specify the Option
period determined in accordance with this Paragraph 6; (v) set forth
specifically or incorporate by reference the applicable provisions of the
Plan; and (vi) contain such other terms and conditions consistent with the
Plan, including without limitation, conditioning the grant upon the receipt
of an agreement by the Optionee not to compete with the Company, as the
Committee may, in its discretion, prescribe. In addition, the Committee may
provide for any further restrictions or provisions in the Option which it
deems appropriate. Subject to the conditions of, and within the limitations
prescribed in, Paragraph 12 hereof, the Committee may cancel, modify,
extend or renew outstanding Options. Notwithstanding the foregoing, no
modification will, without the prior written consent of the Optionee,
alter, impair or waive any rights or obligations associated with any Option
earlier granted under the Plan. Options shall be either ISOs or NSOs. ISOs
shall meet all of the requirements of this Paragraph 6 other than
Subparagraph 6(d). NSOs shall meet the requirements of Subparagraphs 6(a)
and 6(c) through 6(g).
(b) Incentive Stock Options. ISOs shall be subject to the following
terms and conditions (references in this Subparagraph 6(b) to "employee"
shall not include advisors or consultants; only common law employees may
receive ISOs):
(i) ISOs may be granted under the Plan to an employee possessing
more than ten percent of the total combined voting power of all classes
of stock of the Company only if the Option price is at least 110 percent
of the fair market value of the Shares subject to the Option on the date
it is granted, as described in Subparagraph 6(b)(iii), and the Option by
its terms is not exercisable after the expiration of five years from the
date it is granted.
(ii) Subject to Subparagraphs 6(b)(i) and 6(c), ISOs granted under
the Plan shall continue in effect for the period fixed by the Committee,
except than no ISO shall be exercisable after the expiration of ten
years from the date it is granted.
(iii) The Option price per Share shall be determined by the
Committee at the time of grant. Subject to Subparagraph 6(b)(i), the
Option price shall not be less than 100 percent of the fair market value
of the Shares covered by the ISO at the date the Option is granted. The
fair market value shall be deemed to be the closing price of the Shares
as reported in the Nasdaq listing in The Wall Street Journal, or such
other reported value of the Shares as shall be specified by the
Committee, on the day preceding the grant of the Option, or if such day
is not a trading day, then on the immediately preceding trading day.
25
(iv) No ISO shall be granted on or after the tenth anniversary of
the Effective Date of the Plan.
(v) No ISO shall provide any person with a right to purchase Shares
to the extent that such right first becomes exercisable during a
prescribed calendar year and the sum of (i) the fair market value
(determined as of the date of grant) of the Shares subject to such ISO
which first become available for purchase during such calendar year plus
(ii) the fair market value (determined as of the date of grant) of all
Shares subject to ISOs previously granted to such person under all plans
of the Company first become available for purchase during such calendar
year exceeds $100,000. If the Code is amended to provide for a different
limitation from that set forth in this Paragraph, such different
limitation shall be deemed incorporated herein effective as of the
effective date of such amendment and with respect to such Options as
required or permitted by such amendment to the Code.
(vi) Without written notice to the Committee, an Optionee may not
dispose of Shares acquired pursuant to the exercise of an ISO until
after the later of (i) the second anniversary of the date on which the
ISO was granted, or (ii) the first anniversary of the date on which the
Shares were acquired. An Optionee shall make appropriate arrangements
with the Company for any taxes which the Company is obligated to collect
in connection with any disposition of Shares acquired pursuant to the
exercise of an ISO, including any federal, state or local withholding
taxes.
(vii) Should Section 422 of the Code be amended during the term of
the Plan, the Committee may modify the Plan consistently with such
amendment.
(c) Exercise of Options. Except as provided in Subparagraph 6(f), no
Option granted under the Plan to an employee may be exercised unless at the
time of such exercise the Optionee is employed by the Company and shall
have been so employed continuously since the date such Option was granted.
Absence on leave or on account of illness or disability under rules
established by the Committee shall not, however, be deemed an interruption
of employment for this purpose. Except as provided in Subparagraphs 6(f), 7
and 8, Options granted under the Plan may be exercised from time to time
over the period stated in each Option in such amounts and at such times as
shall be prescribed by the Committee, provided that Options shall not be
exercised for fractional shares, and the election to exercise an Option
shall be made in accordance with applicable federal and state laws and
regulations. Unless otherwise determined by the Committee, if the Optionee
does not exercise an Option in any one year with respect to the full number
of Shares to which the Optionee is entitled in that year, the Optionee's
rights shall be cumulative and the Optionee may purchase those Shares in
any subsequent year during the term of the Option. No Option shall be
exercisable after the expiration of ten years from the date it is granted.
(d) Transferability. An ISO granted under this Plan is not
transferable by the Optionee except by will or the laws of descent and
distribution and, during the lifetime of the Optionee, it is exercisable
only by the Optionee. The Committee shall retain the authority and
discretion to permit an NSO to be transferable as long as such transfers
are made only to a Permitted Transferee (as herein defined); provided that
(i) such transfer is a bona fide gift and accordingly, the Optionee
receives no value for the transfer, as provided in the instructions to SEC
Form S-8, (ii) that the NSOs transferred continue to be subject to the same
terms and conditions that were applicable to the NSOs immediately prior to
the transfer, and (iii) that the NSOs may not be otherwise or subsequently
sold, pledged, assigned or transferred in any manner except by will or the
laws of descent or distribution or pursuant to a domestic relations order.
"Permitted Transferee" shall mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law,
or sister-in-law, including adoptive relationships, of the Optionee (a
"Family Member"), any person sharing the Optionee's household (other than
as a tenant or employee), or a trust or other entity in which Family
Members and the Optionee have more than fifty percent of the beneficial or
voting interests. In the event of the Optionee's death, the NSO may be
exercised only by a person who acquired the right to exercise it by reason
of the death of the Optionee. Neither the Optionee, any Permitted
Transferee, nor any person who acquires the right to exercise the NSO by
reason of the
26
death of the Optionee will be deemed to be a holder of any Shares subject
to the NSO unless and until certificates for those Shares are issued to
such person. A Permitted Transferee may not subsequently transfer an NSO.
The designation of a beneficiary shall not constitute a transfer.
(e) Vesting. Options granted under the Plan shall vest according to
such schedule as the Committee may prescribe at the time of grant, which
may include full and immediate vesting. Reference to "Option" in the Plan
means all vested and non-vested Options unless otherwise specifically
stated.
(f) Termination of Employment or Death.
(i) With respect to ISOs:
(A) If the employment of an employee is terminated, any then
outstanding Options held by such employee to the extent vested at
termination of employment shall be exercisable, in accordance with the
provisions of the Option agreement, by such employee at any time prior
to the expiration date of such Option or within three months after the
date of termination of employment, whichever is the shorter period.
(B) Notwithstanding the provisions of Subparagraph 6(f)(i)(A), and
unless the Board of the Directors of the Company determines otherwise,
if the employee's employment is terminated because of a disability
described in Section 422(c)(6) of the Code ("Disability"), any then
outstanding Options held by such employee to the extent vested at
termination of employment shall be exercisable, in accordance with the
Option agreement, by such employee at any time prior to the expiration
date of such Option or within one year after the date of termination of
employment, whichever is the shorter period.
(C) Notwithstanding the provisions of Subparagraph 6(f)(i)(A), if
the employee dies while employed by the Company, any then outstanding
Options held by such employee to the extent vested on the date of death
shall be exercisable, in accordance with the provisions of the Option
agreement, by the duly appointed representative of the employee's estate
at any time prior to the expiration date of such Option or within one
year after the date of death, whichever is the shorter period.
(ii) If a termination under Subparagraph 6(f)(i)(B) or (C) occurs,
any unvested portion of the Option held by the employee shall become
vested, provided that the aggregate value of Shares with respect to
which any ISO first becomes exercisable in the calendar year of the
termination of employment does not exceed $100,000. If the value of
Shares which become fully vested under an ISO exceed $100,000, such
excess shall be treated as stock subject to an NSO. For purposes of the
$100,000 limitation, the fair market value of the Shares on the date the
ISO was granted shall be used in determining the value of the Shares,
with fair market value to be determined in accordance with Subparagraph
6(b)(iii). If the Code is amended to provide for a limitation different
from the one set forth in this Paragraph, such different limitation
shall be deemed incorporated herein effective as of the effective date
of such amendment and with respect to such Options as required or
permitted by such amendment to the Code.
(iii) With respect to NSOs:
(A) If the employment of an Optionee is terminated "for cause,"
then the unvested portion of any then outstanding Options held by such
Optionee shall be immediately canceled and the unexercised, vested
portion of any then outstanding Options held by such Optionee shall be
exercisable (to the extent then exercisable), by the Optionee or
Permitted Transferee (defined in Paragraph 6(d)) at any time prior to
the expiration date or within three months after the date of termination
of employment, whichever is the shorter period. A termination "for
cause" means any termination due to (i) conviction of a felony; (ii)
Optionee's refusal, after at least 30 days advance written notice from
the Company's Board of Directors, to carry out a direct order of the
Board of Directors (other than an order to relocate Optionee more than
25 miles from his place of
27
employment); or (iii) a finding by the Board of Directors that Optionee
has defrauded the Company or any affiliate of the Company.
(B) If the employment of an Optionee is terminated by the Company,
but such termination is not "for cause," as defined above, then the
unvested portion of any then outstanding Options held by such Optionee
shall be immediately canceled and the vested portion of any then
outstanding Options held by such Optionee shall continue in effect after
the Optionee's termination of employment under the terms of the Option.
This subparagraph shall also apply to an Optionee who voluntarily
terminates employment with the Company.
(C) If the employment of Optionee is terminated because of the
death or permanent disability (as described in Section 422 (c)(6) of the
Internal Revenue Code of 1986, as amended (the "Code")) of the Optionee
when employed, then the unvested portion of any then outstanding Options
held by such Optionee shall be immediately vested and the unexercised
vested portion of any then outstanding Options held by such Optionee at
the time of death shall be exercisable in full (including the portion
which, but for this provision, would not be exercisable) by the person
or persons entitled to do so under the will of the Optionee, or if the
Optionee shall fail to make testamentary disposition of the Option or
shall die intestate, by the legal representative of the Optionee or by a
permitted transferee, at any time prior to the expiration date of such
Option.
(iv) For all Options issued hereunder, to the extent that the
Option of any deceased Optionee or any Optionee whose employment
terminates is not exercised within the applicable period, all further
rights to purchase Shares pursuant to such Option shall cease and
terminate.
(g) Purchase of Shares. Unless the Committee determines otherwise,
Shares may be acquired pursuant to an Option granted under the Plan only
upon receipt by the Company of notice in writing from the Optionee of the
Optionee's intention to exercise, specifying the number of Options the
Optionee desires to exercise and the date on which the Optionee desires to
complete the transaction, and such other documentation as may be required
by the Company. Unless the Committee determines otherwise, on or before the
date specified for completion of the purchase of Shares pursuant to an
Option, the Optionee must have paid the Company the full purchase price of
such Shares in cash or by check, or, with the consent of the Committee, in
whole or in part, by a cashless exercise as described below. The Optionee
may tender Shares only if the Optionee has not acquired any Shares
(including the Shares being tendered), other than in an acquisition exempt
from Section 16(b) of the 1934 Act and rules and regulations promulgated
thereunder, for a period of at least six months prior to the tender. The
fair market value of the Shares provided in payment of the Option price
shall be deemed to be the closing price of the Shares as reported in the
Nasdaq listing in The Wall Street Journal, or such other reported value of
the Shares as shall be specified by the Committee, on the day preceding the
exercise of the Option, or if such day is not a trading day, then on the
immediately preceding trading day. No Shares shall be issued until full
payment therefor has been made. No Shares shall be delivered pursuant to
the exercise of any Option, in whole or in part, until the Shares are
qualified for delivery under such securities laws and regulations as may be
deemed by the Committee to be applicable thereto, and such Shares are
listed on each securities exchange on which Shares may then be listed. With
the consent of the Committee, and if permitted under applicable law, an
Optionee may request the Company to apply automatically the Shares to be
received upon the exercise of a portion of a Option (even though stock
certificates have not yet been issued) to satisfy the purchase price for
additional portions of the Options. If the Company is required to withhold
on account of any present or future tax imposed as a result of an exercise,
the Committee shall have the sole discretion to determine whether such
withholding shall be satisfied by a cash payment from Optionee or by
withholding Shares having a fair market value equal to the amount of the
required withholding. (Fair market value shall be determined using the
closing price of the Shares as reported in the Nasdaq listing in The Wall
Street Journal, or such other reported value of the shares as shall be
specified by the Committee, on the day prior to the date the amount of
withholding is determined.) However, no such withholding of Shares shall
occur until the Company has been subject to the requirements of Section
13(a) of the 1934 Act for at least one year prior to the exercise of the
Option, and the Company regularly releases its quarterly and annual summary
statements of sales and
28
earnings for publication. Such exercise may, if permitted under applicable
law, include a cashless exercise if the Options are tendered to a
securities broker pre-approved by the Company in exchange for the number of
Shares the fair market value of which is equal to the aggregate difference
between the Option price and the fair market value of the Options so
tendered.
7. CHANGES IN CAPITAL STRUCTURE. If any change is made in the Shares
subject to the Plan or subject to the Options granted under the Plan (through
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split, combination of shares or dividend payable in
Shares or otherwise), adjustments as it deems appropriate shall be made by the
Committee in the number and kind of Shares available for awards under the Plan,
provided that this Paragraph 7 shall not apply with respect to transactions
referred to in Paragraph 8. In addition, the Committee shall make such
adjustments as it deems appropriate in the number and kind of Shares as to which
outstanding Options, or portions thereof then unexercised, shall be exercisable
and/or the Option price, to the end that the Optionee's proportionate interest
is maintained as before the occurrence of such event. The Committee may also
require that any securities issued in respect of or in exchange for Shares
issued hereunder that are subject to restrictions be subject to similar
restrictions. Notwithstanding the foregoing, the Committee shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Committee.
Any such adjustments made by the Committee shall be conclusive.
8. SPECIAL ACCELERATION IN CERTAIN EVENTS.
(a) Notwithstanding any other provisions of the Plan, upon the
occurrence of any of the following events (each, a "Corporate
Transaction"):
(i) any consolidation, merger, plan of exchange, or transaction
involving the Company ("Merger") in which the Company is not the
continuing or surviving corporation or pursuant to which the Shares
would be converted into cash, securities or other property, other than a
Merger involving the Company in which the holders of the Shares
immediately prior to the Merger have the same proportionate ownership of
common stock of the surviving corporation after the Merger, or
(ii) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Company or the adoption of any plan or proposal
for the liquidation or dissolution of the Company, or
(iii) a "person" within the meaning of Section 13(d) of the 1934
Act (other than the Company) becomes the beneficial owner (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, in one or more
transactions, of shares of common stock of the Company representing 50%
or more of the total number of votes that may be cast by all
stockholders of the Company voting as a single class, or the first day
on which shares of the Company's common stock are purchased pursuant to
a tender offer or exchange offer,
all Options shall vest and become fully exercisable as to all of the Shares
subject to the Options as of the date thirty (30) days prior to the date of
the Corporate Transaction. The exercise or vesting of any Option and any
Shares acquired upon the exercise thereof that was permissible solely by
reason of this Paragraph 8 shall be conditioned upon the consummation of
the Corporate Transaction. Any Options that are not exercised as of the
date of the Corporate Transaction shall terminate and cease to be
outstanding effective as of the date of the Corporate Transaction.
(c) Other than upon the occurrence of any of the events described in
this Paragraph 8, the Committee shall have the authority at any time or
from time to time to accelerate the vesting of any individual Option and to
permit any Option not theretofore exercisable to become immediately
exercisable.
9. CORPORATE MERGERS, ACQUISITIONS, ETC. The Committee may also grant
Options under the Plan having terms, conditions and provisions that vary from
those specified in the Plan, provided that any such awards are granted in
substitution for, or in connection with the assumption of, existing Options,
issued by
29
another corporation and assumed or otherwise agreed to be provided for by the
Company pursuant to or by reason of a transaction involving a corporate merger,
consolidation, plan of exchange, acquisition of property or stock, separation,
reorganization or liquidation to which the Company is a party.
10. ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to the
participation of Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the 1934 Act,
the Plan shall be administered in compliance with the requirements, if any, of
Rule 16b-3. An Insider is an officer or a director of the Company or any other
person whose transactions in Shares are subject to Section 16 of the 1934 Act.
11. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board of Directors or officers or employees
of the Company, any director, officer or employee of the Company to whom
authority to act for the Board or the Company is delegated shall be indemnified
by the Company against all reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal thereof, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at the Company's own expense
to handle and defend same.
12. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors at any time,
and from time to time, may amend or terminate the Plan in such respects as it
shall deem advisable because of changes in the law while the Plan is in effect
or for any other reason. Except as provided in Paragraphs 6(f), 7 and 8,
however, no change in an award already granted shall be made without the written
consent of the holder of such award (unless such termination or amendment is
required to enable an Option designated as an ISO to qualify as an incentive
stock option or is necessary to comply with any applicable law, regulation or
rule), and no amendment or termination shall be made which without the approval
of the stockholders of the Company would cause the Plan to no longer comply with
Rule 16b-3 under the 1934 Act, Sections 162(m) or 422 of the Code or any other
regulatory requirements. Notwithstanding the immediately foregoing, no amendment
of the Plan which increases the aggregate number of Shares available under the
Plan except to reflect events described in Paragraph 7 hereof, changes the class
of employees eligible to participate in the Plan, extends the term of the Plan,
or reduces the minimum permissible exercise price of an Option under the Plan
that is approved by the Board of Directors shall be effective unless, within 12
months of the date of adoption of such amendment, the amendment is approved by
the stockholders of the Company.
13. APPROVALS. The obligations of the Company under the Plan are subject
to the approval of state and federal authorities or agencies with jurisdiction
in the matter. The Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange or trading
system on which the Company's shares may then be listed or admitted for trading,
in connection with grants under the Plan. The foregoing notwithstanding, the
Company shall not be obligated to issue or deliver Options or Shares under the
Plan if such issuance or delivery would violate applicable state or federal
securities law, or any other state or federal law or regulation.
14. EMPLOYMENT RIGHTS. Nothing in the Plan or any award pursuant to the
Plan shall confer upon any employee any right to be continued in the employment
of the Company or shall interfere in any way with the right of the Company to
terminate an employee's employment at any time, for any reason, with or without
cause, or to increase or decrease an employee's compensation or benefits or to
alter the terms of employment.
15. RIGHTS AS A STOCKHOLDER. The recipient of any award under the Plan
shall have no rights as a stockholder with respect to any Shares until the date
of issue to the recipient of a stock certificate for such
30
Shares. Except as otherwise expressly provided in the Plan, no adjustment shall
be made for dividends or other rights for which the record date is prior to the
date such stock certificate is issued.
16. GOVERNING LAW. All questions arising with respect to the provisions of
the Plan shall be determined by application of the laws of the state of Illinois
except to the extent that Illinois laws are preempted by any federal statute,
regulation, judgment or court order, including but not limited to, the Code.
17. MISCELLANEOUS.
(a) Nothing contained in the Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(b) The Committee shall condition any grant of any Option under the
Plan upon the recipient's execution and delivery to the Company of an
agreement not to compete with the Company during the recipient's employment
with the Company and for such period thereafter as shall be determined by
the Committee. Such covenant against competition shall be in a form
satisfactory to the Committee.
IN WITNESS WHEREOF, this Plan is executed this day of ,
2004, to be effective as of the Effective Date.
SIGMATRON INTERNATIONAL, INC.,
a Delaware corporation
BY:
------------------------------------
Gary R. Fairhead, President and
CEO
31
APPENDIX A
OPTIONEE NUMBER OF OPTIONS
-------- -----------------
32
APPENDIX C
SIGMATRON INTERNATIONAL, INC.
2004 DIRECTORS' STOCK OPTION PLAN
1. PURPOSE. This Stock Option Plan ("the Plan") is intended to encourage
stock ownership by Non-Employee Directors of SigmaTron International, Inc., a
Delaware corporation (the "Company"), so that they may acquire or increase their
proprietary interest in the success of the Company, and to encourage them to
remain as Directors of the Company.
2. ELIGIBILITY. An Option is a right to purchase shares of common stock,
$0.01 par value, of the Company (the "Shares"), subject to adjustments as
provided herein, pursuant to the terms and conditions of the Plan ("Option").
The persons who shall be eligible to receive Options shall be Directors of the
Company (the "Eligible Directors") who are not full-time employees of or
consultants to the Company.
3. SHARES. Subject to the provisions of Paragraph 9 (relating to the
adjustment upon changes in Shares), there will be reserved for issuance upon the
exercise of Options to be granted from time to time under the Plan an aggregate
of sixty thousand (60,000) Shares. If an Option granted under the Plan expires,
terminates or is canceled, the unissued Shares subject to such Option shall
again be available under the Plan.
4. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee"), comprised
solely of individuals who are Non-Employee Directors as defined by Rule
16b-3(b)(3)(i) of the Securities Exchange Act of 1934 (the "1934 Act") and who
shall also qualify as Independent Directors under rules promulgated by Nasdaq.
The interpretation and construction by the Committee of the provisions of the
Plan, any Option granted under it and any related agreement shall be final
except as otherwise determined by the Board of Directors. No member of the Board
of Directors or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under it.
5. TERMS AND CONDITIONS OF OPTIONS. Options granted pursuant to the Plan
shall be evidenced by agreements in such form as the Committee shall from time
to time recommend and the Board of Directors shall from time to time approve,
which agreements shall comply with and be subject to the following terms and
conditions:
(a) On each of the regular annual stockholders meetings for each of the
years 2004 and 2005 (each such date is hereafter the "Date of Grant"),
each Eligible Director ("Optionee") shall receive an Option for five
thousand (5,000) Shares, and such Options shall vest immediately upon
grant.
(b) Each Option shall state the exercise price of the Option (the "Option
price") which shall be 100% of the fair market value of the Shares on
the applicable Date of Grant. The fair market value for purposes of
this paragraph 5(b) is defined as the closing price of the Shares as
reported in the Nasdaq listing in The Wall Street Journal, or such
other reported value of the Shares as shall be specified by the
Committee, on the day preceding the Date of Grant, or if such day is
not a trading day, then on the immediately preceding trading day.
(c) The Option shall be exercised by giving written notice to the Company,
accompanied by full payment of the Option price. The Option price shall
be paid in cash or by check upon the exercise of the Option, or in lieu
thereof an Option holder may make payment in whole or in part by a
cashless exercise as described below. For purposes of this paragraph
5(c), fair market value is defined as the closing price of the Shares
as reported in the Nasdaq listing in The Wall Street Journal, or such
other reported value of the Shares as shall be specified by the
Committee, on the day preceding the exercise of the Option, or if such
day is not a trading day, then on the immediately preceding trading
day. The Optionee may tender Shares only if the Optionee has not
acquired any Shares (including the Shares being tendered), other than
in an acquisition exempt from Section 16(b) of the 1934 Act and rules
and regulations promulgated thereunder, for a period of at least six
months prior to the tender. In addition and if permitted under
applicable law, such exercise may include a cashless
33
exercise if the Options are tendered to a securities broker approved by
the Company in exchange for the number of Shares the fair market value
of which is equal to the aggregate difference between the Option price
and the fair market value of the Options so tendered.
(d) The term of any Option shall be ten (10) years from the Date of Grant.
(e) In no event shall any Option be exercisable prior to the approval of
the Plan by the holders of a majority of the Shares present, or
represented and entitled to vote, at the Company's next annual
stockholders meeting duly held in accordance with the applicable laws
of the State of Delaware.
(f) The Committee shall retain the authority and discretion to permit an
Option to be transferable as long as such transfers are made only to a
Permitted Transferee (as herein defined); provided (i) that such
transfer is a bona fide gift and the Optionee receives no value for the
transfer, as provided in the instructions to Form S-8 of the Securities
and Exchange Commission, (ii) that the Options that are transferred
continue to be subject to the same terms and conditions that were
applicable to the Options immediately prior to the transfer, and (iii)
that the Option may not be otherwise or subsequently sold, pledged,
assigned or transferred in any manner except by will or the laws of
descent or distribution or pursuant to a domestic relations order.
"Permitted Transferee" shall mean any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece,
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, including adoptive relationships, of
the Optionee (a "Family Member"), any person sharing the Optionee's
household (other than as a tenant or employee), or a trust or other
entity in which Family Members and the Optionee have more than fifty
percent of the beneficial or voting interest. In the event of the
Optionee's death, the Option may be exercised only by a person who
acquired the right to exercise it by reason of the death of the
Optionee. Neither the Optionee, any Permitted Transferee, nor any
person who acquires the right to exercise the Option by reason of the
death of the Optionee will be deemed to be a holder of any Shares
subject to the Option unless and until certificates for those shares
are issued to such person. The designation of a beneficiary shall not
constitute a transfer.
(g) An Option shall remain exercisable pursuant to its terms if the
Optionee ceases to be a Director of the Company for any reason, and may
be exercised by the Optionee or his successor or assign after his
death, in each case to the extent and in the manner exercisable by
Optionee. Notwithstanding the foregoing, if an Optionee's directorship
is terminated on account of any act of: (1) fraud; (2) intentional
misrepresentation; (3) embezzlement; or (4) misappropriation or
conversion of assets or opportunities of the Company or any direct or
indirect majority-owned subsidiary of the Company, the Optionee or his
successors or assigns may exercise his Option at any time within three
months after termination of his directorship, or at any time prior to
the expiration date of such Option, whichever is the shorter period,
but only to the extent that it was exercisable by Optionee on the date
of termination of his office. The Company assumes no responsibility and
is under no obligation to notify a Permitted Transferee of early
termination of an Option on account of a Director's termination of
office. During the applicable exercise period, the Option may not be
exercised for more than the number of vested Shares (if any) for which
it is exercisable at the time of the Optionee's cessation of Board
service.
(h) Neither an Optionee nor his Permitted Transferee, legal representative,
heir, legatee, or distributee shall be deemed to be the holder of, or
to have any of the rights of a holder with respect to, any Shares
subject to such Option unless and until he has paid the Company the
full purchase price of such Shares and received a certificate or
certificates therefor. Except as provided in Paragraph 9 hereof, no
adjustments will be made for dividends, whether ordinary or
extraordinary, whether in cash, securities, or other property, or for
distributions for which the record date is prior to the date on which
the Option is exercised.
(i) The minimum number of Shares with respect to which an Option may be
exercised in part at any time is 100.
34
6. RESTRICTIONS ON SHARES. The certificate or certificates representing
the Shares to be issued or delivered upon exercise of an Option may bear such
legends required by any applicable securities laws. Nothing herein or any Option
granted hereunder will require the Company to issue any stock upon exercise of
any Option if the issuance would, in the opinion of counsel for the Company,
constitute a violation of the Securities Act of 1933, as amended (the "1933
Act"), the Illinois securities laws, or any other applicable rule or regulation
then in effect, and the Company shall have no liability for failure to issue
Shares upon any exercise of Options because of a delay pending the meeting of
any such requirements. No Shares shall be delivered pursuant to the exercise of
any Option, in whole or in part, until the Shares are qualified for delivery
under such securities laws and regulations as may be deemed by the Committee to
be applicable thereto, and such Shares are listed on each securities exchange on
which Shares may then be listed or otherwise bear appropriate restrictive
legend.
7. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the Options
granted hereunder and the obligation of the Company to sell and deliver Shares
upon exercise of such Options, will be subject to all applicable federal and
state laws, rules, regulations and to such approvals by any government or
regulatory authority or investigative agency as may be required.
8. NO IMPLIED COVENANTS. Neither the Plan nor any action taken hereunder
shall be construed as giving any Director any right to be retained in office.
9. ADJUSTMENTS UPON CHANGES IN SHARES. If any change is made in the Shares
subject to the Plan or subject to any Option granted under the Plan (through
reorganization, merger, consolidation, plan of exchange, recapitalization,
reclassification, stock split, combination of shares, dividend payable in Shares
or otherwise), adjustments as it deems appropriate shall be made by the
Committee in the number and kind of Shares available for awards under the Plan.
In addition, the Committee shall make adjustments as it deems appropriate in the
number and kind of Shares as to which outstanding Options, or portions thereof
then unexercised, shall be exercisable, and/or the Option Price, to the end that
the Optionee's proportionate interest is maintained as before the occurrence of
such event.
10. AMENDMENT OF THE PLAN. The Board of Directors at any time, and from
time to time, may amend the Plan, subject to the limitation, however, that,
except as provided in Paragraph 9 (relating to adjustments upon changes in
Shares), no amendment shall be made, except upon approval by vote of a majority
of the outstanding shares of the Company, which will:
(a) increase the number of shares reserved for Options under the Plan; or
(b) reduce the Option price below 100% of fair market value of the Shares
at the time an Option is granted; or
(c) change the requirements for eligibility for participation under the
Plan; or
(d) extend the term of the Plan;
and provided further that the Plan shall not be amended more than once every six
months, other than to comport with changes in applicable law.
11. TERMINATION OR SUSPENSION OF THE PLAN. The Board of Directors at any
time, and from time to time, may suspend or terminate the Plan. Unless
previously terminated by the Board, the Plan shall terminate on, and no further
Options will be granted after the tenth anniversary of the Effective Date of the
Plan, as described in Paragraph 12 hereof. Rights and obligations under any
Option granted while the Plan is in effect shall not be altered or impaired by
suspension or termination of the Plan, except by consent of the person to whom
the Option was granted.
12. EFFECTIVE DATE. The Plan shall become effective on the date it is
adopted by the Company's Board of Directors, provided that the stockholders
approve the Plan within twelve months thereafter.
13. MODIFICATION, EXTENSION AND RENEWAL. Subject to the conditions of, and
within the limitations prescribed in, Paragraph 10 hereof, the Committee may
cancel, modify, extend or renew outstanding Options. Notwithstanding the
foregoing, no modification will, without the prior written consent of the
Optionee, alter,
35
impair or waive any rights or obligations associated with any Option earlier
granted under the Plan. Further, but subject to Paragraph 9, the Committee may
not change the number of Shares or the class of persons who are eligible to
participate in the Plan.
14. USE OF PROCEEDS FROM SHARES. Cash proceeds from the sale of Shares
pursuant to Options granted under the Plan shall constitute general funds of the
Company.
15. CORPORATE REORGANIZATIONS. "Corporate Transaction" shall mean the
dissolution or liquidation of the Company, or a reorganization, merger or
consolidation of the Company as a result of which the outstanding securities of
the class then subject to Options hereunder are changed into or exchanged for
cash or property or securities not of the Company's issue, or a sale of
substantially all the property of the Company to, or the acquisition of stock
representing more than eighty percent (80%) of the voting power of the stock of
the Company then outstanding, by another corporation or person. Any Options that
are not exercised as of the date of a Corporate Transaction shall terminate and
cease to be outstanding effective as of the date of the Corporate Transaction,
except that the exercise of any Option that was exercised in anticipation of the
Corporate Transaction shall be conditioned upon the consummation of the
Corporate Transaction. The Committee may also grant Options under the Plan
having terms, conditions and provisions that vary from those specified in the
Plan, provided that any such awards are granted in substitution for, or in
connection with the assumption of, existing Options issued by another
corporation and assumed or otherwise agreed to be provided for by the Company
pursuant to or by reason of a transaction involving a corporate merger,
consolidation, plan of exchange, acquisition of property or stock, separation,
reorganization or liquidation to which the Company is a party.
16. GOVERNING LAW. All questions arising with respect to the provisions of
the Plan will be determined by application of the Code and the laws of the state
of Illinois except to the extent that Illinois laws are preempted by any federal
law.
17. OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan shall
prevent the Board from adopting other or additional compensation arrangements,
subject to stockholder approval if such approval is required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
18. ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to the
participation of Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the 1934 Act,
the Plan shall be administered in compliance with the requirements, if any, of
Rule 16b-3. An Insider is an officer or a director of the Company or any other
person whose transactions in stock are subject to Section 16 of the 1934 Act.
19. INDEMNIFICATION. In addition to such other rights of indemnification
as they may have as members of the Board, members of the Board to whom authority
to act for the Board or the Company is delegated shall be indemnified by the
Company against all reasonable expenses, including attorneys' fees, actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan, or any right granted hereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such person is liable for gross negligence, bad faith or
intentional misconduct in duties; provided, however, that within sixty (60) days
after the institution of such action, suit or proceeding, such person shall
offer to the Company, in writing, the opportunity at the Company's own expense
to handle and defend same.
20. EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing,
if the exercise of an Option within the applicable time periods set forth in
Paragraph 5 is prevented by the provisions of Paragraph 6, the Option shall
remain exercisable until three months (or such longer period of time as
determined by the Board, in its discretion) after the date the Optionee is
notified by the Company that the Option is exercisable, but in no event later
than the Option expiration date.
36
IN WITNESS WHEREOF, this Plan is executed this day of ,
2004, to be effective as of the Effective Date.
SIGMATRON INTERNATIONAL, INC.,
a Delaware corporation
By:
------------------------------------
Gary R. Fairhead, President and
CEO
37
APPENDIX A
OPTIONEE NUMBER OF OPTIONS
-------- -----------------
38
ANNUAL MEETING OF STOCKHOLDERS OF
SIGMATRON INTERNATIONAL, INC.
SEPTEMBER 17, 2004
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
AND "FOR" PROPOSALS 2 THROUGH 6.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of Directors:
NOMINEES:
[ ] FOR ALL NOMINEES o John P. Chen
o Carl A. Zemenick
[ ] WITHHOLD AUTHORITY
FOR ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee
you wish to withhold, as shown here:
FOR AGAINST ABSTAIN
2. PROPOSAL TO RATIFY THE SELECTION OF GRANT [ ] [ ] [ ]
THORNTON LLP AS INDEPENDENT AUDITORS
3. PROPOSAL TO APPROVE THE ADOPTION OF THE [ ] [ ] [ ]
SIGMATRON INTERNATIONAL, INC. 2004 EMPLOYEE
STOCK OPTION PLAN
4. PROPOSAL TO APPROVE THE ADOPTION OF THE [ ] [ ] [ ]
SIGMATRON INTERNATIONAL, INC. 2004 DIRECTORS'
STOCK OPTION PLAN
5. PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION [ ] [ ] [ ]
TO INCREASE TO 12 MILLION THE NUMBER OF AUTHORIZED
SHARES OF COMMON STOCK OF THE COMPANY
6. IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS [ ] [ ] [ ]
MAY PROPERLY COME BEFORE THE MEETING
(which the Board of Directors does not know
of prior to August 16, 2004)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES FOR DIRECTORS, AND FOR THE RATIFICATION OF THE
SELECTION OF GRANT THORNTON LLP AS INDEPENDENT AUDITORS, AND WILL CONFER THE
AUTHORITY IN PARAGRAPH 3.
Receipt is hereby acknowledged of the Notice of the Meeting and Proxy Statement
dated August 16, 2004 as well as a copy of the 2004 Annual Report to
Stockholders.
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.
To change the address on your account, please check the box at right [ ]
and indicate your new address in the address space above. Please
note that changes to the registered name(s) on the account may not be
submitted via this method.
Signature of Stockholder__________________________________ Date:_______________
Signature of Stockholder__________________________________ Date:_______________
NOTE: Please sign exactly as your name or names appear on this Proxy. When
shares are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
the signer is a corporation, please sign full corporate name by duly authorized
officer, giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
SIGMATRON INTERNATIONAL, INC
2201 LANDMEIER ROAD
ELK GROVE VILLAGE, IL 60007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary R. Fairhead, Linda K. Blake and
Henry J. Underwood, and each of them, with full power of substitution, attorneys
and proxies to represent the undersigned at the 2004 Annual Meeting of
Stockholders of SIGMATRON INTERNATIONAL, INC. (the "Company") to be held at the
Holiday Inn located at 1000 Busse Road, Elk Grove Village, Illinois at 10:00
a.m. local time, on Friday, September 17, 2004 or at any adjournment thereof,
with all power which the undersigned would possess if personally present, and to
vote all shares of stock of the Company which the undersigned may be entitled to
vote at said Meeting as follows.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)