SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
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(as permitted by Rule 14a-6(e)(2))
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[ ] Soliciting Material Pursuant to Section 240.14a-12
PACIFIC MAGTRON INTERNATIONAL CORP.
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PACIFIC MAGTRON INTERNATIONAL CORP.
1600 CALIFORNIA CIRCLE
MILPITAS, CA 95035
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 6, 2003
The 2003 Annual Meeting of Shareholders of Pacific Magtron International
Corp. will be held at our offices of at 1600 California Circle, Milpitas,
California 95035 on JUNE 6, 2003 at 1:00 p.m., Pacific Time.
MATTER TO BE VOTED ON:
1. Election of five directors.
2. To ratify the appointment of KPMG, LLP as our independent auditors for
the fiscal year ended December 31, 2003; and
3. To transact such other business as may properly come before the annual
meeting or any adjournment of the meeting.
The close of business on April 25, 2003 has been fixed as the record date
for the determination of the shareholders of record entitled to notice of, and
to vote at, this meeting or any adjournment thereof. The list of shareholders
entitled to vote at this meeting is available at our offices, 1600 California
Circle, Milpitas, CA 95035, for examination by any shareholder.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THIS MEETING, PLEASE SIGN, DATE
AND RETURN THE ENCLOSED PROXY, WHICH IS SOLICITED BY AND ON BEHALF OF THE BOARD
OF DIRECTORS. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH
PROXY OR TO VOTE IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THIS MEETING.
By Order of the Board of Directors
Theodore S. Li
President
Milpitas, California
April 30, 2003
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PROXY STATEMENT
TABLE OF CONTENTS
GENERAL INFORMATION............................................................1
Who Can Vote..............................................................1
Voting by Proxies.........................................................1
How You May Revoke Your Proxy Instructions................................1
How Votes are Counted.....................................................1
Cost of this Proxy Solicitation...........................................2
Attending the Annual Meeting..............................................2
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL?.................................2
WHO SHOULD I CALL IF I HAVE QUESTIONS?.........................................2
PROPOSALS......................................................................2
PROPOSAL NO. 1 - ELECT FIVE DIRECTORS.....................................2
INFORMATION ABOUT THE NOMINEES............................................4
PROPOSAL NO. 2 - TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS............4
ABOUT THE BOARD AND ITS COMMITTEES.............................................5
ABOUT THE EXECUTIVE OFFICERS...................................................6
EXECUTIVE COMPENSATION.........................................................7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION....................8
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION..................8
AUDIT COMMITTEE REPORT........................................................11
AUDIT FEES....................................................................12
FINANCIAL INFORMATION SYSTEMS AND DESIGN AND IMPLEMENTATION FEES..............12
ALL OTHER FEES................................................................12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......................13
OWNERSHIP OF OUR COMMON STOCK BY PRINCIPAL SHAREHOLDERS
AND OUR MANAGEMENT..........................................................13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................14
STOCK PRICE PERFORMANCE GRAPH.................................................14
OTHER MATTERS.................................................................16
SHAREHOLDER PROPOSALS.........................................................16
ANNUAL REPORT.................................................................16
AUDIT COMMITTEE CHARTER FOR PACIFIC MAGTRON INTERNATIONAL CORP................17
PROXY STATEMENT
Your vote is very important. For this reason, the Board of Directors is
requesting that you allow your common stock to be represented at the Annual
Meeting by the persons who are named on the enclosed Proxy Card. This Proxy
Statement is being sent to you in connection with this request and has been
prepared for the Board by our management. "We," "our," "PMIC" and the "Company"
refer to Pacific Magtron International Corp. The Proxy Statement is first being
sent to our shareholders on or about May 7, 2003.
GENERAL INFORMATION
WHO CAN VOTE You are entitled to vote your common stock if our
records showed that you held your shares as of April
25, 2003. At the close of business on that date,
10,485,062 shares of common stock were outstanding and
entitled to vote. Each share of common stock has one
vote. There are 600 shares of non-voting 4% Series A
Convertible Preferred Stock outstanding as of April 25,
2003. There are no other classes of stock outstanding.
The enclosed Proxy Card shows the number of shares that
you are entitled to vote. Your individual vote is
confidential and will not be disclosed to third
parties.
VOTING BY PROXIES If your common stock is held by a broker, bank or other
nominee (i.e., in "street name"), you will receive
instructions from it that you must follow in order to
have your shares voted. If you hold your shares in your
own name as a holder of record, you may instruct the
Proxies how to vote your common stock by signing,
dating and mailing the Proxy Card in the envelope
provided. Of course, you can always come to the meeting
and vote your shares in person. If you give us a proxy
without giving specific voting instructions, your
shares will be voted by the Proxies as recommended by
the Board of Directors. We are not aware of any other
matters to be presented at the Annual Meeting except
for those described in this Proxy Statement. However,
if any other matters not described in the Proxy
Statement are properly presented at the meeting, the
Proxies will use their own judgment to determine how to
vote your shares. If the meeting is adjourned, your
common stock may be voted by the Proxies on the new
meeting date as well, unless you have revoked your
proxy instructions prior to that time.
HOW YOU MAY REVOKE You may revoke your proxy instructions by any of the
YOUR PROXY following procedures:
INSTRUCTIONS
* Send us another signed proxy with a later date;
* Send a letter to our secretary revoking your proxy
before your common stock has been voted by the
Proxies at the meeting; or
* Attend the Annual Meeting and vote your shares in
person.
HOW VOTES ARE An inspector of elections will be appointed for the
COUNTED meeting. The inspector of elections will determine
whether or not a quorum is present and will tabulate
votes cast by proxy or in person at the Annual Meeting.
If you have returned valid proxy instructions or attend
the meeting in person, your common stock will be
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counted for the purpose of determining whether there is
a quorum, even if you wish to abstain from voting on
some or all matters introduced at the meeting. If a
broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on
a particular matter, those shares will be considered as
present and entitled to vote with respect to that
matter.
COST OF THIS PROXY We will pay the cost of this proxy solicitation. We
SOLICITATION will, upon request, reimburse brokers, banks and other
nominees for their expenses in sending proxy material
to their principals and obtaining their proxies. We
will solicit proxies by mail, except for any incidental
personal solicitation made by our directors, officers
and employees, for which they will not be paid.
ATTENDING THE ANNUAL If you are a holder of record and you plan to attend
MEETING the Annual Meeting, please indicate this when you vote.
If you are a beneficial owner of common stock held by a
broker or bank, you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement
or letter from a broker or bank showing your current
ownership and ownership of our shares on the record
date are examples of proof of ownership. Although you
may attend the meeting, you will not be able to vote
your common stock held in street name in person at the
meeting and will have to vote through your broker or
bank. If you want to vote your common stock held in
street name in person, you will have to get a proxy in
your name from the registered holder.
WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
PROPOSAL 1: ELECTION The five nominees for director who receive the most
OF FIVE DIRECTORS votes will be elected. There is no cumulative voting.
Therefore, if you do not vote for a nominee at the
meeting or you indicate "withhold authority to vote"
for any nominee on your proxy card, your vote will not
count for or against any nominee.
PROPOSAL 2: In accordance with the recommendation of its Audit
RATIFICATION OF THE Committee, the board has appointed KPMG LLP to be the
APPOINTMENT OF company's independent auditors for the year ended
INDEPENDENT AUDITORS December 31, 2003. The ratification of the appointment
of KPMG LLP requires the affirmative vote of a majority
of the shareholders.
WHO SHOULD I CALL IF I HAVE QUESTIONS?
If you have questions about the Annual Meeting or voting, please call Hui
"Cynthia" Lee, our Corporate Secretary. Ms. Lee may be reached at (408)
956-8888.
PROPOSALS
PROPOSAL NO. 1 - ELECT FIVE DIRECTORS
NUMBER OF An entire Board of Directors, consisting of five
DIRECTORS TO directors, is to be elected at the Annual Meeting. Each
BE ELECTED Director elected will hold office until the next annual
meeting and the election of his or her successor. If
any director resigns or otherwise is unable to complete
his or her term of office, the Board will elect another
director for the remainder of the resigning director's
term. Our Articles of Incorporation provide for a Board
consisting of not fewer than one member.
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VOTE REQUIRED Under Nevada law, when directors are to be elected to
office each shareholder is entitled to one vote for
each share of stock standing in the shareholder's name
on the records of the corporation.
NOMINEES OF THE BOARD The Board has nominated the following individuals to
serve on our Board of Directors until the next annual
meeting and the election of their successors:
Theodore S. Li
Hui Lee
Jey Hsin Yao
Hank C. Ta
Raymond Crouse
All of these nominees are currently serving on the
Board. Each of the nominees agreed to be named in this
proxy statement and to serve if elected.
See "Information about the Nominees" on the following
page for information regarding each of the Nominees
listed above.
We know of no reason why any of the listed nominees would not be able to serve.
However, if any nominee is unavailable for election, the Proxies would vote your
shares to approve the election of any substitute nominee proposed by the Board.
The Board may also choose to reduce the number of Directors to be elected, as
permitted by our Bylaws.
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INFORMATION ABOUT THE NOMINEES
THEODORE S. LI Mr. Li has served as our President, Treasurer and a
(age 45) Director since 1998 and as the President and a Director
of Pacific Magtron, Inc., a California corporation that
is our principal operating subsidiary ("PMI"), since
1995. He is responsible for our operations, technical
functions and finance.
HUI "CYNTHIA" LEE Ms. Lee has served as our Secretary and a Director
(age 40) since 1998, and as a Director and Vice President, Sales
and Purchasing of PMI since 1995. She is responsible
for our sales and purchasing functions. She received
her bachelor of language and literature from Chang Chi
University in Taiwan. Ms. Lee is married to Dr. Yao.
JEY HSIN YAO, PH.D. Dr. Yao has served as a Director since 1998 and as a
(age 40) Director and Secretary of PMI since 1995. He has been
employed at Fujitsu as a senior researcher since 1992.
He received his bachelor of science in electrical
engineering from National Taiwan University, and his
masters and Ph.D degrees from the Department of
Electrical Computer Engineering of the University of
California, Santa Barbara. Dr. Yao is married to Ms.
Lee.
HANK C. TA Mr. Ta has served as a Director since 1999. Mr. Ta has
(age 45) been the President and Chief Executive Officer of CC
Integration/Micro Age since 1992. This company is an
authorized reseller from Compaq, Cisco and Hewlett
Packard. He received his bachelor of science in
electrical engineering from San Jose State University.
Raymond Crouse Mr. Crouse served as a Director of the Board and as the
(age 43) as the Chairman of the Audit Committee since June 17,
2002. He is a Director of Litigation & Recovery of De
Lage Landen Financial Services since 2002. Mr. Crouse
was a Vice President and National Portfolio Director
for Finova Capital Corporation in 2001 and 2000. He was
a founder and President of AMC Capital Services, Inc.
from 1996 to 1999. AMC Capital Services provides
financial and commercial lending services to various
companies.
YOUR DIRECTORS RECOMMEND A VOTE FOR THE ELECTION OF THE FIVE NOMINEES UNDER
PROPOSAL NO. 1
PROPOSAL NO. 2 - TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
In accordance with the recommendation of its Audit Committee, the board has
appointed KPMG, LLP (KPMG) to be our independent auditor for the year ended
December 31, 2003. KPMG has completed their audit and rendered their opinion on
our consolidated financial statements for the year ended December 31, 2002. On
December 20, 2002, our board of directors passed a resolution dismissing BDO
Seidman, LLP as our independent auditors. The audit reports of BDO Seidman, LLP
on our consolidated financial statements for the years ended December 31, 2001
and 2000 contained no adverse opinions, disclaimer of opinion or qualification
or modification as to uncertainty, audit scope or accounting principles.
The board asks you to ratify the appointment of KPMG. If the shareholders do not
ratify the appointment, the board will consider the appointment of other
independent auditors.
Representatives of KPMG are not expected to be present at the annual meeting.
YOUR DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF KPMG LLP
AS INDEPENDENT AUDITORS FOR 2003.
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ABOUT THE BOARD AND ITS COMMITTEES
THE BOARD We are governed by a Board of Directors, and a
committee of the Board which meet throughout the year.
The Board of Directors held three meetings and acted by
unanimous written consent four times during 2002.
Directors discharged their responsibility throughout
the year through informal telephonic conferences and
other communications with the Chairman and others
regarding our business. All members attended at least
75% of the meetings of the Board of Directors and any
other committees on which such members served.
COMMITTEES OF THE The Board has one committee, the Audit Committee. The
BOARD function of this Committee is described below along
with the current membership and number of meetings held
during 2002.
AUDIT COMMITTEE Our Audit Committee is currently composed of Hank C.
Ta, Raymond Crouse and Limin Hu, PhD. Each member of
the Audit Committee is an "independent director" as
defined in Rule 4200(a)(4) of the National Association
of Securities Dealers, Inc. Listing standards. The
charter of our Audit Committee is attached as Appendix
A hereto. The Audit Committee's duties include the
review, examination and discussion of the following:
* the findings of the independent auditors resulting
from their audit and certification of our
financial statements;
* our accounting principles for corporate and tax
reporting purposes, including actual or impending
changes in financial accounting requirements that
may materially affect us;
* the adequacy of our financial and accounting
controls, including particular regard for the
scope and performance of the internal auditing
function; and
* recommendations by the independent auditors or the
internal auditing staff with respect to changes in
our policies or practices.
Mr. Ta and Dr. Hu were appointed to the Audit Committee
in April 1999, Mr. Crouse was appointed to the Audit
Committee in June 17, 2002. Dr. Hu will not be standing
for re-election to the Board at the meeting of the
Audit Committee in the coming year. The Committee held
five meetings during 2002.
DIRECTOR COMPENSATION Directors currently receive no cash compensation for
their services in that capacity. Reasonable
out-of-pocket expenses may be reimbursed to directors
in connection with attendance at meetings. Mr. Ta and
Dr. Hu were granted 10,000 options each at a price of
$1.05 per share. Mr. Crouse was granted 10,000 options
at a price of $.76 per share. The options are
exercisable for five years. Mr. Ta, Dr. Hu, and Raymond
Crouse are non-employee directors.
LIMITATION OF LIABILITY Nevada law permits the inclusion of a provision in the
OF DIRECTORS articles of incorporation of a corporation limiting or
eliminating the potential monetary liability of
directors to a corporation or its shareholders by
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reason of their conduct as directors. These sections do
not permit any limitation on, or the elimination of,
liability of a director for disloyalty to his or her
corporation or its shareholders, failing to act in good
faith, engaging in intentional misconduct or a knowing
violation of the law, obtaining an improper personal
benefit or paying a dividend that was illegal under
Nevada law. Accordingly, the provisions limiting or
eliminating the potential monetary liability of
directors permitted by the Nevada law apply only to the
"duty of care" of directors, that is, to unintentional
errors in their deliberations or judgments and not to
any form of "bad faith" conduct.
Our Articles of Incorporation eliminate the personal
monetary liability of directors to the extent allowed
under Nevada law.
ABOUT THE EXECUTIVE OFFICERS
Theodore S. Li and Hui "Cynthia" Lee are our principal executive officers. For
information regarding Mr. Li and Ms. Lee, please refer to "Information About the
Nominees" beginning on Page 4. All executive officers are appointed by and serve
at the discretion of the Board for continuous terms. Neither of our executive
officers have employment agreements with us.
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EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by us to the
chief executive officer and the most highly compensated executive officers and
key employees (the "Named Executive Officers") whose total remuneration exceeded
$100,000 for services rendered in all capacities to us during the last three
completed fiscal years.
Long-Term
Compensation
Annual Compensation(1) Securities
Name and ---------------------- Underlying All Other
Principal Position Year Salary Bonus Options(#)(3) Compensation(2)
------------------ ---- -------- ------- ------------- ---------------
Theodore Li 2002 $120,000 $ -- -- $ --
President, Chief Executive 2001 120,000 95,238 250,000 399
Officer, Treasurer and 2000 120,000 4,760 -- 1.925
Director
Hui "Cynthia" Lee 2002 120,000 33,333 -- --
Secretary and Director 2001 120,000 61,905 250,000 425
2000 120,000 4,762 -- 2,500
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(1) No executive officer named in the Compensation Table received personal
benefits or perquisites in excess of the lesser of $50,000 or 10% of his or
her aggregate salary and bonus.
(2) Consists of contributions made by us on behalf of the executive officer to
the PMI Pension/Profit Sharing Plan.
(3) All options have an exercise price at least equal to fair market value on
the date of grant.
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STOCK OPTION GRANTS IN 2002
There were no stock options to purchase shares of our common stock granted
during 2002 to the our Executive Officers.
YEAR-END OPTION VALUES
The following table shows the numbers of shares of common stock represented
by outstanding stock options held by each of the Named Executive Officers at
December 31, 2002.
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at December 31, 2002 at December 31, 2002(1)
----------------------------- ----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Theodore Li 250,000(2) -- $ -- --
Hui "Cynthia" Lee 250,000(2) -- $ -- --
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(1) Options are in-the-money if the fair market value of the shares of common
stock exceeds the exercise price.
(2) These options were granted on May 4, 2001 and all of these options were
immediately exercisable. Of the options granted, 103,092 are incentive
stock options granted under the 1998 Incentive Stock Option Plan and have
an exercise price per share of $.97. The remaining 146,908 options are
non-qualified options not granted under any plan. The exercise price per
share is $.88.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not have a Compensation Committee, and the entire Board of Directors
made executive officer compensation decisions. Both Mr. Theodore Li and Ms. Hui
"Cynthia" Lee are executive officers and participated in the deliberations of
our Board of Directors concerning executive officer compensation.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report relates to compensation decisions made by our Board. This
report shall not be deemed incorporated by reference by any general statement
incorporating by reference this Proxy Statement into any filing under the
Securities Act of 1933 (the "Securities Act") or the Exchange Act of 1934 (the
"Exchange Act"), except to the extent that we specifically incorporate this
information by reference, and shall not otherwise be deemed filed under such
Acts.
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WHAT IS OUR Decisions on compensation of our executive officers were
COMPENSATION made by the Board of Directors (the "Board"). For fiscal
PHILOSOPHY? 2002, the Board followed the following subjective principles
regarding its compensation decisions:
* Compensation should reflect and promote our
values, and reward individuals for contributions
to our success;
* Compensation should be related to the value
created for shareholders;
* Compensation and compensation programs should
integrate our long- and short-term strategies; and
* Compensation programs should be designed to
attract and retain executives critical to our
success.
Executive compensation is comprised of salary, bonus and
stock options. Due to the level of compensation received by
our officers, the Board has not yet deemed it necessary to
adopt a policy regarding the one million-dollar cap on
deductibility of certain executive compensation under
Section 162(m) of the Internal Revenue Code.
BASE SALARY Salary recommendations were submitted to the Board by senior
management on request. In evaluating these recommendations,
the Board took into account management's efforts and our
performance. The Board also took into account (i)
management's consistent commitment to our long-term success
through the development of new and improved products and
(ii) the amount of our common stock owned by each executive.
The Board attempted to assimilate the foregoing factors when
it rendered its compensation decisions; however, the Board
recognizes that its decisions are primarily subjective in
nature due to the subjective nature of the criteria. The
Board did not assign any specified weight to the criteria it
considers.
Salary recommendations are fixed at levels that the Board
believes are sufficient, especially in light of the fact
that Mr. Li and Ms. Lee are major shareholders of the
Company, which the Board believes aligns their interest with
the other shareholders. In the past three fiscal years, the
Board has not increased the annual base salary for the Chief
Executive Officer, and Ms. Lee's annual base salary was not
increased this year.
BONUS The Board determined to pay Ms. Lee bonus of $33,333 in
light of her contributions to the Company and her
performance.
OPTIONS Our 1998 Stock Option Plan (the "Plan") is administered by
the Board of Directors. All employees are eligible to
participate in the Plan. The exercise price of options
granted under the Plan will not be less than the fair market
value of our common stock on the day of grant.
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CHIEF EXECUTIVE The Board's evaluation process of the Chief Executive
OFFICER Officer's compensation was comprised of the same components
that were utilized in evaluating other members of senior
management. Mr. Li's base salary was not increased.
The Board of Directors
Theodore S. Li
Hui "Cynthia" Lee
Jey Hsin Yao, Ph.D.
Hank C. Ta
Limin Hu, Ph.D
Raymond Crouse
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AUDIT COMMITTEE REPORT
The Board of Directors maintains an Audit Committee comprised of three of
our outside directors. Mr. Crouse was not appointed to the Audit Committee until
June 2002. The Board of Directors and the Audit Committee believe that the Audit
Committee's current member composition satisfies the rule of the National
Association of Securities Dealers, Inc. ("NASD") that governs audit committee
composition, including the requirement that audit committee members all be
"independent directors," as that term is defined by NASD Rule 4200(a)(14).
The Audit Committee oversees our financial process on behalf of the Board
of Directors. Management has the primary responsibility for the financial
statements and the reporting process including the systems of internal controls.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and
discussed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements. The Board has adopted a
written Charter of the Audit Committee, a copy of which is attached as an
Appendix A hereto.
The Audit Committee reviewed and discussed with the independent auditors,
who are responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of our accounting
principles and such other matters as are required to be discussed with the
committee under generally accepted auditing standards, including Statement on
Auditing Standards No. 61. In addition, the Audit Committee has discussed with
the independent auditors the auditors' independence from management and the
Company, including the matters in the written disclosures and the letter from
the independent auditors required by the Independence Standards Board Standard
No. 1.
The Audit Committee discussed with our independent auditors the overall
scope and plans for their audit. The Audit Committee meets with the independent
auditors, with and without management present, to discuss the results of their
examination, their evaluation of our internal controls, and the overall quality
of our financial reporting. The Audit Committee held five meetings during fiscal
2002.
On December 20, 2002, the Company's board of directors passed a resolution
dismissing BDO Siedman, LLP ("BDO") as its independent accountant for the fiscal
year ended December 31, 2002. On the same date, the Company appointed KPMG LLP
("KPMG") to replace BDO as the Company's independent auditor for the current
fiscal year.
The report of BDO for the fiscal years ended December 31, 2000 and 2001
contained no adverse opinions, disclaimer of opinion or qualification or
modification as to uncertainty, audit scope or accounting principles.
Except for the disagreement discussed below, during the Company's two most
recent fiscal years and subsequent interim periods through the date of
dismissal, December 20, 2002, there were no other disagreements with BDO on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures or any other matters considered reportable events
as contemplated by Regulation S-K 304 (a)(1)(iv)(A) and (B).
In accounting for the issuance of its preferred stock in May 2002, the
Company recorded a deemed dividend of $303,000 associated with the beneficial
conversion feature as a charge against retained earnings and an increase in
Additional Paid-in Capital. BDO reviewed the Company's Form 10-Q for the quarter
ended June 30, 2002, and advised the Company that an additional deemed dividend
of $148,300 associated with 300,000 common stock warrants issued to the investor
should be recorded as a charge against retained earnings and an increase in the
carrying amount of preferred stock. After further research and consultation with
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BDO, the Company agreed to record this additional deemed dividend. However, the
Company's management believed it was proper to increase Additional Paid-in
Capital for both of these deemed dividends and reflected such presentation in
the Company's Form 10-Q for the quarter ended June 30, 2002. BDO reviewed the
Company's Form 10-Q for the quarter ended September 30, 2002, and at the
conclusion of further research and consultation, advised the Company that the
$148,300 deemed dividend relating to the common stock warrants issued to the
investor should be reclassified from Additional Paid-in Capital to the carrying
amount of the preferred stock. Management did not concur with the proposed
reclassification. BDO discussed the basis for their position, and the proposed
adjustment with the Chairman of the Audit Committee on November 7, 2002. On
November 12, 2002, after discussion of the above matter with BDO, the Audit
Committee Chairman recommended that the Company not reclassify this deemed
dividend to the carrying amount of the preferred stock until the Audit Committee
could analyze the issue closely during the fourth quarter of 2002. On November
13, 2002, BDO notified the Audit Committee Chairman and management of the
Company that there was an unresolved reportable disagreement regarding the
accounting treatment of this deemed dividend. On November 14, 2002 BDO had a
telephone conversation with the Company's outside counsel to discuss the issue.
Following that conversation, the Company elected to reclassify the credit
associated with the deemed dividend to the preferred stock in accordance with
the advice of BDO.
The Company did not consult with KPMG during the fiscal years ended
December 31, 2000 and 2001, and the interim period from January 1, 2002 through
December 20, 2002, on any matter which was the subject of any disagreement,
including the disagreement reported herein, or any reportable event or on the
application of accounting principles to a specified transaction, either
completed or proposed. Further, the Company has consented to the free
consultation of KPMG with BDO, including the disagreement with management noted
above and other matters.
The Audit Committee reviews audit and non-audit services performed by KPMG and
BDO Seidman, LLP and considered whether such services are compatible with
maintaining their independence as auditors. We incurred the following fees for
services performed by KPMG and BDO Seidman, LLP in fiscal 2002.
AUDIT FEES
The aggregate fees billed by KPMG for the audit of our consolidated financial
statements for the year ended December 31, 2002 were $90,000. There were no
other fees billed by KPMG. The aggregate fees billed by BDO Seidman, LLP for the
review of the consolidated financial statements included in the Company's Forms
10-Q for fiscal 2002 were $33,000.
FINANCIAL INFORMATION SYSTEMS AND DESIGN AND IMPLEMENTATION FEES
BDO Seidman, LLP did not render any services related to financial
information systems design and implementation for the fiscal year ended December
31, 2002.
ALL OTHER FEES
Aggregate fees billed for all other services rendered by BDO Seidman, LLP
for the fiscal year ended December 31, 2002, consisting of tax planning and
compliance, and review of a registration statement totaled $74,647.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2002 for filing with the SEC.
Raymond Crouse, Audit Committee Chair
Hank C. Ta
Limin Hu
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and directors, and
persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Such officers, directors and shareholders are required by the SEC to furnish us
with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such forms received by us, and
written representations from certain reporting persons that no forms were
required for such persons, we believe that during fiscal year ended December 31,
2002 our officers, directors and greater than 10% beneficial owners have
complied with all filing requirements applicable to them.
OWNERSHIP OF OUR COMMON STOCK BY PRINCIPAL SHAREHOLDERS
AND OUR MANAGEMENT
The following table sets forth information, as of March 31, 2002, with
respect to the number of shares of our common stock beneficially owned by
individual directors, by all directors and officers as a group, and by persons
who we know own more than 5% of our common stock. We have no other class of
voting stock outstanding. The address of each shareholder listed below is 1600
California Circle, Milpitas, California 95035, except for Betty Lin, whose
address is P.O. Box 5267, Berkeley, California 94705.
Name of Beneficial Number of Shares Percent of
Owner and Address Beneficially Owned Common Stock
----------------- ------------------ ------------
Theodore S. Li(1) 2,404,300 19%
Hui "Cynthia" Lee(2)(3) 4,675,500 37%
Betty Lin(4) 2,194,400 17%
Jey Hsin Yao(3) 4,675,500(5) 37%
Hank C. Ta(6) 40,000 *(10)
Limin Hu(7) 16,500 *(10)
Raymond Crouse(8) 10,000 *(10)
Stonestreet, L.P.(9) 1,127,200 9%
All officers and Directors as a group
(6 persons) 7,146,300 56%
----------
(1) Includes 250,000 shares Mr. Li has the right to acquire upon the exercise
of options.
(2) Includes 250,000 shares Ms. Lee has the right to acquire upon the exercise
of options.
(3) Ms. Lee and Dr. Yao are married.
(4) Ms. Lin is not a director nor an officer of the Company.
(5) Is comprised of shares registered in the name of the listed person's
spouse.
(6) Includes 40,000 shares Mr. Ta has the right to acquire upon the exercise of
options.
(7) Includes 10,000 shares Mr. Hu has the right to acquire upon the exercise of
options.
(8) Includes 10,000 shares Mr. Crouse has the right to acquire upon the
exercise of options.
(9) Includes 827,200 shares of common stock would have been converted if the
conversion rights of the 4% Series A Convertible Preferred Stock were
exercised and 300,000 warrants issued in conjunction with the issuance of
the 4% Series A Convertible Preferred Stock.
(10) Less than 1%.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We sell computer products to a company wholly-owned by Hank C. Ta, one of
our directors. Management believes that the terms of these sales transactions
are no more favorable than given to unrelated customers. During 2002, 2001 and
2000, we recognized $527,400, $476,200 and $1,476,100, respectively, in sales
revenues from sales to this company. Included in accounts receivable as of
December 31, 2002 were $27,000 due from this customer.
In 2001, a subsidiary of the Company acquired certain assets of Technical
Insights in exchange for 16,100 shares of our common stock. Under the purchase
agreement, among other terms, the purchaser was required to pay $126,000 payment
to the sellers upon completion and full settlement of a sale transaction as
specified in the agreement. On October 2001 the sellers became employees of our
subsidiary. As a result of this profit sharing arrangement, the $126,000 payment
to the sellers was recorded as compensation expense by the Company. As of
December 31, 2001, $126,000 was owed to these employees and is included in
accounts payable. In January 2002, this amount was paid to the sellers/employees
under the terms of the purchase agreement.
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative shareholder return on our
common stock from July 18, 1998 through December 31, 2002, based on the market
price of the common stock, with the cumulative total return of the NASDAQ Market
Index and a Peer Group Index comprised of the following companies engaged in the
sale or distribution of microcomputer products: Advanced Comm Tech Inc.,
I-Sector Corp., Alphanet Solutions Inc., Bridge Technology, Inc., CDW Computer
Ctrs, Inc., CNH Holdings Co., Compucom Sys Inc., Continental Information Sys Ne,
GTSI Corp., Insight Enterprises, Inc., Speedcom Wireless Corp., Merisel Inc.,
National Instrs Corp., Pomeroy Computer Res, Programmers Paradise, Inc., SED
Intl Hldgs Inc., Scansource Inc., Software Spectrum Inc., Syscomm International
Corp., Tech Data Corp., Centiv Inc., Ocumed Group Inc., Precis Inc., and Novatel
Wireless Inc.,
-14-
COMPARISON OF 53 MONTH CUMULATIVE TOTAL RETURN*
AMONG PACIFIC MAGTRON INTERNATIONAL CORP.,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND A PEER GROUP
[GRAPH]
* $100 invested on 7/18/98 in stock or index- including reinvestment of
dividends. Fiscal year ending December 31.
-15-
Cumulative Total Return
---------------------------------------------------
7/98 12/98 12/99 12/00 12/01 12/02
------ ------ ------ ------ ------ ------
Pacific Magtron International Corp. 100.00 97.62 102.38 17.26 35.24 8.19
Nasdaq Stock Market (U.S.) 100.00 110.56 205.06 123.72 98.15 67.86
Peer Group 100.00 113.79 137.33 118.14 150.69 117.16
OTHER MATTERS
Our Board is not aware of any matters to be presented at the meeting other
than those described above. However, if other matters properly come before the
meeting, it is the intention of the persons named in the accompanying proxy to
vote your proxy on such matters in accordance with their judgment.
SHAREHOLDER PROPOSALS
Any shareholder desiring to have a proposal included in our proxy statement
for our 2004 Annual Meeting must deliver such proposal (which must comply with
the requirements of Rule 14a-8 promulgated under the Exchange Act) to our
principal executive offices a reasonable time before we begin to print and mail
our proxy statement. You must deliver any proposal by January 5, 2004.
ANNUAL REPORT
Our Annual Report on Form 10-K with certified financial statements was
filed for the fiscal year ended December 31, 2002 on March 31, 2003 and
accompanies this Notice and Proxy Statement. Any exhibit to the annual report on
Form 10-K will be furnished to any requesting person who sets forth a good faith
representation that he or she was a beneficial owner of our common stock on
April 25, 2003. The fee for furnishing a copy of any exhibit will be 25 cents
per page plus $3.00 for postage and handling.
-16-
APPENDIX A
PACIFIC MAGTRON INTERNATIONAL CORP.
AUDIT COMMITTEE CHARTER
1. COMPOSITION OF THE AUDIT COMMITTEE. The Audit Committee shall be
comprised of at least three directors, each of whom shall not be an officer or
employee of the Company or its subsidiaries and shall not have any relationship
which, in the opinion of the Board of Directors, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
director and shall otherwise satisfy the applicable membership requirements
under the rules of the National Association of Securities Dealers, Inc., as such
requirements are interpreted by the Board of Directors in its business judgment.
In the event of a vacancy on the Audit Committee, such vacancy shall be filled
as expeditiously as possible by the Board of Directors of the Company.
2. PURPOSES OF THE AUDIT COMMITTEE. The purposes of the Audit Committee are
to assist the Board of Directors:
(a) in its oversight of the Company's accounting and financial
reporting principles and policies and internal audit controls and procedures;
(b) in its oversight of the Company's financial statements and the
independent audit thereof;
(c) in selecting, evaluating and, where deemed appropriate, replacing
the outside auditors (or nominating the outside auditors to be proposed for
shareholder approval in any proxy statement); and
(d) in evaluating the independence of the outside auditors.
The function of the Audit Committee is oversight. The management of the
Company is responsible for the preparation, presentation and integrity of the
Company's financial statements. Management and the internal auditing department
are responsible for maintaining appropriate accounting and financial reporting
principles and policies and internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations. The
outside auditors are responsible for planning and carrying out a proper audit of
the Company's annual financial statements, reviews of the Company's quarterly
financial statements prior to the filing of each quarterly report on Form 10-Q,
and other procedures. In fulfilling their responsibilities hereunder, it is
recognized that members of the Audit Committee are not full-time employees of
the Company and are not, and do not represent themselves to be, accountants or
auditors by profession or experts in the fields of accounting or auditing
including in respect of auditor independence. As such, it is not the duty or
responsibility of the Audit Committee or its members to conduct "field work" or
other types of auditing or accounting reviews or procedures or to set auditor
independence standards, and each member of the Audit Committee shall be entitled
to rely on (i) the integrity of those persons and organizations within and
outside the Company from which it receives information, (ii) the accuracy of the
financial and other information provided to the Audit Committee by such persons
or organizations absent actual knowledge to the contrary (which shall be
promptly reported to the Board of Directors) and (iii) representations made by
management as to any information technology, internal audit and other non-audit
services provided by the auditors to the Company.
The outside auditors for the Company are ultimately accountable to the
Board of Directors, as assisted by the Audit Committee. The Board of
Directors, with the assistance of the Audit Committee, has the ultimate
authority and responsibility to select, evaluate and, where appropriate,
replace the outside auditors or to nominate the outside auditors to be
proposed for shareholder approval in the proxy statement.
The outside auditors shall submit to the Company annually a formal written
statement delineating all relationships between the outside auditors and
the Company ("Statement as to Independence"), addressing each non-audit
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service provided to the Company and the matters set forth in Independence
Standards Board No. 1.
The outside auditors shall submit to the Company annually a formal written
statement of the fees billed for each of the following categories of
services rendered by the outside auditors: (i) the audit of the Company's
annual financial statements for the most recent fiscal year and the reviews
of the financial statements included in the Company's Quarterly Reports on
Form 10-Q for that fiscal year; (ii) information technology consulting
services for the most recent fiscal year, in the aggregate and by each
service (and separately identifying fees for such services relating to
financial information systems design and implementation); and (iii) all
other services rendered by the outside auditors for the most recent fiscal
year, in the aggregate and by each service.
3. MEETINGS OF THE AUDIT COMMITTEE. The Audit Committee shall meet five
times annually, or more frequently if circumstances dictate, to discuss with
management the annual audited financial statements and quarterly financial
statements and quarterly financial results. In addition to such meetings, the
Audit Committee should meet separately at least annually with management, the
director of the internal auditing department and the outside auditors to discuss
any matters that the Audit Committee or any of these persons or firms believe
should be discussed privately. The Audit Committee may request any officer or
employee of the Company or the Company's outside counsel or outside auditors to
attend a meeting of the Audit Committee or to meet with any members of, or
consultants to, the Audit Committee. Members of the Audit Committee may
participate in a meeting of the Audit Committee by means of conference call or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
4. DUTIES AND POWERS OF THE AUDIT COMMITTEE. To carry out its purposes, the
Audit Committee shall have the following duties and powers:
(a) with respect to the outside auditor,
(i) to provide advice to the Board of Directors in selecting,
evaluating or replacing outside auditors;
(ii) to review the fees charged by the outside auditors for audit
and non-audit services;
(iii) to ensure that the outside auditors prepare and deliver
annually a Statement as to Independence (it being understood that the
outside auditors are responsible for the accuracy and completeness of this
Statement), to discuss with the outside auditors any relationships or
services disclosed in this Statement that may impact the objectivity and
independence of the Company's outside auditors and to recommend that the
Board of Directors take appropriate action in response to this Statement to
satisfy itself of the outside auditors' independence;
(iv) to consider the effect of the outside auditors' provision of
(a) information technology consulting services relating to financial
information systems design and implementation and (b) other non-audit
services to the Company on the independence of the outside auditors (it
being understood that the audit committee will rely on the accuracy of the
information provided by the outside auditors as to the services provided
and the fees paid and will rely on the representations of management in
connection with such consideration); and
(v) to instruct the outside auditors that the outside auditors
are ultimately accountable to the Board of Directors and Audit Committee.
(b) with respect to the internal auditing department,
(i) to review the appointment and replacement of the director of
the internal auditing department; and
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(ii) to advise the director of the internal auditing department
that he or she is expected to provide to the Audit Committee summaries of
and, as appropriate, the significant reports to management prepared by the
internal auditing department and management's responses thereto.
(c) with respect to financial reporting principles and policies and
internal audit controls and procedures,
(i) to advise management, the internal auditing department and
the outside auditors that they are expected to provide to the Audit
Committee a timely analysis of significant financial reporting issues and
practices;
(ii) to consider any reports or communications (and management's
and/or the internal audit department's responses thereto) submitted to the
Audit Committee by the outside auditors required by or referred to in SAS
61 (as codified by AU Section 380), as may be modified or supplemented,
including reports and communications related to:
a. deficiencies noted in the audit in the design or
operation of internal controls;
b. consideration of fraud in a financial statement audit;
c. detection of illegal acts;
d. the outside auditor's responsibility under generally
accepted auditing standards;
e. significant accounting policies;
f. management judgments and accounting estimates;
g. adjustments arising from the audit;
h. the responsibility of the outside auditor for other
information in documents containing audited financial
statements;
i. disagreements with management;
j. consultation by management with other accountants;
k. major issues discussed with management prior to
retention of the outside auditor;
l. difficulties encountered with management in performing
the audit;
m. the outside auditor's judgments about the quality of
the entity's accounting principles; and
n. reviews of interim financial information conducted by
the outside auditor;
(iii) to meet with management, the director of the internal
auditing department and/or the outside auditors:
a. to discuss the scope of the annual audit;
b. to discuss the audited financial statements;
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c. to discuss any significant matters arising from any
audit or report or communication referred to in items
b(ii) or c(ii) above, whether raised by management, the
internal auditing department or the outside auditors,
relating to the Company's financial statements;
d. to review the form of opinion the outside auditors
propose to render to the Board of Directors and
shareholders;
e. to discuss significant changes to the Company's
auditing and accounting principles, policies, controls,
procedures and practices proposed or contemplated by
the outside auditors, the internal auditing department
or management; and
f. to inquire about significant risks and exposures, if
any, and the steps taken to monitor and minimize such
risks;
(iv) to obtain from the outside auditors assurance that the audit
was conducted in a manner consistent with Section 10A of the Securities
Exchange Act of 1934, as amended, which sets forth certain procedures to be
followed in any audit of financial statements required under the Securities
Exchange Act of 1934; and
(v) to discuss with the Company's General Counsel any significant
legal matters that may have a material effect on the financial statements,
the Company's compliance policies, including material notices to or
inquiries received from governmental agencies.
(d) with respect to reporting and recommendations,
(i) to prepare any report or other disclosures, including any
recommendation of the Audit Committee, required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement;
(ii) to review this Charter at least annually and recommend any
changes to the full Board of Directors; and
(iii) to report its activities to the full Board of Directors on
a regular basis and to make such recommendations with respect to the above
and other matters as the Audit Committee may deem necessary or appropriate.
5. RESOURCES AND AUTHORITY OF THE AUDIT COMMITTEE: The Audit Committee
shall have the resources and authority appropriate to discharge its
responsibilities, including the authority to engage outside auditors for special
audits, reviews and other procedures and to retain special counsel and other
experts or consultants.
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PROXY PACIFIC MAGTRON INTERNATIONAL CORP. PROXY
1600 CALIFORNIA CIRCLE
MILPITAS, CALIFORNIA 95035
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Theodore S. Li and Anthony
Lee, or either of them acting in the absence of the other with the full power of
substitution, the true and lawful attorneys and proxies of the undersigned, to
attend the Annual Meeting of the Shareholders of PACIFIC MAGTRON INTERNATIONAL
CORP. (the "Company") to be held at the offices of the Company at 1600
California Circle, Milpitas, California 95035 on Friday, June 6, 2003 at 1:00
p.m., Pacific Time and any adjournments thereof, and to vote the shares of
Common Stock of the Company standing in the name of the undersigned on the
matters set forth below and upon any other matters that may properly come before
the meeting or any adjournment thereof, with all the powers the undersigned
would possess if personally present at the meeting, as follows.
PROPOSAL NO. 1: To elect five directors to the Company's Board to serve for
the next year or until their successor is elected.
NOMINEES: THEODORE S. LI, HUI LEE, JEY HSIN YAO, HANK C. TA, and RAYMOND
CROUSE.
_______ VOTE for all nominees except those whose names are written on the
line provided below (if any)
_______ VOTE WITHHELD on all nominees
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PROPOSAL NO. 2: To ratify the appointment of KPMG LLP to be the company's
independent auditors for the year ended December 31, 2003.
_______ VOTE for the ratification of the appointment of KPMG LLP to be
the company's independent auditors for the year ended December 31, 2003.
_______ VOTE against the ratification of the appointment of KPMG LLP to
be the company's independent auditors for the year ended December 31, 2003.
_______ ABSTAIN
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PLEASE PROMPTLY DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE
This proxy will be voted in accordance with the directions indicated
herein. If no specific directions are given, this proxy will be voted for
approval of all nominees listed herein, for approval of the proposals listed
herein and, with respect to any other business as may properly come before the
meeting in accordance with the discretion of the proxies.
DATED:__________________________, 2003
----------------------------------------
(Signature)
----------------------------------------
(Signature)
When signing as executor, administrator,
attorney, trustee, or guardian, please
give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person. If a joint tenancy,
please have both joint tenants sign.