UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for use of the Commission
only (as permitted by Rule14a-6 (e) (2)).
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule14a-12
SPARTON CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules14a-6(i) (1) and0-11.
1. | (a) Title of each class of securities to which transaction applies: |
N/A
2. | (b) Aggregate number of securities to which transactions applies: |
N/A
3. | (c) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
N/A
4. | (d) Proposed maximum aggregate value of transaction: |
N/A
(e) | Total fee paid: |
N/A
[ ] | Fee paid previously with preliminary materials. |
[ ] | Check box if any part of the fee is offset as provided by Exchange Act Rule0-11(a) (2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
5. | (a) Amount Previously Paid: |
N/A
6. | (b) Form, Schedule or Registration Statement No.: |
N/A
7. | (c) Filing Party: |
N/A
8. | (d) Date Filed: |
N/A
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Sparton Corporation will be held at 475425 North Martingale Road, Suite 260, Schaumburg, Illinois 60173-2213, inat the 2nd Floor Building425 Executive Conference RoomCenter on November 13, 2013,October 22, 2014, at 10:00 a.m., local time, for the following purposes:
(1) | To elect |
(2) | To ratify the appointment of independent registered public accountants by an advisory vote. |
(3) | To approve the Named Executive Officer compensation by an advisory vote. |
(4) | To approve an amendment to the Company’s Amended and Restated Code of Regulations to provide that the state and federal courts located within the State of Ohio will be the exclusive forum for certain legal actions. |
(5) | To re-approve the material terms of the performance goals specified in the Sparton Corporation 2010 Long-Term Stock Incentive Plan. |
(6) | To transact such other business as may properly come before the meeting or at any adjournments thereof. |
Only holders of common stock of record at the close of business on October 7, 2013September 12, 2014 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors | ||||
/s/ Cary B. Wood | Scan this QR code to view digital versions of our Proxy Statement and | |||
CARY B. WOOD | ||||
President and Chief Executive Officer |
Schaumburg, Illinois
October 14, 2013September 25, 2014
IMPORTANT
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON, YOU ARE URGED TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED, OR USE OUR TELEPHONE OR INTERNET VOTING SYSTEM AS PROMPTLY AS POSSIBLE. THIS WILL ASSURE YOUR REPRESENTATION AND A QUORUM FOR THE TRANSACTION OF BUSINESS AT THE MEETING. IF YOU ATTEND THE MEETING IN PERSON, THE PROXY WILL NOT BE USED IF YOU SO REQUEST BY REVOKING IT AS DESCRIBED IN THE PROXY STATEMENT.
You may obtain directions to the Annual Meeting by sending a written request to Sparton Corporation, Attention: Corporate Secretary, 425 N. Martingale Road, Suite 2050, Schaumburg, Illinois 60173-2213.
Important Notice Regarding the Availability of Proxy Materials for Annual Meeting of Shareholders to Be Held on November 13, 2013.October 22, 2014. This Notice of Annual Meeting of Shareholders, Proxy Statement and our 20132014 Annual Report are available at www.sparton.com.
Sparton Corporation
20132014 Proxy Statement Summary
The following is summary of certain information provided in the body of this Proxy Statement. This Summary does not contain all of the information contained in this Proxy Statement, and shareholders should review the entire Proxy Statement before voting on any matter proposed hereunder.
20132014 Annual Meeting of Shareholders
• Time and Date | 10:00 a.m. Central Standard Time, | |
• Place |
Schaumburg, Illinois 60173-2213, at the 425 Executive Conference Center | |
• Voting | Shareholders as of the record date, |
Meeting Agenda and Voting Matters | Board Vote Recommendation | Page Reference (for more detail) | ||
Election of | FOR each director nominee | 11 | ||
Ratification of BDO USA, LLP as independent registered public accountant for fiscal year | FOR | |||
Advisory vote on Named Executive Officer Compensation | FOR | 17 | ||
Approve Amendment to Amended and Restated Code of Regulations | FOR | 18 | ||
Re-Approve Material Terms of Performance Goals Under Sparton Corporation 2010 Long-Term Stock Incentive Plan | FOR | 19 | ||
Transact other business that properly comes before the meeting |
Director Nominees | Independence | |||||
James D. Fast | Other than Mr. Wood, who is the President and Chief Executive Officer of | |||||
Joseph J. Hartnett | Sparton Corporation, all director nominees are independent. | |||||
Charles R. Kummeth | ||||||
David P. Molfenter | Attendance | |||||
In fiscal year | ||||||
meetings of the Board and committees on which they serve (during the period | ||||||
served). |
Independent Registered Public Accountant
Sparton Corporation is asking the shareholders to ratify the appointment of BDO USA, LLP for fiscal year 2014.2015. The following table summarizes the fees that BDO USA, LLP billed Sparton Corporation for the fiscal years ended June 30, 20132014 and 2012:2013:
(In thousands) | Year Ended June 30, | Year Ended June 30, | ||||||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||||||
Audit Fees | $ 400 | $ 402 | $ 412 | $ 400 | ||||||||||||||||
Audit-Related Fees | 304 | 77 | 24 | 304 | ||||||||||||||||
Tax Fees | 225 | 164 | 243 | 225 | ||||||||||||||||
All Other Fees | — | — | — | — | ||||||||||||||||
Total | $ 929 | $ 643 | $ 679 | $ 929 |
i
Executive Compensation
Sparton Corporation believes that its compensation policies and practices are effective in achieving its goals of attracting, motivating, retaining and rewarding its senior management team in order to achieve Sparton Corporation’s corporate objectives and increase value for its shareholders. Please see “Executive Officer and Director Compensation” below at page 2127 for details regarding compensation for fiscal year 2013.2014.
20142015 Annual Shareholders Meeting
Deadline for shareholder proposals to be included in the 20142015 Proxy Statement: May 23, 2014.13, 2015.
Deadline for shareholder proposals: July 16, 2014.June 24, 2015.
iii
iii
PROPOSAL 5 VOTE TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS SPECIFIED IN THE SPARTON CORPORATION 2010 LONG-TERM STOCK INCENTIVE PLAN | 20 | |||
ii
Common Stock Issuable Under Company Equity Compensation Plans | |||||||
Employment Agreements and Potential Payments upon Termination or Change in Control | |||||||
Table—Potential Payments upon Termination or Change in Control | |||||||
Monitoring Risks Related to Compensation Policies and Practices | |||||||
APPENDIX A – AMENDMENT TO AMENDED AND RESTATED CODE OF REGULATIONS | A-1 | ||||||
APPENDIX B – SUMMARY OF CERTAIN TERMS OF THE SPARTON CORPORATION 2010 LONG-TERM STOCK INCENTIVE PLAN | B-1 | ||||||
APPENDIX C – SPARTON CORPORATION 2010 LONG-TERM STOCK INCENTIVE PLAN AND AMENDMENTS | C-1 |
iiiiv
SPARTON CORPORATION
425 N. Martingale Road
Suite 2050
Schaumburg, Illinois 60173-2213
PROXY STATEMENT
For the Annual Meeting of Shareholders to be held on November 13, 2013October 22, 2014
This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of SPARTON CORPORATION, an Ohio corporation (the “Company”), of proxies for use at the 20132014 Annual Meeting of Shareholders of the Company (the “Annual Meeting”) to be held at 475425 North Martingale Road, Suite 260, Schaumburg, Illinois 60173-2213, inat the 2nd Floor Building425 Executive Conference RoomCenter on Wednesday, November 13, 2013,October 22, 2014, at 10:00 a.m., Local Time, and at any and all adjournments thereof. The cost of solicitation will be paid by the Company. The Company has not retained a proxy solicitor to assist with the solicitation of proxies but retains the right to do so. Officers and employees of the Company and its subsidiaries may solicit proxies personally, by telephone, facsimile or other means, without additional compensation. This Proxy Statement and the form of proxy card are expected to be mailed to shareholders on or about October 14, 2013.September 25, 2014.
At the meeting, the Company’s shareholders will act upon threefive proposals. The first proposal is the election of sevensix directors, each to serve for a one-year term until the annual meeting held in the year 20142015 and the election and qualification of their successors. The second proposal is the ratification of the appointment of independent registered public accountants by an advisory vote. The third proposal is the approval of the compensation of the Named Executive Officers (defined below) by an advisory vote. The fourth proposal is the approval of an amendment to the Company’s Amended and Restated Code of Regulations, as amended to date (“Code of Regulations”) to provide that the state and federal courts located within the State of Ohio will be the exclusive jurisdiction for certain legal actions. The fifth proposal is the re-approval of the material terms of the performance goals specified in the Sparton Corporation 2010 Long-Term Stock Incentive Plan. The proposals are described in more detail in this Proxy Statement.
OUTSTANDING STOCK AND VOTING RIGHTS
In accordance with the Amended and Restated Code of Regulations (“Code of Regulations”) of the Company, the Board of Directors has fixed the close of business on October 7, 2013September 12, 2014 as the record date for determination of shareholders entitled to notice of, and to vote at, the Annual Meeting. Only shareholders of record on that date will be entitled to vote. As of the record date for the Annual Meeting, the Company had outstanding 10,097,21110,129,031 shares of common stock, each entitled to vote at the Annual Meeting. Votes cast at the meeting and votes submitted by proxy are counted by the inspectors of the election, who are appointed by the Company.
If a shareholder is a corporation or partnership, the accompanying proxy card should be signed in the full corporate or partnership name by a duly authorized person. If the proxy card is signed pursuant to a power of attorney or by an executor, administrator, trustee or guardian, the signer’s full title should be given and a certificate or other evidence of appointment should be furnished.
You can vote in one of fourthree ways. You can vote by mail, you can authorize the voting of your shares over the Internet you can authorize the voting of your shares by telephone or you can vote in person at the Annual Meeting. Your proxy may be solicited up to the date and time of the meeting.
If you choose to vote by mail, you may vote by completing and signing the proxy card that accompanies this Proxy Statement and promptly mailing it in the enclosed postage-prepaid envelope. You do not need to put a
stamp on the enclosed envelope if you mail it in the United States. The shares you own will be voted according to the instructions on the proxy card you mail. If you return the proxy card, but do not give any instructions on a particular matter described in this Proxy Statement, the shares you own will be voted in accordance with the recommendations of the Company’s Board of Directors. If you choose to vote by mail, your duly signed proxy card must be received by 11:59 p.m., Central Standard Time, on November 12, 2013.October 21, 2014.
If you choose to vote over the Internet, or by telephone, instructions for a shareholder of record to vote by telephone or the Internet are set forth on the enclosed proxy card. The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number that appears on the proxy card. These procedures allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded. If you vote over the Internet, or by telephone, you do not have to mail in your proxy card, but your vote must be received by 11:59 p.m. Central Standard Time November 11, 2013.on October 21, 2014.
If you participate in the Company’s 401(k) retirement savings plan (the “401(k) Plan”) and hold shares in your plan account, you may give voting instructions as to the number of shares credited to your account as of the record date. You may provide voting instructions (or a change or revocation in voting instructions) to the plan trustee, SunTrust Banks, Inc. (“SunTrust”), through any of the voting methods described above, except that you may not vote your plan shares in person at the Annual Meeting. Only the trustee of the 401(k) Plan, SunTrust, may vote your plan shares. Your voting instructions (or change or revocation in voting instructions) must be received before 11:59 p.m. Central Standard Time on November 12, 2013.October 21, 2014.
If you are not the record holder of the shares you own because they are held in “street name” by a bank or brokerage firm, your bank or brokerage firm is required to vote your shares according to your instructions. In order to vote your shares, you will need to follow the directions your bank or brokerage firm provides you. Many banks and brokerage firms also offer the option of voting over the Internet or by telephone, instructions for which would be provided by your bank or brokerage firm on your vote instruction form. Under the rules of The New York Stock Exchange (“NYSE”), if you do not give instructions to your brokerage firm, it may still be able to vote your shares with respect to certain “discretionary” items that are deemed by the NYSE to be routine (e.g., the ratification of the appointment of independent registered public accountants), but it will not be allowed to vote your shares with respect to certain “non-discretionary” items. If you do not provide voting instructions to your broker with respect to non-discretionary items such as election of directors, amendment to the Company’s Code of Regulations, re-approval of the material terms of the performance goals under the 2010 LTIP (defined below), and the advisory votesvote on the compensation of Named Executive Officers, your shares will not be voted for any such proposal. In such case, the shares will be treated as “broker non-votes.”
Revocation and How Shares are Voted if No Instructions are Provided
Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (i) filing a written notice of revocation with the Chairman or Secretary of the Company, at or before the Annual Meeting, (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the Chairman or Secretary of the Company either signed and returned by mail or transmitted using the telephone or Internet procedures at or before the Annual Meeting subject to deadlines set forth above or
(iii) attending the Annual Meeting and voting in person with adequate notification (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Unless revoked, the shares represented by the enclosed proxy will be voted at the meeting in accordance with any specification made thereon, if the proxy is returned properly executed and delivered in time for voting in accordance with the deadlines set forth above.
Unless otherwise specified, the proxy will be voted “FOR” the election of the sevensix director nominees, “FOR” the ratification of the appointment of independent registered public accountants, “FOR” approval of the compensation of the Named Executive Officers.Officers and “FOR” approval of the amendment to the Company’s Code of Regulations.
At all meetings of shareholders, including the 2013 Annual Meeting, the holders of record of a majority of the outstanding voting shares of the Company, present in person or by proxy, constitutes a quorum for the transaction of business.
In accordance with the Company’s Second Amended Articles of Incorporation, and with respect to Proposal 1, a director nominee must receive, in an uncontested election of directors, a greater number of votes cast “FOR” his or her election than “AGAINST” his or her election. Under our governing documents and Ohio law, an incumbent director who is not re-elected will continue in office as a “holdover” director until his or her successor is elected by a subsequent shareholder vote, or his or her earlier resignation, removal from office or death. In order to address “holdover” terms for any incumbent directors who fail to be re-elected under our majority vote standard, our Corporate Governance Guidelines provide that if a director nominee does not receive a majority affirmative vote, he or she will promptly offer his or her resignation as a director to the Board of Directors. Within ninety (90) days, the Board of Directors will decide, after taking into account the recommendation of the Nominating and Corporate Governance Committee (in each case excluding the nominee(s) in question), whether to accept the resignation. The Nominating and Corporate Governance Committee and the Board of Directors may consider any relevant factors in deciding whether to accept a director’s resignation. The Board of Directors explanation of its decision shall be promptly disclosed in a filing with the Securities and Exchange Commission’sCommission (“SEC”).
With respect to Proposal 2, the ratification of the appointment of the independent registered public accountant requires the affirmative vote of a majority of the shares entitled to vote thereon and present in person or represented by proxy at the Annual Meeting.
With respect to Proposal 3, the approval of the compensation of the Named Executive Officers requires the affirmative vote of a majority of the shares entitled to vote thereon and present in person or represented by proxy at the Annual Meeting.
With respect to Proposal 4, the approval of the amendment to the Company’s Code of Regulations requires the affirmative vote of a majority of the shares entitled to vote thereon and present in person or represented by proxy at the Annual Meeting.
With respect to Proposal 5, the re-approval of the material terms of the performance goals specified in the 2010 LTIP requires the affirmative vote of a majority of the shares entitled to vote thereon and present in person or represented by proxy at the Annual Meeting.
Broker non-votes and abstentions are not counted for purposes of any of the proposals.proposals, other than Proposals 4 and 5, for which abstentions are counted and have the effect of a negative vote against the Proposal. Proposals 2 and 3 are advisory in nature and not binding, although the Board will carefully consider the shareholder votes.
Management does not intend to present, and does not know of anyone who intends to present, any matters at the meeting to be acted upon by the shareholders not referred to in the Notice and this Proxy Statement. If any other matters should properly come before the meeting, it is the intention of the persons named in the proxy to vote in accordance with their judgment on such matters.
CORPORATE GOVERNANCE AND BOARD MATTERS
Independence criteria and determination
The listing requirements under Section 303A.01 of the NYSE Listed Company Manual (the “Manual”) provide that a majority of the members of a listed company’s board of directors must be independent. The question of independence is determined with respect to every director pursuant to standards set forth in the Manual. The Manual also requires that certain committees be composed entirely of independent directors. The committees covered by this requirement are the Audit, Compensation, and Nominating and Corporate Governance Committees. Based upon the standards set forth in the Manual, as of the date of this Proxy Statement, six of the Board’s seven members, being more than a majority of the Board, are independent. All current members of the Audit, Compensation, and Nominating and Corporate Governance Committees are independent in that those directors do not have a material relationship with the Company directly or as a partner, shareholder or affiliate of an entity that has a relationship with the Company.
In making such determinations, the Board considered (i) whether a director had, within the last three years, any of the relationships under Section 303A.02(b) of the Manual with the Company that would disqualify a director from being considered independent, (ii) whether the director had any disclosable transaction or relationship with the Company under Item 404 of Regulation S-K of the Securities Exchange Act of 1934, as amended (“Exchange Act”), which relates to transactions and relationships between directors and their affiliates, on the one hand, and the Company and its affiliates (including management), on the other, and (iii) the factors suggested in the NYSE’s Commentary to Section 303A.02, such as commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationships, among other relationships, or other interactions with management that do not meet the absolute thresholds under Section 303A.02 or Item 404(a) but which, nonetheless, could reflect upon a director’s independence from management. In considering the materiality of any transactions or relationships that do not require disqualification under Section 303A.02(b), the Board considered the materiality of the transaction or relationship to the director, the director’s business organization and the Company and whether the relationship between (i) the director’s business organization and the Company, (ii) the director and the Company and (iii) the director and his or her business organization interfered with the relevant director’s business judgment.
Based on the foregoing, the Company has determined that the following directors are independent: James D. Fast, Joseph J. Hartnett, Charles R. Kummeth, David P. Molfenter, Douglas R. Schrank, and James R. Swartwout. Mr. Schrank will not stand for re-election at the Annual Meeting.
Meetings of Independent Directors
The independent directors schedule meetings in executive sessions without the presence of the Company’s management. The Chairman presides over the sessions during the year.
The independent directors met five4 times during the last fiscal year.
Shareholder Communication with Independent Directors
Shareholders wishing to communicate directly with the independent directors may send correspondence addressed as follows:
Independent Directors
c/o Corporate Secretary
Sparton Corporation
425 N. Martingale Road, Suite 2050
Schaumburg, Illinois 60173-2213
Board Leadership Structure and Board and Committee Information
Chairman
Mr. James R. Swartwout has been elected by the directors as the Chairman. The Chairman provides leadership to enhance the Board’s effectiveness, presides over meetings of the directors, and serves as a liaison between the Board and management. The Chairman is responsible for determining when to hold, and who shall preside over, executive sessions held by the independent directors. If a shareholder, employee, or third party prefers not to communicate directly with the entire Board of Directors or management, communications may be sent to the Chairman, in care of the Corporate Secretary, using the above address.
Board and Committee Structure
As of the date of this Proxy Statement, the Company’s Board of Directors consists of six independent directors, including the Chairman of the Board, Mr. Swartwout, and one non-independent director, Mr. Cary B. Wood, the President and Chief Executive Officer of the Company. The Board has established three committees, being the Audit, Compensation, and Nominating and Corporate Governance Committees, as further described below. Each of the committees is comprised solely of independent directors, and each committee has a different chair. The Company believes that its predominantly independent Board, mixed with the experience of its non-independent director, constitutes a leadership structure that is most appropriate for the Company and its shareholders.
The Board of Directors had five7 meetings during fiscal year 2013.2014.
Board Committee Membership
Director | Independent | Audit | Compensation | Nominating and | ||||
James D. Fast | Yes | x | x - Chairman | |||||
Joseph J. Hartnett | Yes | x | ||||||
Charles R. Kummeth | Yes | x | x | |||||
David P. Molfenter | Yes | x - Chairman | x | |||||
Douglas R. Schrank | Yes | x - Chairman | ||||||
James R. Swartwout | Yes | x | ||||||
Cary B. Wood | No |
x denotes committee membership
Audit Committee
The Audit Committee met six5 times during fiscal year 20132014 and is comprised of Messrs. Douglas R. Schrank (Chairman), Joseph J. Hartnett and James R. Swartwout. The Audit Committee operates under a written charter and oversees auditing, financial reporting and internal control matters regarding accounting and financial controls. It also selects the firm that the Company retains as its independent registered public accountants and recommends the ratification of their selection by the shareholders. The Audit Committee consults with the independent registered public accountants and oversees their audit and other work. The Audit Committee also consults with the Chairman of the Board, President and Chief Executive Officer, and Chief Financial Officer and oversees those individuals who review the Company’s internal controls and compliance with policies. Each member of the Audit Committee is “independent,” as defined under the NYSE listing standards.
Each of Mr. Hartnett and Mr. Schrank, in addition to being “independent,” qualifies as an “audit committee financial expert” as defined in the SEC Regulation S-K, Item 407(d)(5)(ii). Mr. Hartnett’s relevant financial experience includes that he is a licensed Certified Public Accountant in the State of Illinois since 1982, and has advised multiple boards and audit committees with respect to accounting matters. Mr. Hartnett has a B.S. in Accounting from the University of Illinois—Chicago, served with Grant Thornton LLP from 1980 to 2000, and was an audit partner with Grant Thornton LLP from 1992 to 2000. Mr. Hartnett served as the Chief Financial
Officer of U.S. Robotics Corporation, an Internet communications products company. Mr. Schrank’s relevant financial experience includes that he was licensed as a Certified Public Accountant in the State of Minnesota in 1973 and prior to retirement served as the Chief Financial Officer of multiple companies, including a multinational publicly traded pharmaceutical company. Further, Mr. Schrank received a Master of Business Administration from the University of Michigan in 1972. For additional detail, see“Director Biographies” below at page 11 describing the members of the Board of Directors and their respective experience, qualifications, attributes and skills.
The independent registered public accountants have access to the Audit Committee without any other members of management being present. The Audit Committee met with management and the independent registered public accountants before the announcement of earnings each quarter. The Audit Committee also met with the independent registered public accountants without management present on six5 occasions during fiscal year 2013.2014. The Audit Committee also reviewed the annual consolidated financial statements and annual report onForm 10-K and the Audit Committee report in this Proxy Statement before each was filed with the SEC.
Compensation Committee
The Compensation Committee held eight16 meetings during fiscal year 2013.2014. The Compensation Committee is comprised of Messrs. David P. Molfenter (Chairman), James D. Fast and Charles R. Kummeth, and it monitors the remuneration, including restricted stock and stock options, for the Company’s management, including the Named Executive Officers.
The Compensation Committee may delegate its authority to subcommittees consisting of independent directors and may be assisted on compensation matters by members of the Company’s staff. The Compensation Committee (the “Committee”) may, as needed, employ compensation consultants to assist the Committee with the Committee’s determination of the amount and/or form of executive compensation. See page 2733 below under the heading “Role of the Compensation Consultant” for discussion regarding the Compensation Committee’s use of consultants. The compensation philosophy, the compensation components, and their application as described in the Compensation Discussion and Analysis, which appears below, are generally employed by the Compensation Committee in connection with the compensation for all of the executive officers of the Company.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee, which is comprised of Messrs. James D. Fast (Chairman), Charles R. Kummeth and David P. Molfenter, held four6 meetings during fiscal year 2013.2014. The Nominating and Corporate Governance Committee reviews corporate governance documents, and reviews the makeup of the existing Board of Directors and the tenure of its members, consistent with appropriate principles of corporate governance and applicable regulations, and reviews and recommends director remuneration to the full Board of Directors. The Nominating and Corporate Governance Committee also receives candidate resumes, and considers and recommends candidates for election to the Board consistent with the needs of the Company, regulatory requirements, and the qualifications of the candidates. The Nominating and Corporate Governance Committee has implemented a formal process for consideration of candidates, which is described under “Director Qualifications” below.
The Board is ultimately responsible for oversight of risk management. As part of the risk management process, the Company’s management team, through its Risk Management Committee, is responsible for identifying and monitoring potential risks facing the Company. The Risk Management Committee’s Chairman will rotate annually and various business departments report potential risks to the Chairman on a periodic basis. The Chairman of the Risk Management Committee reviews such potential risks with the Committee and counsel and reports its determinations to the Board. The Company believes that reviewing risk at the business unitdepartment level by the Risk Management Committee, as reported to the Board of Directors, provides the Board of Directors with a comprehensive and detailed overview of enterprise risk.
The Audit Committee is charged with reviewing the adequacy and effectiveness of the accounting and financial controls, including the Company’s systems to monitor, assess and manage financial, business, legal and compliance risk.
Further, the Board believes that the roles of Chief Executive Officer and Chairman of the Board of Directors should be separated and therefore two different individuals serve as the Company’s Chief Executive Officer and Chairman. Mr. Cary B. Wood serves as the Company’s Chief Executive Officer and Mr. James R. Swartwout serves as the Chairman of the Company’s Board of Directors.
The Company’s risk structure allows the Company’s independent directors to exercise effective oversight of the actions of management, led by Mr. Cary B. Wood as Chief Executive Officer and President, in identifying risks and implementing effective risk management policies and controls.
Corporate Governance Guidelines and Charters
The Board of Directors has adopted Corporate Governance Guidelines applicable to the Company. The Nominating and Corporate Governance Committee reviews the Guidelines annually to determine whether to recommend changes to the Board of Directors to reflect new laws, rules and regulations and developing governance practices. The Guidelines address several key areas of corporate governance, including the Company’s governance philosophy, director responsibilities, Board composition, Board meetings and committees, director independence, and director compensation. The Guidelines are available on the Company’s website, www.sparton.com.
In addition to the Guidelines, the Board adopted charters for the Compensation, Audit and Nominating and Corporate Governance Committees addressing corporate governance issues. These charters address issues such as independence of the committee members, committee organization and powers, member qualifications, duties and responsibilities, and corporate governance.
As of June 30, 2013,2014, all members of the Audit, Compensation, and Nominating and Corporate Governance Committees were independent directors. Copies of the charters for each of these committees are located on the Company’s website, www.sparton.com. The Company continues to develop and refine its corporate governance policies and practices and their place within the committee structure of the Board of Directors.
The Board has determined that maintaining an Executive Committee as a standing committee is not necessary, in part due to the smaller size of the Board. The Board will continue to review whether or not it is appropriate to re- establish an Executive Committee in the future.
Code of Business Conduct and Ethics
The Company’s Code of Business Conduct and Ethics sets forth the Company’s corporate values. The Code of Business Conduct and Ethics governs the actions and working relationships of the Company’s employees, officers and directors, and sets forth the standard of conduct of the Company’s business at the highest ethical level and in compliance with all applicable laws and regulations.
To the extent any waiver is granted with respect to the Code of Business Conduct and Ethics that requires disclosure under applicable SEC rules, such waiver will also be posted on the Company’s website, as will any amendment that may be adopted from time to time.
Additionally, the Company has established the following statement of its “Corporate Values”:
“We demand performance excellence in all that we do.
“We demand integrity of ourselves, our products, and our services.
“We foster growth and success in an environment of teamwork, collaboration, empowerment, and accountability.
“We develop long term, trusting relationships to ensure mutually profitable growth.
“We will maintain a safe and environmentally sound workplace.
“We will be good corporate citizens in the communities in which we reside.”
It is the Company’s policy to encourage its employees and other persons to disclose improper activities, and to address complaints alleging acts of reprisal or intimidation resulting from disclosure of improper activities. Individuals wishing to report improper activities may call the Company’s Whistleblower service at1-800-488-1933 (from within the United States) or 1-800-4818 (from Vietnam). Activities may be reported anonymously if desired.
Director Attendance at Meetings
All directors attended at least 75% of the aggregate total number of meetings of the Board and committees on which they serve during fiscal year 2013.2014. In addition, the directors are expected to attend the Annual Meeting. At the Company’s 20122013 Annual Meeting of the Shareholders, all of the directors serving at that time were in attendance. Pursuant to our Corporate Governance Guidelines our directors are encouraged to attend director education programs on an annual basis.
The Nominating and Corporate Governance Committee is responsible for reviewing with the Board of Directors, from time to time, the appropriate qualities, skills and characteristics desired for members of the Board of Directors in the context of the current make-up of the Board. This assessment includes consideration of the following summary of qualifications that the Nominating and Corporate Governance Committee believes must be met by all directors, as well as the following considerations for the composition of the Board of Directors as a whole:
Essential Qualities
Relevant and substantial business experience, with an understanding of what is involved in leading a company
Sound business instincts and judgment, with the ability to make informed and strategic decisions
Professional and personal reputation and integrity consistent with the Company’s Code of Business Conduct and Ethics
Strong interpersonal skills evidencing the ability to work as part of a group and express views that are both challenging to and supportive of management
Commitment and availability to the Company to perform necessary and desired duties, with the ability to accept accountability for their role in decisions of the Board of Directors
Genuine interest in the Company, its business, and its people, with a willingness to remain committed over a period of several years
Board Composition Considerations
Strategic mix of directors allowing for diverse expertise and experience fitting the specific needs of the Company, now and anticipated in the future
Multiple directors possessing understanding and expertise in the area of accounting and finance
Multiple directors with specific experience and knowledge of the risks and challenges unique to the industries in which the Company operates
Visionaries with the ability to lead, manage change, and assist in the continued growth of the Company
Familiarity with and understanding of the media and various financial markets
The Board considers diversity, including cognitive and experiential diversity, of director nominees to be desirable to achieve balanced deliberation; however the Company does not have a formal written diversity policy
These and other factors are considered by the Board of Directors in selection of director nominees.
Process for Identifying and Evaluating Director Nominees
The Board of Directors is responsible for selecting director candidates. The Board of Directors delegates the identification, recruitment and recommendation of director nominees to the Nominating and Corporate Governance Committee, with the expectation that other members of the Board of Directors and management will be requested to take part in the process as appropriate.
When it is determined by the Board of Directors that a new director or nominee is to be recruited, the Nominating and Corporate Governance Committee undertakes a candidate selection process. The committeeCommittee maintains a selection criteria document, which has been approved by the Board of Directors and which the Committee reviews regularly to ensure that it is applicable. The criteria include both general criteria that all candidates must meet and specific criteria regarding skill or background that are desirable to the Board of Directors. The Nominating and Corporate Governance Committee, with the counsel of the full Board of Directors, determines which specific background should be represented in the candidate. The criteria are then given to a professional recruiter who specializes in board placements and a search is commenced. Potential candidates known to existing directors or suggested by shareholders who are believed to meet the criteria may be suggested to the recruiting agency for inclusion in the initial pool of candidates. Once candidates have been identified, the Nominating and Corporate Governance Committee confirms that the candidates meet all of the qualifications for director nominees established by the Nominating and Corporate Governance Committee. Based on the results of an evaluation process, the Nominating and Corporate Governance Committee recommends candidates for the Board’s approval as director nominees for election to the Board of Directors. The Nominating and Corporate Governance Committee also recommends candidates for the Board’s appointments to the committees of the Board.
Procedure for Recommendation of Director Nominees by Shareholders
The Nominating and Corporate Governance Committee will consider director candidates who are recommended by shareholders of the Company. As required by Article I, Section 10 of the Company’s Code of Regulations, to recommend a nominee, a shareholder should write to the Company’s Corporate Secretary at 425 N. Martingale Road, Suite 2050, Schaumburg, Illinois 60173-2213. Under the current Code of Regulations, to be considered by the Nominating and Corporate Governance Committee for nomination and inclusion in the Company’s Proxy Statement for its 2013 Annual Meeting of Shareholders, a shareholder recommendation for a director must be received by the Company’s Secretary no later than 120 days nor more than 240 days prior to the one year anniversary of the preceding Annual Meeting.
Any recommendation must include (i) all information relating to such nominee that is required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors under Rule 14a-11 of the Exchange Act or in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to
being named in the proxy statement as a nominee and to serving as a director if elected); (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K; (iii) a representation of the shareholder that he or she intends to appear at the annual meeting to bring such nomination or other business before the annual meeting; and (iv) such other information as may reasonably be required by the Board of Directors as described in the Company’s proxy statement for the preceding year’s annual meeting. The Company may require any proposed nominee to furnish such other information as may reasonably be required by the Company to determine the eligibility of such proposed nominee to serve as an independent director of the Company or that could be material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such nominee.
Further information regarding shareholder recommendation of director candidates is contained in the Nominating and Corporate Governance Committee Charter, which is available at the Company’s website at www.sparton.com.
Assuming the appropriate information is provided for candidates submitted by shareholders, the Nominating and Corporate Governance Committee will evaluate those candidates by following the same process, and applying the same criteria, as for candidates submitted by members of the Board of Directors. All director nominees recommended for election at the Annual Meeting are current members of the Board of Directors.
Shareholder Communications Policy
Shareholders should communicate with the Board of Directors by sending a letter to the Sparton Corporation Board of Directors, c/o the Corporate Secretary, 425 N. Martingale Road, Suite 2050, Schaumburg, Illinois 60173-2213. The Corporate Secretary will receive the correspondence and forward it to the director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, harassing, illegal, not reasonably related to the Company or its business, or similarly inappropriate. The Corporate Secretary has the authority to discard or disregard any inappropriate communications (other than a proposal submitted pursuant to Rule 14a-8 under the Exchange Act, or any communication made in connection with such a proposal) or to take other appropriate actions with respect to any such inappropriate communications. In addition, the Corporate Secretary is authorized to forward communications that are clearly more appropriately addressed by other departments, such as customer service or accounting, to the appropriate department. The foregoing instructions by the directors to the Corporate Secretary are subject to change by the directors. Additionally, all communications are available to any director who wishes to review them.
Availability of Information at Company Website
The Company’s website address is www.sparton.com. Information provided at the website includes, among other items, the Company’s Corporate Governance Guidelines, current charters for the Audit, Compensation, and Nominating and Corporate Governance Committees of the Board of Directors, Board committees and their membership, the Company’s Code of Business Conduct and Ethics, any Shareholder Letters, the Company’s Annual Report, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and news releases. The information is also available, without charge, by contacting the Shareholders’ Relations Departmentat 1-847-762-5800.
ELECTION OF DIRECTORS
Messrs. James D. Fast, Joseph J. Hartnett, Charles R. Kummeth, David P. Molfenter, Douglas R. Schrank, James R. Swartwout and Cary B. Wood, current directors whose terms of office expire at the Annual Meeting, are nominees for election to a one year term expiring in 20142015 and the election and qualification of their successors. The nominations were made by the Nominating and Corporate Governance Committee and approved by the Board of Directors.
Our Amended and Restated Code of Regulations provides that our Board of Directors will consist of not less than sevensix members, but our Board is authorized to fix and change the actual number of our directors from time to time.
We currently have seven members on our Board of Directors. However, given the announcement by Douglas R. Schrank that he does not plan to stand for re-election at the Company’s Annual Meeting, there will only be six members serving on our Board. The Board has commenced a search for a suitable replacement director; however, the process is not expected to be completed prior to the Annual Meeting. Accordingly, the Board has fixed the minimum number of members of directors of the Board at six and intends to increase the minimum number to seven once a candidate is selected.
It is believed that all sevensix nominees are, and will be at the time of the Annual Meeting, available for election; and, if elected, will serve. Each of the nominees has consented to being named a nominee in this Proxy Statement and has agreed to serve as a director, if elected at the Annual Meeting. However, in the event one or more of them is or should become unavailable, or should decline to serve, it is intended that the proxies will be voted for the balance of the nominees and for such substitute nominee or nominees as the Board of Directors may in its discretion select.
Each share of common stock is entitled to one vote for each of the sevensix director positions being filled at the Annual Meeting. In order to elect a nominee as a director of the Company, he or she must receive a greater number of votes cast “FOR” his or her election than “AGAINST” his or her election. Shares not voted at the Annual Meeting, whether by abstention, broker non-vote, or otherwise, will have no effect on the election of directors. See “Outstanding Stock and Voting Rights – Quorum and Vote Required” at page 3 for additional information.
The Board of Directors recommends a vote “FOR” the election of each of the sevensix nominees, James D. Fast, Joseph J. Hartnett, Charles R. Kummeth, David P. Molfenter, Douglas R. Schrank, James R. Swartwout and Cary B. Wood.
Unless otherwise directed by marking the accompanying proxy, the proxy holders named therein will vote FOR the election of the sevensix nominees.
The following table summarizes the specific experience, qualifications, attributes and skills that led the Nominating and Corporate Governance Committee and the Board of Directors to conclude that the following individuals should serve as directors are set forth opposite each individual’s name. The Company’s Board of Directors consists primarily of individuals with broad leadership and business skills, as detailed below, who have relevant experience with companies ranging in size from smaller to much larger than the Company, including
individuals who have served as chief executive officers and chief financial officers of such companies. The Nominating and Corporate Governance Committee and the Board of Directors consider the skill sets both individually and as a whole in considering who to recommend as nominees. The Board of Directors believes that all of the members of the Board have the highest professional and personal ethics and values.
Director since: 2001 Independent | James D. Fast, age
Retired since August 2008, formerly Chief Executive Officer, President and Director of Firstbank-West Michigan, Ionia, Michigan. Prior to joining Firstbank, Mr. Fast served as Group Vice President, Michigan National Bank-Michiana. Mr. Fast has forty years of experience in commercial banking and administration. Mr. Fast previously served as a Director of Volcor Finishing, a privately held company in Ionia, Michigan.
Mr. Fast has experience with respect to mergers and acquisitions, negotiation, compliance management and human resource oversight and supervision of financial statement preparation. His extensive skill set with respect to executive management and commercial finance provides the Board with beneficial insights with respect to business and finance matters.
| |
Director since: 2008 Independent | Joseph J. Hartnett, age
Mr. Hartnett served as President and Chief Executive Officer of Ingenient Technologies, Inc., a multimedia software development company located in Rolling Meadows, Illinois, from April 2008 through November 2010. He joined Ingenient as Chief Operating Officer in September 2007 and left Ingenient following the sale of the company and completion of post-sale transition activities. Prior to Ingenient, Mr. Hartnett served as President and Chief Executive Officer of U.S. Robotics Corporation, a global Internet communications product company headquartered in Schaumburg, Illinois, from May 2001 through October 2006. He was Chief Financial Officer of U.S. Robotics from June 2000 to May 2001. Prior to U.S. Robotics, Mr. Hartnett was a partner with Grant Thornton LLP where he served for over 20 years in various leadership positions at the regional, national, and international level.
Mr. Hartnett is a licensed Certified Public Accountant in the State of Illinois (licensed 1982 to present), and holds a Bachelor of Science degree in Accounting from the University of Illinois at Chicago.
Mr. Hartnett serves as a director and member of the audit committee, compensation committee and nominating and corporate governance committee of Garmin Ltd. since June 7, 2013, and is a former director of Crossroads Systems, Inc., U.S. Robotics Corporation and Ingenient Technologies, Inc.
Mr. Hartnett brings significant industry experience in the areas of international business, operations management, executive leadership, strategic planning and finance, as well as extensive corporate governance, executive compensation and financial experience. |
Director since: 2011 Independent | Charles R. Kummeth, age
Mr. Kummeth serves as the Chief Executive Officer of Techne Corporation, a Minnesota corporation, since April 2013. Techne Corporation and its subsidiaries are engaged in the development, manufacture and sale of biotechnology products and hematology calibrators and controls. Mr. Kummeth served as President of the Mass Spectrometry and Chromatography division of Thermo Fisher Scientific, a Delaware corporation that provides services and products within the science industry, from April 2008 through March 2013. He previously served as President of the Medical Product Division of 3M, a Delaware corporation, beginning in 2006. From 2004 to 2006, Mr. Kummeth served as the Managing Director of 3M for the UK and Ireland.
Mr. Kummeth has served on the board of BSN Medical Inc., a private global medical device company, since March 2013.
Mr. Kummeth received a Bachelor of Science in Electrical Engineering from University of North Dakota in 1983, a Master of Science in Computer Science from University of St. Thomas in 1989, and a Master of Business Administration from the Carlson School of Business at the University of Minnesota in 1993.
Mr. Kummeth has significant industry experience in the areas of serving science, innovative technologies, software and laboratory operations. His extensive skill set with respect to executive management of a global company with high repute in the scientific community provides the Board with industry expertise and added business insights. | |
Director since: 2000 Independent | David P. Molfenter, age
Mr. Molfenter retired in August 2000. He formerly was Vice President Command, Control, Communication and Information Systems Segment, Raytheon Systems Company, a high technology company specializing in defense electronics, Fort Wayne, Indiana. Mr. Molfenter has a Master of Business Administration from Indiana University and a M.S. Electrical Engineering from Purdue University. Prior to employment with Raytheon Systems Company, Mr. Molfenter served as Chief Executive Officer of Magnavox Electronics Systems, Co. from 1993 to 1995, and as President of Hughes Defense Communications from 1995 to 1997. Since March, 2010, Mr. Molfenter has served as a member of the board of directors of Bowmar, LLC, a privately held company in Fort Wayne, Indiana.
Mr. Molfenter’s extensive executive management and board experience, including service as the principal executive officer of multiple companies and his | |
|
| ||
Director since: 2008 Independent | James R. Swartwout, age
Mr. Swartwout has been an advisor to private equity groups since 2008. From October 2006 to September 2008, he was Chief Executive Officer and member of the Board of Directors of Habasit Holding USA, the acquirer of Summa Industries, a California-based, publicly traded manufacturer of diversified plastic products for industrial and commercial markets. From October 1988 to October 2006, Mr. Swartwout held the following positions with Summa Industries (formerly NasdaqGM: SUMX): Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer. Mr. Swartwout has served on the boards of directors of numerous public and private companies. He received a Bachelor of Science in Industrial Engineering from Lafayette College and a Master of Business Administration from the University of Southern California.
Mr. Swartwout has extensive experience in a broad array of matters relevant to the affairs of the Company, including mergers, acquisitions and divestitures; management of complex, multi-business corporations; corporate governance and other matters concerning public companies. | ||
Director since: 2008 Management | Cary B. Wood, age
Mr. Wood has been President of the Company since April 2009 and Chief Executive Officer of the Company since November 2008.
During the period August 2004 to November 2008, Mr. Wood served in a variety of roles for Citation Corporation (now known as Grede Holdings, LLC). He served as interim CEO for a period of time, after which he served as the company’s Chief Operating Officer for an extended period of time. Grede Holdings, LLC is located in Southfield, Michigan and is a private company manufacturing cast, machined and assembled components for the transportation and industrial markets. Mr. Wood began his career with General Motors Corporation followed by a period with United Technologies Corporation in a variety of roles, including general management, operations and engineering capacities. He has progressed through both private and public company settings and has a developed track record in performance turn-around and growth strategies. Mr. Wood received a Bachelor of Science in Technology from Purdue University in 1989 and a Master of Science in Industrial Operations in the School of Management from Lawrence Tech University in 1995.
Mr. Wood’s experience in the areas of executive management, corporate turn-around, and growth strategies, as well as his in depth knowledge of the Company and its operating segments, are highly valuable attributes to the Company and its Board. |
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Relationship with Independent Registered Public Accountants
The Audit Committee appoints the independent registered public accounting firm to serve as the Company’s independent registered public accountant. BDO USA, LLP (“BDO USA”) is currently the independent registered public accountant for the Company. In addition to performing the audit of the Company’s consolidated financial statements, BDO USA provided various other services during fiscal year 2013.2014. The Audit Committee has considered the provision of all non-audit services performed by BDO USA during fiscal year 20132014 with respect to maintaining auditor independence. The Audit Committee reviewed and pre-approved all professional services requested of, and performed by, BDO USA. The aggregate fees billed for fiscal year 20132014 and 20122013 for each of the following categories of services are set forth below.
Pursuant to the Pre-Approval Policy, the Audit Committee annually reviews and pre-approves the services that may be provided by the independent registered public accountant, and such services are considered approved through the next annual review. The Audit Committee revises the list of pre-approved services from time to time based on subsequent determinations. The Audit Committee may delegate pre-approval authority to its Chairman. The Chairman shall report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Pre-Approval Policy for audit and non-audit services is available on the Company’s website at www.sparton.com.
The following table presents fees for services provided by BDO USA for the years ended June 30, 20132014 and 2012:2013:
(In thousands) | Year Ended June 30, | Year Ended June 30, | ||||||||||||||
2013 | 2012 | 2014 | 2013 | |||||||||||||
Audit Fees | $ | 400 | $ | 402 | $ | 412 | $ | 400 | ||||||||
Audit-Related Fees | 304 | 77 | 24 | 304 | ||||||||||||
Tax Fees | 225 | 164 | 243 | 225 | ||||||||||||
All Other Fees | — | — | — | — | ||||||||||||
Total | $ | 929 | $ | 643 | $ | 679 | $ | 929 |
Audit Fees
These fees relate to the audit and reviews of the consolidated financial statements, including opening balance sheet work for three acquisitions during fiscal 2014 and for two acquisitions during fiscal 2013, and for other attest services.
Audit-Related Fees
These fees primarily relate primarily to audits of employee benefit plans and for fiscal 2013, accounting consultation for contemplated transactions and in fiscal 2013, the audit of historical financial statements for one acquisition.
Tax Fees
These fees relate to tax compliance, tax advice and tax planning and tax consultation for contemplated transactions.
All Other Fees
There were no other fees for the years ended June 30, 20132014 and 2012.2013.
The Audit Committee is required to consider the independence of BDO USA when engaging the firm to perform audit-related and other services. In 2013,2014, it was determined by the Audit Committee that audit-related and other services provided and the fees paid for those services were consistent with maintaining the independence of BDO USA.
At a meeting on August 20, 2013,19, 2014, the Audit Committee of the Board of Directors took action to approverecommend the appointment of the accounting firm of BDO USA as the independent registered public accountants for the Company for the fiscal year ending June 30, 2014.2015 and, on August 20, 2014, the Board of Directors approved such appointment. The Board of Directors is asking the shareholders to ratify the appointment of BDO USA.
Each share of common stock is entitled to one vote for this Proposal. In order to be adopted, this Proposal must be ratified by the holders of a majority of the shares entitled to vote thereon present in person or represented by proxy at the Annual Meeting. Broker non-votes and abstentions are not counted for purposes of this Proposal. Because this vote is advisory, it will not be binding upon the Board of Directors. However, the Board values the opinion of its shareholders and, in the event that the shareholders do not ratify the appointment by approving this Proposal 2, the Board of Directors and the Audit Committee will consider the selection of other independent registered public accountants.
The Board of Directors recommends that shareholders vote “FOR” the ratification of the selection of BDO USA, LLP by an advisory vote.
Representatives of BDO USA, the Company’s independent registered public accounting firm, are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
The Company has designed its executive compensation program to attract, motivate, retain and reward its senior management in order to achieve the Company’s corporate objectives and increase value for our shareholders. The Company believes that its compensation policies and procedures are centered on a pay-for-performance philosophy and are aligned with the long-term interests of our shareholders.
The Company is presenting the following proposal, which gives each shareholder the opportunity to have a voice and endorse or not endorse the Company’s executive compensation paid to our Named Executive Officers by voting for or against the following resolution:
“RESOLVED, that the compensation paid to the Company’s Named Executive Officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis and related compensation tables and the narrative discussion, is hereby approved.”
As discussed in the Compensation Discussion and Analysis contained in this Proxy Statement, the Compensation Committee of the Board of Directors believes that the executive compensation for fiscal year 20132014 is justified by the performance of the Company in a very competitive environment, is reasonable and is the result of a carefully considered approach.
In deciding how to vote on this Proposal, the Company urges you to consider the various factors regarding compensation matters as discussed in the Compensation Discussion and Analysis. Your vote is not intended to address any specific item of compensation, but rather the overall compensation of our Named Executive Officers and the compensation policies and practices described in this Proxy Statement.
Because your vote is advisory, it will not be binding upon the Board of Directors. However, our Board values your opinion and the Board of Directors and the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
Approval of the proposal requires the affirmative vote of a majority of the shares of our common stock present in person or represented by proxy and entitled to be voted on the proposal at the Annual Meeting. Broker non-votes and abstentions are not counted for purposes of this Proposal.
The Board recommends a vote “FOR” approval of the compensation of the Company’s Named Executive Officers as set forth in Proposal 3.
VOTE TO APPROVE AMENDMENT TO COMPANY’S AMENDED AND RESTATED CODE OF REGULATIONS
The Board of Directors has approved and recommends your approval of an amendment to the Company’s Code of Regulations to add a new provision which would provide that, unless the Company consents in writing to the selection of an alternative forum, the state and federal courts of the State of Ohio will be the sole and exclusive forum for (1) any derivative action or proceeding brought on behalf of the Company, (2) any direct action brought by a shareholder asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s shareholders, (3) any direct action brought by a shareholder asserting a claim against the Company or any of its directors, officers or other employees alleging a violation of Corporate Matters, or (4) any direct action brought by a shareholder asserting a claim against the Company governed by the internal affairs doctrine in all cases subject to the court having personal jurisdiction over the indispensable parties named as defendants. “Corporate Matters” means the Corporation Law of the Ohio Revised Code, the Company’s Second Amended Articles of Incorporation, as amended, the Code of Regulations, and the bylaws. Through its diverse business, the Company has operations at locations in many different states. Plaintiffs seeking to bring claims against the Company for the matters to which the proposed amendment relates could use the Company’s diverse operations to bring duplicative suits in multiple jurisdictions, or to choose a forum state that may not apply Ohio law to the Company’s internal affairs in the same manner as the state and federal courts the State of Ohio would be expected to do so. The Board believes that Ohio courts are best suited to address disputes involving the Company given that the Company is incorporated in Ohio, operates a facility in Ohio, and the Ohio courts have expertise in matters involving Ohio law. Although some plaintiffs might prefer to litigate matters in a forum outside of Ohio because another court may be viewed as being more convenient and/or favorable to them, the Board believes that the benefits to the Company and its shareholders, including more efficient litigation, outweigh these concerns. The Ohio courts have expertise in dealing with Ohio corporate law issues and are the most familiar with the application of Ohio law to the matters that could be brought before them. In addition, adoption of this amendment helps to reduce the risk that the Company could be involved in duplicative litigation in more than one forum, as well as the risk that the outcome of cases in multiple forums could be inconsistent even though each forum purports to follow Ohio law. This amendment still gives the Board the flexibility to consent to an alternative forum in instances when the Board deems it appropriate.
The Board of Directors is aware of certain other potential burdens and disadvantages to shareholders in connection with the adoption of an exclusive forum clause, including that plaintiffs who wish to file actions in multiple jurisdictions against the Company and/or its directors, officers and/or employees to increase the settlement value of their actions by increasing the Company’s costs to defend against multiple actions would prefer to be able to file actions in multiple jurisdictions. It is also possible that the exclusive forum clause could reduce the likelihood of litigation against the Company and its directors, officers and employees, which litigation may be in pursuit of matters beneficial to the Company and its shareholders if successful. Lastly, the Board of Directors is aware that certain proxy advisors and institutional holders may not support the adoption of an exclusive forum clause unless it can be shown that the Company has already suffered material harm as a result of multiple actions in different jurisdictions regarding the same matter.
However, the Company and the Board of Directors has reviewed these potential burdens and disadvantages and believes that the adoption of the exclusive forum clause is in the best interests of the Company and its shareholders. The Company and the Board of Directors have maintained strong governance standards based on best practices, many of which are described in this Proxy Statement. Accordingly, from a governance perspective the Board of Directors believes that it is more beneficial to the Company and its shareholders to take preventative action before the Company and shareholders are harmed by the practice of actions being filed in plaintiff’s favorite jurisdiction or multiple jurisdictions.
If approved, this provision would require that state courts in which applicable claims are asserted in contravention of the proposed amendment be willing to enforce its terms. It cannot be assured that all state courts will determine such a provision to be enforceable or will be willing to force the transfer of such proceedings to the Ohio courts.
The proposed amendment would amend the Code of Regulations of the Company to add a new Article VII, the full text of which is attached hereto asAppendix A. You should readAppendix A in its entirety before making a decision as to how to vote your shares in connection with Proposal 4.
Approval of the proposal requires the affirmative vote of a majority of the shares of our common stock present in person or represented by proxy and entitled to be voted on the proposal at the Annual Meeting. Broker non-votes are not counted for purposes of this Proposal. Abstentions will be counted and will have the effect of a negative vote against the Proposal.
The Board recommends a vote “FOR” approval of the amendment to the Company’s Amended and Restated Code of Regulations as set forth in Proposal 4.
PROPOSAL TO RE-APPROVE THE MATERIAL TERMS OF THE PERFORMANCE GOALS SPECIFIED IN THE SPARTON CORPORATION 2010 LONG-TERM STOCK INCENTIVE PLAN
Background
The Sparton Corporation 2010 Long-Term Stock Incentive Plan was approved by the Board and by the Company’s shareholders at the 2009 Annual Meeting of Shareholders, and was amended effective as of June 24, 2010 to modify the definition of Change of Control and effective as of September 1, 2014 to allow for the deferral of the payment of certain awards or grants (as so amended, the “2010 LTIP”). The provisions of the 2010 LTIP are intended to ensure that the tax deductibility of payments under the 2010 LTIP is not limited by Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).
Shareholders are being asked to re-approve the material terms of the performance goals that are a part of the 2010 LTIP so that the Company may deduct from its U.S. Federal corporate income taxes the full amount of any incentive awards paid under the 2010 LTIP that otherwise qualify as “qualified performance-based compensation” under Section 162(m) of the Code (the “Section 162(m) Re-approval”). There has been no change to the material terms of the performance goals from those previously approved by shareholders. The Board and the Compensation Committee have re-approved the material terms of the performance goals, subject to approval by shareholders. The material terms will become effective upon Section 162(m) Re-approval. If Section 162(m) Re-approval is not received from shareholders at the Annual Meeting, while performance-based awards could still be granted, the Company would not be able to deduct compensation in excess of $1 million to Covered Employees for federal income tax purposes.
If Section 162(m) Re-approval occurs, the Compensation Committee intends that any performance-based grants under the 2010 LTIP will be designed to satisfy the requirements of Section 162(m) of the Code to permit the deduction for tax purposes of the full amount of such awards.
Shareholders are not being asked to approve any amendments to the 2010 LTIP or to approve the 2010 LTIP itself under this proposal, but are only asked to re-approve the performance measures included in the plan for compliance with Section 162(m) of the Code.
Reasons for Proposal
Under Section 162(m) of the Code, compensation in excess of $1 million paid in any one year to a public corporation’s covered employees who are employed by the corporation at year-end will generally not be deductible for federal income tax purposes unless the compensation is considered “qualified performance-based compensation” under Section 162(m) of the Code (or another exemption is met, including, but not limited to, instances when options are granted with an exercise or base price at least equal to 100 percent of the fair market value of the stock as of the grant date). Covered employees include the Chief Executive Officer and the four other most highly compensated executive officers as of the last day of the taxable year other than the Chief Executive Officer whose compensation for the taxable year is required to be reported to shareholders (collectively, the “Covered Employees”).
In order to qualify as qualified performance-based compensation, among other requirements, Section 162(m) of the Code requires that shareholders approve the material terms of the performance goals every five years if the Compensation Committee has the authority to change the targets under a performance goal. The Company has not obtained Section 162(m) Re-approval since the approval of the 2010 LTIP at the 2009 Annual Meeting of Shareholders. Thus, shareholders are being asked to re-approve the materials terms of the performance goals in order for performance-based awards (as described below) made subsequent to October 28, 2014 (five years following shareholder approval of the 2010 LTIP) to be exempt from the $1 million deduction limitation under
Section 162(m) of the Code. If the shareholders re-approve the material terms of the performance goals at the Annual Meeting pursuant to Section 162(m) of the Code, then performance-based awards granted to Covered Employees following such shareholder re-approval can be designed to be Section 162(m) compliant awards.
The rules and regulations promulgated under Section 162(m) of the Code are subject to change from time to time, sometimes with retroactive effect. There can be no guarantee, therefore, that amounts potentially subject to the Section 162(m) limitations will be treated by the Internal Revenue Service as qualified performance-based compensation under Section 162(m) of the Code and/or deductible by the Company. A number of requirements must be met under Section 162(m) of the Code in order for particular compensation to so qualify for the exception such that there can be no assurance that “qualified performance-based” compensation under the 2010 LTIP will be fully deductible under all circumstances.
Section 162(m) Re-approval contemplates no changes to the material terms of the performance goals from those previously approved by shareholders. In accordance with Section 162(m) of the Code, the material terms include the employees eligible to receive compensation; a description of the business criteria on which the performance goal is based; and either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount of compensation to be paid to the employee if the performance goal is attained (except that, in the case of a formula based, in whole or in part, on a percentage of salary or base pay, the maximum dollar amount of compensation that could be paid to the employee must be disclosed). The material terms of the performance goals of the 2010 LTIP are summarized below in this Proposal 5.
Eligible Participants
Any directors, officers and employees of the Company and its subsidiaries and affiliates, as well as prospective officers and employees who have accepted offers of employment, may be selected by the Compensation Committee to become participants in the 2010 LTIP. Presently, the Company estimates that approximately fourteen employees, including the Named Executive Officers, are eligible to receive awards each year under the 2010 LTIP.
Types of Awards Under the Plan
The Compensation Committee may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards under the 2010 LTIP.
Stock Options
The Compensation Committee may grant stock options qualifying as incentive stock options under the Code (“ISOs”) and non-qualified stock options. The term of each stock option will be fixed by the Compensation Committee, but may not exceed ten (10) years. The exercise price for each stock option will also be fixed by the Compensation Committee, but may not be less than the fair market value of the Company’s common stock on the date of grant. ISOs may only be granted to officers and employees of the Company and corporations connected to it by chains of ownership of voting power representing fifty percent (50%) or more of the total outstanding voting power of all classes of stock of the lower-tier entity. Stock options will vest and become exercisable as determined by the Compensation Committee.
An option holder may pay the exercise price of an option in cash, through tender of shares already owned by the option holder, by pledging the proceeds from the sale of shares in connection with the exercise of the option, or by any combination of these methods.
Restricted Stock
The Compensation Committee may also award restricted stock, that is, shares of the Company’s common stock, the vesting and transferability of which is subject to such requirements as the Compensation Committee may
determine. These requirements may include continued services for a specified period and/or achievement of performance goals. At the discretion of the Compensation Committee, the recipient of restricted stock will be entitled to vote the shares and receive dividends and other distributions, although the Compensation Committee may make any and all dividends and other distributions with respect to restricted stock subject to the same or different vesting conditions as the restricted stock.
Restricted Stock Units
The Compensation Committee may also award restricted stock units, that is, grants representing a specified number of hypothetical shares of the Company’s common stock, the vesting of which is subject to such requirements as the Compensation Committee may determine. These requirements may include continued services for a specified period and/or achievement of performance goals. Upon or after vesting, restricted stock units will be settled in cash or shares of the Company’s common stock or a combination, as determined by the Compensation Committee. A participant to whom restricted stock units are granted will not have any rights as a shareholder with respect to the units, unless and until they are settled in shares of the Company’s common stock, although at the discretion of the Compensation Committee, the recipient of a restricted stock unit award may be entitled to a dividend equivalent right.
Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights (“SARs”), with such terms and conditions as are determined by the Compensation Committee. Exercise of a SAR entitles a participant to receive an amount equal to the difference between the fair market value of one share of common stock on the date the SAR is exercised and the grant price, as the case may be, times the number of shares with respect to which the SAR is exercised. The Compensation Committee has discretion to determine whether any SAR will be settled in cash, shares or a combination thereof. SARs expire no more than ten years after the date they are granted.
Performance Awards
Performance awards may be denominated or payable in cash, shares of common stock (including, without limitation, shares of restricted stock), other securities, other awards, or other property. Performance awards confer on the award recipient the right to receive a dollar amount or number of shares upon the attainment of performance measures during a performance period, as established by the Compensation Committee.
Other Stock-Based Awards
Other stock-based awards may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, shares of common stock of the Company (including, without limitation, securities convertible into shares of common stock), as the Compensation Committee deems consistent with the purpose of the 2010 LTIP. They also may be subject to such additional terms and conditions, including performance measures, not inconsistent with the provisions of the 2010 LTIP, as determined by the Compensation Committee.
Shares Available Under the 2010 LTIP
The maximum number of shares of the Company’s common stock that will be available under the 2010 LTIP is 1,000,000. To the extent that any award is forfeited, terminates, expires or lapses without exercise or settlement, the shares subject to such awards forfeited or not delivered as a result thereof shall again be available for awards under the 2010 LTIP. As of June 30, 2014, a total of 499,099 shares were available under the 2010 LTIP.
In the event of (i) a stock dividend, stock split, reverse stock split, share combination, or recapitalization or similar event affecting the capital structure of the Company or (ii) a merger, consolidation, acquisition of
property or shares, separation, spinoff, reorganization, stock rights offering, liquidation, disaffiliation, or similar event affecting the Company or any of its subsidiaries, the Compensation Committee or the Board of Directors shall make such substitutions or adjustments as it deems appropriate and equitable to (A) the aggregate number and kind of shares or other securities reserved for issuance and delivery under the 2010 LTIP, (B) the various maximum limitations set forth above upon certain types of awards and upon the grants to individuals of certain types of awards, (C) the number and kind of shares or other securities subject to outstanding awards, and (D) the exercise price of outstanding options and stock appreciation rights. Any such adjustment is required to be made in a manner that would be consistent with Section 409A of the Code.
Performance Goals
Section 162(m) of the Code generally places a $1,000,000 annual limit on a company’s tax deduction for compensation paid to a public company’s chief executive officer and the other four highest paid officers named in its proxy statement. This limit does not apply to compensation that satisfies the applicable requirements for the “performance-based compensation” exception (referred to in this proposal as the performance exception), including approval by shareholders of the material terms of the compensation. The approval in 2009 of the 2010 LTIP by the Company’s shareholders satisfied and the Section 162(m) Re-approval will continue to satisfy this shareholder approval requirement, and grants under the 2010 LTIP are intended to satisfy the requirements for the performance exception.
The 2010 LTIP incorporates the provisions required so that stock options and SARs will be qualified performance-based awards. These provisions include allowing such stock options and SARs to be granted only by the Compensation Committee, and requiring that their exercise price be not less than the fair market value of the Company’s common stock on the date of grant. Therefore, it is expected that all stock options and SARs granted under the 2010 LTIP that are subject to performance goals will qualify for the performance exception. In addition, the 2010 LTIP gives the Compensation Committee the ability to grant restricted stock, restricted stock units and performance-based awards designed to be qualified performance-based awards.
These qualified performance-based awards must be subject to the achievement of performance goals based upon the attainment of specified levels of one or more of the following measures: (a) earnings per share, (b) return measures (including, but not limited to, return on assets, equity or sales), (c) net income (before or after taxes), (d) cash flow (including, but not limited to, operating cash flow and free cash flow), (e) cash flow return on investments, which equals net cash flows divided by owner’s equity, (f) earnings before or after taxes, interest, depreciation and/or amortization, (g) internal rate of return or increase in net present value, (h) gross revenues, (i) gross margins or (j) stock price (including, but not limited to, growth measures and total shareholder return). Performance measures may be absolute in their terms or measured against or in relationship to other companies comparably, similarly or otherwise situated and may be based on or adjusted for any other objective goals, events, or occurrences established by the Compensation Committee for a performance period. Such performance measures may be particular to a line of business, subsidiary or other unit or may be based on the performance of the Company generally.
Performance measures may be adjusted by the Compensation Committee in its sole discretion to eliminate the unbudgeted effects of charges for restructurings, charges for discontinued operations, charges for extraordinary items and other unusual or non-recurring items of loss or expense, merger related charges, cumulative effect of accounting changes, the unbudgeted financial impact of any acquisition or divestiture made during the applicable performance period, and any direct or indirect change in the federal corporate tax rate affecting the performance period, each as defined by generally accepted accounting principles and identified in the audited financial statements, notes to the audited financial statements, management’s discussion and analysis or other Company filings with the SEC.
In granting qualified performance-based awards other than stock options and SARs, the Compensation Committee must establish the applicable performance measures within the time allowed by the performance
exception and at a time when achievement of the goals is substantially uncertain, and it must certify the achievement of those goals before the vesting or payment of the qualified performance-based awards. In addition, in order to assure that qualified performance-based awards in fact qualify for the performance exception, the 2010 LTIP provides that (1) except in the event of death, disability, or other events permitted by the performance exception, the achievement of the applicable performance goals may not be waived, and (2) awards may not be amended, and the Compensation Committee may not exercise discretionary authority, in a way that would cause the awards to cease to qualify for the performance exemption.
As one of the factors in its decisions regarding grants under and administration of the 2010 LTIP, the Compensation Committee will consider the anticipated effects of Section 162(m) of the Code. These effects will depend upon a number of factors, including not only whether the grants qualify for the performance exception, but also the timing of executives’ vesting in or exercise of previously granted equity awards and receipt of other compensation. Furthermore, interpretations of and changes in the tax laws and other factors beyond the Compensation Committee’s control may also affect the deductibility of compensation. For these and other reasons, the Compensation Committee may make grants that do not qualify for the performance exception, and the Company’s tax deductions for those grants may be limited or eliminated as a result of the application of Section 162(m) of the Code. Further, if grants vest or are paid on an accelerated basis upon a change in control or a subsequent termination of employment, some or all of the value of that acceleration may be considered an “excess parachute payment” under Section 280G of the Code, which would result in the imposition of a twenty percent (20%) federal excise tax on the recipients of the excess parachute payments and a loss of the Company’s deduction for the excess parachute payments.
Summary of Other Principal Terms of the 2010 LTIP
Attached to this Proxy Statement asAppendix B is a summary of the principal terms of the 2010 LTIP, other than the terms addressed above, and other related information. The summary is qualified in its entirety by reference to the full text of the 2010 LTIP, which attached to this Proxy Statement asAppendix C.
Vote Required for Approval
Approval of the proposal requires the affirmative vote of a majority of the shares of our common stock present in person or represented by proxy and entitled to be voted on the proposal at the Annual Meeting. Broker non-votes are not counted for purposes of this Proposal. Abstentions will be counted and will have the effect of a negative vote against the Proposal.
Board Recommendation
The Board recommends a vote “FOR” approval of the amendment to the Company’s Amended and Restated Code of Regulations as set forth in Proposal 5.
STOCK OWNERSHIP AND SECTION 16 COMPLIANCE
Director and Executive Officer Beneficial Ownership
The following table shows the shares of the Company’s common stock beneficially owned (except as noted) by the Named Executive Officers, the members of our Board, and all executive officers and directors of the Company as a group as of June 30, 2013.2014. “Named Executive Officers,” consistent with Item 402(a) of Regulation S-K promulgated under the Exchange Act, include: (i) the Company’s Chief Executive Officer and individuals acting in a similar capacity during fiscal year 2013,2014, regardless of compensation level; (ii) all individuals serving as the Company’s Chief Financial Officer or acting in a similar capacity during fiscal year 2013,2014, regardless of compensation level; (iii) the Company’s three most highly compensated executive officers other than the Chief Executive Officer and the Chief Financial Officer who were serving as executive officers at the end of fiscal year 2013;2014; and (iv) up to two additional individuals who would have been included under (iii) above but for the fact that the applicable individual was not serving as an executive officer of the Company at the end of fiscal year 2013.2014.
Name of Beneficial Owner
| Number of Shares | Shares Options (2)
| Total Number of Owned
| Percent of Class (3)
| Number of Shares | Shares Underlying Options (2) | Total Number of Shares Beneficially Owned | Percent of Class (3) | ||||||||||||||||||||||||||||
Unrestricted
| Restricted (1)
| Unrestricted | Restricted (1) | |||||||||||||||||||||||||||||||||
James D. Fast | 23,303 | — | 5,513 | 28,816 | * | 30,432 | — | — | 30,432 | * | ||||||||||||||||||||||||||
Joseph J. Hartnett | 13,988 | — | — | 13,988 | * | 15,604 | — | — | 15,604 | * | ||||||||||||||||||||||||||
Charles R. Kummeth | 6,406 | — | — | 6,406 | * | 8,022 | — | — | 8,022 | * | ||||||||||||||||||||||||||
David P. Molfenter | 26,753 | — | 5,513 | 32,266 | * | 33,881 | — | — | 33,881 | * | ||||||||||||||||||||||||||
Douglas R. Schrank | 21,988 | — | — | 21,988 | * | 22,000 | — | — | 22,000 | * | ||||||||||||||||||||||||||
James R. Swartwout | 29,717 | — | — | 29,717 | * | 32,343 | — | — | 32,343 | * | ||||||||||||||||||||||||||
Cary B. Wood | 171,915 | 128,068 | — | 299,983 | 2.97% | 152,987 | 116,401 | — | 269,388 | 2.66% | ||||||||||||||||||||||||||
Mark Schlei | 5,300 | 15,000 | — | 20,300 | * | 5,300 | 25,418 | — | 30,718 | * | ||||||||||||||||||||||||||
Gordon B. Madlock | 11,661 | 27,285 | — | 38,946 | * | 13,132 | 29,347 | — | 42,479 | * | ||||||||||||||||||||||||||
Michael W. Osborne | 29,757 | 19,870 | — | 49,627 | * | 25,102 | 21,887 | — | 46,989 | * | ||||||||||||||||||||||||||
Steven M. Korwin | 25,604 | 22,426 | — | 48,030 | * | 23,229 | 23,372 | — | 46,601 | * | ||||||||||||||||||||||||||
Gregory A. Slome | 34,527 | — | — | 34,527 | * | |||||||||||||||||||||||||||||||
All Directors and executive officers as a group | 412,907 | 299,704 | 16,539 | 728,366 | 7.20% | 405,789 | 287,543 | 5,513 | 698,845 | 6.90% |
*denotes a percentage of less than 1%
(1) | Mr. Wood’s restricted shares include those that are restricted subject to the 2001 SIP (defined below at page |
(2) | Amounts reflect shares under options held by executive officers and directors exercisable as of June 30, |
(3) | Calculation is based on total shares outstanding as of June 30, |
(4) | Includes 19,458 shares over which Mr. Fast’s spouse shares voting and investment control. |
(5) | Includes 18,830 shares over which Mr. Swartwout’s spouse shares voting and investment control. |
(6) | Mr. Osborne has pledged 434 shares of common stock as security for a loan in the amount of $13,000 relating to taxes incurred in connection with the vesting of certain restricted shares granted to him in 2012. |
As of June 30, 2013,2014, unless otherwise described in the footnotes below, the persons named in the following table were known by management to be the beneficial owners of more than 5% of the Company’s outstanding common stock. Certain of the beneficial owners listed below share voting and investment power over their respective shares of Company common stock, as detailed in the footnotes below. As a result, certain of the share amounts and percentages stated below are held by multiple beneficial owners.
Name and Address of Beneficial Owner
| Amount and Nature of Beneficial Ownership
| Percent of Class (4)
| Amount and Nature of
Beneficial Ownership | Percent of Class (4) | ||||||||||||
Dimensional Fund Advisors, LP | 853,612 | (1) | 8.46 | % | 861,557 | (1) | 8.51 | % | ||||||||
Palisades West, Building One, 6300 Bee Cave Road | ||||||||||||||||
Austin, Texas 78746 | ||||||||||||||||
Beddow Capital Management Inc. | 756,475 | (2) | 7.49 | % | 756,475 | (2) | 7.47 | % | ||||||||
250 Healdsburg Avenue, Suite 202 | ||||||||||||||||
Healdsburg, California 95448 | ||||||||||||||||
Judith A. Sare | 657,279 | (3) | 6.51 | % | 540,495 | (3) | 5.34 | % | ||||||||
3 North Park Circle | ||||||||||||||||
Palm Coast, Florida 32137
|
(1) | The shares presented are according to information included in the |
(2) | The shares presented are according to information in the |
(3) | The shares presented are according to information in the Schedule 13G/A filed |
(4) | Calculation is based on total shares outstanding as of June 30, |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely upon a review of the copies of the forms furnished to the Company, and/or written representations from certain reporting persons, the Company believes that all filing requirements applicable to its officers and directors were met during the fiscal year ended June 30, 2013,2014, other than as set forth below.
Each of Charles KummethLawrence R. Brand, Robert L. Grimm II, Steven M. Korwin, James M. Lackemacher, Gordon B. Madlock, Michael W. Osborne, Jacob A. Rost, and James FastCary B. Wood filed one Form 4 late, each of which included a single transaction relating to the reporting person’s forfeiture of certain stock in connection with the Company’s issuance of stock awards to such reporting person. Joseph J. Hartnett filed one Form 4 late, which included a single transaction that was not reported on a timely basis.basis due to a change of EDGAR access codes. All required forms are now currently filed. SEC rules promulgated under the Exchange Act require the Company to disclose all known delinquent Section 16(a) filings by its officers, directors and greater than 10% shareholders.
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Compensation Discussion and Analysis
TABLE OF CONTENTS | ||||
| ||||
Specific Compensation and Corporate Governance Policies and Practices | ||||
In this section, we describe the material components of our executive compensation program for our Named Executive Officers, whose compensation is set forth in the fiscal 20132014 Summary Compensation Table and other compensation tables contained in this Proxy Statement:
Cary B. Wood, President and Chief Executive Officer;
Mark Schlei, Senior Vice President, Chief Financial Officer (employment commenced November 8, 2012)terminated September 11, 2014);
Gordon B. Madlock, Senior Vice President, Operations;
Michael W. Osborne, Senior Vice President, Corporate DevelopmentDevelopment; and
Steven M. Korwin, Senior Vice President, Quality Engineering and Information Systems; and
Gregory A. Slome, former Chief Financial Officer (employment terminated November 8, 2012)Engineering.
We also provide an overview of our executive compensation philosophy and our executive compensation program. In addition, we explain how and why the Compensation Committee of our Board of Directors (“Committee”) arrives at specific compensation policies and decisions involving the Named Executive Officers.
General
The Company is a provider of complexdesign, development, and sophisticatedmanufacturing services for complex electromechanical devices, with capabilities that include concept development, design and manufacturing engineering, production, distribution, and field service.as well as sophisticated engineered products complimentary to the same electromechanical value stream. The Company serves the Medical & Biotechnology, Military & Aerospace and Industrial & Commercial markets through three reportable business segments; Medical Device (“Medical”), Complex Systems (“CS”) and Defense & Security Systems (“DSS”).
All of the Company’s facilities are registeredcertified to ISOone or more of the ISO/AS standards, including ISO 9001, AS9100 or ISO 13485, with most having additional certifications.certifications based on the needs of the customers they serve. The Company’s products and services include productsofferings for Original Equipment Manufacturers (“OEM”) and Emerging Technology (“ET”) customers that areutilize microprocessor-based systems thatwhich include transducers, printed circuit boards and assemblies, sensors, and electromechanical components, as well as development and design engineering services relating to these product sales. Sparton also develops and manufactures sonobuoys, anti-submarine warfare (“ASW”) devices used by the United States Navy and other free-world countries. Many of the physical and technical attributes in the production of sonobuoys are similar to those required in the production of the Company’s other electrical and electromechanical products and assemblies.
Medical Segment
Medical segment operations are comprised of contract design, manufacturing, and aftermarket repair and refurbishment of sophisticated medical and biotechnology devices and sub-assemblies. Customers include industry leaders, emerging technologies companies and start-ups. In manufacturing devices for its customers, this business unit follows specific design and manufacturing processes to assure product reliability and safety in accordance with Food and Drug Administration (“FDA”) guidelines and approvals. This group specializes in technologies, systems and processes required by medical OEM and emerging technologyET customers primarily in the diagnostic, therapeutic, surgical and laboratory device segments of the medical and biotechnology marketplaces. The medicalMedical segment also includes environmental monitoring and industrial systems and controlssome non-medical customers.
Complex Systems Segment
Complex Systems segment operations are comprised of manufacturing and aftermarket repair and refurbishment of sophisticated printed circuit card assemblies, sub-assemblies, full product assemblies, and cable/wire
harnesses. Customers include military and aerospace, as well as industrial and commercial OEM’s. In manufacturing for its customers, this segment adheres to very strict military and aerospace specifications in addition to product and process certifications. Customers are primarily engaged in applications that include: flight controls, industrial and military control systems, cockpit displays, fuel system controls, secure communications, early warning detection, security systems, satellite communications, and audio. The CS segment also includes some medical customers.
DSS Segment
Defense & Security segment operations are comprised of design, development and production of products for both domestic and foreign defense as well as commercial needs. Sparton designs and manufactures anti-submarine warfare (“ASW”) devices known as sonobuoys for the U.S. Navy and foreign governments that meet Department of State licensing requirements. This segment also performs an engineering development function for the United States military and prime defense contractors for advanced technologies ultimately leading to future defense products as well as replacements for existing products. The sonobuoy product line is built to stringent military specifications. These products are restricted by International Tariff and Arms Regulations (“ITAR”) and qualified by the U.S. Navy, which limits opportunities for competition. Sparton is also a provider of ruggedized flat panel display systems for military panel PC workstations, air traffic control and industrial applications. Ruggedized displays are manufactured for prime contractors to specific military grade specifications. Additionally, this business unit internally develops and markets commercial products for underwater acoustics and microelectromechanical (“MEMS”)-based inertial measurement.
For a more detailed discussion of our business, please see Part I, Item 1, “Business”, of our Annual Report on Form 10-K for the year ended June 30, 2013.2014.
Awarded 71Annual revenue growth of 27.0% to $336.1 million as compared to prior year.
Organic growth, net of acquisition impacts, was 6% from the prior year.
91 new business programs during fiscal 2013awarded with estimated annual revenuepotential annualized sales of $39.4$39.9 million.
Completed the acquisitionacquisitions of assets of Onyx EMS, LLC in November 2012Aydin Displays, Inc., Beckwood Services, Inc. and Creonix, LLC in June 2013.Aubrey Group, Inc.
Entered into a new five year banking agreement with BMO Harris Bank providing $65 millionAnnual adjusted EBITDA of committed credit facilities. The new facility also includes a $35 million accordion feature which could raise the total facility to $100 million.
Operating income of $16.3$33.4 million or an increase of 11.9% over52% from the prior year.
20132014 Key Compensation Highlights
The Committee engaged Meridian Compensation Partners, LLC (“Meridian”) to provide compensation information of executive officers of our peer companies
IdentifiedThe Committee identified our 2221 key peer companies in collaboration with Meridian based on Committee-selected criteria
The Committee eliminated all car allowances for Named Executive Officers
The Committee continued alignment of short term and long term incentive plan goals with the achievement of specific annual and long term financial goals
The Committee completed the annual review of the Compensation Committee Charter and recommended amendments to the Charter
The Committee developed and implemented a Deferred Compensation Plan applicable to select employees, members of the Board of Directors, and members of committees established by the Board of Directors
The Committee negotiated and finalized a new employment agreement with the Company’s Chief Executive Officer
The Committee established new management stock ownership guidelines and reviewed Named Executive Officer stock ownership progress
The Committee completedreviewed the annual review2010 LTIP and recommended that future grants include a mix of restricted stock, restricted stock units, and options, and further recommended a related amendment to the Compensation2010 LTIP to permit awards of restricted stock units
The Nominating & Corporate Governance Committee Charterrecommended and the Board approved an increase in director compensation.
20132014 Compensation Committee and Governance Highlights
We maintain goodcomprehensive governance standards based on best practices, including the oversight of our executive compensation policies and practices. The following policies and practices were in effect during 2013:2014:
We recently revised our charter to insureensure continued compliance with the new NYSE and SEC rules with respect to the independence of members of our Committee, the retention and oversight of the work of any compensation consultant, independent legal counsel, or other advisor retained by our Committee and any conflict of interest with respect to such consultant, legal counsel or other advisor. Our Committee charter already included many of the requirements of the new rules.
compensation consultant, independent legal counsel, or other advisor retained by our Committee and any conflict of interest with respect to such consultant, legal counsel or other advisor. Our Committee charter already included many of the requirements of the new rules. |
We maintain a majority vote for the election of the directors in uncontested elections (and require tender of resignation by any incumbent director who is not re-elected) and plurality voting in any election that is contested.
Our leadership structure consists of a Chairman of the Board, a separate CEO, and strong independent Board committee chairs.
Our Committee retained an independent compensation consultant, Meridian, which performs no other consulting or other services for us.
Our Committee is comprised solely of independent directors.
Our Committee conducts an annual review and approval of our compensation strategy, including a review of our compensation-related risk profile, to ensure that our compensation-related risks are not reasonably likely to have a material adverse effect on us.
We maintain a claw-back policy that provides that, in connection with any restatement of our financial statements due to material non-compliance with financial reporting requirements, it is our policy to require forfeiture by current and former executive officers of incentive based compensation in accordance with applicable laws, rules and regulations.
Consideration of Last Year’s “Say On Pay” Vote.
Following our annual meeting of shareholders in October 2012,November 2013, the Committee reviewed the results of the shareholder advisory vote on executive compensation that was held at the meeting with respect to the fiscal year 20122013 compensation of the Named Executive Officers. Ninety and Nine-Tenths99.6% percent (90.9%) of the votes cast (excluding abstentions) were voted in support of the compensation of our Named Executive Officers set forth in the Compensation Discussion and Analysis, the summary compensation table and the related compensation tables and narratives in last year’s proxy statement.
After considering the results of the 20122013 Say On Pay vote, which indicate that our shareholders overwhelmingly approve of our methodology for establishing compensation, as well as the other factors considered in determining executive compensation as described in this Compensation Discussion and Analysis, the Committee was encouraged to continue its practices in determining executive compensation.
Specific Compensation and Corporate Governance Policies and Practices
Our compensation philosophy and related governance features are complemented by several specific policies and practices that are designed to align our executive compensation with long-term shareholder interests, including:
We have stock ownership guidelines for our executive officers, including the Named Executive Officers, and members of our Board. Each of the Named Executive Officers and each of the members of our Board havehas met his individual stock ownership level under the current program,guidelines in effect for fiscal year 2014, except for Mr. Madlock, who joined the Company during fiscal 2009, and Mr. Schlei, who was appointed during fiscal 2013 and Mr. Kummeth, who was appointed to the Board during fiscal 2012.. The guidelines were revised in June of 2014, as described at page 35 below.
We have a policy prohibiting all employees, including Named Executive Officers, and members of our Board from engaging in any hedging transactions with respect to our equity securities held by them.
Under our Insider Trading Policy, certain of our employees and consultants, including executive officers, and members of our Board are prohibited from pledging shares of our capital stock without first obtaining pre-clearance of the transaction from the compliance officer.
Our Executive Officers, including the Named Executive Officers, receive minimal perquisites or other personal benefits.