SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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
Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-12
TECHNITROL, INC.
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(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 Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(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.
1) Amount Previously Paid:
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TECHNITROL
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Notice of Annual Shareholders Meeting
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May 24, 2000
Our annual shareholders meeting will be on Wednesday, May 24, 2000, at 5:00
P.M. in the Meade Room of The Union League of Philadelphia. The Union League is
located at 140 South Broad Street, Philadelphia, Pennsylvania. The agenda is to:
1) Elect three directors for a three-year term;
2) Approve the Technitrol, Inc. Employee Stock Purchase Plan;
3) Select KPMG LLP as independent public accountants for 2000; and
4) Transact any other business brought before the meeting.
If you were a shareholder on March 3, 2000, you may vote at the meeting.
By order of the board of directors,
/s/ Drew A. Moyer
-----------------------------------
Drew A. Moyer
Corporate Secretary
Trevose, Pennsylvania
March 29, 2000
Please Vote - Your vote is important.
Please return the enclosed proxy as soon as possible in the envelope provided.
TECHNITROL
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1210 Northbrook Drive
Suite 385
Trevose, PA 19053
215-355-2900
Proxy Statement
Annual Shareholders Meeting
Wednesday, May 24, 2000
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Introduction
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This proxy statement is distributed on behalf of our Board of Directors. We
are sending it to you to solicit proxies for voting at our 2000 annual meeting.
The meeting will be held in the Meade Room of The Union League of Philadelphia,
140 South Broad Street, Philadelphia, Pennsylvania. The meeting is scheduled for
Wednesday, May 24, 2000, at 5:00 P.M. If necessary, the meeting may be continued
at a later time. This proxy statement, the proxy card and a copy of our annual
report have been mailed by March 29, 2000 to our shareholders as of March 3,
2000. Our annual report includes our financial statements for 1999 and 1998.
The following section includes answers to questions that are frequently
asked about the voting process.
Q: How many votes can I cast?
A: Holders of common stock as of March 3, 2000 are entitled to one vote per
share on all items at the annual meeting except in the election of directors,
which is by cumulative voting.
Q: What is cumulative voting?
A: For the election of directors, cumulative voting means that you can
multiply the number of votes to which you are entitled by the total number of
directors to be elected. You may then cast the whole number of votes among one
or more candidates in any proportion. If you want to vote in person and use
cumulative voting for electing directors, you must notify the chairman of the
annual meeting before voting.
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Q: How do I vote?
A: There are two methods. You may attend the meeting and vote in person, or
you may complete and mail the proxy card.
Q: What vote is necessary for action?
A: In the election of directors, the candidates receiving the highest
number of votes, up to the number of directors to be elected (three), will be
elected. Approval of all other matters require the affirmative vote of a
majority of shares represented at the annual meeting.
Q: How will the proxies be voted?
A: Proxies signed and received in time will be voted in accordance with
your directions. If no direction is made, the shares will be voted for the
election of the three nominated directors, for the approval of the Technitrol,
Inc. Employee Stock Purchase Plan and for the selection of KPMG LLP. Unless you
indicate otherwise on the proxy card, Drew A. Moyer and James M. Papada, III,
the proxies, will be able to vote cumulatively for the election of directors.
When you grant a proxy, it does not prevent you from voting in person if you
revoke the proxy by notifying our Secretary in writing prior to the vote at the
meeting.
Q: What is a quorum?
A: A majority of the outstanding common shares represents a quorum. A
quorum of common shares is necessary to hold a valid meeting. Shares represented
in person or by proxy at the annual meeting will be counted for quorum purposes.
Abstentions and broker non-votes are counted as present for establishing a
quorum.
Q: What are broker non-votes?
A: Broker non-votes are proxies where the broker or nominee does not have
discretionary authority to vote shares on the matter. As a result, abstentions
and broker non-votes have no effect on the outcome of the vote for the election
of directors. They have the same effect as votes against the approval of all
other proposals.
Q: How many shares are outstanding?
A: There are 16,282,098 shares of common stock entitled to vote at the
annual meeting. This was the number of shares outstanding on March 3, 2000.
There are no other classes of stock outstanding and entitled to vote.
Q: Who pays for soliciting the proxies?
A: Technitrol will pay the cost of soliciting proxies for the annual
meeting, including the cost of preparing, assembling and mailing the notice,
proxy card and proxy statement. We may solicit proxies by mail, telephone,
facsimile, through brokers and banking institutions, or by our officers and
regular employees.
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Discussion of Matters for Voting
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Item 1 - Election of Directors
There are three classes of directors on the board. The only difference
between each class is when they were elected.
o J. Barton Harrison and Graham Humes are Class I directors whose terms
expire in 2002.
o John E. Burrows, Rajiv L. Gupta and James M. Papada, III, are Class II
directors and were nominated for election at this meeting. If elected,
their terms will expire in 2003. They were recommended to the board by
its nominating committee on January 26, 2000.
o Stanley E. Basara, Roy E. Hock and Edward M. Mazze, are Class III
directors whose terms expire in 2001.
Votes on proxy cards will be cast equally for Messrs. Burrows, Gupta and
Papada, unless you indicate otherwise on the proxy card. However, as noted
above, the persons designated as proxies may cumulate their votes. You are
permitted to vote cumulatively and may indicate this alternative on the enclosed
proxy. Messrs. Burrows, Gupta and Papada are current directors and we do not
expect that any of them will be unable or unwilling to serve as director. If
that occurs, the board may nominate another person in place of any one of them.
The board of directors recommends that you elect John E. Burrows, Rajiv L.
Gupta and James M. Papada, III for a term of three years.
Item 2 - Approval of the Technitrol, Inc. Employee Stock Purchase Plan
You will be asked at the meeting to approve the Technitrol, Inc. Employee
Stock Purchase Plan. Under this plan, employees may purchase Technitrol common
stock at a discount through payroll deductions and supplemental payments. The
board of directors adopted the plan on July 28, 1999 and it became effective on
September 1, 1999. The board believes that the plan is an important employee
recruitment and retention tool and further aligns the interests of our employees
with you as shareholders. A summary of the plan is included below, though you
should refer to the complete plan for a full description. A copy of the complete
plan is attached as Exhibit A and is an important part of this proxy statement.
Description of the Technitrol, Inc. Employee Stock Purchase Plan
Eligibility. Generally, all full-time employees of the Company in the
United States may participate in the plan. The Executive Compensation Committee
of the Board of Directors that administers the plan may require a waiting period
of up to two years of employment before an employee is eligible to participate.
They may also permit part-time employees to participate. We estimate that
approximately 1,000 employees are eligible to participate in the plan at this
time. An employee may discontinue participation in the plan at
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any time. An employee's eligibility to participate ends when his or her
employment terminates. The committee also may impose other requirements that are
consistent with Section 423(b) of the U.S. Internal Revenue Code. In certain
international locations, local tax or exchange control regulations make certain
features of the plan impracticable. The plan authorizes the committee to adopt
sub-plans to achieve desired tax or other objectives for participation by
employees in particular locations outside the United States. A sub-plan is not
designed to qualify under Section 423.
Administration. The plan will be administered by the Executive Compensation
Committee of the Board of Directors. The committee may establish rules for the
administration of the plan, interpret the plan and supervise its administration.
The committee also may make factual determinations relevant to the plan's
provisions.
Offering. Up to 500,000 shares of Technitrol common stock may be issued to
employees who make purchases under the plan. The plan is implemented by
establishing offering periods of 24 months, or another period of time announced
by the committee, during which an employee may participate in the plan.
Generally, there are four six-month purchase periods within each offering period
during which a participant has the right to acquire the common stock at a
discount. Offering periods begin on September 1 and March 1 of each year unless
otherwise announced by the committee. Unless a participant discontinues
participation in the plan, he or she will automatically be enrolled in each
succeeding offering period. Participants may only participate in one purchase
period at a time. The plan will terminate August 31, 2009, unless it is
terminated earlier by our board of directors.
Purchase of Stock. At the end of a purchase period, a participant will
automatically purchase the number of whole shares of common stock that the
employee's accumulated payroll deductions and supplemental payments will buy at
the purchase price, subject to any limitations set forth in the plan. Payroll
deductions cannot exceed 10% of an employee's base cash pay each pay period
unless otherwise permitted by the committee. In addition, no employee is allowed
to buy more than $25,000 of common stock in any calendar year. This limit is
based on the fair market value of the common stock at the beginning of the
offering period in which the shares are purchased. No employee may participate
in the plan if he or she is considered to own 5% or more of the outstanding
common stock. A participant is also not permitted to purchase in any single
purchase period more than 200% of the shares of common stock determined by
dividing his or her payroll deductions and other supplemental payments during
the purchase period by 85% of the fair market value of a share on the first day
of the offering period. The committee has the right prior to the beginning of
the offering period to reduce the maximum number of shares a participant can
purchase in an offering period. We will issue new shares for common stock
issuable under the plan.
Purchase Price. The purchase price of common stock is the lower of 85% of
the fair market value of the common stock on the first day of the offering
period or 85% of the fair market value of the common stock on the last day of
the purchase period. The fair market value will be the closing price on the New
York Stock Exchange. The committee may change the percentage of fair market
value in any future offering period, but not below 85%. For any prospective
offering period, the committee may also determine that the purchase
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price shall be a designated percentage of the fair market value of the common
stock on the purchase date.
Recapitalization. If any change is made in our capitalization, such as a
stock split or stock dividend, which results in a change in the number of
outstanding shares of common stock, appropriate adjustments will be made to the
shares available in the plan, the maximum number of shares and the purchase
price.
Transferability. Rights to purchase shares under the plan cannot be
assigned. The shares of common stock acquired under the plan will be freely
transferable, except as required by securities laws or as otherwise determined
by the committee.
Amendment and Termination. The board of directors may amend, terminate or
suspend the plan, subject to certain limitations. No amendment may, without the
approval of shareholders, increase the number of shares authorized under the
plan, except as described above under the heading "Recapitalization", materially
modify the eligibility requirements for participation in the plan, reduce the
purchase price below 85% of the fair market value or extend the term of the plan
beyond August 31, 2009.
U.S. Federal Income Tax Consequences. If you approve the plan, the plan
will qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code. The federal income tax consequences of the purchase and
sale of shares under the plan are summarized below, assuming the plan qualifies
as an employee stock purchase plan under Section 423 of the Internal Revenue
Code.
Employees generally will have tax consequences associated with
participation in the plan. In the U.S., no taxable income will be recognized by
a participant until the sale or other disposition of the shares of common stock
acquired under the plan. At that time, a participant generally will recognize
ordinary income and capital gains. When the shares are disposed of by a
participant more than two years after the first day of the offering period in
which the shares were purchased and more than one year after the date on which
the shares were purchased, the participant will recognize ordinary income equal
to the lesser of:
o the excess of the fair market value of the shares on the first day of
the offering period over 85% or such higher percentage established by
the committee of the fair market value of the shares on the first day of
the offering period, or
o the excess of the fair market value of the shares at the time of sale
over the amount he or she paid for the shares.
Any sale of shares within two years after the first day of the offering
period in which the participant purchased the shares or within one year of the
date the participant purchased the shares is known as a "disqualifying
disposition." In the event of a disqualifying disposition, the participant will
recognize ordinary income equal to the excess of the fair market value of the
shares on the date he or she purchased the shares over the amount he or she paid
for the shares. This ordinary income is included in the participant's gross
income whether or not he or she realizes a gain on the sale of the shares. Any
gain on the sale in excess of the amount of ordinary income recognized by the
participant will be treated as capital gains. If the selling price of the shares
is less than the amount paid for the shares
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plus the amount the participant includes in his or her gross income as ordinary
income, the difference will be treated as a capital loss. If the participant
dies while owning shares acquired under the plan, ordinary income must be
recognized in the year of death as though the shares had been sold by the
participant.
In the cases discussed above other than death, the amount of ordinary
income recognized by the participant is added to his or her purchase price and
this amount becomes the participant's tax basis for determining the amount of
the capital gain or loss from his or her sale or disposition of the shares.
Additional gain, if any, will be short-term or long-term capital gain depending
on the holding period.
We will not be entitled to a tax deduction for any amount of income
recognized by the participant as a result of the sale of shares after the
expiration of the holding period referred to above. We will, however, be
entitled to a deduction for any amount of ordinary income recognized by the
participant as a result of the sale of shares in a disqualifying disposition
referred to above. The plan will not meet the requirements in Section 162(m) of
the Internal Revenue Code. This means that there may be no deductions for
disqualifying dispositions by Technitrol's Chief Executive Officer and four most
highly paid other executive officers depending upon the amount of remuneration
received by these officers in the year of a disqualifying disposition.
The board of directors recommends that you approve the Technitrol, Inc.
Employee Stock Purchase Plan.
Item 3 - Selection of Auditors
You will be asked to approve KPMG LLP as our independent auditors for 2000.
KPMG has told us that it does not have any direct financial interest or any
material indirect financial interest in Technitrol or its subsidiaries. KPMG has
advised us that during the past three years, KPMG has not had any interest in
Technitrol or its subsidiaries except as auditors and tax consultants. The firm
also prepared our tax returns. A representative of KPMG will attend the annual
meeting to answer your questions. He will have the opportunity to make a
statement.
The board of directors recommends that you approve KPMG LLP as our
independent auditors for 2000.
Item 4 - Other Business
The board does not know of any other matters to come before the meeting.
However, if additional matters are presented to the meeting, Drew A. Moyer and
James M. Papada, III will vote using what they consider to be their best
judgment.
Persons Owning More than Five Percent of Our Stock
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The following table describes persons we know to have beneficial ownership
of more than 5% of our common stock at March 1, 2000. Beneficial ownership
refers to shares that are held directly or indirectly by the owner. Our
information is based on reports filed with
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the Securities and Exchange Commission by each person listed in the table below.
No other classes of stock are outstanding.
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
Virginia Frese Palmer 1,900,100 (1) 11.67%
Palmer Family Trusts Indirect
7147 Sabino Vista Circle
Tucson, AZ 85750
- ------------------------
(1) 1,755,092 of these shares are held in the Palmer Family Trust - Survivor's
Share and 145,008 of these shares are held in the Palmer Family Trust -
Residuary Trust Share. The co-trustees of these two trusts are Virginia
Frese Palmer and J. Barton Harrison. Mrs. Palmer and Mr. Harrison share
voting power and investment power. Mrs. Palmer is the widow of Gordon
Palmer, Jr., one of the company's founders. Mr. Harrison is a director. He
disclaims any beneficial interest in these shares.
Stock Owned by Directors and Officers
-------------------------------------
The following table describes the beneficial ownership of common stock by
the five most highly compensated officers during 1999, all current and nominee
directors, and our directors and officers as a group at March 1, 2000.
Amount and Nature of Percent
Name Beneficial Ownership(1) of Class
- ----------------------------------- ----------------------- ---------
Stanley E. Basara ................. 7,940 (3) *
John E. Burrows, Jr. .............. 5,280 (2) *
Rajiv L. Gupta .................... 2,040 (2) *
J. Barton Harrison ................ 2,016,170 (4) 12.48%
Roy E. Hock ....................... 257,720 (5) 1.58%
Graham Humes ...................... 110,667 (6) *
John L. Kowalski .................. 27,955 (7) *
David W. Lacey .................... 2,129 (2) *
Edward M. Mazze ................... 5,140 (2) *
Drew A. Moyer ..................... 6,025 (2) *
James M. Papada, III .............. 49,277 (2) *
Albert Thorp, III ................. 8,253 (2) *
Directors and officers as a group (15 people) 2,625,944 16.13%
* Less than one percent (1%).
(1) Includes shares with restrictions and forfeiture risks under our restricted
stock plan. Owners have the same voting and dividend rights as our other
shareholders. They do not have the right to sell or transfer the shares.
See Note (2) to the summary compensation table on page 13.
(2) Shares are directly owned by the officer or director.
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(3) Includes 6,530 shares directly owned by Mr. Basara and 1,410 shares owned
by Mr. Basara's spouse. Mr. Basara disclaims any beneficial interest in the
shares owned by his spouse.
(4) Includes 110,170 shares directly owned by Mr. Harrison, 5,900 shares held
in an estate for which Mr. Harrison is executor, and 1,900,100 shares held
in two trusts. See "Persons Owning More than Five Percent of Our Stock" on
pages six and seven. Mr. Harrison disclaims any beneficial interest in the
shares owned by the estate for which he is executor and by the trusts for
which he is a co-trustee.
(5) Includes 163,046 shares directly owned by Mr. Hock and 94,674 shares owned
by Mr. Hock's spouse. Mr. Hock disclaims any beneficial interest in the
shares owned by his spouse.
(6) Includes 77,144 shares directly owned by Mr. Humes, 17,501 shares owned by
Mr. Humes' spouse, and 16,022 shares owned by a trust for which Mr. Humes'
spouse is co-trustee. Mr. Humes disclaims any beneficial interest in the
shares owned by his spouse or those shares owned by a trust for which his
spouse is co-trustee.
(7) Includes 11,160 shares directly owned by Mr. Kowalski and 16,795 shares
owned by a trust for which Mr. Kowalski and his spouse are co-trustees.
Directors and Executive Officers
--------------------------------
Identification and Business Experience
The following table describes each person nominated for election to the
board, each director whose term will continue after the annual meeting, and the
executive officers. Our executive officers are appointed to their offices
annually.
Name Age Position
- ---------------------- --- --------------------------------------------------
Stanley E. Basara 66 Director
John E. Burrows, Jr. 52 Director
Rajiv L. Gupta . 54 Director
J. Barton Harrison 70 Director
Roy E. Hock 70 Director
Graham Humes 67 Director
John L. Kowalski 56 Vice President
David W. Lacey 55 Vice President of Human Resources
Dieter D. Littles 42 Treasurer
Edward M. Mazze 59 Director
Drew A. Moyer 35 Corporate Controller and Secretary
James M. Papada, III 51 Chairman of the Board, Chief Executive Officer and
President
James J. Rafferty, Jr. 62 Vice President
David J. Stakun . 44 Vice President of Corporate Communications
Albert Thorp, III 45 Vice President-Finance and Chief Financial Officer
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There are no family relationships between any officers or directors. There are
no arrangements or understandings between any officers or directors and another
person which would provide for the other person to become an officer or
director.
Stanley E. Basara is retired from Panasonic Broadcasting Systems Company,
where he was President and Chief Operating Officer. He previously held positions
as President of Thomson - CSF Broadcasting and Division Vice President of RCA
Broadcast Systems. Mr. Basara was elected a director of Technitrol in 1993.
John E. Burrows, Jr. is President and Chief Executive Officer of SPI
Polyols, a global producer of specialty chemicals. Prior to joining SPI Polyols,
he was Vice President-North America of Quaker Chemical Corporation and was
previously employed by FMC Corporation. Mr. Burrows was elected a director of
Technitrol in 1994.
Rajiv L. Gupta is Chairman and Chief Executive Officer of Rohm and Haas
Company. Since joining Rohm and Haas in 1971, he has held various positions of
increasing responsibility in finance and strategic planning. He was named to his
previous position in 1998 as Vice Chairman. Mr. Gupta also serves on the board
of UNISYS. He was elected a Technitrol director in April 1998.
J. Barton Harrison was our Secretary from 1975 to 1977 and from 1983 to
1995. He is a retired attorney and a director of Steel Plant Equipment
Corporation. Mr. Harrison has been a director since 1966.
Roy E. Hock was our Chairman and Chief Executive Officer from 1976 until
his retirement in December 1995. He has been a director since 1967.
Graham Humes was a principal of Compass Capital Partners, Ltd. until June,
1999. He was General Director (CEO) of CARESBAC-St. Petersburg, in St.
Petersburg, Russian Federation, from 1993 to 1995. He was Senior Vice President
and a director of Legg Mason Wood Walker, Inc. from 1987 to 1993. He is a
director of Brunschwig & Fils, Inc., Baltic Cranberry Corporation, ChemPak S.A.
de D.C. and the George M. Leader Family Corporation. Mr. Humes became a director
of Technitrol in 1987.
John L. Kowalski was elected Vice President of Technitrol in 1995. He is
President of our Electronic Components Segment and also holds the position of
President of our subsidiary, Pulse. Mr. Kowalski was President of the Fil-Mag
Group from January 1994 through its consolidation into Pulse in 1995, and he was
General Manager of our Components Division from 1990 to 1995. Prior to joining
Technitrol, he held various management positions at Honeywell, General Electric
and Varian. Mr. Kowalski is a member of the Board of Directors of Universal
Protective Packaging, Inc.
David W. Lacey was appointed Vice President of Human Resources in July
1998. He was Vice President of Human Resources with The Hay Group, Inc. from
1995 to 1998, and was Senior Vice President and Deputy Director Human Resources
for First Fidelity Bank from 1992 until 1995. His previous experience included
assignments at CIGNA Corporation, Celanese Corporation, American Home Products
Corporation and AT&T.
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Dieter D. Littles joined Technitrol and became our Treasurer in 1997. Prior
to joining Technitrol, he was a financial consultant to firms in the
mid-Atlantic area. Mr. Littles was Director of Cash Management and Treasury at
the Franklin Mint in 1995, and held various positions involving risk management
and international cash management at Scott Paper from 1989 to 1994.
Dr. Edward M. Mazze is Dean of the College of Business Administration and
holder of the Alfred J. Verrecchia-Hasbro Inc. Leadership Chair in Business at
the University of Rhode Island. From 1993 to 1998, he was Dean of The Belk
College of Business Administration, The University of North Carolina at
Charlotte. Previously, he held similar positions at Temple University and Seton
Hall University. Dr. Mazze is an honorary Trustee of Delaware Valley College of
Science and Agriculture and a member of the business advisory board of
McGettigan Partners and Radiator Specialty Company. He became a director of
Technitrol in 1985.
Drew A. Moyer joined Technitrol in 1989 and became our Corporate Controller
in 1995 and also our Secretary in 1996. Mr. Moyer was previously employed by
Ernst & Young LLP and is a Certified Public Accountant.
James M. Papada, III, is Chairman of the Board, Chief Executive Officer and
President. Before joining Technitrol he was a partner in the law firm of
Stradley Ronon Stevens & Young LLP from 1987 through June 1999. The firm is our
counsel. He was President and Chief Operating Officer of Hordis Brothers, Inc.,
a glass fabricator, from 1983 until 1987 and was a partner at Stradley Ronon
Stevens & Young LLP prior to joining Hordis Brothers, Inc. Mr. Papada is also a
director of Para-Chem Southern, Inc., Computer Technology Associates, Inc., and
Glasstech Holding, Inc. He has been a director of Technitrol since 1983 and
Chairman of the Board since January 1, 1996. He was our interim Chief Executive
Officer from January 8, 1999 to June 30, 1999.
James J. Rafferty, Jr. is President of our Metallurgical Components Segment
and has been President of AMI Doduco, Inc. from 1976 through 1985 and from 1987
to the present time. AMI Doduco, Inc. was previously known as Advanced
Metallurgy, Inc. He was appointed Vice President of Technitrol in 1984,
President in 1985, and Vice President in 1987. Mr. Rafferty was a director of
Technitrol from 1984 until 1997.
David J. Stakun is Vice President, Corporate Communications. Before joining
Technitrol in 1997 as Director of Corporate Communications, Mr. Stakun held
various communications positions at Sears, Roebuck and Co., Peoples Energy
Corporation and Bell Atlantic Corporation. From 1995 until joining Technitrol,
he was Director - Corporate and Financial Communications at Bell Atlantic.
Albert Thorp, III became our Vice President of Finance and Chief Financial
Officer in 1995. He joined Technitrol as Corporate Controller in 1989. He held
the additional position of Treasurer from May 1995 until March 1997. Mr. Thorp
is a Certified Public Accountant.
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Committees
Our board of directors has three standing committees. The members of each
committee are non-employee directors. The current members are:
Audit Executive Compensation Nominating
- ---------------------- ------------------------- ---------------------------
Graham Humes, Chairman John E. Burrows, Chairman Stanley E. Basara, Chairman
Rajiv L. Gupta Stanley E. Basara John E. Burrows
Roy E. Hock J. Barton Harrison Edward M. Mazze
Edward M. Mazze
The board held thirteen meetings in 1999, including regularly scheduled and
special meetings. No director attended fewer than 75% of the total board
meetings and committee meetings of which the director was a member, other than
Rajiv L. Gupta who attended 69% of the total board meetings and committee
meetings of which he was a member.
Executive Compensation Committee
The executive compensation committee:
o reviews and recommends the broad executive compensation plan and its
implementation to the board;
o reviews the objectives and performance of our Chief Executive Officer;
o reviews our retirement programs and their investment performance; and
o undertakes special assignments for the board.
During 1999, the executive compensation committee held four meetings.
Audit Committee
The main function of the audit committee is to monitor corporate accounting
and reporting practices. In addition, the committee, among other things:
o reviews the performance of and recommends our independent auditing firm;
o consults with our independent auditor regarding the plan, scope and cost
of audit work;
o reviews our independent auditor's report and management letter with our
independent auditor;
o consults with our independent auditor regarding the adequacy of internal
controls;
o reviews our processes for monitoring compliance with laws and our
Statement of Principles;
o reviews the activities and organizational structure of our internal
audit functions, the internal audit reports and the adequacy of our
internal audit plan; and
o reviews and assesses the processes relating to the determination and
mitigation of risks and the maintenance of an effective control
environment, including the adequacy of the total insurance program.
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The review of the auditors' report and management letter includes
discussions regarding accounting practices and principles, adjustments and
required disclosures. Management is not always present at discussions that the
committee has with the independent auditors. During 1999, the audit committee
held three meetings.
Nominating Committee
The nominating committee met twice in 1999. The nominating committee:
o establishes the criteria for selecting new directors;
o identifies potential candidates to fill director positions when they are
available;
o evaluates the qualifications of candidates and makes recommendations to
the board;
o recommends a slate of directors for election at the annual meeting; and
o conducts an annual review/self assessment of our board's performance for
the year.
The committee will not consider nominees recommended by shareholders.
However, you may nominate persons to serve as directors at the annual meeting.
The committee, together with the board, is responsible for evaluating board
performance.
Executive Compensation
The following table describes the compensation of our Chief Executive
Officer and the other four most highly compensated executive officers for
services in all capacities provided to Technitrol and our subsidiary companies.
12
Summary Compensation Table
- --------------------------------------------------------------------------------
Long-Term
Annual Compensation - All Other
Compensation Restricted Stock Compensation
(1) Plan Awards (4)
--------------------------- ---------------- ------------
Name and Principal Fiscal
Position Year Salary Bonus Shares Value
(2) (3)
- --------------------------------------------------------------------------------
James M. Papada, 1999 $435,000 $760,000 21,600 $717,448 $37,153
III, Chief Executive 1998 - - - - -
Officer and 1997 - - - - -
President (5)
- --------------------------------------------------------------------------------
John L. Kowalski, 1999 280,000 497,000 900 29,500 89,364
Vice President 1998 245,000 150,000 1,650 37,641 28,970
1997 218,900 131,000 1,230 44,357 6,460
- --------------------------------------------------------------------------------
Albert Thorp, III, 1999 191,000 362,000 385 12,513 36,930
Vice President and 1998 175,000 80,000 800 18,250 9,928
Chief Financial 1997 140,000 60,000 600 21,638 12,433
Officer
- --------------------------------------------------------------------------------
David W. Lacey, 1999 170,000 252,000 300 9,750 14,887
Vice President 1998 73,029 30,000 800 28,000 200
Human Resources (6) 1997 - - - - -
- --------------------------------------------------------------------------------
Drew A. Moyer, 1999 149,500 238,000 300 9,750 25,804
Corporate 1998 135,000 55,000 600 13,688 5,058
Controller and 1997 105,000 45,000 450 16,228 4,553
Secretary
- --------------------------------------------------------------------------------
(1) None of the five officers received other annual compensation exceeding the
lesser of $50,000 or 10% of salary and bonus during the years 1997, 1998
and 1999.
(2) At December 31, 1999, the total shares held under the restricted stock
plans and the value of those shares were:
Shares Value
------ -----
Mr. Papada .......... 21,600 $961,200
Mr. Kowalski ........ 11,160 496,620
Mr. Thorp ........... 4,515 200,918
Mr. Lacey ........... 1,100 48,950
Mr. Moyer ........... 2,850 126,825
Dividends are paid on shares held under the restricted stock plans at the same
rate paid to all shareholders.
13
(3) The value of restricted stock was calculated by multiplying the closing
market price of our stock on the New York Stock Exchange on the date of
grant by the number of shares awarded.
(4) Amounts include cash received upon vesting of restricted stock plan awards,
Technitrol's contribution under 401(k) Retirement Savings Plans, and term
life insurance premiums paid. The detailed amounts for 1999 are shown
below:
Cash under
Restricted Stock Plans 401(k) Plan Term Life Insurance
---------------------- ----------- -------------------
Mr. Papada $34,093 $2,820 $240
Mr. Kowalski 81,272 7,467 625
Mr. Thorp 33,194 3,096 640
Mr. Lacey 11,039 3,368 480
Mr. Moyer 21,936 3,228 640
(5) Mr. Papada's yearly salary is $500,000 and his employment with the company
began on July 1, 1999. In addition, Mr. Papada was paid $215,000 for the
period January 1, 1999 to June 30, 1999 for his duties as Chairman and
interim Chief Executive Officer. Mr. Papada's restricted stock awards
include 20,000 shares of common stock which vest on March 1, 2002 provided
certain performance goals are achieved. In addition, pursuant to an
arrangement with the company, Mr. Papada will receive a total of 55,000
additional shares of performance based restricted stock; the first of these
awards was made on January 1, 2000 and the remaining awards will be made on
January 1 of 2001 through 2004. Each annual award of shares will vest only
if certain performance goals are achieved. In the event of a change in
control of the company, all of these performance based restricted shares
will be granted (if they have not yet been granted), and will immediately
vest and Mr. Papada will be paid two years base salary, a cash bonus equal
to the maximum amount then allowed by the executive incentive plan and
certain amounts for federal and state taxes due as a result of such
payments and awards of stock.
(6) Mr. Lacey's annual salary for 1998 was $165,000. His employment with the
company began on July 13, 1998.
Retirement Plan
We have a defined benefit pension plan for employees who are not covered by
a subsidiary's defined contribution plan or collectively bargained retirement
benefits. We generally make annual contributions to the plan based upon
actuarial calculations and the salary of each participant. The following table
describes the approximate annual benefits that an employee receives upon
retirement. The amounts received depend on the employee's final average salary
and years of credited service. The benefits are not subject to any reduction for
Social Security or other amounts. The following information assumes that the
person retires at age 65 or older and selects a single life annuity payment:
14
Years of Credited Service
----------------------------------------------------------
Final Average
Salary 15 Years 20 Years 25 Years 30 Years 35 Years
------ -------- -------- -------- -------- --------
$100,000 $ 20,100 $ 26,800 $ 33,400 $ 40,100 $ 40,100
150,000 31,600 42,200 52,700 63,200 63,200
200,000 43,200 57,600 72,000 86,400 86,400
250,000 54,800 73,000 91,200 109,500 109,500
300,000 66,300 88,400 110,500 132,600 132,600
400,000 89,500 119,300 149,100 178,900 178,900
500,000 112,600 150,100 187,600 225,100 225,100
The officers named above who participate in the plan and their years of
credited service are as follows:
Officers Years of Credited Service
--------------------- -------------------------
Mr. Papada ........... 1
Mr. Rafferty ......... 24
Mr. Thorp ............ 10
Mr. Lacey ............ 1
Mr. Moyer ............ 10
On January 1, 1994, we adopted a supplemental retirement plan to supplement
the benefits of any employee whose benefits are limited by law. In 1999, the law
limited benefits under qualified plans to $160,000. The benefits of the
supplemental plan are included in the table above and reflect fifteen years of
credited service for Mr. Papada under the supplemental plan. The amount of the
annual salaries covered by this supplemental plan in 1999, were:
Mr. Papada $275,000
Mr. Thorp 31,000
Mr. Lacey 10,000
Restricted Stock
Our directors and shareholders approved an Incentive Compensation Plan in
1981. The committee administering the plan can develop and implement forms of
incentive compensation for employees. The board then adopted a restricted stock
plan under the Incentive Compensation Plan in 1984. The restricted stock plan is
designed to enable us to attract and retain qualified employees, and to reward
and motivate them by giving them the opportunity to obtain stock. Restricted
stock shares are awarded to employees in each operating segment, as well as to
executive officers.
Stock is awarded to employees at no cost to the employees. However, the
shares may not be disposed of until a restricted period has ended. The
restricted period is five years for shares awarded prior to 1999, and three
years for shares awarded in 1999 and subsequent
15
years. During the restricted period prescribed by the plan, Technitrol retains
the shares. If the employee resigns or is terminated for cause before the
restricted period ends, the employee does not receive the shares. If the
employee becomes totally disabled, dies or has normal retirement occur before
the restricted period, the restrictions are released. If an employee elects
early retirement or is terminated other than for cause, he or she is entitled to
pro rata vesting. The committee may adjust the award.
When plan shares vest, the employee also receives a cash payment. The cash
payment is designed to be the amount necessary to pay federal income taxes on
the shares and cash payment. The highest individual federal income tax rate,
including surcharge, is used to calculate this amount. If 165% of the market
value of the shares on the initial award date is less than the amount necessary
to pay the federal income tax, the lower amount is used. The cash payment is
subject to further review and adjustment by the committee if the payment is
insufficient to compensate the employee for income taxes on the shares and cash
payment.
Compensation of Non-Employee Directors
We pay our non-employee directors an annual cash retainer of $16,000.
Committee chairmen are paid an additional $2,000. Non-employee directors also
receive $2,000 for each board meeting that they attend and $750 for each
committee meeting that they attend. In addition, each non-employee director
receives a grant of our common stock in May of each year. The grant in 2000 and
all future years will have a market value at the time of grant of $25,000. The
directors are also paid a daily attendance fee of $2,000 at the Spring
management meetings. The directors may defer all or part of their fees and stock
grants. Deferred cash fees accrue interest.
Our compensation of non-employee directors is based on an extensive review
of director compensation paid by companies of similar size to ours. It is
designed to be competitive, highly performance-oriented, and linked to your
interests as shareholders. Stock grants are taxable to the director when
received.
Stradley Ronon Stevens & Young LLP has been our general legal counsel since
1966. We paid approximately $688,000 in total fees to Stradley Ronon Stevens and
Young LLP during 1999. This amount represented less than five percent of their
gross revenues. In 2000, we plan to retain them for similar services. The
transactions with Stradley Ronon Stevens & Young LLP were entered into at arm's
length in the ordinary course of business. We believe that the terms and
conditions of transactions between Technitrol and Stradley Ronon Stevens & Young
LLP are fair and reasonable.
Board Stock Ownership
In 1996, our directors adopted a number of policies and procedures to
strengthen their independence and to improve their ability to maximize the
company's value to you as shareholders. These policies include:
(1) the establishment of a board comprised exclusively of non-employee
directors, except for the Chief Executive Officer, and
(2) the requirement that all directors invest a substantial portion of
their fees in our
16
common stock until the market value of their personal investment is
$100,000. We believe that $100,000 represents a sufficient interest in
the company. To achieve this goal, a director must invest at least one
year's total cash director's fees in stock every three years until the
$100,000 obligation is satisfied. The policy does not require any
further investment after a director's personal investment reaches
$100,000 regardless of the fluctuation in share value thereafter.
However, directors are encouraged to buy additional shares from time to
time as their personal financial position allows. Shares issued under
the board of directors stock plan do not count in achieving the
ownership obligation of $100,000.
Report of Executive Compensation Committee on Compensation Policies
-------------------------------------------------------------------
The executive compensation committee administers our executive compensation
program. All issues regarding executive compensation - base salary, cash bonus
and long-term incentives - are reviewed by the committee and it makes
recommendations to the full board for its approval.
Compensation Philosophy
The purpose of our executive compensation plan is to retain and attract the
talent required for the continued and successful growth of the company, while
clearly linking incentive compensation to company and segment performance and
therefore shareholder value. The plan, with several new elements designed and
implemented in 1999, reflects a performance-based approach to executive
compensation. The elements of our executive program include: base salary, annual
cash bonus and long-term incentives. This mix of elements weights the cash bonus
and long-term elements more heavily than base salary in the total compensation
package, putting a greater share of total compensation "at risk." Cash bonus and
long-term stock compensation are structured so that payouts begin modestly but
escalate significantly as performance exceeds stated objectives. Each of these
elements will be discussed in more detail.
Base Salary in 1999
The committee relied on data collected and interpreted by Watson Wyatt
Worldwide to set the ranges for executive officers. These ranges for
similar-sized companies in related industries created a framework for
establishing officers' base salaries. The committee considered the performance
of each executive officer in relation to his stated goals and objectives, level
of contribution to Technitrol's or the appropriate business segment's operating
performance, the competitive ranges proposed by Watson Wyatt, and the CEO's
recommendations. The full Board approved the recommended salary levels. The
committee also recommended ending the practice of annual salary reviews for
executives and placing all executives covered by the plan on an 18-month review
cycle.
The committee also used the competitive survey data as a reference point
when it established and the Board approved the new CEO's base salary. The
committee set the CEO base salary at a competitive level after reviewing the
appropriate survey data and the actual salaries of CEOs in similar sized
companies in related industries.
17
Base salary is one of the three compensation elements for executives. The
other two - annual cash bonus and long-term incentives - are weighted more
heavily and give the total compensation package more leverage. In 1999, the
committee recommended and the board approved a new cash bonus plan and a new
long-term incentive plan. In both cases, the performance standards have been
raised considerably versus past plans. For example, minimum performance criteria
must now be met or no incentive compensation is paid. A summary of both plans
follows.
Short-Term Cash Incentive Plan
In the second quarter of 1999, the committee approved a new cash incentive
plan whose goals are to:
o provide relatively modest cash bonuses to key executives for achieving
results from 90% to 100% of annual planned performance regarding both
Economic Profit (EP) and Net Operating Profit (NOP) and, conversely, to
provide significant cash bonuses where both of these plan metrics have
been significantly exceeded; and
o create a strong team atmosphere through the use of group awards while
retaining rewards for achieving personal goals as well.
Economic profit is a measure of operating income on an after-tax basis
after subtracting the imputed cost of capital for the applicable segment or the
company as a whole. Some companies refer to this as economic value added or EVA.
The measure emphasizes the need to maximize asset utilization as well as
operating profit. Net operating profit represents earnings before interest,
taxes and other non-operating items.
The EP and NOP targets, which are weighted differently for ECS, MCS and
Corporate, are established by the CEO in consultation with the Segment
presidents and then approved by the committee; and are drawn directly from the
annual operating plans approved by the full Board. Both measures must be
achieved to produce any payout. Cash incentives are paid quarterly (subject to a
hold back described below) if pre-set performance goals are attained. There are
four basic performance levels with different payout schedules as described
below:
NOP and EP Performance Levels Quarterly Bonus Pool
- ----------------------------- --------------------
(Net of Incentives)
- -------------------
Less than 90% of Target -0-
Threshold: Equal to 90% of Target 25% of quarterly base salary
- ---------
Target: 100% of the Plan 60% of quarterly base salary
- ------
Excess over Target-Up to 120% of the Plan Up to 300% of quarterly base salary
- ------------------
For example, if a Segment attains the Target performance level in both EP
and NOP (net of any incentive payout) in a quarter, a cash bonus pool of 60% of
the quarterly base salaries of the eligible executives is created. The Segment
President and CEO allocate the pool among the participants according to
individual performance in that quarter and pay each individual participant
accordingly, subject to the 20% hold back described in the next
18
paragraph. If less than 90% of each of the planned NOP and EP is achieved in any
quarter then there is no payout of incentives in that quarter. There are no
carry forwards and no accumulation.
The performance measures of EP and NOP are taken directly from the
Segment/Corporate annual operating plan. At the end of each quarter, 80% of the
earned bonus pool (as described in the preceding paragraph) is paid out and 20%
is retained until the end of the year at which time it is earned if personal
objectives have been achieved or lost if they have not.
The first awards were made at the end of the third quarter of 1999. This
plan is intended to create a strong focus among the participating executives on
meeting agreed upon performance metrics, retain key executives and enhance
overall value for our shareholders. Management believes that this cash incentive
plan has had a favorable impact on the Company's performance in the second and
third quarters of 1999 and expects it to continue to favorably impact short-term
performance in the future.
The plan also provides that the board may change the weighting given to EP
or NOP in the creation of the bonus pools and, where appropriate, may substitute
other performance metrics (e.g. earnings per share, return on employed capital)
as appropriate.
Performance Unit Plan (PUP)
The committee approved the design of the PUP in the second quarter of 1999
and its implementation at its December 15, 1999 meeting. The first awards were
made in March 2000.
The goal of the PUP is to provide meaningful performance-based equity
participation for key executives. Like the short term plan, the PUP recognizes
individual as well as team performance. The key design features of the plan are:
o PUP focuses on 2-year targets and is a combination of business
performance and personal goals. The goals are set by the CEO in
consultation with the Segment Presidents.
o Targets are approved by the committee and then communicated to the
participating executives (approximately 20).
o Business performance targets are weighted 75% and personal goals are
25%.
o Long-term awards are made annually in the first quarter of each year.
o The plan will be funded with restricted stock with vesting to take
place after 2 years, assuming that the performance goals are achieved.
o Recipients of restricted stock will be reimbursed for any Federal tax
liability which results (up to a maximum of 165% of stock value on the
award date).
PUP has these operational characteristics:
o The Segment Presidents and CEO have a pool which is divided into two
parts - 25% of the pool is allocated to the plan participants in the
form of restricted stock grants which will vest contingent upon
achieving negotiated personal objectives; and 75% of the pool consists
of performance units which are not specifically
19
assigned to any plan participant and vesting of which is contingent on
the Segment's achieving the pre-set two-year targets.
o If the 2-year business performance targets are achieved, the 75% share
is earned and allocated within the group of plan participants depending
on individual performance in the judgment of the Segment President and
CEO. When allocated, the units are converted immediately to an equal
number of shares of common stock.
o If the 2-year personal goals are reached, the 25% award of restricted
stock vests. It may vest all or in part at the discretion of the
Segment President and CEO depending on the degree of goal achievement.
o If the 2-year business performance targets are not achieved, then the
pool of performance units is forfeited.
The full board approved both plans in second quarter of 1999. These plans
directly link business plan performance as measured by EP and NOP and short-term
compensation; provide the eligible group of executives with significant
short-term and long-term awards; and are intended to enhance shareholder value
over the long term. The essential link between business performance and
executive awards unifies the participating executives in striving to achieve
superior performance for shareholders. For all of these reasons the committee
believes the new plans will retain key executives; attract new talent; and
enable the company to meet its long-term business objectives.
Compensation Committee,
John E. Burrows, Chairman
Stanley E. Basara
J. Barton Harrison
20
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
None of the members of the executive compensation committee are currently
or were during 1999 employees of Technitrol or any of its subsidiaries. Mr.
Harrison was formerly the company's Secretary and performed pension investment
management activities as an independent contractor during 1999. He was paid a
monthly retainer of $1,000 for these services.
Comparison of Eleven-Year Cumulative Total Return
-------------------------------------------------
The following graph and table compare the growth in value of $100
investments made in Technitrol, the Russell 2000(R) Index and the Dow Jones
Electrical Components & Equipment Industry Group Index over the 11-year period
between December 31, 1988 and December 31, 1999.
- -----------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------------
Technitrol $100.00 $139.48 $ 86.48 $104.42 $102.57 $124.45 $172.55 $295.76 $508.40 $801.40 $858.14 $1,207.99
- -----------------------------------------------------------------------------------------------------------------
Russell 2000(R)
Index $100.00 $116.25 $ 93.57 $136.66 $161.82 $192.42 $188.91 $242.64 $282.66 $345.86 $337.06 $408.71
- -----------------------------------------------------------------------------------------------------------------
Dow Jones $100.00 $127.35 $116.59 $146.49 $146.74 $159.73 $166.31 $217.47 $264.84 $325.13 $381.35 $491.72
Electrical
Components &
Equipment
Industry
Group Index
- -----------------------------------------------------------------------------------------------------------------
Assumes $100 was invested on December 31, 1988, and all dividends were
reinvested.
21
[CHART]
22
Shareholders' Proposals
-----------------------
Our Corporate Secretary must receive shareholders' proposals by November
26, 2000 to be included in the proxy statement for our annual meeting in 2001.
The proxies that we obtain may be voted in our discretion when a shareholder
proposal is raised at the annual meeting, unless the Company receives notice of
the shareholder proposal by February 9, 2001. We will communicate any change to
these dates to our shareholders.
Section 16 (a) Beneficial Ownership Reporting Compliance
--------------------------------------------------------
Section 16 (a) of the Securities Exchange Act of 1934 requires officers and
directors and persons who own more than 10 percent of our shares outstanding to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors, and ten-percent holders must furnish
us with copies of all forms that they file.
Based on a review of the copies of these forms that have been provided to
us, or written representation that no forms were required, we believe that there
were no late filings in 1999.
By order of the board of directors,
/s/ Drew A. Moyer
-----------------------------------
Drew A. Moyer
March 29, 2000 Corporate Secretary
23
Exhibit A
---------
TECHNITROL, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
--------
The purpose of this Plan is to provide an opportunity for Employees of
Technitrol, Inc. (the "Company") and its Designated Subsidiaries to purchase
Common Stock of the Company and thereby to have an additional incentive to
contribute to the prosperity of the Company. It is the intention of the Company
that the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"), although the Company
makes no undertaking nor representation to maintain such qualification. In
addition, this Plan authorizes the grant of options and issuance of Common Stock
which do not qualify under Section 423 of the Code pursuant to sub-plans adopted
by the Committee designed to achieve desired tax or other objectives in
particular locations outside the United States.
2. DEFINITIONS.
------------
(a) "Board" shall mean the Board of Directors of Technitrol, Inc.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the committee appointed by the Board in
---------
accordance with Section 12 of the Plan.
(d) "Common Stock" shall mean the common stock of Technitrol, Inc., par
------------
value $.125 per share, or any stock into which such Common Stock may be
converted.
(e) "Company" shall mean Technitrol, Inc., a Pennsylvania corporation.
-------
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Committee as eligible to participate in the Plan with respect
to its Employees.
(g) "Employee" shall mean an individual classified as an employee by the
--------
Company or a Designated Subsidiary on the payroll records of the Company or the
Designated Subsidiary during the relevant participation period.
(h) "Fair Market Value" shall mean the value of one share of Common Stock
-----------------
on the relevant date, determined as follows:
(1) If the shares are traded on an exchange (including the NASDAQ
National Market System), the reported "closing price" on the relevant date
(e.g., the Offering Date or Purchase Date) assuming it is a trading day;
otherwise on the next trading day;
(2) If the shares are traded over-the-counter with no reported closing
price, the mean between the lowest bid and the highest asked prices on said
System on the relevant date assuming it is a trading day; otherwise on the next
trading day; and
24
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Committee in good faith. Such determination shall be
conclusive and binding on all persons.
(i) "Offering Date" shall mean the first business day of each Offering
-------------
Period.
(j) "Offering Period" shall mean a period of 24 months duration (or such
---------------
other period of time announced by the Committee) commencing on the Offering Date
during which a Participant is granted an option to purchase Common Stock.
(k) "Participant" shall mean a participant in the Plan as described in
-----------
Section 4 of the Plan.
(l) "Pay" shall mean an Employee's base cash pay (excluding variable cash
---
payments unless otherwise determined by the Committee) paid on account of
personal services rendered by the Employee to the Company or a Designated
Subsidiary, plus pre-tax contributions of the Employee which are part of
deferred pay or benefit plans maintained by the Company or a Designated
Subsidiary, with any modifications determined by the Committee. The Committee
shall have the authority to determine and approve all forms of pay (such as
commissions) to be included in the definition of Pay and may change the
definition on a prospective basis.
(m) "Plan" shall mean this Technitrol, Inc. Employee Stock Purchase Plan.
----
(n) "Purchase Date" shall mean the last business day of each Purchase
-------------
Period.
(o) "Purchase Period" shall mean a six-month period (or other period as
---------------
announced by the Committee) within each Offering Period. However, unless
otherwise announced by the Committee, the first two Purchase Periods in the
initial Offering Period shall be three-month periods. Thereafter, unless
otherwise announced by the Committee, each Purchase Period shall be a six-month
period.
(p) "Shareholder" shall mean a record holder of shares entitled to vote
-----------
shares of Common Stock under the Company's bylaws.
(q) "Subsidiary" shall mean any subsidiary corporation (other than the
----------
Company) in an unbroken chain of corporations beginning with the Company, as
described in Section 424(f) of the Code.
3. ELIGIBILITY.
------------
3.1. Any Employee regularly employed on other than a part-time basis by the
Company or by any Designated Subsidiary on an Offering Date shall be eligible to
participate in the Plan with respect to the Offering Period commencing on such
Offering Date, provided that the Committee may establish administrative rules
requiring that employment commence some minimum period (e.g., one month's
employment) prior to an Offering Date for the Employee to be eligible to
participate with respect to the Offering Period beginning on that Offering Date
and provided further that (1) the Committee may permit part-time Employees to be
eligible to participate pursuant to criteria and procedures established by the
Committee and (2) the Committee may impose an eligibility period on
25
participation of up to two years employment with the Company and/or a Designated
Subsidiary with respect to participation on any prospective Offering Date. The
Committee also may determine that a designated group of Employees are ineligible
to participate in the Plan so long as the excluded category fits within the
definition of "highly compensated employee" in Section 414(q) of the Code. An
Employee shall be considered employed on a part-time basis if his or her
customary employment is 20 or fewer hours per week or five months or less per
year.
3.2. No Employee may participate in the Plan if immediately after an option
is granted the Employee owns or is considered to own (within the meaning of
Section 424(d) of the Code), shares of capital stock, including stock which the
Employee may purchase by conversion of convertible securities or under
outstanding options granted by the Company, possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any of its Subsidiaries.
3.3. All Employees who participate in the Plan shall have the same rights
and privileges under the Plan except for differences which may be mandated by
local law and which are consistent with Section 423(b)(5) of the Code; provided,
however, that Employees participating in a sub-plan adopted pursuant to Section
13 which is not designed to qualify under Section 423 of the Code need not have
the same rights and privileges as Employees participating in the Section 423
Plan. The Committee shall impose restrictions on eligibility and participation
of Employees who are officers and directors to facilitate compliance with
federal or state securities laws or foreign laws.
4. PARTICIPATION AND WITHDRAWAL.
-----------------------------
4.1. An Employee who is eligible to participate in the Plan in accordance
with Section 3 may become a Participant by filing, on a date prescribed by the
Committee prior to an applicable Offering Date, a completed payroll deduction
authorization and Plan enrollment form provided by the Company or by following
an electronic or other enrollment process as prescribed by the Committee. An
eligible Employee may authorize payroll deductions at the rate of any whole
percentage of the Employee's Pay, not to exceed ten percent (10%) of the
Employee's Pay, or such greater percentage, as specified by the Committee, for
the Purchase Period. The Committee may provide for a separate election (of a
different percentage) for a specified item or items of Pay, including bonus
payments, if any. All payroll deductions may be held by the Company and
commingled with its other corporate funds. No interest shall be paid or credited
to the Participant with respect to such payroll deductions except where required
by local law as determined by the Committee. A separate bookkeeping account for
each Participant shall be maintained by the Company under the Plan and the
amount of each Participant's payroll deductions shall be credited to such
account. A Participant may make additional payments into such account in
accordance with rules and procedures announced by the Committee. Except as
provided in Section 4.4, an Employee may not enroll in or participate in more
than one Offering Period at a time. Unless otherwise specified by the Committee,
payroll deductions and other payments made
26
with respect to employees paid in currencies other than U.S. dollars shall be
accumulated in local (non-U.S.) currency and converted to U.S. dollars as of a
date within the Purchase Period as determined by the Committee.
4.2. Unless otherwise determined by the Committee, a Participant may
decrease his or her rate of payroll deductions in accordance with procedures
prescribed by the Committee. A Participant may increase his or her rate of
payroll deductions effective as of the first payroll date following the next
Purchase Date by filing a new payroll deduction authorization and Plan
enrollment form or by following electronic or other procedures prescribed by the
Committee. If a Participant has not followed such procedures to change the rate
of payroll deductions, the rate of payroll deductions shall continue at the
originally elected rate throughout the Purchase Period and future Purchase
Periods (or any lower maximum rate then in effect).
4.3. (a) Under procedures established by the Committee, a Participant may
discontinue participation in the Plan at any time during a Purchase Period by
completing and filing a new payroll deduction authorization and Plan enrollment
form with the Company or by following electronic or other procedures prescribed
by the Committee. If a Participant has not followed such procedures to
discontinue the payroll deductions, the rate of payroll deductions shall
continue at the originally elected rate throughout the Purchase Period and
future Purchase Periods (or any lower maximum rate then in effect).
(b) If a Participant discontinues participation during a Purchase
Period, his or her accumulated payroll deductions will remain in the Plan for
purchase of shares as specified in Section 6 on the following Purchase Date, but
the Participant will not again participate until he or she re-enrolls in the
Plan. Alternatively, a Participant may request a cash distribution, without
interest, of monies accumulated but not yet distributed by following such
procedures, electronic or otherwise, as specified by the Committee. The
Committee may establish rules limiting the frequency with which Participants may
discontinue and resume payroll deductions under the Plan and may impose a
waiting period on Participants wishing to resume payroll deductions following
discontinuance. The Committee also may change the rules regarding discontinuance
of participation or changes in participation in the Plan. Unless the Committee
establishes rules to the contrary, a Participant who discontinues participation
during a Purchase Period will not be eligible to again participate until the
first Offering Period beginning after the date he or she discontinues
participation in the Plan. An Employee who discontinues participation in the
Plan may become a Participant again by enrolling in the Plan before a subsequent
Offering Date in accordance with the procedures set forth in Section 4.1.
(c) In the event any Participant terminates employment with the
Company or any Subsidiary for any reason (including death) prior to the
expiration of a Purchase Period, the Participant's participation in the Plan
shall terminate and all accumulated payroll deductions credited to the
Participant's account shall be paid to the Participant or the Participant's
estate without interest (except where required by local law). Whether a
termination of employment has occurred shall be determined by the Committee. The
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Committee also may establish rules regarding when leaves of absence or change of
employment status will be considered to be a termination of employment, and the
Committee may establish termination of employment procedures for this Plan which
are independent of similar rules established under other benefit plans of the
Company and its Subsidiaries. In the event of a Participant's death, any
accumulated payroll deductions will be paid, without interest, to the estate or
legal representative of the Participant.
4.4. Unless a Participant discontinues participation in the Plan with
respect to an Offering Period, such participant will automatically participate
in each succeeding Offering Period, but only with respect to Purchase Periods
which begin after the last Purchase Period in the preceding Offering Period.
Such Participant is not required to file an additional enrollment form to
continue participation in the Plan. A Participant shall not be permitted to
participate in more than one Purchase Period occurring at the same time with
respect to different Offering Periods.
5. OFFERING.
---------
5.1. The maximum number of shares of Common Stock which may be issued
pursuant to the Plan shall be 500,000 shares.
5.2. The Offering Periods of this Plan shall be of 24 months duration
commencing on September 1 and March 1 of each year and ending on August 31 and
February 28 (or February 29, if a leap year) of each year. Except for the
initial Offering Period, each Offering Period shall consist of four (4)
six-month Purchase Periods. Unless otherwise announced by the Committee, the
initial Offering Period shall consist of two (2) three-month Purchase Periods
and three (3) six-month Purchase Periods. The Committee shall have the power to
change the duration of Offering Periods with respect to offerings without
shareholder approval if such change is announced at least 15 days prior to the
scheduled beginning of the next Offering Period to be affected.
5.3. Enrollment by an eligible Employee in this Plan with respect to an
Offering Period will constitute the grant (as of the Offering Date) by the
Company to the Participant of an option to purchase on an applicable Purchase
Date within the Offering Period up to that number of shares of Common Stock of
the Company determined by dividing the Participant's accumulated payroll
deductions and other amounts credited to the Participant's account during such
Purchase Period by the lower of (i) 85% of the fair market value of a share of
Common Stock on the Offering Date or (ii) 85% of the fair market value of a
share of Common Stock on the Purchase Date; provided, however, that the number
of shares of the Company's Common Stock subject to any option granted pursuant
to this Plan shall not exceed the lesser of (x) the maximum number of shares
which may be purchased pursuant to Section 5.4 below, with respect to the
applicable Purchase Date or (y) the maximum number of shares set by the
Committee pursuant to Section 5.5 below, with respect to the applicable Purchase
Date.
5.4. With respect to each Purchase Period, no more than 200% of the number
of shares of Common Stock determined by dividing the Participant's payroll
deductions and
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other payments accumulated in his account during the Purchase Period by 85% of
the fair market value of a share of Common Stock on the Offering Date may be
purchased by a Participant on any single Purchase Date.
5.5. No Participant shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than 30
days prior to the commencement of any Offering Period, the Committee may, in its
sole discretion, set a maximum number of shares which may be purchased by any
Participant on any single Purchase Date (hereinafter the "Maximum Share
Amount"). Unless otherwise determined by the Committee, there shall be no
Maximum Share Amount. In no event shall the Maximum Share Amount exceed the
amount permitted under Section 5.4 above. If a new Maximum Share Amount is set
by the Committee, all participants must be notified of such Maximum Share Amount
prior to commencement of the next Offering Period. The Maximum Share Amount
shall continue to apply with respect to all succeeding Purchase Dates and
Offering Periods unless revised by the Committee as set forth above.
5.6. If the number of shares to be purchased on Purchase Date by
Participants exceeds the number of shares then available for issuance under the
Plan, the Company will make a pro rata allocation of the remaining shares as
shall be reasonably practicable and as the Committee shall determine to be
equitable. In such event, the Company shall give written notice of such
reduction of the number of shares to be purchased under a Participant's option
to each Participant affected.
5.7. Notwithstanding any other provision of the Plan to the contrary, no
Employee participating in the Plan shall be granted an option to purchase Common
Stock under the Plan and all employee stock purchase plans of the Company and
its Subsidiaries at a rate which exceeds $25,000 of the Fair Market Value of
such Common Stock (determined at the time such option is granted) for each
calendar year in which such option is outstanding at any time. The foregoing
sentence shall be interpreted so as to comply with Section 423(b)(8) of the
Code.
5.8. Unless otherwise determined by the Committee, the option price under
each option shall be the lower of (i) eighty-five percent (85%) of the Fair
Market Value of the Common Stock on the Offering Date on which an option is
granted, or (ii) eighty-five percent (85%) of the Fair Market Value of the
Common Stock on the Purchase Date. The Committee may change the percentage of
Fair Market Value with respect to the option price for any future Offering
Period, but not below eighty-five percent (85%), and the Committee may determine
with respect to any prospective Offering Period that the option price shall be a
designated percentage of the Fair Market Value of the Common Stock on the
Purchase Date.
6. PURCHASE OF STOCK.
------------------
Upon the expiration of each Purchase Period, a Participant's option shall
be exercised automatically for the purchase of that number of whole shares of
Common Stock which the accumulated payroll deductions and other amounts credited
to the Participant's account at
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that time shall purchase at the applicable price specified in Section 5.8,
subject to the limitations contained in Section 5. Any remaining amounts in the
Participant's account which are less than the price of one share shall remain in
the account and shall be applied in the next Purchase Period towards the
purchase of shares of Common Stock.
7. PAYMENT AND DELIVERY.
---------------------
7.1. Upon the exercise of an option on each Purchase Date, the Company
shall deliver (by electronic or other means) to the Participant a record of the
Common Stock purchased, except as specified below. The Committee may permit or
require that shares be deposited directly with a broker designated by the
Committee (or a broker selected by the Committee) or to a designated agent of
the Company, and the Committee may utilize electronic or automated methods of
share transfer. The Committee may require that shares be retained with such
broker or agent for a designated period of time (and may restrict dispositions
during that period) and/or may establish other procedures to permit tracking of
disqualifying dispositions of such shares or to restrict transfer of such
shares. The Committee may require that shares purchased under the Plan shall
automatically participate in a dividend reinvestment plan or program maintained
by the Company. The Company shall retain the amount of payroll deductions and
other payments used to purchase Common Stock as full payment for the Common
Stock and the Common Stock shall then be fully paid and non-assessable. No
Participant shall have any voting, dividend, or other shareholder rights with
respect to shares subject to any option granted under the Plan until the shares
subject to the option have been purchased as provided in this Section 7.1.
7.2. The Committee, in its discretion, may impose restrictions on the
transferability of shares of Common Stock acquired pursuant to this Plan, and
may cause to be placed on all stock certificates or other evidences of
ownership, legends or other indicators setting forth any such restrictions on
transferability. Such restrictions shall apply uniformly to all Participants.
8. RECAPITALIZATION.
-----------------
8.1. If after the grant of an option, but prior to the purchase of Common
Stock under the option, there is any increase or decrease in the number of
outstanding shares of Common Stock because of a stock split, stock dividend,
combination or recapitalization of shares subject to options, the number of
shares to be purchased pursuant to an option, the share limit of Sections 5.4
and 5.5 and the maximum number of shares specified in Section 5.1 shall be
proportionately increased or decreased, the terms relating to the purchase price
with respect to the option shall be appropriately adjusted by the Board, and the
Board shall take any further actions which, in the exercise of its discretion,
may be necessary or appropriate under the circumstances.
8.2. The Board, if it so determines in the exercise of its sole discretion,
also may adjust the number of shares specified in Section 5.1, as well as the
price per share of Common Stock covered by each outstanding option and the
maximum number of shares
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subject to any individual option, in the event the Company effects one or more
reorganizations, recapitalizations, spin-offs, split-ups, rights offerings or
reductions of shares of its outstanding Common Stock.
8.3. The Board's determinations under this Section 8 shall be conclusive
and binding on all parties.
9. MERGER, LIQUIDATION, OTHER CORPORATION TRANSACTIONS.
----------------------------------------------------
9.1. In the event of the proposed liquidation or dissolution of the
Company, the Purchase Period then in progress will terminate immediately prior
to the consummation of such proposed liquidation or dissolution, unless
otherwise provided by the Board in its sole discretion, and all outstanding
options shall automatically terminate and the amounts of all payroll deductions
will be refunded without interest to the Participants.
9.2. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company with or
into another corporation, then in the sole discretion of the Board, (1) each
option shall be assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor corporation, (2)
a date established by the Board on or before the date of consummation of such
merger, consolidation or sale shall be treated as an exercise date, and all
outstanding options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll deductions shall
be returned to the Participants, without interest.
10. TRANSFERABILITY.
----------------
Options granted to Participants may not be voluntarily or involuntarily
assigned, transferred, pledged, or otherwise disposed of in any way other than
by will or the laws of descent and distribution, and any other attempted
assignment, transfer, pledge, or other disposition shall be null and void and
without effect. If a Participant in any manner attempts to transfer, assign or
otherwise encumber his or her rights or interest under the Plan, other than as
permitted by the Code, such act shall be treated as an election by the
Participant to discontinue participation in the Plan pursuant to Section 4.3.
11. AMENDMENT OR TERMINATION OF THE PLAN.
-------------------------------------
11.1. The Plan shall continue until August 31, 2009, unless previously
terminated in accordance with Section 11.2.
11.2. The Board may, in its sole discretion, insofar as permitted by law,
terminate or suspend the Plan, or revise or amend it in any respect whatsoever,
except that, without approval of the shareholders, no such revision or amendment
shall:
(a) materially increase the number of shares subject to the Plan,
other than an adjustment under Section 8 of the Plan;
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(b) materially modify the requirements as to eligibility for
participation in the Plan, except as otherwise specified in this Plan;
(c) reduce the purchase price specified in Section 5.8, except as
specified in Section 8;
(d) extend the term of the Plan beyond the date specified in Section
11.1; or
(e) amend this Section 11.2 to defeat its purpose.
12. ADMINISTRATION.
---------------
The Board shall appoint a Committee consisting of at least two members who
will serve for such period of time as the Board may specify and who may be
removed by the Board at any time. The Committee will have the authority and
responsibility for the day-to-day administration of the Plan, the authority and
responsibility specifically provided in this Plan and any additional duties,
responsibility and authority delegated to the Committee by the Board, which may
include any of the functions assigned to the Board in this Plan. The Committee
may delegate to one or more individuals the day-to-day administration of the
Plan. The Committee shall have full power and authority to promulgate any rules
and regulations which it deems necessary for the proper administration of the
Plan, to interpret the provisions and supervise the administration of the Plan,
to make factual determinations relevant to Plan entitlements, to adopt sub-plans
applicable to specified Subsidiaries or locations and to take all action in
connection with administration of the Plan as it deems necessary or advisable,
consistent with the delegation from the Board. Decisions of the Board and the
Committee shall be final and binding upon all participants. Any decision reduced
to writing and signed by a majority of the members of the Committee shall be
fully effective as if it had been made at a meeting of the Committee duly held.
The Company shall pay all expenses incurred in the administration of the Plan.
No Board or Committee member shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted thereunder.
13. COMMITTEE RULES FOR FOREIGN JURISDICTIONS.
------------------------------------------
13.1. The Committee may adopt rules or procedures relating to the operation
and administration of the Plan to accommodate the specific requirements of local
laws and procedures. Without limiting the generality of the foregoing, the
Committee is specifically authorized to adopt rules and procedures regarding
handling of payroll deductions, payment of interest, conversion of local
currency, payroll tax, withholding procedures and handling of stock certificates
which vary with local requirements.
13.2. The Committee may also adopt sub-plans applicable to particular
Subsidiaries or locations, which sub-plans may be designed to be outside the
scope of Section 423 of the Plan. The rules of such sub-plans may take
precedence over other provisions of this Plan, with the exception of Section
5.1, but unless otherwise superseded by the terms of such sub-plan, the
provisions of this Plan shall govern the operation of such sub-plan.
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14. SECURITIES LAWS REQUIREMENTS.
-----------------------------
The Company shall not be under any obligation to issue Common Stock upon
the exercise of any option unless and until the Company has determined that: (i)
the Company and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state, federal and applicable
foreign law have been satisfied.
15. GOVERNMENTAL REGULATIONS.
-------------------------
This Plan and the Company's obligation to sell and deliver shares of its
stock under the Plan shall be subject to the approval of any governmental
authority required in connection with the Plan or the authorization, issuance,
sale, or delivery of stock hereunder.
16. NO ENLARGEMENT OF EMPLOYEE RIGHTS.
----------------------------------
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Company or any Designated Subsidiary
or to interfere with the right of the Company or Designated Subsidiary to
discharge any Employee at any time.
17. GOVERNING LAW.
--------------
This Plan shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. EFFECTIVE DATE.
---------------
This Plan shall be effective September 1, 1999. This Plan shall not
constitute an employee stock purchase plan under Section 423 of the Code unless
it is approved by the shareholders of the Company within 12 months of its
adoption by the Board of Directors.
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