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-69e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Exchange Act Rule 14a-11 or Rule 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)(4) 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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[ ] Check box if any part of the fee is offset as provided by Exchange
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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, INC.
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Notice of Annual Shareholders Meeting
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May 19, 1999
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Our annual shareholders meeting will be on Wednesday, May 19, 1999, 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:
1) Elect two directors for a three-year term;
2) Select KPMG LLP as independent public accountants for 1999; and
3) Transact any other business brought before the meeting.
If you were a shareholder on March 5, 1999, 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 26, 1999
Please Vote - Your vote is important.
Please return the enclosed proxy as soon as possible in the envelope provided.
TECHNITROL, INC.
1210 Northbrook Drive
Suite 385
Trevose, PA 19053
215-355-2900
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Proxy Statement
Annual Shareholders Meeting
Wednesday, May 19, 1999
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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 1999 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 19, 1999, 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 26, 1999 to our shareholders
as of March 5, 1999. Our annual report includes our financial statements for
1998 and 1997.
You may notice that this proxy statement is written in "plain English." We
hope that you will like the new format and find it easier to read. 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 5, 1999 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.
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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.
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 (two), 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 two nominated directors 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. You may 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 16,170,406 shares of common stock entitled to vote at the
annual meeting. This was the number of shares outstanding on March 5, 1999.
There are no other classes of stock outstanding and entitled to vote.
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Q: Who pays for soliciting the proxies?
A: We 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.
Discussion of Matters for Voting
--------------------------------
Item 1 - Election of Directors
There are three classes of directors on the board.
* J. Barton Harrison and Graham Humes are Class I directors and were
nominated for election at this meeting. If elected, their terms will
expire in 2002. They were recommended to the board by the nominating
committee on January 27, 1999.
* John E. Burrows, Rajiv L. Gupta and James M. Papada, III are Class II
directors whose terms expire in 2000.
* 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 Mr. Harrison and Mr. Humes,
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. Mr.
Harrison and Mr. Humes are current directors and we do not expect that either of
them will be unable or unwilling to serve as director. If that occurs, the board
may nominate another person in place of either one of them.
The board of directors recommends that you elect J. Barton Harrison and
Graham Humes for a term of three years.
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Item 2 - Selection of Auditors
You will be asked to approve KPMG LLP as our independent auditors for 1999.
KPMG has told us that it does not have any direct financial interest or any
material indirect financial interest in Technitrol or its subsidiaries. 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 1999.
Item 3 - 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
--------------------------------------------------
The following table describes persons we know to have beneficial ownership
of more than 5% of our common stock at December 31, 1998. Beneficial ownership
refers to shares that are held directly or indirectly by the owner. Our
information is based on reports filed with 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 1,940,100 (1) 12.00%
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 185,008 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.
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Stock Owned by Directors and Officers
-------------------------------------
The following table describes the beneficial ownership of common stock by
the five most highly compensated officers during 1998, all current and nominee
directors, and our directors and officers as a group at March 5, 1999:
Amount of Percent
Name Beneficial Ownership(1) of Class
- ---- ----------------------- --------
Stanley E. Basara 7,262 (2) *
John E. Burrows, Jr. 4,602 (2) *
Thomas J. Flakoll 110,498 (2) *
Rajiv L. Gupta 1,362 (2) *
J. Barton Harrison 2,145,642 (3) 13.27%
Roy E. Hock 259,142 (2) 1.60%
Graham Humes 104,369 (4) *
John L. Kowalski 24,682 (2) *
Edward M. Mazze 4,962 (2) *
Drew A. Moyer 4,610 (2) *
James M. Papada, III 11,922 (2) *
James J. Rafferty, Jr. 105,950 (5) *
Albert Thorp, III 9,253 (2) *
Directors and officers as
a group (16 people) 2,797,308 17.30%
* 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 11.
(2) Shares are directly owned by the officer or director.
(3) Includes 113,842 shares directly owned by Mr. Harrison, 91,700 held in an
estate for which Mr. Harrison is executor, and 1,940,100 shares held in two
trusts. See "Persons Owning More than Five Percent of Our Stock" on page
four.
(4) Includes 70,962 shares directly owned by Mr. Humes, 17,407 shares owned by
Mr. Humes' spouse, and 16,000 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.
(5) Includes 71,550 shares directly owned by Mr. Rafferty and 34,400 shares
held by Mr. Rafferty's spouse. Mr. Rafferty disclaims any beneficial
interest in the shares held by his spouse.
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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 65 Director
John E. Burrows, Jr. 51 Director
Rajiv L. Gupta . 53 Director
Thomas J. Flakoll (1) 54 Director, Chief Executive Officer and President
J. Barton Harrison 69 Director
Roy E. Hock 69 Director
Graham Humes 66 Director
John L. Kowalski 55 Vice President
David W. Lacey 54 Vice President of Human Resources
Dieter D. Littles 41 Treasurer
Edward M. Mazze 58 Director
Drew A. Moyer 34 Corporate Controller and Secretary
James M. Papada, III 50 Chairman of the Board and Interim Chief Executive
Officer
James J. Rafferty, Jr. 61 Vice President
David J. Stakun . 43 Vice President of Corporate Communications
Albert Thorp, III 44 Vice President - Finance and Chief
Financial Officer
(1) Mr. Flakoll resigned on January 8, 1999 and is no longer a director,
officer or employee.
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-
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North America of Quaker Chemical Corporation and was previously employed by FMC
Corporation. Mr. Burrows was elected a director of Technitrol in 1994.
Thomas J. Flakoll was our Chief Executive Officer from October 1995 until
his resignation in January 1999. He served as President from March 1994 until
January 1999, Vice President from 1985 until 1994, and was General Manager of
the Components Division from 1980 until 1990. Mr. Flakoll was a director from
1984 until January 1999.
Rajiv L. Gupta is Vice Chairman 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 1993 as Vice President and Director, Asia Pacific Region. Mr. Gupta
also serves on the board of Airgas Inc. 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 is a principal of Compass Capital Partners, Ltd. 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, and ChemPak S.A. de D.C. 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.
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, Chairman of the Board and interim Chief Executive
Officer, has been a partner in the law firm of Stradley Ronon Stevens & Young
LLP since 1987. 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, Chairman of the Board since January 1, 1996,
and interim Chief Executive Officer since January 8, 1999.
James J. Rafferty, Jr. is President of our Metallurgical Components Segment
and has been President of AMI Doduco, Inc. (previously Advanced Metallurgy,
Inc.) from 1976 through 1985 and from 1987 to the present time. 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 1993 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
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position of Treasurer from May 1995 until March 1997. Mr. Thorp is a Certified
Public Accountant.
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
During 1998, the board held six regular and three special meetings. The
directors also met informally via telephone conference on three additional
occasions. No director attended fewer than 75% of the total board meetings and
committee meetings of which the director was a member.
Executive Compensation Committee
The executive compensation committee:
* reviews and recommends the broad executive compensation plan and its
implementation to the board;
* reviews the objectives and performance of our Chief Executive Officer;
* reviews our retirement programs and their investment performance; and
* undertakes special assignments for the board.
During 1998, the executive compensation committee held three meetings.
Audit Committee
The main function of the audit committee is to monitor corporate accounting
and reporting practices. In addition, the committee:
* recommends the independent auditing firm;
* consults with the independent auditor regarding the plan, scope and cost
of audit work;
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* reviews the independent auditors' report and management letter with the
independent auditor;
* consults with the independent auditor regarding the adequacy of internal
controls;
* reviews internal audit reports and the adequacy of the internal audit
plan; and
* reviews the total insurance program for adequacy.
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 1998, the audit committee held
four meetings.
Nominating Committee
The nominating committee met three times in 1998. The nominating committee:
* establishes the criteria for selecting new directors;
* identifies potential candidates to fill director positions when they are
available;
* evaluates the qualifications of candidates and makes recommendations to
the board; and
* recommends a slate of directors for election at the annual meeting.
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 of Technitrol and our subsidiary companies.
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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)
- --------------------------------------------------------------------------------
Thomas J. Flakoll, 1998 $348,000 $150,000 0 $ 0 $24,860
Chief Executive 1997 290,100 190,000 1,850 66,716 2,896
Officer and 1996 243,100 140,000 2,000 44,250 12,286
President (5)
- --------------------------------------------------------------------------------
John L. Kowalski, 1998 245,000 150,000 1,650 37,641 28,970
Vice President 1997 218,000 131,000 1,230 44,357 6,460
1996 196,900 111,000 1,660 36,728 37,403
- --------------------------------------------------------------------------------
James J. Rafferty, Jr., 1998 233,000 100,000 1,500 34,219 24,544
Vice President 1997 210,000 122,000 1,190 42,914 2,479
1996 164,500 76,000 1,220 26,993 11,888
- --------------------------------------------------------------------------------
Albert Thorp, III, 1998 175,000 80,000 800 18,250 9,928
Vice President and 1997 140,000 60,000 600 21,638 12,433
Chief Financial 1996 120,000 50,000 730 16,151 7,291
Officer
- --------------------------------------------------------------------------------
Drew A. Moyer, 1998 135,000 55,000 600 13,688 5,058
Corporate 1997 105,000 45,000 450 16,228 4,553
Controller and 1996 85,000 34,000 500 11,063 1,483
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 1996, 1997
and 1998.
(2) At December 31, 1998, the total shares held under the restricted stock
plans and the value of those shares were:
Shares Value
------ -----
Mr. Flakoll 14,730 $469,519
Mr. Kowalski 12,090 385,369
Mr. Rafferty 11,750 374,531
Mr. Thorp 4,530 144,394
Mr. Moyer 2,550 81,281
Dividends are paid on shares held under the restricted stock plans at the
same rate paid to all shareholders.
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(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 1998 are shown
below:
Cash under
Restricted Stock Plans 401(k) Plan Term Life Insurance
---------------------- ----------- -------------------
Mr. Flakoll $21,760 $2,524 $576
Mr. Kowalski 21,760 6,400 810
Mr. Rafferty 21,760 2,400 384
Mr. Thorp 6,528 2,632 768
Mr. Moyer 2,176 2,114 768
(5) Mr. Flakoll resigned from the Company on January 8, 1999 and is no longer a
director or employee. In connection with Mr. Flakoll's resignation, we
agreed on a severance and release arrangement with him. We will pay him
$400,000 for the year following the date of his resignation. During this
time, he will be available to us on an advisory basis. The executive
compensation committee also accelerated the vesting of Mr. Flakoll's
restricted stock awards so that his awards will vest in quarterly amounts
by January 31, 2000.
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:
12
Years of Credited Service
----------------------------------------------------
Final Average
Salary 15 Years 20 Years 25 Years 30 Years 35 Years
------ -------- -------- -------- -------- --------
$100,000 $20,300 $27,000 $33,700 $40,500 $40,500
150,000 31,800 42,400 53,000 63,600 63,600
200,000 43,400 57,800 72,300 86,700 86,700
250,000 54,900 73,200 91,500 109,800 109,800
300,000 66,500 88,700 110,800 133,000 133,000
400,000 89,600 119,500 149,300 179,200 179,200
500,000 112,800 150,300 187,900 225,500 225,500
The officers named above who participate in the plan and their years of
credited service are as follows:
Officers Years of Credited Service
-------- -------------------------
Mr. Flakoll 18
Mr. Rafferty 23
Mr. Thorp 9
Mr. Moyer 9
On January 1, 1994, we adopted a supplemental retirement plan to supplement
the benefits of any employee whose benefits are limited by law. In 1998, the law
limited benefits under qualified plans to $160,000. The benefits of the
supplemental plan are included in the table above. The amount of the annual
salaries covered by this supplemental plan in 1998 were:
Mr. Flakoll $188,000
Mr. Rafferty $ 73,000
Mr. Thorp $ 15,000
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.
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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 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.
During 1998, the committee issued a total of 5,970 shares of stock to seven
officers. During 1998, the total expense of the plan was $1,186,000.
Our shareholders authorized 1,200,000 shares for use under the Incentive
Compensation Plan. At December 31, 1998, 297,945 shares remained available for
future grant.
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 1999 grant will
have a market value in May of $20,000. The grants in future years will have a
market value at that time of $25,000. The directors are also paid a daily
attendance fee of $2,000 at the Spring management meetings. The Chairman of the
Board is paid an additional annual retainer of $115,000. 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.
14
Stradley Ronon Stevens & Young LLP has been our general legal counsel since
1966. Mr. Papada is a partner of that firm. We paid approximately $802,000 in
total fees to Stradley Ronon Stevens & Young LLP during 1998. This amount
represented approximately two percent of their gross revenues. In 1999, 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 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 are submitted to the full
board for approval after the committee makes recommendations. Three non-employee
directors serve on the committee and they have submitted the following report of
our compensation program.
Compensation Philosophy. The purpose of our executive compensation program
is to help us achieve our mission and goals by attracting, motivating, and
retaining key executives of high caliber and good potential. We want our pay
opportunities to be competitive for average performance and above average for
superior performance. Stock bonuses and other
15
variable components of pay are a significant part of compensation. They are
based on performance and are not guaranteed.
Components of Compensation. Our executive compensation program includes
base salary, discretionary cash bonuses and restricted stock plan awards. Base
salary and potential bonus ranges are determined each year after comparing
Technitrol and our operating segments with surveys of other similar
manufacturing companies. We rely principally on data accumulated and published
by Watson Wyatt Worldwide, a consulting firm of compensation specialists. We
want to achieve a balance between short-term and long-term objectives.
Accordingly, the cash bonus is weighted two-thirds by criteria relating to the
current year and one-third by criteria relating to future business
considerations. The weighting for stock awards is reversed with the emphasis on
longer-term business development and strategic plans.
Administration in 1998:
Salaries. To determine 1998 executive officer salaries, we began by
considering the existing salary ranges for each position and each officer's
relationship to the mid-point of his range. We considered his tenure with the
company and years in the current position. A number of salary ranges for 1998
were significantly different from prior years. The salary ranges reflect our
recent growth and ranges for positions at similar companies. We then noted each
segment's performance against its sales, operating profit and return on employed
capital projections. We also considered the personal performance of each senior
executive against stated goals and challenges which arose during the year.
Finally, we noted the strong operating performance in 1997. For continuing
operations, net earnings increased 60.4%, net earnings per diluted share
increased 59.3% and return on shareholders' equity was 28.1%. We also considered
the fact that the Nortel acquisition was completed in late 1997. We noted that
the 1997 total return to shareholders was 57.6%. Officer salary increases
averaged 19.8% in 1998.
In determining Mr. Flakoll's 1998 salary, we considered all of the factors
explained above as well as the company's profitability and its prospects for
future profitable growth.
16
Cash Bonuses. The following criteria are used in determining cash bonuses.
Current Business Criteria Future Business Criteria
------------------------- ------------------------
* sales * new product/program development
* profits * new market development
* profits as a percentage of sales * management succession/development
* return on employed capital * acquisitions and similar items
* cost reduction
* quality
* customer service
* individual performance
The values assigned to each item depend on the business plans and strategic
objectives of each segment. They were negotiated at the beginning of 1998.
Achievement of most of the criteria is measured by objective historical
information and numerical data. Some involve subjective judgments. We as a
committee have the authority to modify the results based on Technitrol's overall
results and business conditions existing at the time of our decision. Our
modifications occur on a uniform basis. The 1998 cash bonuses to executive
officers totaled $586,000, or 41.8% of 1998 total executive salaries.
Technitrol's financial performance in 1998 was considered in determining the
cash bonuses. Net earnings from continuing operations increased 14.5%, net
earnings from continuing operations per diluted share increased 14.4% and return
on shareholders' equity was 23.4% in 1998. We also noted that 1998 total return
to shareholders amounted to 7.1%. This return occurred in a year of high
volatility in the stock market and in many industries that we serve. In view of
these circumstances, we decided not to modify the cash bonuses as otherwise
calculated.
Stock Awards: Through our restricted stock plan, we motivate management
through stock ownership. Our executive officers are shareholders of Technitrol
and are thus presumably motivated to act on behalf of all shareholders. The
executive officers work to optimize overall company performance. As previously
mentioned, the weighting of the performance criteria for stock awards is based
mostly on long-term business development and plans. In the Summary Compensation
Table, awards are valued at the market price on the date of the grant.
We based awards on the level of performance attained in 1998. We believe it
is in your best interest for us to encourage, promote and reward sound long-term
business plans and strategies.
17
We considered the following in evaluating Mr. Flakoll's cash bonus as CEO
for 1998:
* Technitrol's overall financial performance in 1998;
* the extent of progress in assimilating prior acquisitions;
* the relative performance of each business segment compared to 1997 and
our plans;
* the completion of the acquisitions of FEE, Metales and GTI; and
* the progress made by Mr. Flakoll in achieving the goals which he
established with us in early 1998.
Mr. Flakoll did not receive a stock award for 1998. We believe that Mr.
Flakoll's overall compensation was fair and reasonable.
Compensation Committee,
John E. Burrows, Chairman
Stanley E. Basara
J. Barton Harrison
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
None of the members of the executive compensation committee are currently
or were during 1998 employees of Technitrol or any of its subsidiaries. Mr.
Harrison was formerly the company's Secretary and he performs pension investment
management activities as an independent contractor. He is paid a monthly
retainer of $1,000 for these services.
Comparison of Eleven-Year Cumulative Total Return
-------------------------------------------------
The following table and graph compare the growth in value of $100
investments made in Technitrol, the Russell 2000[registered trademark] Index and
the Dow Jones Electrical Components & Equipment Industry Group Index over the
11-year period between December 31, 1987 and December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------
Technitrol $100.00 $151.96 $211.96 $131.41 $158.67 $155.86 $189.12 $262.20 $449.43 $772.57 $1,217.81 $1,304.03
- ------------------------------------------------------------------------------------------------------------------------------
Russell 2000[registered trademark]
Index $100.00 $124.89 $145.18 $116.86 $170.68 $202.10 $240.31 $235.93 $303.03 $353.01 $431.95 $420.95
- ------------------------------------------------------------------------------------------------------------------------------
Dow Jones
Electrical
Components &
Equipment
Industry
Group Index $100.00 $98.73 $125.73 $115.11 $144.63 $144.88 $157.70 $164.20 $214.71 $261.48 $321.00 $376.51
- ------------------------------------------------------------------------------------------------------------------------------
Assumes $100 was invested on December 31, 1987, and all dividends were
reinvested.
18
[CHART]
19
Shareholders' Proposals
-----------------------
Our Corporate Secretary must receive shareholders' proposals by December
17, 1999 to be included in the proxy statement for our annual meeting in 2000.
If we do not receive proposals by February 8, 2000, the proxies that we obtain
may be voted in our discretion when the proposal is raised at the annual
meeting. 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 1998.
By order of the board of directors,
/s/ Drew A. Moyer
--------------------------
Drew A. Moyer
March 26, 1999 Corporate Secretary
20
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REVOCABLE PROXY
TECHNITROL, INC.
[X] Please mark votes
as in this example
1999 Annual Meeting Proxy
This Proxy is solicited by the Board of Directors
The person signing below hereby appoints Drew A. Moyer and James M. Papada,
III as proxies and attorneys-in-fact. Each has the power of substitution. They
are authorized to represent and to vote all the shares of common stock of
Technitrol held on the record date of March 5, 1999 by the person signing below.
They shall cast the votes as designated below at the annual shareholders meeting
to be held on May 19, 1999, or any adjournment thereof.
Please be sure to sign and date this proxy in the box below. Date
-------------------------------------------
- --------------------------------------------------------------------------------
Shareholder sign above Co-holder (if any) sign above
The Board of Directors recommends a vote FOR proposals 1 and 2.
For With- For All
hold Except
1. ELECTION OF DIRECTORS [ ] [ ] [ ]
J. Barton Harrison
Graham Humes
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"Except" and write that individual's name in the space provided below.
- --------------------------------------------------------------------------------
For Against Abstain
2. Proposal to approve the [ ] [ ] [ ]
selection of KPMG LLP as
independent auditors for the
year ending December 31, 1999.
3. The Proxies are authorized to vote in their discretion on other business that
comes before the meeting.
WHEN PROPERLY EXECUTED THIS PROXY WILL BE VOTED AS DIRECTED AND IN
ACCORDANCE WITH THE PROXY STATEMENT. IF NO DIRECTION IS MADE, IT WILL BE VOTED
FOR THE ELECTION OF ALL NOMINEES, "FOR" PROPOSAL 2 AND IN ACCORDANCE WITH THE
INSTRUCTIONS OF THE BOARD OF DIRECTORS ON ALL OTHER MATTERS.
Please sign this proxy exactly as your name appears on this card. When
shares are held by joint tenants, both parties should sign. If you are signing
as an attorney, trustee, guardian, or in another fiduciary capacity please give
your full title. If a corporation must sign, please sign in full corporate name
by its President or another authorized officer. If a partnership must sign,
please sign in partnership name by authorized person.
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