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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<Table>
[ ] 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 under Rule 14a-12
</Table>
SPARTON CORPORATION
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
----------------------------------------------------------------------
(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):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
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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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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
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SPARTON CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Our Shareholders:
Notice is hereby given that the Annual Meeting of Shareholders of Sparton
Corporation will be held at the offices of the Corporation, 2400 East Ganson
Street, Jackson, Michigan 49202, on Wednesday, October 24, 2001, at 10:00 a.m.,
Eastern Daylight Time, for the following purposes:
1. To elect three directors each for a term of three years as set
forth in the Proxy Statement.
2. To approve a proposal to amend and restate the Sparton Corporation
Stock Incentive Plan.
3. To transact such other business as may properly come before the
meeting.
Only holders of Common Stock of record at the close of business on
September 14, 2001 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
R. JAN APPEL
Secretary
September 28, 2001
IMPORTANT
All shareholders are cordially invited to attend the meeting. Whether or
not you plan to attend in person, you are urged to sign and date the Proxy
enclosed and return it promptly in the envelope provided. This will assure your
representation and a quorum for the transaction of business at the meeting. If
you do attend the meeting in person, the Proxy will not be used if you so
request by revoking it as described in the Proxy Statement.
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SPARTON CORPORATION
2400 East Ganson Street
Jackson, Michigan 49202
------------------
PROXY STATEMENT
------------------
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 24, 2001
SOLICITATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of SPARTON CORPORATION, an Ohio corporation (the
"Company"), of proxies for use at the 2001 Annual Meeting of Shareholders of the
Company (the "Annual Meeting") to be held at the offices of the Company, 2400
East Ganson Street, Jackson, Michigan 49202, on October 24, 2001 at 10 a.m.,
local time, and at any and all adjournments thereof. The cost of solicitation
will be paid by the Company. In addition, officers and employees of the Company
and its subsidiaries may solicit proxies personally, by telephone, facsimile or
other means, without additional compensation. This Proxy Statement and the form
of Proxy are being mailed to shareholders on or about September 28, 2001.
At the meeting, the Company's shareholders will act upon the election of
three directors, each to serve for a three year term until the annual meeting
held in the year 2004 or until their successors are elected and qualified, as
described in more detail in this Proxy Statement. The shareholders will also
vote on a proposal to amend and restate the Company's Stock Incentive Plan.
OUTSTANDING STOCK AND VOTING RIGHTS
In accordance with the Code of Regulations of the Company, the Board of
Directors has fixed the close of business on September 14, 2001, as the record
date for determination of shareholders entitled to notice of, and to vote at,
the Annual Meeting. Only shareholders of record on that date will be entitled to
vote. As of September 14, 2001, the record date for the Annual Meeting, the
Company had outstanding 7,570,090 shares of Common Stock, each entitled to one
vote at the Annual Meeting. Votes cast at the meeting and submitted by proxy are
counted by the inspectors of the meeting, who are appointed by the Company.
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PRINCIPAL SHAREHOLDERS
As of August 31, 2001, the persons named in the following table were known
by the management to be the beneficial owners of more than 5% of the Company's
outstanding Common Stock:
<Table>
<Caption>
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ------------- --------
John J. Smith Trust 1,825,100(1) 24.11%(1)
Bradley O. Smith
6043 N. Gatehouse, SE
Grand Rapids, Michigan 49546 898,347(2) 11.87(2)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, llth Fl
Santa Monica, California 90401 529,200(3) 6.99(3)
</Table>
---------------
(1) Bradley O. Smith and R. Jan Appel are co-trustees of the John J. Smith Trust
and they share voting and investment power over the shares held by the
trust.
(2) Includes 348,468 shares owned individually by Mr. Bradley O. Smith, 197,549
shares owned by Mr. Smith jointly with his wife, Sharon A. Smith and 341,240
shares over which Mr. Smith holds sole voting and investment power. Includes
11,090 shares owned by Mr. Smith's wife, Sharon A. Smith. Does not include
1,825,100 shares owned by the John J. Smith Trust, of which voting and
investment powers are shared by Mr. Smith as a co-trustee. Mr. Smith
disclaims beneficial ownership of the shares held by the John J. Smith
Trust, although he is a beneficiary of a trust which is a beneficiary of
this Trust.
(3) According to information included in the Form 13G Report filed as of
December 31, 2000, by Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, Dimensional is deemed to have beneficial
ownership of 529,200 shares of Common Stock, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of the DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and DFA Participation Group
Trust, investment vehicles for qualified employee benefit plans, to all of
which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional possesses sole voting and investment power over all such shares.
Dimensional disclaims beneficial ownership of all such shares. The 6.99% of
class is based on Dimensional's reporting of shares held at December 31,
2000 and the shares outstanding as of August 31, 2001.
SECURITY OWNERSHIP OF MANAGEMENT
As of August 31, 2001, the following table shows the shares of the
Company's Common Stock beneficially owned by the Named Executives identified in
the Compensation Table shown later in this Proxy Statement and all officers and
directors of the Company as a group:
<Table>
<Caption>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS(7)
---- --------------------- ----------
David W. Hockenbrocht 405,902(1) 5.34%
Douglas E. Johnson 25,000(2) *
Richard L. Langley 28,450(3) *
Charles A. Stranko 1,250(4) *
Alan J. Houghtaling 7,000(5) *
All Officers and Directors 3,209,201(6) 41.99
</Table>
---------------
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* denotes a percentage of less than 1%.
(1) Includes 32,000 shares, which Mr. Hockenbrocht has the right to acquire
pursuant to options exercisable within 60 days. The amount also includes
319,100 shares held by one of the Company's retirement plans, as to which
Mr. Hockenbrocht holds voting and investment power in his capacity as Chief
Executive Officer of the Company. Although Mr. Hockenbrocht is a participant
in the plan, he disclaims beneficial ownership of the shares held by the
plan.
(2) Includes 20,000 shares, which Mr. Johnson has the right to acquire pursuant
to options exercisable within 60 days.
(3) Includes 13,750 shares which Mr. Langley has the right to acquire pursuant
to options exercisable within 60 days.
(4) Includes 1,250 shares which Mr. Stranko has the right to acquire pursuant to
options exercisable within 60 days.
(5) Includes 6,000 shares which Mr. Houghtaling has the right to acquire
pursuant to options exercisable within 60 days.
(6) Includes shares under options held by all officers and directors exercisable
within 60 days and 1,825,100 shares held by the John J. Smith Trust of which
Bradley O. Smith and R. Jan Appel are co-trustees. Mr. Smith and Mr. Appel
share voting and investment power over the shares held by the trust.
(7) Calculation is based on total shares outstanding plus the shares subject to
options exercisable within 60 days as described in this Proxy Statement.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing a
written notice of revocation with the Chairman or Secretary of the Company, at
or before the Annual Meeting, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Chairman or Secretary of the Company at
or before the Annual Meeting or (iii) attending the Annual Meeting and voting in
person with adequate notification (although attendance at the Annual Meeting
will not in and of itself constitute a revocation of a proxy). Unless revoked,
the shares represented by the enclosed Proxy will be voted at the meeting in
accordance with any specification made thereon, if the Proxy is returned
properly executed and delivered in time for voting. Unless otherwise specified,
the Proxy will be voted "FOR" the election of the three director nominees and
"FOR" the proposal to amend and restate the Stock Incentive Plan.
Management does not intend to present, and does not know of anyone who
intends to present, any matters at the meeting to be acted upon by the
shareholders not referred to in the Notice and this Proxy Statement. If any
other matters should properly come before the meeting, it is the intention of
the persons named in the Proxy to vote in accordance with their judgment on such
matters.
The shareholders of the Company have cumulative voting rights in the
election of directors at the Annual Meeting if notice in writing is given by any
shareholder to the President, a Vice President or the Secretary of the Company
not less than 48 hours before the time fixed for holding the Annual Meeting that
the shareholder desires that the voting at such election shall be cumulative. An
announcement of the giving of such notice shall be made upon the convening of
the Annual Meeting by the Chairman or Secretary.
If voting for the election of directors at the Annual Meeting is
cumulative, each shareholder will have the right to cast that number of votes
which equals the number of shares owned by the shareholder multiplied by the
number of directors to be elected, and the shareholder may cast all such votes
for one candidate or distribute such votes among any number of candidates as the
shareholder elects. The actual number of shares required for election of a
candidate will vary
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depending upon the total number of shares voted. However, shareholders owning
1,892,523 shares, or approximately 25% of the Company's outstanding shares,
could elect at least one director to the class of three directors to be elected
at the 2001 Annual Meeting if there are four nominees.
ELECTION OF DIRECTORS
The following directors whose terms of office expire at the Annual Meeting,
Messrs. David P. Molfenter, W. Peter Slusser, and Bradley O. Smith, are nominees
each for election to a three year term expiring in 2004. The following portion
of this Proxy Statement contains additional information about these nominees.
A plurality of the votes cast at the meeting is required to elect the
nominees as directors of the Company. As such, the three individuals who receive
the greatest number of votes cast by the holders of Common Stock will be elected
as directors. Shares not voted at the Annual Meeting, whether by abstention,
broker non-vote, or otherwise, will not be treated as votes cast at the meeting.
It is believed that all three nominees are, and will be at the time of the
Annual Meeting, available for election; and, if elected, will serve. However, in
the event one or more of them is or should become unavailable, or should decline
to serve, it is intended that the proxies will be voted for the balance of the
nominees and for such substitute nominee or nominees as the proxy holders may in
their discretion select.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
THREE NOMINEES, DAVID P. MOLFENTER, W. PETER SLUSSER, AND BRADLEY O. SMITH.
Unless otherwise directed by marking the accompanying proxy, the proxy holders
named therein will vote FOR the election of the three nominees.
In the following table, the column "Amount and Nature of Beneficial
Ownership" relates to common shares of the Company beneficially owned by the
directors and nominees as of August 31, 2001, and is based upon information
furnished by them.
<Table>
<Caption>
HAS
SERVED AMOUNT AND
AS A NATURE
DIRECTOR OF BENEFICIAL PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP (1) CLASS (1)
---- --- ------------------------------------- -------- ------------- ----------
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2004
David P. Molfenter..... 56 Retired since August 2000, formerly 2000 1,000 *
Vice President Command, Control,
Communication and Information Systems
Segment, Raytheon Systems Company, a
high technology company specializing
in defense electronics, Fort Wayne,
Indiana; December 1997-August 2000.
Vice President and General Manager
Hughes Aircraft, a defense
electronics contractor, December
1995-December 1997.
W. Peter Slusser....... 72 President, Slusser Associates, Inc., 1997 1,000 *
Investment Banking, New York, New
York.
</Table>
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<Table>
<Caption>
HAS
SERVED AMOUNT AND
AS A NATURE
DIRECTOR OF BENEFICIAL PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP (1) CLASS (1)
---- --- ------------------------------------- -------- ------------- ----------
Bradley O. Smith....... 56 Chairman of the Board, Sparton 1998 898,347(2) 11.87%
Corporation, Jackson, Michigan since
October 2000. Private Investor since
May 1998. For the preceding 24 years,
owner and President of Tracy
Products, Inc., an automotive metal
stamping company, Ionia, Michigan.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
Robert J. Kirk......... 88 Financial Consultant, Toledo, Ohio. 1978 6,000 *
Richard L. Langley..... 56 Chief Financial Officer, Vice 2001 28,450(3) *
President and Treasurer of Sparton
Corporation, Jackson, Michigan.
William I. Noecker..... 52 Director of Program Management, 1999 1,440 *
Fisher Dynamics Corp, St. Clair
Shores, Michigan, an automotive
seating supplier since 1996. Chairman
of Brasco International Inc., an
aluminum fabricator, Detroit,
Michigan since 1993.
DIRECTORS WHOSE TERMS EXPIRE IN 2003
James N. DeBoer........ 76 Partner, law firm of Varnum, 1971 4,370 *
Riddering, Schmidt & Howlett, LLP,
Grand Rapids, Michigan.
David W. 66 Chief Executive Officer since October 1978 405,902(4) 5.34
Hockenbrocht......... 2000 and President of Sparton
Corporation, Jackson, Michigan since
1978.
James D. Fast.......... 53 Chief Executive Officer and President 2001 1,200 *
of Ionia County National Bank, Ionia,
Michigan.
</Table>
---------------
* denotes a percentage of less than 1%.
(1) Unless otherwise indicated by footnote, each director or nominee has sole
voting power and owns the shares directly, or shares voting and investment
power with his spouse or other family members under joint ownership.
(2) Reference is made to note (2) of Principal Shareholders on page 2.
(3) Reference is made to note (3) of Security Ownership of Management on page 3.
(4) Reference is made to note (1) of Security Ownership of Management on page 3.
Except as noted the principal occupations referred to have been held by the
foregoing nominees and directors for at least five years.
Mr. W. Peter Slusser is a director of Ampex Corporation and Tyco
International Ltd.
The Board of Directors, which had eight meetings during the past year, has
standing Audit, Compensation, Executive and Nominating Committees.
The Audit Committee met two times last year and consists of Messrs. Robert
J. Kirk, David P. Molfenter and William I. Noecker. This committee operates
under a written charter and oversees auditing, financial reporting and internal
control matters. It also recommends the firm that Sparton should retain as its
independent auditors. The Committee consults with the independent auditors and
reviews their audit and other work. The Committee also consults with
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the Chairman of the Board, President and Treasurer and reviews Sparton's
internal controls and compliance with policies. The members of the Audit
Committee are independent, as defined under the New York Stock Exchange listing
standards. The independent auditors have access to the committee without any
other members of management being present. The Audit Committee met with
management and the independent accountants before the announcement of third
quarter earnings in May. The Committee also reviewed annual results and the
Audit Committee report before filing. The functions and qualifications for
membership are set forth in its charter, a copy of which is attached as Appendix
A to this Proxy Statement.
The Compensation Committee, which held two meetings last year and consisted
of Messrs. James N. DeBoer, David W. Hockenbrocht, David P. Molfenter, and W.
Peter Slusser, monitors the remuneration, including stock options, for the
Company's executive officers.
The Executive Committee, which consisted of Messrs. James N. DeBoer, David
W. Hockenbrocht, and Bradley O. Smith, held four meetings last year.
The Nominating Committee, which consisted of Messrs. David W. Hockenbrocht,
David P. Molfenter, and Bradley O. Smith, met once last year.
All current directors attended at least 75% of the meetings of the Board
and committees on which they serve.
Prior to September 1, 2001, directors who were not employees of the Company
were compensated at the rate of $350 per month and $500 for each director's
meeting attended. Members of the Audit Committee received $500 for each Audit
Committee meeting attended. Directors who were employees of the Company received
$350 for each director's meeting attended.
Effective September 1, 2001, the Board of Directors adjusted the fees to be
paid for attendance at meetings to the following: Non-Employee directors will
receive an annual retainer of $7,200, $600 for each regularly scheduled Board
Meeting, $350 for each committee meeting attended the same day as a regularly
scheduled Board Meeting, and $500 for each special Board Meeting. Directors who
are employees of the Company are to be paid $500 for each Board Meeting
attended.
------------------------------------------------
PROPOSAL TO APPROVE THE SPARTON CORPORATION
AMENDED AND RESTATED STOCK INCENTIVE PLAN
PROPOSED AMENDMENT
The Board of Directors has adopted a resolution recommending shareholder
approval of an amended and restated Stock Incentive Plan (the "Plan") that
amends and restates the Sparton Corporation 1999 Stock Incentive Plan. The
amendment to the Plan generally provides for: including non-employee directors
as participants in the Plan, establishing the Board as the administrator of the
Plan as it affects non-employee directors, increasing the number of shares that
may be offered under the Plan from 500,000 to 760,000, and extending the term to
exercise accrued rights to a period of three years following the termination of
a participant's status as an employee or non-employee director.
REASONS FOR PROPOSED AMENDMENT
The Board has determined that including non-employee directors as
participants in the Plan will promote the long-term success of the Company for
the benefit of the Company's shareholders by aligning the personal interests of
the Company's non-employee directors with those of its shareholders. The amended
and restated Plan will enable the Company to attract, retain and
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reward non-employee directors as well as to allow such individuals to
participate in the Company's future.
The additional shares proposed to be made available for grants and awards
under the Plan are needed to allow for grants to the non-employee directors as
well as to facilitate future grants under the Plan consistent with the
philosophy and objectives of the Company's compensation program.
The Board has also determined that the length of time to exercise accrued
rights under the Plan should be extended to three years following the
termination of a participant's status as an employee or non-employee director in
order to provide participants a greater amount of flexibility in such
situations.
ADMINISTRATION
The Plan shall be administered by the Board or, if appointed by the Board
to administer the Plan with respect to employees, a Committee designated by the
Board consisting of not less than three directors who are appointed from time to
time by the Board, each of whom shall qualify as a non-employee director.
Subject to the Company's Code of Regulations, Bylaws and the provisions of the
Plan, the Board and/or Committee has the authority to select directors and/or
key employees, respectively, to whom awards may be granted; the type of awards
(or combination thereof) to be granted; the number of shares of Common Stock to
be included in each award; and the terms and conditions of any award, such as
conditions of forfeiture, transfer restrictions and vesting requirements.
SUMMARY OF THE PLAN
The Plan provides for the granting of a variety of stock-based awards, such
as stock options, including incentive stock options, as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), reload options,
stock appreciation rights, restricted stock and performance shares. The term of
the Plan is ten years; no awards may be granted under the Plan after October 24,
2011.
Stock Options, SAR's, Restricted Stock, and Performance Shares. Stock
options granted under the Plan may be either incentive stock options under
Section 422 of the Code, or nonqualified options. Non-employee directors will
not be eligible to receive incentive stock options. The exercise price for both
incentive stock options and nonqualified options must equal at least 100% of the
fair market value of the stock at the date of grant. The Plan also provides for
the discretionary grant of stock appreciation rights in tandem with stock
options. In addition, the Plan allows for the grant of performance share awards
and shares of restricted stock upon such terms and conditions as determined by
the Committee or the Board, as applicable.
Shares Subject to Plan. If the proposed amended and restated Plan is
approved, there will be 760,000 shares of Common Stock, $1.25 par value,
authorized under the Plan. The shares to be offered under the Plan will be
authorized and unissued shares, including shares reacquired by the Company which
have that status. The number of shares that may be issued under the Plan and the
number of shares subject to options are subject to adjustments in the event of a
merger, reorganization, consolidation, recapitalization, dividend (other than
ordinary cash dividends), stock splits, or other changes in corporate structure
affecting the Common Stock. Subject to certain restrictions, unexercised
options, lapsed shares of restricted stock, and shares or options surrendered in
payment for exercising options and/or tax withholding obligations may be
reissued under the Plan. As of September 28, 2001, options for 146,500 shares
are outstanding under the Plan and 353,500 shares are available for future
option grants under the Plan. If the proposed amended and restated Plan is
approved, the number of shares available for future
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option grants will be 613,500. The closing price per share of the Company's
Common Stock on August 31, 2001 was $7.20.
Termination or Amendment of the Plan. The Board may at any time amend,
discontinue, or terminate the Plan or any part of the Plan. However, unless
otherwise required by law, the rights of a participant with respect to awards
granted prior to such amendment, discontinuance or termination may not be
impaired without the consent of such participant. In addition, without the
approval of the Company's shareholders, no amendment may be made which would
increase the aggregate number of shares of Common Stock that may be issued under
the Plan, change the definition of individuals eligible to receive awards under
the Plan, extend the maximum option period under the Plan, or decrease the
option price of any option to less than 100% of the fair market value on the
date of grant.
Eligibility. Key employees of the Company or a subsidiary of the Company
and non-employee directors of the Company are eligible to receive awards under
the Plan. The Board or Committee, if applicable, will consider the nature of the
services rendered by such individuals, their present and potential contribution
to the Company's success and the success of the particular subsidiary or
division of the Company by which they are employed, and such other factors as
the Board or Committee in its discretion shall deem relevant. There are
currently approximately 65 key employees eligible to receive awards under the
Plan and there are currently six non-employee directors who will be eligible to
receive awards under the Plan, if the proposed amended and restated Plan is
approved.
Participation and Assignability. No award, option, or other benefit
payable under the Plan may, except as otherwise specifically provided by law, be
subject in any manner to assignment, transfer or encumbrance. Neither the Plan
nor any award agreement granted under the Plan entitles any participant to any
right to continued employment by the Company or any subsidiary.
FEDERAL INCOME TAX CONSEQUENCES
Under the Code as now in effect, at the time an incentive stock option is
granted or exercised, the optionee will not be deemed to receive any income and
the Company will not be entitled to any deduction. However, the difference
between the exercise price and the fair market value of the shares of Common
Stock on the date of exercise is a tax preference item, which may subject the
optionee to the alternative minimum tax in the year of exercise. The holder of
an incentive stock option generally will be accorded capital gain or loss
treatment on the sale or disposition of Common Stock acquired by exercise of an
incentive stock option, provided the sale or disposition occurs more than two
years after the date of grant and more than one year after exercise. An optionee
who disposes of shares acquired upon exercise of an incentive stock option prior
to the expiration of the foregoing holding periods realizes ordinary income upon
the sale or disposition equal to the difference between the exercise price and
the lesser of the fair market value of the shares on the date of exercise or the
disposition price. To the extent ordinary income is recognized by the optionee,
the Company may deduct a corresponding amount as compensation expense. Payment
of the exercise price by surrendering shares of Common Stock generally will not
result in the recognition of a capital gain or loss on the shares surrendered.
Upon the exercise of a nonqualified stock option, an optionee will
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the Common Stock acquired at the time of exercise and
the Company will receive a corresponding compensation deduction. Payment of the
exercise price by surrendering shares of Company Common Stock generally will not
result in the recognition of a capital gain or loss on the shares surrendered.
When the optionee disposes of the shares acquired by the exercise of the option,
any difference between the fair market value of the shares on the date of
exercise and the
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amount realized will be treated as capital gain or loss. Participants will
recognize no income on the grant of any reload option. The tax consequences to
the participant and the Company with respect to reload options are the same as
they are for a nonqualified stock option.
OPTION GRANTS UNDER THE PLAN
The following is a description of the total number of options received
under the Plan by the persons and groups identified: John J. Smith -- 0, David
W. Hockenbrocht -- 40,000, Douglas E. Johnson -- 10,000, Richard L.
Langley -- 35,000, Charles A. Stranko -- 7,500, Alan J. Houghtaling -- 6,000,
all executive officers as a group -- 138,500, all other employees as a group --
10,500. Those employees who received stock options in excess of 5% of the stock
options issued, R. Jan Appel -- 10,000, Stephanie Martin -- 15,000 and Michael
Woods -- 10,000. No options have been granted under the Plan to outside
directors or to associates of either directors or executive officers of the
Company.
REQUIRED VOTE FOR APPROVAL
The affirmative vote by the holders of a majority of the Company's Common
Stock voted at the Annual Meeting, by person or by proxy, is required to approve
the amended and restated Plan, provided that the holders of a majority of the
issued and outstanding shares of Company Common Stock vote on the proposal.
While broker non-votes will be counted in determining the quorum for the
meeting, they will not be treated as votes cast on the approval of this Plan.
Shares voted as abstentions will be counted as votes cast against the proposal.
BOARD RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDED
AND RESTATED PLAN. Unless otherwise directed by marking the accompanying proxy,
the proxy holders named therein will vote for the approval of the amended and
restated Plan.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed Sparton's audited financial
statements for the fiscal year ended June 30, 2001, with management and with
Sparton's independent auditors, Ernst & Young LLP. Management is responsible for
Sparton's internal controls and the financial reporting process. The independent
auditors are responsible for performing an independent audit of Sparton's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States and for issuing a report thereon.
The Audit Committee has discussed with Ernst & Young LLP the matters
required to be discussed by Statement on Auditing Standards No. 61 relating to
the conduct of the audit. The Audit Committee has received the written
disclosures from Ernst & Young LLP required by Independence Standards Board
Standard No. 1 (Independence Discussion with Audit Committees), discussed with
Ernst & Young LLP their independence and considered the compatibility of
non-audit services provided by Ernst & Young LLP with their independence.
Based on the review and discussion described above, the Audit Committee
recommended to the Board of Directors that the audited financial statements for
the fiscal year ended June 30, 2001, be included in Sparton's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001, for filing with the
Securities and Exchange Commission.
<Table>
Robert J. Kirk, Chairman David P. Molfenter William I. Noecker
</Table>
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee recommends, and the Board of Directors selects,
independent public auditors for Sparton. In addition to performing the audit of
the Company's consolidated
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financial statements, Ernst & Young LLP provided various other services during
2001. The Audit Committee has considered the provision of all non-audit services
performed by Ernst & Young LLP with respect to maintaining auditor independence.
The aggregate fees billed for 2001 for each of the following categories of
services are set forth below:
Audit Fees -- The aggregate fees of Ernst & Young LLP for professional services
rendered for the audit of Sparton's annual financial statements for the fiscal
year ended June 30, 2001, and the reviews of the financial statements included
in Sparton's Quarterly Reports on Form 10-Q for that fiscal year were $255,000.
All Other Fees -- Fees for additional services billed by Ernst & Young LLP for
the fiscal year ended June 30, 2001, primarily for audits of the Company's
employee benefits plans and preparation and review of the Company's income tax
returns, totaled $75,000.
Financial Information Systems Design and Implementation Fees -- Ernst & Young
LLP did not provide any services related to financial information systems design
and implementation during 2001.
COMPENSATION OF EXECUTIVE OFFICERS
The following tables provide certain data and information on the
compensation of the Company's Chief Executive Officer and its four most highly
compensated executive officers (other than the CEO) whose annual salary and
bonus exceeded $100,000 (collectively referred to as the "Named Executives").
This report addresses the Company's compensation policies and programs for the
year ended June 30, 2001, the details of which are reflected in the tables set
forth in the following pages of this Proxy Statement. The Company's and the
Board's policies and practices pertaining to the compensation of executive
officers and management have been in effect for a number of years.
COMPENSATION COMMITTEE REPORT
Decisions on the compensation of the Company's executive officers are
monitored by the Board's Compensation Committee. This Committee is composed of
Messrs. David W. Hockenbrocht, Chief Executive Officer and President, and three
non-employee directors; Messrs. DeBoer, Molfenter and Slusser.
The Company has long-established policies and practices intended to
compensate its salaried employees in a manner that will enable the Company to
attract, retain and motivate them to accomplish corporate goals and objectives.
These policies and practices encourage management to remain dedicated to the
maximization of shareholder value.
The Company's compensation program is comprised of several elements: cash
compensation (including salary and incentive bonus), incentive stock options and
defined benefit and defined contribution retirement plans. Reflective of the
Company's goal of relating compensation to corporate performance, the incentive
bonus compensation plan permits certain executive officers to earn additional
compensation if the pretax earnings of their operating unit is in excess of an
established goal. The performance goals for this plan are reviewed and approved
annually by the Compensation Committee. In addition, at the discretion of the
Committee, bonuses may be paid in addition to or in lieu of bonuses earned under
the incentive bonus plan based on the Committee's evaluation of the employee's
individual performance, level of responsibility and experience. During the past
fiscal year, discretionary bonuses, as well as bonuses under the incentive bonus
compensation plan, were paid to the Named Executives.
The Committee members, who are non-employee directors, use the same
procedures described above in setting the annual salary, bonus, and incentive
stock option grants for David W. Hockenbrocht, the Company's Chief Executive
Officer. These Committee members evaluate the
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performance of Mr. Hockenbrocht at least annually based on both the Company's
financial performance and the extent to which the strategic and business goals
established for the Company are met.
Mr. Hockenbrocht's annual base salary for the fiscal year ended June 30,
2001 was $284,767. In addition, Mr. Hockenbrocht was awarded a discretionary
bonus of $50,000 and was awarded stock options for 40,000 shares of the
Company's common stock for that fiscal year.
<Table>
W. Peter Slusser, Chairman James N. DeBoer
David P. Molfenter David W. Hockenbrocht
</Table>
The Executive Compensation Committee Report and Performance Graph set forth
herein are not deemed to be soliciting material or to be filed with the
Securities and Exchange Commission under the Securities Act of 1933 or the
Securities Exchange Act of 1934 or incorporated by reference in any document so
filed.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. David W. Hockenbrocht, the Company's Chief Executive Officer and
President, is a member of the Compensation Committee and as such participates in
establishing compensation for executives of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
the Named Executives for services rendered in all capacities during the fiscal
years ended June 30, 2001, 2000, and 1999.
<Table>
<Caption>
LONG TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ----------- -------- ------- ------------ ------------
John J. Smith(1) 2001 $126,237 $ -0- -0- $ -0-
Chairman of the Board and 2000 302,969 -0- -0- 1,400(4)
Chief Executive Officer 1999 302,969 -0- -0- 1,400(4)
David W. Hockenbrocht(1) 2001 284,767 50,000 40,000 9,565(2)
Chief Executive Officer and 2000 270,000 -0- -0- 2,801(3)
President 1999 235,000 35,000 -0- 1,400(4)
Douglas E. Johnson 2001 138,091 33,000 10,000 3,452(5)
Chief Operating Officer and 2000 128,479 -0- -0- 835(5)
Executive Vice President 1999 117,590 31,617 -0- -0-
Richard L. Langley 2001 125,000 25,000 35,000 3,815(6)
Chief Financial Officer, 2000 115,820 -0- -0- 594(5)
Vice President and Treasurer 1999 98,060 10,000 -0- -0-
Charles A. Stranko 2001 100,502 -0- 2,500 1,241(5)
Vice President, 2000 91,704 5,000 -0- -0-
General Manager 1999 70,364 -0- 5,000 -0-
Sparton Technology, Inc.
Alan J. Houghtaling 2001 96,697 5,000 6,000 2,376(5)
Vice President, Director 2000 106,755 -0- -0- 749(5)
Business Development 1999 97,175 -0- -0- -0-
</Table>
---------------
(1) The late John J. Smith was Chairman of the Board and Chief Executive Officer
until October of 2000. Mr. Hockenbrocht was appointed Chief Executive
Officer in October of 2000.
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(2) Directors' fees of $2,450 plus Company contribution to defined contribution
benefit plan of $7,115.
(3) Directors' fees of $1,400 plus Company contribution to defined contribution
benefit plan of $1,401.
(4) Directors' fees.
(5) Company contributions to the employee's defined contribution benefit plan.
(6) Directors' fees of $700 plus Company contribution to defined contribution
benefit plan of $3,115.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SAR'S PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS/SAR'S EMPLOYEES IN BASE PRICE -----------------------
NAME GRANTED(1) FISCAL YEAR(2) PER SHARE EXPIRATION DATE(3) 5% 10%
---- ------------- ---------------- ----------- ------------------ --------- ----------
David W. Hockenbrocht 40,000 28.78% $4.250 12/18/05 $46,920 $103,870
Douglas E. Johnson 10,000 7.19 4.250 12/18/05 11,730 25,968
Richard L. Langley 15,000 10.79 4.125 9/29/05 17,078 37,806
Richard L. Langley 20,000 14.39 4.250 12/18/05 23,460 51,935
Charles A. Stranko 2,500 1.80 4.250 12/18/05 2,933 6,492
Alan J. Houghtaling 6,000 4.32 4.250 12/18/05 7,038 15,581
</Table>
---------------
(1) These options were granted under the Company's 1999 Stock Option Plan and
have a five year term. Options become exercisable cumulatively beginning one
year after the date granted, in four equal annual installments.
(2) During the fiscal year ended on June 30, 2001, options to purchase an
aggregate of 139,000 shares of common stock of the Company were granted to
various employees.
(3) Options may terminate before their expiration dates if the optionee's status
as an employee is terminated, or upon the optionee's death.
(4) Potential realizable value is based on the assumption that the market price
of the stock will obtain an annual growth projection of 5% -- 10% over the
five year vesting periods. This assumed growth rate equates to a 27.6% and
61.0% cumulative increase, respectively. These values do not reflect the
Company's estimate of future stock appreciation.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information, with respect to the Named
Executives, concerning the exercise of stock options or stock appreciation
rights ("SARs") during the year and unexercised options and SARs held at June
30, 2001.
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AGGREGATED OPTION/SARS EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN THE
UNEXERCISED OPTIONS/SARS AT MONEY OPTIONS/SARS AT FISCAL
FISCAL YEAR-END YEAR-END(L)
SHARES ----------------------------- -----------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
---- ----------- -------- ------------ -------------- ------------ --------------
David W. Hockenbrocht -0- $-0- 32,000 40,000 $ 8,800 $110,000
Douglas E. Johnson -0- -0- 20,000 10,000 -0- 27,500
Richard L. Langley -0- -0- 13,750 31,250 10,406 86,219
Charles A. Stranko -0- -0- 1,250 6,250 3,938 18,688
Alan J. Houghtaling -0- -0- 6,000 6,000 -0- 16,500
</Table>
---------------
(1) The value of unexercised options reflects the increase in market value of
the Company's Common Stock from the date of grant through June 30, 2001,
when the closing price of the Company's stock was $6.90 per share. The value
actually realized upon exercise by the Named Executives will depend on the
value of the Company's Common Stock at the time of exercise. The market
price of the Company's Common Stock was below the exercise price on some
outstanding stock options.
RETIREMENT PROGRAMS
The Company maintains a defined benefit retirement plan for domestic
employees of the Company which provides for monthly pensions following
retirement. During the past year, no cash contributions were made by the Company
to the plan as in the judgment of the Company's independent actuaries, the
pension plan was fully funded. The plan provides a basic benefit of $2.25 per
month for each year of credited service up to a maximum of $90 per month. In
addition, for those participants who contributed 5% of their monthly
compensation (excluding bonuses) per month, the plan provides for an additional
monthly pension amount equal to 1 1/2% of the participant's final five-year
average monthly compensation (excluding bonuses) times the participant's years
of contributory credited service to a maximum of 30 years.
Effective April 1, 2001, the Company amended its defined benefit retirement
plan to determine benefits by a cash balance formula. Under the cash balance
formula, each participant has a benefit equal to their cash balance account
which is credited yearly with 2% of their salary, as well as the interest earned
on their previous year-end cash balance. Service under the Company's prior
salary-based formula was frozen as of March 31, 2001, and the benefit formula
amended to calculate the monthly pension based upon the participant's final
five-year average earnings as defined.
The following table shows the estimated annual retirement benefits, payable
under the prior salary-based formula, in specified remuneration and service
classifications upon normal retirement at age 65(or June 30, 2001, if the
individual is currently age 65 or older). The benefits shown are not subject to
any deduction for Social Security or other offset amounts. The maximum amount of
annual compensation allowed to be included in determining final average
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16
compensation has been limited by Federal statute to $170,000 for 2001. This
amount is subject to future adjustment by the Internal Revenue Service.
<Table>
<Caption>
FINAL 5-YEAR AVERAGE YEARS OF CONTRIBUTORY AND CREDITED SERVICE AT AGE 65
ANNUAL EARNINGS ----------------------------------------------------
(EXCLUDES BONUSES) 5 10 15 20 25
-------------------- -------- -------- -------- -------- --------
$ 60,000 $ 4,635 $ 9,270 $13,905 $18,540 $23,175
80,000 6,135 12,270 18,405 24,540 30,675
100,000 7,635 15,270 22,905 30,540 38,175
120,000 9,135 18,270 27,405 36,540 45,675
140,000 10,635 21,270 31,905 42,540 53,175
160,000 12,135 24,270 36,405 48,540 60,675
180,000 13,635 27,270 40,905 54,540 68,175
</Table>
The following Named Executives have years of contributory credited service
and current annual earnings under the plan as of June 30, 2001 as follows:
<Table>
<Caption>
YEARS OF CONTRIBUTORY CURRENT ANNUAL EARNINGS
OFFICER CREDITED SERVICE (EXCLUDING BONUS)
------- --------------------- -----------------------
David W. Hockenbrocht 22.25 $284,767
Douglas E. Johnson 11.75 138,091
Richard L. Langley 13.75 125,000
Charles A. Stranko -- 100,502
Alan J. Houghtaling 3.75 96,697
</Table>
In addition to benefits payable under the salary-based formula of the
defined benefit plan, benefits are available under the cash balance formula.
Estimated lump sum benefits equal to their cash balance account under the cash
balance pension plan upon retirement at age 65 (or June 30, 2001, if the
individual is currently age 65 or older) for Messrs. Hockenbrocht, Johnson,
Langley, Stranko and Houghtaling are, $4,049, $57,378, $33,521, $92,540, and
$82,788 respectively, assuming each Named Executive receives no pay increase and
cash balances are credited with interest at a rate of 6.00% per annum.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16 of the Securities Exchange Act of 1934, the
Company's directors and executive officers, as well as any person holding more
than ten percent of a registered class of the Company's equity securities, are
required to report any changes in their ownership of the Company's securities to
the Securities and Exchange Commission and the New York Stock Exchange. To the
Company's knowledge, all required reports were properly filed by such persons
during the fiscal year ended June 30, 2001.
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PERFORMANCE GRAPH
The following is a line-graph presentation comparing cumulative, five-year
shareholder returns, on an indexed basis, of the Company's Common Stock with
that of a broad market index (the S&P 500 Composite Index) and the Electronics
Component of the NASDAQ. The comparison assumes a $100 investment on June 30,
1996, and the reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
SPARTON CORPORATION, S&P INDEX AND INDUSTRY INDEXES
(INDEX JUNE 30, 1996 = 100)
[GRAPH]
<Table>
<Caption>
NASDAQ S&P 500 INDEX SPARTON CORPORATION
------ ------------- -------------------
1996 100 100 100
1997 164 132 279
1998 163 170 196
1999 289 205 141
2000 718 217 97
2001 265 183 162
</Table>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. David W. Hockenbrocht is a member of the Board of Directors of Cybernet
Systems, Inc. Sparton Corporation received a $200 Director's fee for the Board
Meeting attended by Mr. Hockenbrocht.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, the Company's independent auditors
for many years, are expected to be present at the Annual Meeting. They will have
an opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
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18
SHAREHOLDER PROPOSALS -- 2002 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2002 Annual Meeting
of Shareholders of the Company must be received by the Company not later than
May 31, 2002, at its principal executive offices, 2400 East Ganson Street,
Jackson, Michigan 49202, Attention: Secretary, for inclusion in the Proxy
Statement and Proxy relating to the 2002 Annual Meeting of Shareholders. Holders
of Proxies solicited by management will be entitled to exercise discretionary
voting authority on any shareholder proposals, other than those included in the
Proxy Statement and Proxy relating to the 2002 Annual Meeting of Shareholders,
unless the Company receives notice of such proposal at the above address on or
before August 13, 2002.
By Order of the Board of Directors
R. JAN APPEL,
Secretary
Dated: September 28, 2001
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APPENDIX A
SPARTON CORPORATION
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. PURPOSE
The Audit Committee shall provide assistance to the members of the Board of
Directors in fulfilling their responsibility to shareholders, potential
shareholders, and the investment community relating to the Company's accounting
and reporting practices, and the quality and integrity of its financial reports.
The Audit Committee's primary duties and responsibilities are to:
- Oversee that management has maintained the reliability and integrity of
the accounting policies and financial reporting and disclosure practices
of the Company.
- Oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning within
the Company.
- Oversee that management has established and maintained processes to
assure compliance by the Company with all applicable laws, regulations
and corporate policies.
The Audit Committee will fulfill these responsibilities primarily by
carrying out the activities enumerated in Section IV of this Charter.
To the extent necessary to discharge its duties hereunder, the Audit
Committee shall have the authority to retain special legal, accounting or other
consultants to advise the Committee. The Audit Committee may request any officer
or employee of the Company or the Company's outside counsel or independent
auditor to attend a meeting of the Committee or to meet with any members of, or
consultants to, the Committee.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall meet the independence and experience
requirements of the New York Stock Exchange.
The members of the Audit Committee shall be appointed by the Board. Unless
a Chairperson is elected by the full Board, the members of the Audit Committee
may designate a Chairperson by majority vote of the full Audit Committee
membership.
III. MEETINGS
The Audit Committee shall meet as frequently as circumstances dictate. As
part of its responsibility to foster open communication, the Audit Committee
should meet at least annually with management, and the independent auditors
separately to discuss any matters that the Audit Committee or each of these
groups believe should be discussed privately. In addition, the Audit Committee
or its Chairperson should meet with the independent auditors and management as
requested to review the Company's financial statements consistent with Section
IV.3 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
1. Review and reassess at least annually, the adequacy of this Charter.
Make recommendations to the Board, as conditions dictate, to update this
Charter.
A-1
20
2. Review with management and the independent auditors the Company's
annual financial statements, including a discussion with the
independent auditors of the matters required to be discussed by
auditing standards generally accepted in the United States.
3. At the request of the independent auditors or management, review with
the independent auditors and management the Company's quarterly
financial statements, including any discussion with the independent
auditors of any matters required to be discussed by auditing standards
generally accepted in the United States. The Chairperson of the Audit
Committee or such other member of the Audit Committee designated by the
Chairperson may represent the entire Audit Committee for purposes of
this review.
4. Review the performance of the independent auditors and make
recommendations to the Board regarding the appointment or termination
of the independent auditors. The Audit Committee and the Board have the
ultimate authority and responsibility to select, evaluate, and where
appropriate, replace the outside auditor. The independent auditors are
ultimately accountable to the Audit Committee and the entire Board for
such independent auditors' review of the financial statements and
controls of the Company. On an annual basis, the Audit Committee should
review and discuss with the independent auditors all significant
relationships the independent auditors have with the Company to
determine the independence of the independent auditors.
5. Oversee independence of the independent auditors by:
- Receiving from the independent auditors, on a periodic basis, a
formal written statement delineating all relationships between the
independent auditors and the Company consistent with requirements of
the Independence Standards Board;
- Reviewing, and actively discussing with the Board, if necessary, and
the independent auditors, on a periodic basis, any disclosed
relationships or services between the independent auditors and the
Company or any other disclosed relationships or services that may
impact the objectivity and independence of the independent auditors;
and
- Recommending, if necessary, that the Board take appropriate action
to satisfy itself of the independence of the independent auditors.
6. In consultation with the Company's Chief Financial Officer and
independent auditors, review the integrity of the Company's financial
reporting processes, both internal and external.
7. Establish regular systems for reporting to the Audit Committee by
management and the independent auditors regarding any significant
judgments made in management's preparation of the financial statements
and any significant difficulties encountered during the course of the
review or audit, including any restrictions on the scope of work or
access to required information.
8. Review any significant disagreement among management and the
independent auditors in connection with the preparation of the
financial statements.
9. Obtain from the independent auditors assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been
implicated.
10. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
11. Review, with the Company's General Counsel, any legal matter that could
have a material impact on the Company's financial statements.
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12. Report through its Chairperson or his designee to the Board following
meetings of the Audit Committee.
13. Maintain minutes or other records of meetings and activities of the
Audit Committee.
V. GENERAL
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
Nor is it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations.
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APPENDIX B
AMENDED AND RESTATED
SPARTON CORPORATION STOCK INCENTIVE PLAN
DATED OCTOBER ___ 2001
ARTICLE 1
ESTABLISHMENT AND PURPOSE OF THE PLAN
1.1 Establishment of the Plan. Sparton Corporation, an Ohio corporation
(the "Company"), established an incentive compensation plan known as the
"Sparton Corporation Stock Incentive Plan" (the "Plan") pursuant to the approval
of the shareholders at the annual meeting of shareholders on October 27, 1999.
The Plan permits the granting of stock options, stock appreciation rights,
restricted stock and other stock-based awards to key employees of the Company
and its subsidiaries.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the
long-term success of the Company for the benefit of the Company's shareholders,
through stock-based compensation, by aligning the personal interests of the
Company's key employees with those of its shareholders. The Plan is also
designed to allow key employees to participate in the Company's future, as well
as to enable the Company to attract, retain and reward such individuals. The
proposed amendments to the Plan will allow nonemployee directors to participate
in the Company's future and assist the Company in attracting quality individuals
to act in such capacity.
1.3 Amendment and Restatement. Subject to ratification by the affirmative
vote of holders of a majority of shares of the Company's Common Stock present
and entitled to vote at the 2001 Annual Meeting of Shareholders, the Amended and
Restated Plan shall be effective as of the date of that meeting (the "Effective
Date")
1.4 Term of Plan. No Awards shall be granted pursuant to the Plan on or
after the tenth anniversary of the Effective Date ( "Termination Date") ,
provided that Awards granted prior to the Termination Date may extend beyond
that date, and Cash Payment Rights and Reload Options may be effected pursuant
to the terms of Awards granted prior to the Termination Date.
ARTICLE 2
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings set
forth below:
2.1 "Award" shall mean any award under this Plan of any Options, Stock
Appreciation Rights, Restricted Stock and Performance Shares.
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23
2.2 "Award Agreement" shall mean an agreement evidencing the grant of an
Award under this Plan. Awards under the Plan shall be evidenced by Award
Agreements that set forth the details, conditions and limitations for each
Award, as established by the Committee and shall be subject to the terms and
conditions of the Plan.
2.3 "Award Date" shall mean the date that an Award is made, as specified in
an Award Agreement.
2.4 "Board" shall mean the Board of Directors of the Company.
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.6 "Committee" shall mean the Committee as specified in Article 3, if
appointed by the Board to administer the Plan. If no Committee is appointed,
"Committee" shall mean the Board. The Board shall be responsible for the
administration of the Plan for the benefit of the Nonemployee Directors.
References to the Committee concerning the administration of the Plan shall
refer to the Board if the Participant or proposed Participant is a Nonemployee
Director
2.7 "Common Stock" shall mean the Common Stock, $1.25 par value per share,
of the Company.
2.8 "Disability" shall mean permanent and total disability as determined
under the rules and guidelines established by the Committee for purposes of the
Plan.
2.9 "Employee Participant" shall mean an employee of the Company or its
Subsidiaries who holds an outstanding Award granted under the Plan.
2.10 "Fair Market Value" shall mean the closing price per share of the
Common Stock for such date on the New York Stock Exchange ( "NYSE" ) . If no
sale of shares of Common Stock is reflected on the NYSE on a date, "Fair Market
Value" shall be determined on the next preceding day on which there was a sale
of shares of Common Stock reported by the NYSE.
2.11 "Incentive Stock Option" or "ISO" shall mean an option to purchase
shares of Common Stock granted under Article 6, which is designated as an
Incentive Stock Option and is intended to meet the requirements of Section 422
of the Code.
2.12 "Insider" shall mean an employee who is an officer (as defined in Rule
16a-1(f) of the Exchange Act) or director of the Company, or holder of more than
ten percent (10%) of its outstanding shares of Common Stock.
2.13 "Nonemployee Director" shall mean a person who satisfies (1) the
definition of "Nonemployee Director" within the meaning set forth in Rule
16b-3(b) (3), as promulgated by the Securities and Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934 (the
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24
"Exchange Act") , or any successor definition adopted by the SEC, and (2) the
definition of "outside director" within the meaning of Section 162(m) of the
Code.
2.14 "Nonemployee Director Participant" shall mean a person who satisfies
the definition described in Paragraph 2.13 above and holds an outstanding Award
granted under the Plan.
2.15 "Nonqualified Stock Option " or "NQSO" shall mean an option to
purchase shares of Common Stock, granted under Article 6, which is not an
Incentive Stock Option.
2.16 "Option" means an Incentive Stock Option, a Nonqualified Stock Option,
or a Reload Option.
2.17 "Option Price" shall mean the price at which a share of Common Stock
may be purchased by a Participant pursuant to an Option, as determined by the
Committee.
2.18 "Participant" shall mean, alternatively, an employee of the Company or
a Subsidiary, or a Nonemployee Director who holds an outstanding Award granted
under the Plan.
2.19 "Performance Shares" shall mean an Award granted under Article 9 of
this Plan evidencing the right to receive Common Stock or cash of an equivalent
value at the end of a specified performance period.
2.20 "Permitted Transferee" means (i) the spouse, children or grandchildren
of a Participant (each an "Immediate Family Member" ) , (ii) a trust or trusts
for the exclusive benefit of the Participant and/or one or more Immediate Family
Members, or (iii) a partnership or limited liability company whose only partners
or members are the Participant and/or one or more Immediate Family Members.
2.21 "Reload Option" shall mean an Option that is awarded under the
conditions of Section 6.5 of the Plan.
2.22 "Retirement" shall mean the termination of a Participant's employment
with the Company or a Subsidiary after the Participant attains retirement age as
established by the Committee at the time an Award is made.
2.23 "Restricted Stock" shall mean an Award granted to a Participant under
Article 8 of this Plan.
2.24 "Stock Appreciation Right" or "SAR" shall mean an Award granted to a
Participant under Article 7 of this Plan.
2.25 "Subsidiary" shall mean any corporation in which the Company owns
directly, or indirectly through subsidiaries, at least fifty percent (50%) of
the total combined voting power of all
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25
classes of stock, or any other entity (including, but not limited to,
partnerships and joint ventures) in which the Company owns at least fifty
percent (50%) of the combined equity thereof.
2.26 "Termination of Employment" shall mean the termination of an Employee
Participant's employment with the Company or a Subsidiary. An Employee
Participant employed by a Subsidiary shall also be deemed to incur a Termination
of Employment if the Subsidiary ceases to be a Subsidiary and the Participant
does not immediately thereafter become an employee of the Company or another
Subsidiary.
2.27 "Termination of Directorship" shall mean the termination of the
Nonemployee Director's status as a member of the Board of Directors of the
Company, as a result of the resignation from office by the Nonemployee Director,
the death of the Nonemployee Director during an unexpired term of office, the
removal of the Nonemployee Director by action of the Board of Directors, or the
expiration of a term of office.
ARTICLE 3
ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the Board or, if
appointed by the Board to administer the Plan, a Committee designated by the
Board consisting of not less than three (3) directors who shall be appointed
from time to time by the Board, each of whom shall qualify as a Nonemployee
Director. If a Committee is not appointed to administer the Plan, the Board
shall be substituted for the Committee wherever the Committee is referred to in
the Plan. Notwithstanding the appointment of a Committee under the terms of the
Plan, only the Board shall have the authority to grant an Award to a Nonemployee
Director.
3.2 Board and Committee Authority. Subject to the Company's Code of
Regulations, Bylaws and the provisions of this Plan, the Board and the Committee
shall have full authority to grant Awards to Nonemployee Directors and/or key
employees, respectively, of the Company or a Subsidiary:
(a) To select the key employees and/or Nonemployee Directors of the
Company or a Subsidiary to whom Awards may be granted under the Plan;
(b) To determine whether and to what extent Options, Stock
Appreciation Rights, Restricted Stock, and Performance Shares, or any
combination thereof are to be granted under the Plan;
(c) To determine the number of shares of Common Stock to be covered by
each Award;
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(d) To determine the terms and conditions of any Award Agreement,
including, but not limited to, the Option Price, any vesting restriction or
limitation, any vesting schedule or acceleration thereof, or any forfeiture
restrictions or waiver thereof, regarding any Award and the shares of
Common Stock relating thereto, based on such factors as the Committee shall
determine in its sole discretion;
(e) To determine whether, to what extent and under what circumstances
grants of Awards are to operate on a tandem basis and/or in conjunction
with or apart from other cash compensation arrangement made by the Company
other than under the terms of this Plan;
(f) To determine under what circumstances an Award may be settled in
cash, Common Stock, or a combination thereof; and
(g) To determine to what extent and under what circumstances shares of
Common Stock and other amounts payable with respect to an Award shall be
deferred.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (including any Award Agreement) and to
otherwise supervise the administration of the Plan. A majority of the Committee
shall constitute a quorum, and the acts of a majority of a quorum at any
meeting, or acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee. The interpretation
and construction by the Committee of any provisions of the Plan or any Award
granted under the Plan shall be final and binding upon the Company, the Board
and Participants, including their respective heirs, executors and assigns. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or an Award granted
hereunder. Notwithstanding the foregoing, without the prior approval of the
Company's shareholders, neither the Committee nor the Board of Directors shall
have the authority to lower the exercise price of an option previously granted,
whether by means of the amendment of previously granted Awards or the
replacement or regrant, through cancellation, of previously granted Awards.
ARTICLE 4
COMMON STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 12.1, the maximum aggregate
number of shares of Common Stock which may be issued under this Plan shall not
exceed 760,000 shares, which may be either unauthorized and unissued Common
Stock or issued Common Stock reacquired by the Company ("Plan Shares").
Determinations as to the number of Plan Shares that remain available for
issuance under the Plan shall be made in accordance with such rules and
procedures as the
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Committee shall determine from time to time. If an Award expires unexercised or
is forfeited, canceled, terminated or settled in cash in lieu of Common Stock,
the shares of Common Stock that were theretofore subject (or potentially
subject) to such Award may again be made subject to an Award Agreement;
provided, however, that any such shares subject to a forfeited or canceled Award
shall not again be made subject to an Award Agreement to any Participant who
received, directly or indirectly, any of the benefits of ownership of the
securities underlying such Award, excluding the right to vote such shares. In
addition, Shares from the following sources shall be added to the number of Plan
Shares available for issuance under the Plan:
(1) Any Shares of the Company's Common Stock surrendered in payment of
the exercise price of Options or to pay the tax withholding obligations
incurred upon the exercise of Options; and
(2) Shares withheld to pay the Option Price or tax withholding
obligations.
ARTICLE 5
ELIGIBILITY
The persons who shall be eligible to receive Awards under the Plan shall be
such key employees or Nonemployee Directors of the Company or a Subsidiary as
the Committee or, in the case of the Nonemployee Directors, the Board shall
select from time to time. In making such selections, the Committee shall
consider the nature of the services rendered by the proposed participants, their
present and potential contribution to the Company's success and the success of
the particular Subsidiary or division of the Company by which they are employed,
and such other factors as the Board and/or Committee in its discretion shall
deem relevant. Participants may hold more than one Award, but only on the terms
and subject to the restrictions set forth in the Plan and their respective Award
Agreements.
ARTICLE 6
STOCK OPTIONS
6.1 Options. Options may be granted alone or in addition to other Awards
granted under this Plan. Each Option granted under this Plan shall be either an
Incentive Stock Option (ISO) or a Nonqualified Stock Option (NQSO) .
6.2 Grants. The Committee shall have the authority to grant to any
Participant one or more Incentive Stock Options, Nonqualified Stock Options, or
both types of Options. To the extent that any Option does not qualify as an
Incentive Stock Option (whether because of its provisions or the time or manner
of its exercise or otherwise), such Option or the portion thereof which does not
qualify shall constitute a separate Nonqualified Stock Option.
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6.3 Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the Participants affected,
to disqualify any Incentive Stock Option under such Section 422. An Incentive
Stock Option shall not be granted to an individual who, on the date of grant,
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or to a Nonemployee Director. The
aggregate Fair Market Value, determined on the Award Date of the shares of
Common Stock with respect to which one or more Incentive Stock Options (or other
incentive stock options within the meaning of Section 422 of the Code, under all
other option plans of the Company) granted on or after January 1, 1987, that are
exercisable for the first time by a Participant during any calendar year shall
not exceed the $100,000 limitation imposed by Section 422(d) of the Code.
6.4 Terms of Options. Options granted under the Plan shall be evidenced by
Award Agreements in such form as the Committee shall, from time to time approve,
which Agreement shall comply with and be subject to the following terms and
conditions:
(a) Employee Participant's Agreement. Each Employee Participant shall
agree to remain in the continuous employ of the Company for a period of at
least twelve (12) months from the Award Date or until Retirement, if
Retirement occurs prior to twelve (12) months from the date of the Option.
Such Agreement shall not impose upon the Company any obligation to retain
the Participant in its employ for any period.
(b) Option Price. The Option Price per share of Common Stock
purchasable under an Option shall be determined by the Committee at the
time of grant but shall be not less than one hundred percent (100%) of the
Fair Market Value of the Common Stock at the Award Date.
(c) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten (10) years
after the date the Option is granted.
(d) Exercisability. Except as provided in Section 12.2, no Option
shall be exercisable either in whole or in part prior to the first
anniversary of the Award Date. Thereafter, an Option shall be exercisable
at such time or times and subject to such terms and conditions as shall be
determined by the Committee and set forth in the Award Agreement. If the
Committee provides that any Option is exercisable only in installments, the
Committee may at any time waive such installment exercise provisions, in
whole or in part, based on such factors as the Committee may determine.
(e) Method of Exercise. Subject to whatever installment exercise and
waiting period provisions apply under subsection (d) above, Options may be
exercised in whole or in part at any time during the term of the Option, by
giving written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied
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by payment in full of the purchase price in such form as the Committee may
accept. Notwithstanding the foregoing, an Option shall not be exercisable
with respect to less than 100 shares of Common Stock unless the remaining
shares covered by an Option are fewer than 100 shares. If and to the extent
determined by the Committee in its sole discretion at or after grant,
payment in full or in part may also be made in the form of Common Stock
owned by the Participant (and for which the Participant has good title free
and clear of any liens and encumbrances, and with respect to any shares of
Common Stock acquired upon the exercise of an Option, has been held by the
Optionee for a period of at least six (6) consecutive months) or Restricted
Stock, or by reduction in the number of shares issuable upon such exercise
based, in each case, on the Fair Market Value of the Common Stock on the
last trading date preceding payment as determined by the Committee (without
regard to any forfeiture restrictions applicable to Restricted Stock) . No
shares of stock shall be issued until payment has been made. A Participant
shall generally have the right to dividends or other rights of a
shareholder with respect to shares subject to the Option when the person
exercising such option has given written notice of exercise, has paid for
such shares as provided herein, and, if requested, has given the
representation described in Section 13.1 of the Plan. Notwithstanding the
foregoing, if payment in full or in part has been made in the form of
Restricted Stock, an equivalent number of shares of Common Stock issued on
exercise of the Option shall be subject to the same restrictions and
conditions, and during the remainder of the Restriction Period [as defined
in Section 8.3(a)], applicable to the shares of Restricted Stock
surrendered therefor.
(f) Transferability of Options. No Option may be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated, other than by
will or by the laws of descent and distribution, provided, however, the
Committee may, in its discretion, authorize all or a portion of a
Nonqualified Stock Option to be granted to an optionee to be on terms which
permit transfer by such optionee to a Permitted Transferee, provided that
(i) there may be no consideration for any such transfer (other than the
receipt of or interest in a family partnership or limited liability
company), (ii) the stock option agreement pursuant to which such options
are granted must be approved by the Committee, and must expressly provide
for transferability in a manner consistent with this Section 6.4(f), and
(iii) subsequent transfers of transferred options shall be prohibited
except those in accordance with Section 6.4(i) . Following transfer, any
such options shall continue to be subject to the same terms and conditions
as were applicable immediately prior to transfer. The events of termination
of service of Sections 6.4(g), (h) and (i) hereof, and the tax withholding
obligations of Section 13.3 shall continue to be applied with respect to
the original optionee, following which the options shall be exercisable by
the Permitted Transferee only to the extent, and for the periods specified
in Sections 6(g), (h) , and (i) . The Company shall not be obligated to
notify Permitted Transferee(s) of the expiration or termination of any
option. Further, all Options shall be exercisable during the Participant's
lifetime only by such Participant and, in the case of a Nonqualified Stock
Option, by a Permitted Transferee. The designation of a person entitled to
exercise an Option after a person's death will not be deemed a transfer.
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(g) Termination of Employment for Reasons other than Retirement,
Disability, or Death. Upon Termination of Employment for any reason other
than Retirement or on account of Disability or death, each Option held by
the Employee Participant shall, to the extent rights to purchase shares
under such Option have accrued at the date of such Termination of
Employment and shall not have been fully exercised, be exercisable, in
whole or in part, at any time within a period of not more than thirty (30)
days following Termination of Employment, as specified in the Award
Agreement, subject, however, to prior expiration of the term of such
Options and any other limitations on the exercise of such Options in effect
at the date of exercise. Whether an authorized leave of absence or absence
because of military or governmental service shall constitute Termination of
Employment for such purposes shall be determined by the Committee, which
determination shall be final and conclusive.
(h) Termination of Employment for Retirement or Disability. Upon
Termination of Employment by reason of Retirement or Disability, each
Option held by such Employee Participant shall, to the extent rights to
purchase shares under the Option have accrued at the date of such
Retirement or Disability and shall not have been fully exercised, remain
exercisable in whole or in part, for a period of not more than three (3)
years following such Termination of Employment, as specified in the Award
Agreement, subject, however, to prior expiration according to its terms and
other limitations imposed by the Plan. If the Employee Participant dies
after such Retirement or Disability, the Participant's Options shall be
exercisable in accordance with Section 6.4(i) below.
(i) Termination of Employment for Death. Upon Termination of
Employment due to death, each Option held by such Participant or Permitted
Transferee shall, to the extent rights to purchase shares under the Options
have accrued at the date of death and shall not have been fully exercised,
be exercisable, in whole or in part, by the personal representative of the
estate of the Participant or Permitted Transferee or by any person or
persons who shall have acquired the Option directly from the Participant or
Permitted Transferee by bequest or inheritance only under the following
circumstances and during the following periods: (i) if the Participant dies
while employed by the Company or a Subsidiary, at any time within six (6)
months after his death, or (ii) if the Participant dies during the extended
exercise period following Termination of Employment specified in Section
6.4(h), at any time within the longer of such extended period or six (6)
months after death, subject, however, in any case, to the prior expiration
of the term of the Option and any other limitation on the exercise of such
Option in effect at the date of exercise.
(j) Termination of Directorship. Upon Termination of Directorship,
each Option held by such Nonemployee Director Participant shall, to the
extent rights to purchase shares under the Option have accrued at the date
of such termination and shall not have been fully exercised, remain
exercisable in whole or in part, for a period of not more than three (3)
years following such Termination of Directorship, as specified in the Award
Agreement, subject, however, to prior expiration according to its terms and
other limitations imposed by
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the Plan. If the Nonemployee Director dies after the termination of his or
her Directorship and during the period described in the foregoing sentence,
to the extent rights to purchase shares under the Option have accrued and
have not been fully exercised as of the date of death, the Nonemployee
Director Participant's Options shall be exercisable in accordance with
Section 6.4(i) above.
(k) Termination of Options. Any Option that is not exercised within
whichever of the exercise periods specified in Sections 6.4(g), (h), (i) or
(j) is applicable shall terminate upon expiration of such exercise period.
(l) Purchase and Settlement Provisions. The Committee may at any time
offer to purchase an Option previously granted, based on such terms and
conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made. In addition, if an Award
Agreement so provides at the Award Date or is thereafter amended to so
provide, the Committee may require that all or part of the shares of Common
Stock to be issued with respect to the exercise of an Option, in an amount
not greater than the Fair Market Value of the shares that is in excess of
the aggregate Option Price, take the form of Performance Shares or
Restricted Stock, which shall be valued on the date of exercise on the
basis of the Fair Market Value of such Performance Shares or Restricted
Stock determined without regard to the deferral limitations and/or
forfeiture restrictions involved.
6.5 Reload Options. Without in any way limiting the authority of the
Committee to make grants hereunder, and in order to induce employees to retain
ownership of shares of Common Stock, the Committee shall have the authority (but
not an obligation) to include within any Award Agreement a provision entitling
the Participant to a further Option (a "Reload Option") in the event the
Participant exercises the Option evidenced by the Award Agreement, in whole or
in part, by surrendering shares of Common Stock previously owned by the
Participant, in accordance with this Plan and the terms and conditions of the
Award Agreement. A Reload Option shall entitle a Participant to purchase a
number of shares of Common Stock equal to the number of such shares so delivered
upon exercise of the original Option and, in the discretion of the Committee,
the number of shares, if any, tendered to the Company to satisfy any withholding
tax liability arising in connection with the exercise of the original Option. A
Reload Option shall: (a) have an Option Price of not less than one hundred
percent (100%) of the per share Fair Market Value of the Common Stock on the
date of grant of such Reload Option; (b) have a term not longer than the
remaining term of the original Option at the time of exercise thereof; (c)
become exercisable in the event the shares acquired upon exercise of the
original Option are held for a minimum period of time established by, the
Committee; and (d) be subject to such other terms and conditions as the
Committee may determine.
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ARTICLE 7
STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. The Committee may approve the grant of Stock
Appreciation Rights ("SARs") that are related to Options only. A SAR may be
granted only at the time of grant of the related Option. A SAR will entitle the
holder of the related Option, upon exercise of the SAR, to surrender such
Option, or any portion thereof to the extent unexercised, with respect to the
number of shares as to which such SAR is exercised, and to receive payment of an
amount computed pursuant to Section 7.2. Such Option will, to the extent
surrendered, then cease to be exercisable. Subject to Section 6.4, a SAR granted
hereunder will be exercisable at such time or times, and only to the extent that
a related Option is exercisable, and will not be transferable except to the
extent that such related Option may be transferable.
7.2 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying (i) the difference between the Fair Market Value of a share of
Common Stock on the date of exercise over the Option Price, by (ii) the number
of shares of Common Stock with respect to which the SAR is exercised. At the
discretion of the Committee, the payment upon SAR exercise may be in cash, in
shares of Common Stock of equivalent value, or in some combination thereof.
7.3 Nontransferability. No SAR may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all SARs shall be exercisable, during the
Participant's lifetime, only by such Participant.
ARTICLE 8
RESTRICTED STOCK
8.1 Awards of Restricted Stock. Shares of Restricted Stock may be issued
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the eligible persons to whom, and the time or times at
which, grants of Restricted Stock will be made, the number of shares to be
awarded, the price (if any) to be paid by the Participant, the time or times
within which such Awards may be subject to forfeiture, the vesting schedule and
rights to acceleration thereof, and all other terms and conditions of the
Awards. The Committee may condition the grant of Restricted Stock upon the
achievement of specific business objectives, measurements of individual or
business unit or Company performances, or such other factors as the Committee
may determine. The provisions of Restricted Stock awards need not be the same
with respect to each Participant, and such Awards to individual Participants
need not be the same in subsequent years.
8.2 Awards and Certificates. A prospective Participant selected to receive
a Restricted Stock shall not have any rights with respect to such Award, unless
and until such Participant has executed an Award Agreement evidencing the Award
and has delivered a fully executed copy thereof
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to the Company, and has otherwise complied with the applicable terms and
conditions of such Award. Further, such Award shall be subject to the following
conditions:
(a) Acceptance. Awards of Restricted Stock must be accepted within a
period of 20 days (or such shorter period as the Committee may specify at
grant) after the Award Date, by executing an Award Agreement and by paying
whatever price (if any) the Committee has designated for such shares of
Restricted Stock.
(b) Legend. Each Participant receiving a Restricted Stock Award shall
be issued a stock certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award, substantially in the
following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Sparton Corporation Stock Incentive Plan and related
Award Agreement entered into between the registered owner and the Company,
dated _________________. Copies of such Plan and Agreement are on file in
the offices of the Company."
(c) Custody. The Committee may require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
award of Restricted Stock, the Participant shall have delivered a duly
signed stock power, endorsed in blank, relating to the Common Stock covered
by such Award.
8.3 Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Plan shall be subject to the following restrictions and
conditions:
(a) Restriction Period. Subject to the provisions of this Plan and the
Award Agreement, during a period set by the Committee commencing with the
Award Date and expiring not less than four (4) consecutive years thereafter
(the "Restriction Period") , the Participant shall not be permitted to
sell, transfer, pledge, or assign shares of Restricted Stock awarded under
this Plan. Subject to these limits, the Committee, in its sole discretion,
may provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions in whole or in part, based on
service, performance and/or such other factors or criteria as the Committee
may determine.
(b) Rights as Shareholder. Except as provided in this subsection (b)
and subsection (a) above, the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a holder of shares of
Common Stock of the Company including the right to receive any dividends.
The Committee, in its sole discretion, as determined at the time of Award,
may permit or require the payment of dividends to be deferred. If any
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dividends or other distributions are paid in shares of Common Stock, such
shares shall be subject to the same restrictions on transferability and
forfeitability as the shares of Restricted Stock with respect to which they
were paid.
(c) Termination of Employment. Subject to the applicable provisions of
the Award Agreement and this Article 8, upon Termination of Employment for
any reason during the Restriction Period, all Restricted Shares still
subject to restriction will vest or be forfeited in accordance with the
terms and conditions established by the Committee as specified in the Award
Agreement.
(d) Lapse of Restrictions. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock, the certificates for
such shares shall be delivered to the Participant.
ARTICLE 9
PERFORMANCE SHARES
9.1 Award of Performance Shares. Performance Shares may be awarded either
alone or in addition to other Awards granted under this Plan. The Committee
shall determine the eligible persons to whom and the time or times at which
Performance Shares shall be awarded, the number of Performance Shares to be
awarded to any person, the duration of the period (the "Performance Period")
during which, and the conditions under which, receipt of the Performance Shares
will be deferred, and the other terms and conditions of the Award in addition to
those set forth in Section 9.2, as specified in the Award Agreement. The
Committee may condition the grant of Performance Shares upon the achievement of
specific business objectives, measurements of individual or business unit or
Company performance, or such other factors or criteria as the Committee shall
determine. The provisions of the award of Performance Shares need not be the
same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
9.2 Terms and Conditions. Performance Shares awarded pursuant to this
Article 9 shall be subject to the following terms and conditions:
(a) Nontransferability. Subject to the provisions of this Plan and the
related Award Agreement, Performance Shares may not be sold, assigned,
transferred, pledged or otherwise encumbered during the Performance Period.
At the expiration of the Performance Period, share certificates or cash of
an equivalent value (as the Committee may determine in its sole discretion)
shall be delivered to the Participant, or his legal representative, in a
number equal to the shares covered by the Award Agreement.
(b) Dividends. Unless otherwise determined by the Committee at the
time of Award, amounts equal to any cash dividends declared during the
Performance Period with respect to the number of shares of Common Stock
covered by a Performance Share Award will not be paid to the Participant.
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(c) Termination of Employment. Subject to the provisions of the Award
Agreement and this Article 9, upon Termination of Employment for any reason
during the Performance Period for a given Award, the Performance Shares in
question will vest or be forfeited in accordance with the terms and
conditions established by the Committee at or after grant.
(d) Accelerated Vesting. Based on service, performance and/or such
other factors or criteria as the Committee may determine and set forth in
the Award Agreement, the Committee may, at or after grant, accelerate the
vesting of all or any part of any award of Performance Shares and/or waive
the deferral limitations for all or any part of such Award.
ARTICLE 10
TERMINATION OR AMENDMENT OF THE PLAN
The Board may at any time amend, discontinue or terminate this Plan or any
part thereof (including any amendment deemed necessary to ensure that the
Company may comply with any applicable regulatory requirement); provided,
however, that, unless otherwise required by law, the rights of a Participant
with respect to Awards granted prior to such amendment, discontinuance or
termination, may not be impaired without the consent of such Participant and,
provided further, without the approval of the Company's shareholders, no
amendment may be made which would (i) increase the aggregate number of shares of
Common Stock that may be issued under this Plan (except by operation of Section
12.1); (ii) change the definition of individuals eligible to receive Awards
under this Plan; (iii) decrease the option price of any Option to less than one
hundred percent (100%) of the Fair Market Value on the date of grant for an
Option; or (iv) extend the maximum option period under Section 6.4(c) of the
Plan. The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 12.2, no such amendment
or other action by the Committee shall impair the rights of any Participant
without the Participant's consent. Awards may not be granted under the Plan
after the Termination Date, but Awards granted prior to such date shall remain
in effect or become exercisable pursuant to their respective terms and the terms
of this Plan.
ARTICLE 11
UNFUNDED PLAN
This Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payment not yet made to a Participant
by the Company, nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
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ARTICLE 12
ADJUSTMENT PROVISIONS
12.1 Antidilution. Subject to the provisions of this Article 12, if the
outstanding shares of Common Stock are increased, decreased, or exchanged for a
different number or kind of shares or other securities, or if additional shares
or new or different shares or other securities are distributed with respect to
such shares of Common Stock or other securities, through merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other distribution with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (i) the
maximum number and kind of shares provided in Article 4 of the Plan, (ii) the
number and kind of shares or other securities subject to the then outstanding
Awards, and (iii) the price for each share or other unit of any other securities
subject to the then outstanding Awards.
12.2 Change in Control. Notwithstanding Section 12.1, upon dissolution or
liquidation of the Company, or upon a reorganization, merger, Change in Control,
or consolidation or merger of the Company with one or more corporations as a
result of which the Company is not the surviving corporation, or upon the sale
of all or substantially all the assets of the Company, all Awards then
outstanding under the Plan will be fully vested and exercisable and all
restrictions will immediately cease, unless provisions are made in connection
with such transaction for the continuance of the Plan and the assumption of or
the substitution for such Awards of new Awards covering the stock of a successor
employer corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices. A Change in Control
means the first to occur of any one of the following events:
(a) Any "person, " as such term is used in Sections 13 (d) and 14 (d)
(2) of the Securities Exchange Act of 1934, as amended ("Act"), other than
the Company or a Subsidiary, or a trustee of an employee benefit plan
sponsored solely by the Company or a Subsidiary is or becomes, other than
by purchase from the Company, the "beneficial owner" (as such term is
defined in Rule 13d-3 under the Act), directly or indirectly, of shares of
Common Stock or other securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then
outstanding voting securities, excluding any such beneficial holders as of
the Effective Date of this Plan;
(b) During any period of two (2) consecutive years, individuals who at
the beginning of such period were members of the Board cease for any reason
to constitute at least a majority of the Board, unless each new director
was nominated or elected by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of the period; or
(c) Any other event or series of events which, notwithstanding any
other provision of this definition, is determined by the Board to
constitute a Change in Control of the Company for purposes of this Plan.
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37
12.3 Adjustments by Committee. Any adjustments pursuant to this Article 12
will be made by the Committee, whose determination as to what adjustments will
be made and the extent thereof will be final, binding, and conclusive. No
fractional interest will be issued under the Plan on account of any such
adjustments. Only cash payments will be made in lieu of fractional shares.
ARTICLE 13
GENERAL PROVISIONS
13.1 Legend. The Committee may require each person purchasing shares
pursuant to an Award under the Plan to represent to and agree with the Company
in writing that the Participant is acquiring the shares without a view to
distribution thereof. In addition to any legend required by this Plan, the
certificates for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock delivered under the Plan shall
be subject to such stock transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
13.2 No Right to Employment. Neither this Plan nor the grant of any Award
hereunder shall give any Employee Participant or other employee any right with
respect to continuance of employment by the Company or any Subsidiary, nor shall
there be a limitation in any way on the right of the Company or any Subsidiary
by which an employee is employed to terminate his or her employment at any time.
13.3 Withholding of Taxes. The Company shall have the right to deduct from
any payment to be made pursuant to this Plan, or to otherwise require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash hereunder, payment by the Participant of any Federal, state or local taxes
required by law to be withheld. Unless otherwise prohibited by the Committee,
each Participant may satisfy any such withholding tax obligation by any of the
following means or by a combination of such means: (a) tendering a cash payment;
(b) authorizing the Company to withhold from the shares otherwise issuable to
the Participant a number of shares having a Fair Market Value as of the "Tax
Date", less than or equal to the amount of the withholding tax obligation; or
(c) delivering to the Company unencumbered shares owned by the Participant
having a Fair Market Value, as of the Tax Date, less than or equal to the amount
of the withholding tax obligation. The "Tax Date" shall be the date that the
amount of tax to be withheld is determined.
13.4 No Assignment of Benefits. No Option, Award or other benefit payable
under this Plan shall be subject in any manner to anticipation, alienation,
attachment, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt to anticipate, alienate, attach, sell, transfer, assign,
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38
pledge, encumber or charge, any such benefits shall be void, and any such
benefit shall not in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be entitled
to such benefit, nor shall it be subject to attachment or legal process for or
against such person.
13.5 Governing Law. This Plan and actions taken in connection herewith
shall be governed and construed in accordance with the laws and in the courts of
the state of Michigan.
13.6 Application of Funds. The proceeds received by the Company from the
sale of shares of Common Stock pursuant to Awards granted under this Plan will
be used for general corporate purposes.
13.7 Rights as a Shareholder. Except as otherwise provided in an Award
Agreement, a Participant shall have no rights as a shareholder of the Company
until he or she becomes the holder of record of Common Stock.
---------------------------------------------------
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September 28, 2001
Dear Shareholder,
The Annual Meeting of your Company will be held on
October 24, 2001. At this meeting, we will be
electing three directors each for a term of three
years as set forth in the Proxy Statement and
considering a proposal to approve amendments to the
Company's Stock Incentive Plan.
We ask that you please give us your support by
signing, dating and returning the attached proxy
card in the postage paid envelope as soon as
possible. Your vote is important, regardless of the
number of shares that you own.
If your shares are held in the name of a bank or
brokerage firm, only that firm can execute a proxy
on your behalf. Please contact the person
responsible for your account with your voting
instructions.
Very truly yours,
Bradley O. Smith, Chairman
DETACH PROXY CARD HERE
REVOCABLE PROXY SPARTON CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF SPARTON CORPORATION
Bradley O. Smith, David W. Hockenbrocht and R. Jan
Appel, and each of them, are hereby appointed
proxies of the undersigned with full power of
substitution, to represent the undersigned at the
Annual Meeting of Shareholders of SPARTON
CORPORATION on October 24, 2001 at 10:00 A.M.,
Eastern Daylight Time, and any and all adjournments
thereof, and to vote thereat as designated on this
Proxy, all the shares of said Corporation which the
undersigned would be entitled to vote if personally
present.
This Proxy, when properly executed, will be voted
in the manner directed herein by the undersigned
and as described in the Proxy Statement. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR"
THE ELECTION OF ALL NOMINEES AS DESCRIBED IN ITEM 1
AND "FOR" THE PROPOSAL TO AMEND THE COMPANY'S STOCK
INCENTIVE PLAN.
The Board of Directors recommends a vote "FOR" the
election of the three named nominees and "FOR" the
proposal to amend the Company's Stock Incentive
Plan.
<Table>
FOR WITHHELD
1. Election of Directors: David P. Molfenter
--------- ------------
W. Peter Slusser
--------- ------------
Bradley O. Smith
--------- ------------
2. Proposal to amend and restate the Company's Stock Incentive Plan.
FOR AGAINST ABSTAIN
-------- -------- --------
3. To transact such other business that may properly come before the meeting or at any adjournments thereof.
</Table>
SIGNATURE(S) _____________________ Dated: ___________
SIGNATURE(S) _____________________ Dated: ___________
Please sign and date this Proxy exactly as your
name(s) appears herein and return in the enclosed
envelope which requires no postage. If executing on
behalf of a corporation, minor, etc., sign that name
and add signature and capacity of authorized signer.
IMPORTANT: THE PROMPT RETURN
OF PROXIES WILL SAVE THE
CORPORATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES
TO ENSURE A QUORUM AT THE
MEETING. A SELF-ADDRESSED,
POSTAGE-PREPAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.