June 18, 2002
SERVOTRONICS, INC.
1110 Maple Street
P.O. Box 300
Elma, New York 14059
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 3, 2002
The following information is furnished in connection with the Annual
Meeting of Shareholders of SERVOTRONICS, INC. (the "Company") to be held on July
3, 2002 at 2:30 p.m., Buffalo time, at the Center for Tomorrow, North Campus,
State University of New York at Buffalo, Flint Road (Off Maple Road), Amherst,
New York 14226. A copy of the Company's Annual Report to Shareholders for the
fiscal year ended December 31, 2001 accompanies this Proxy Statement. Additional
copies of the Annual Report, Notice, Proxy Statement and form of proxy may be
obtained without charge from the Company's Treasurer, 1110 Maple Street, P.O.
Box 300, Elma, New York 14059. This Proxy Statement and proxy card are first
being mailed to shareholders on or about June 18, 2002.
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy for the Annual Meeting of Shareholders is being
solicited by the directors of the Company. The proxy may be revoked by a
shareholder at any time prior to the exercise thereof by filing with the
Treasurer of the Company a written revocation or duly executed proxy bearing a
later date. The proxy may be revoked by a shareholder attending the meeting,
withdrawing such proxy and voting in person. The cost of soliciting the proxies
on the enclosed form will be paid by the Company. In addition to the use of
mails, proxies may be solicited by employees of the Company (who will receive no
additional compensation therefore) by means of personal interview and telephone
or telegraph, banks, brokerage houses and other institutions, nominees and/or
fiduciaries to forward the soliciting material to their principals and to obtain
authorization for the execution of proxies. The Company may, upon request,
reimburse banks, brokerage houses and other institutions, nominees and
fiduciaries for their expenses in forwarding proxy material to their principals.
The Company has retained the services of InvestorCom, Inc. 800 Third Avenue,
17th Floor, New York, New York 10022, to assist in the solicitation of proxies
and will pay such firm a fee of approximately $4,000 plus expenses.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The record date for determining shares entitled to vote has been fixed at
the close of business on May 28, 2002. On such date there were outstanding
2,392,141 shares of common stock of the Company, $.20 par value ("Common
Stock"), entitled to one vote each.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists the persons that owned beneficially, as of April
12, 2002, more than five percent of the outstanding Common Stock, based on the
Company's records including copies furnished to the Company of schedules filed
by shareholders with the Securities and Exchange Commission ("SEC"). Unless
otherwise stated, each person has sole voting and investment power with respect
to the shares indicated as beneficially owned by that person.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
Servotronics, Inc.
Employee Stock Ownership Trust 854,960 (2) 35.7%
1110 Maple Street
P.O. Box 300
Elma, New York 14059
Dr. Nicholas D. Trbovich 404,115 (3) 16.1%
1110 Maple Street
P.O. Box 300
Elma, New York 14059
Harvey Houtkin 198,944 (4) 8.3%
78 Lafayette Avenue
Suffern, New York 10901
- --------------------
(1) Percent of class is based upon 2,392,141 shares outstanding as of April 12,
2002 plus, in the case of Dr. Trbovich, the shares underlying his stock
options, all of which are presently exercisable.
(2) The trustees of the Servotronics, Inc. Employee Stock Ownership Trust -
Nicholas D. Trbovich, Jr., Lee D. Burns and Raymond C. Zielinski - direct
the voting of unallocated shares. The participants in the related plan have
the right to direct the voting of shares which have been allocated to their
respective accounts; if a participant does not direct the vote, the
trustees may direct the vote of that participant's shares. As of April 12,
2002 approximately 356,716 shares have been allocated to the accounts of
participants and approximately 498,244 shares (20.8% of the shares
outstanding) remain unallocated.
(3) This amount includes (i) 32,309 shares held by a charitable foundation for
which Dr. Trbovich serves as a trustee; (ii) an option to acquire 120,600
shares; (iii) approximately 40,160 shares allocated to Dr. Trbovich's
account under the Servotronics, Inc. Employee Stock Ownership Plan; and
(iv) approximately 3,084 shares beneficially owned by certain of Dr.
Trbovich's children (as to which Dr. Trbovich disclaims beneficial
interest). This amount does not include the shares beneficially owned by
certain of Dr. Trbovich's other relatives.
(4) Based on a statement on Schedule 13G, as last amended on February 8, 2002,
filed by Mr. Houtkin with the Securities and Exchange Commission. According
to Mr. Houtkin's statement, he has sole voting and investment power with
respect to 188,972 shares and shared voting and investment power with
respect to 9,972 shares. Mr. Houtkin disclaims beneficial ownership in
additional shares owned by other members of his family.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of April 12, 2002, information as to the
beneficial ownership of shares of common stock of the Company held by each
director and executive officer and by all directors and executive officers as a
group (each individual listed in the following table has sole voting and
investment power with respect to the shares of common stock indicated as
beneficially owned by that person, except as otherwise indicated):
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class (1)
---------------- -------------------- ---------
Dr. Nicholas D. Trbovich 404,115 (2) 16.1%
Nicholas D. Trbovich, Jr. 94,325 (3) 3.9%
Raymond C. Zielinski 35,800 (4) 1.5%
Lee D. Burns 32,896 (5) 1.4%
Donald W. Hedges 28,836 (6) 1.2%
Dr. William H. Duerig 27,693 (7) 1.2%
All directors and executive officers as a group 1,121,908 (8)(9) 42.4%
(1) Percent of class is based upon 2,392,141 shares of common stock outstanding
as of April 12, 2002 plus the number of shares subject to stock options
held by the indicated person or group.
(2) See note (3) to the table in "Security Ownership of Certain Beneficial
Owners."
(3) This amount includes 60,800 shares which Mr. Trbovich, Jr. has the right to
acquire under stock options which are currently exercisable and
approximately 18,711 shares allocated to Mr. Trbovich, Jr.'s account under
the Servotronics, Inc. Employee Stock Ownership Plan. Does not include
shares held by the Servotronics, Inc. Employee Stock Ownership Trust (the
"ESOT") as to which Mr. Trbovich, Jr. serves as one of three trustees. See
note (8) below and the table in "Security Ownership of Certain Beneficial
Owners."
(4) This amount includes 13,300 shares which Mr. Zielinski has the right to
acquire under stock options which are currently exercisable and
approximately 15,190 shares allocated to Mr. Zielinski's account under the
Servotronics, Inc. Employee Stock Ownership Plan. Does not include shares
held by the Servotronics, Inc. "ESOT" as to which Mr. Zielinski serves as
one of the three trustees. See note (8) below and the table in "Security
Ownership of Certain Beneficial Owners."
(5) This amount includes 13,300 shares which Mr. Burns has the right to acquire
under stock options which are currently exercisable and approximately
11,057 shares allocated to Mr. Burns's account under the Servotronics, Inc.
Employee Stock Ownership Plan. Does not include shares held by the
Servotronics, Inc. "ESOT" as to which Mr. Burns serves as one of the three
trustees. See note (8) below and the table in "Security Ownership of
Certain Beneficial Owners."
(6) This amount includes 24,100 shares which Mr. Hedges has the right to
acquire under stock option plans all of which are currently exercisable.
Mr. Hedges has sole voting and investment power with respect to 4,261
shares and shared voting and investment power with respect to 475 shares.
(7) This amount includes 24,100 shares which Dr. Duerig has the right to
acquire under a stock option plan all of which are currently exercisable.
Dr. Duerig has sole voting and investment power with respect to 3,593
shares.
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(8) Includes unallocated shares held by the ESOT over which certain officers,
as trustees of the ESOT, may be deemed to have voting power, as well as
shares allocated to the accounts of all officers as a group under the
related plan. See the table in "Security Ownership of Certain Beneficial
Owners" and note (2) thereto.
(9) See notes (2) through (7) above.
EXECUTIVE OFFICERS
The following is a listing of the Company's executive officers:
Position with the Company and Principal Occupation
Name Age and Business Experience for Past Five Years
---- --- --------------------------------------------------------
Dr. Nicholas D. Trbovich 67 See table under "Election of Directors."
Nicholas D. Trbovich, Jr. 42 See table under "Election of Directors."
Raymond C. Zielinski 57 Vice President since 1990.
Lee D. Burns 61 Treasurer and Secretary and Chief Financial Officer since 1991.
Nicholas D. Trbovich, Jr. is the son of Dr. Nicholas D. Trbovich. There are
no other family relationships between any of the directors or executive officers
of the Company.
EXECUTIVE COMPENSATION
DIRECTORS' FEES. Under the Company's standard compensation arrangements
with directors who are not employees, they are paid a yearly director's fee of
$10,000 plus a per meeting fee of $650 and reimbursement of actual expenses for
attendance at Board meetings. Directors who are also employees do not receive
the director's and/or meeting fees. Members of the Audit Committee of the Board
are paid a yearly Audit Committee fee of $1,500 plus a per-meeting fee of $450
and reimbursement of actual expenses for attendance at Audit Committee meetings
other than Audit Committee meetings held on the same day as a Board meeting.
In 2001 each of the two non-employee directors was granted options to
acquire 16,000 shares of the Company's common stock, exercisable at the market
price on date of grant. The options may be exercised in increments of 25% on the
6 month, one year, two year and three year anniversaries of the grant date.
COMPENSATION TABLE. The following table shows the compensation paid by the
Company to each executive officer of the Company whose total salary and bonus
from the Company and its subsidiaries exceeded $100,000 during any of the last
three fiscal years (the "Named Officers")
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Long Term
Annual Compensation Compensation
------------------- ------------
Awards
Other Securities
Annual Underlying All Other
Name and Compen- Options/SARs Compen-
Principal Position Year Salary Bonus(1) sation(2) (No. of Shares) sation(3)
------------------ ---- ------ -------- --------- --------------- ---------
Dr. Nicholas D. Trbovich 2001 $ 337,301 $30,000 $ 29,484 45,000 $ 18,344
Chairman, President and 2000 328,875 -- 31,250 37,800 11,069
CEO 1999 318,654 50,000 26,907 -- 14,437
Raymond C. Zielinski 2001 $ 120,423 $10,000 $ 4,846 8,000 $ 8,786
Vice President 2000 118,478 -- -- 7,500 4,790
1999 108,942 7,500 -- -- 7,533
Nicholas D. Trbovich, Jr. 2001 $ 120,423 $10,000 $ 7,633 24,000 $ 18,410
Director, Vice President 2000 108,596 -- 54,508 18,400 7,551
1999 91,347 7,500 1,525 -- 967
Lee D. Burns 2001 $ 110,327 $10,000 -- 8,000 $ 6,834
Treasurer, Secretary, CFO 2000 105,379 -- $ 29,172 7,500 4,239
1999 91,347 7,500 -- -- 612
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(1) The "Bonus" column of the compensation table above includes discretionary
incentive payments authorized by the Board of Directors and paid in the
year indicated in the table. No bonuses were paid in the year 2000.
Discretionary payments authorized to be paid in 2002 will be included in
the compensation table for 2002 to the extent they are paid in that year.
The Board of Directors has made no commitment for incentive payments in
subsequent years.
(2) Includes for Dr. Trbovich $29,484, $31,250 and $25,000 in 2001, 2000 and
1999, respectively, $4,846 for Mr. Zielinski in 2001, $7,633 and $54,508
for Mr. Trbovich, Jr. in 2001 and 2000, respectively, and $29,172 for Mr.
Burns in 2000, for untaken vacation pursuant to a policy that is generally
applicable to all employees of the Company; these amounts reflect accrued
vacation earned and expensed by the Company over several years and prior to
when the payment was received.
(3) All Other Compensation for 2001 includes (i) an allocation of 2,005, 1,351,
1,351 and 1,238 shares of common stock for Dr. Trbovich, Mr. Zielinski, Mr.
Trbovich, Jr. and Mr. Burns, respectively, of common stock of the Company
under the Servotronics, Inc. Employee Stock Ownership Plan valued as of
November 30, 2001 (the date of the allocation) at the closing price on the
American Stock Exchange on that date of $5.15 per share; and (ii) $6,814,
$1,828, $10,107 and $459 to Dr. Trbovich, Mr. Zielinski, Mr. Trbovich, Jr.
and Mr. Burns, respectively, for life insurance and health care benefits,
but excludes $2,078 each, the excess of the fair market value of stock
options exercised by Mr. Trbovich, Jr., Mr. Zielinski and Mr. Burns in 2001
over the grant price; and (iii) also excludes $24,000 of a pension related
accrual for Dr. Trbovich to achieve benefit parity based on actuarially
determined formulas.
STOCK OPTIONS. The following tables give information with respect to stock
options granted to, exercised or owned by the Named Officers during 2001.
5
Option Grants In Last Fiscal Year
---------------------------------
(Individual Grants)
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise of Expiration
Name of Officer Options Granted (#) in Fiscal Year Base Price ($/Sh) Date
--------------- ------------------- -------------- ----------------- ----
Dr. Nicholas D. Trbovich 45,000 48.4% $4.38 9/5/11
Raymond C. Zielinski 8,000 8.6% $4.38 9/5/11
Nicholas D. Trbovich, Jr. 24,000 25.8% $4.38 9/5/11
Lee D. Burns 8,000 8.6% $4.38 9/5/11
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
---------------------------------
Number of Value of
Securities Unexercised
Underlying in-the-money
Shares Options at Fiscal Options at
Acquired on Value Year-End: Fiscal Year-End
Name of Officer Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Dr. Nicholas D. Trbovich -- -- 75,600/45,000 $44,415/$30,150
Raymond C. Zielinski 5,724 $2,078 13,300/8,000 $8,813/$5,360
Nicholas D. Trbovich, Jr. 5,724 $2,078 36,800/24,000 $21,620/$16,080
Lee D. Burns 5,724 $2,078 13,300/8,000 $8,813/$5,360
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PROPOSAL 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide that there shall be not less than three
directors nor more than nine and that the number of directors to be elected at
the Annual Meeting of Shareholders shall be fixed by the Board of Directors. The
Board of Directors has fixed the number of directors to be elected at the
meeting at four. Each person so elected shall serve until the next Annual
Meeting of Shareholders and until his successor is elected and shall have
qualified.
Each nominee is currently serving as a director of the Company and was
elected at the Company's 2001 Annual Meeting of Shareholders.
The directors believe that all of the nominees are willing and able to
serve as directors of the Company. If any nominee at the time of election is
unable or unwilling to serve or is otherwise unavailable for election, the
enclosed proxy will be voted in accordance with the best judgment of the person
or persons voting the proxy. Each nominee, to be elected as a director, must
receive the affirmative vote of a plurality of the votes cast at the meeting.
The table below sets forth certain information regarding the nominees for
election to the Company's Board of Directors.
6
Position with the Company and Principal Occupation
Name Age and Business Experience for Past Five Years
---- --- --------------------------------------------------------
Dr. William H. Duerig 80 Director of the Company since 1990; Physicist and Senior
Program Manager for Kearfott Guidance & Navigation
Corporation for more than five years prior to retirement
in 1993.
Donald W. Hedges 80 Director of the Company since 1967; self-employed
attorney since 1988.
Nicholas D. Trbovich, Jr. 42 Director of the Company since 1990; Vice President of
the Company since 1990; Director of Corporate
Development of the Company from 1987 to 1990;
Director of e.Autoclaims.
Dr. Nicholas D. Trbovich 67 Chairman of the Board of Directors, President and Chief
Executive Officer of the Company since 1959.
The directors recommend a vote FOR the four nominees listed above. Unless
instructed otherwise, proxies will be voted FOR these nominees.
ADDITIONAL COMPANY INFORMATION
COMMITTEES AND MEETING DATA
The Board of Directors has an Audit Committee comprised of Messrs. Hedges
and Duerig . The Audit Committee meets with the Company's independent auditors
and reviews with them matters relating to corporate financial reporting and
accounting procedures and policies, the adequacy of financial, accounting and
operating controls, the scope of the audit and the results of the audit. The
Audit Committee is also charged with the responsibility of submitting to the
Board of Directors any recommendations it may have from time to time with
respect to financial reporting and accounting practices and policies and
financial, accounting and operation controls and safeguards.
Other than the functions performed by the Audit Committee, all functions of
individual committees are performed by the Board of Directors. During the fiscal
year ended December 31, 2001, the Audit Committee met 5 times and the Board of
Directors met 10 times. No director attended less than 100% of the meetings
held.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee serves as the representative of the Board of Directors
for general oversight of the Company's financial accounting and reporting,
systems of internal control, audit process, and monitoring compliance with
standards of business conduct. The Board of Directors has adopted a charter for
the Audit Committee. Management of the Company has primary responsibility for
preparing financial statements of the Company as well as the Company's financial
reporting process. PricewaterhouseCoopers LLP, acting as independent auditors,
are responsible for expressing an opinion on the conformity of the Company's
audited financial statements with generally accepted accounting principles.
In this context, the Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements for fiscal year 2001 with the Company's management.
2. The Audit Committee has discussed with the independent auditors the
matters required to be discussed by Statement on Auditing Standards
No. 61, "Communications with Audit Committees."
7
3. The Audit Committee has received the written disclosures and the
letter letter from the independent auditors required by Independence
Standards Standards Board No. 1, "Independence Discussions with Audit
Committees," and has discussed with PricewaterhouseCoopers LLP the
matter of that firm's independence.
4. Based on the review and discussion referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the Board of
Directors of the Company, and the Board of Directors has approved,
that the audited financial statements be included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 2001, for
filing with the Securities and Exchange Commission.
Each member of the Audit Committee is independent as defined under the
listing standards of the American Stock Exchange.
AUDIT COMMITTEE
---------------
Donald W. Hedges, Chairman
Dr. William H. Duerig
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of reports filed pursuant to Section 16(a) of
the Securities Exchange Act or representations from directors and executive
officers required to file such reports, the Company believes that all such
filings required of its officers and directors were timely made except as set
forth below.
In October 2001, each of three officers of the Company, Messrs. Nicholas D.
Trbovich, Jr. (who is also a Company director), Lee D. Burns and Raymond C.
Zielinski acquired, on a net basis, 220 shares of the Company's common stock by
concurrently exercising options for 5,724 shares and surrendering to the Company
5,504 shares in payment of the exercise price and tax withholding. Upon advice
of counsel, they proceeded to report these transactions under the SEC rules
applicable to "small acquisitions," and accordingly, these individuals
respectively reported these transactions on a Form 5 filed with the SEC within
45 days after December 31, 2001. Counsel now advises that, under the SEC rules
applicable to reporting of option exercises, the transactions should be reported
on a Form 4 filed not later than the tenth day of the month following the
subject transaction.
EMPLOYMENT AGREEMENT
Dr. Trbovich has an employment agreement with the Company pursuant to which
he is entitled to receive minimum direct compensation of $341,445 per annum, or
such greater amount as the Company's Board of Directors may determine, and
lifetime health and life insurance benefits. In the event of Dr. Trbovich's
death or total disability during the term of the employment agreement, he or his
estate is entitled to receive 50% of the compensation he is receiving from the
Company at the time of his death or disability during the remainder of the term
of the employment agreement. Also, in the event of (i) a breach of the agreement
by the Company, (ii) a change in control of the Company, as defined, or (iii) a
change in the responsibilities, positions or geographic office location of Dr.
Trbovich, he is entitled to terminate the agreement and receive a payment of
2.99 times his average annual compensation from the Company for the preceding
five years. If this provision is invoked by Dr. Trbovich and the Company makes
the required payment, the Company will be relieved of any further salary
liability under the agreement notwithstanding the number of years covered by the
agreement prior to termination. In the event the agreement is not extended by
the Company beyond the scheduled expiration date (September 30, 2006), as such
date may be extended, Dr. Trbovich will be entitled to a severance payment equal
to nine months' salary and benefits.
8
CERTAIN TRANSACTIONS AND RELATIONSHIPS
During 2001 and 2000, Dr. Trbovich's son, Nicholas D. Trbovich, Jr., served
as an officer and director of the Company and received the compensation
disclosed in the Executive Compensation Table; See also, the discussion under
"Employment Agreement".
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP, which has served as the Company's independent
public accountants since 1976, has been selected by the Board of Directors as
the independent public accountants for the Company's current fiscal year. A
representative of PricewaterhouseCoopers is expected to be present at the
meeting with the opportunity to make a statement if he desires to do so and will
be available to respond to appropriate questions of shareholders. During 2001,
the Company paid PricewaterhouseCoopers $63,800 in related audit fees and
$47,500 related to tax services. There were no other fees paid to
PricewaterhouseCoopers.
VOTING INFORMATION
The presence, in person or by properly executed proxy, of the holders of
shares of Common Stock entitled to cast a majority of the votes entitled to be
cast by the holders of all outstanding shares of Common Stock is necessary to
constitute a quorum. The form of proxy submitted by the Company's management
confers on the named proxies the authority to vote in their discretion on any
other matter submitted for a vote at a meeting as to which the Company did not
have notice on or before May 7, 2002, which date is 45 days before the date
(June 21) on which the Company mailed its proxy materials for last year's annual
meeting. At May 7, 2002, the Company had not received notice of any intention to
submit any other matter.
Shares of Common Stock represented by a properly signed, dated and returned
proxy will be treated as present at the meeting for the purposes of determining
a quorum. Proxies relating to "street name" shares of Common Stock that are
voted by brokers will be counted as shares of Common Stock (1) present for
purposes of determining the presence of a quorum and (2) having voted in
accordance with the directions and statements on the form of proxy.
SHAREHOLDER PROPOSALS
Shareholder proposals must be received at the Company's offices no later
than February 18, 2003, in order to be considered for inclusion as a stockholder
proposal in the Company's proxy materials for the 2003 Annual Meeting.
OTHER MATTERS
So far as the directors are aware, no matters other than the election of
directors will be presented to the meeting for action on the part of the
shareholders. If any other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying proxy to vote thereon
the shares to which the proxy relates in accordance with their best judgment.
By Order of the Directors
DR. NICHOLAS D. TRBOVICH
Chairman of the Board,
President and Chief Executive Officer
Elma, New York
9