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]
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
SPARTON CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
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[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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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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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 23, 2002, 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 increase the number of authorized shares
of Common Stock in the Company to 15,000,000 shares from 8,500,000 shares.
3. To transact such other business as may properly come before the
meeting or at any adjournments thereof.
Only holders of Common Stock of record at the close of business on
September 13, 2002, are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
JOSEPH S. LERCZAK,
Secretary
September 27, 2002
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.
SPARTON CORPORATION
2400 East Ganson Street
Jackson, Michigan 49202
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PROXY STATEMENT
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FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 23, 2002
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 2002 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 23, 2002, 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 27, 2002.
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 2005 or until their successors are elected and qualified, as
described in more detail in this Proxy Statement. The shareholders will also be
asked to vote on a proposal to increase the number of authorized shares of
Common Stock to 15,000,000 shares.
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 13, 2002, 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 13, 2002, the record date for the Annual Meeting, the
Company had outstanding 7,563,540 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, 2002, 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:
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ------------- --------
John J. Smith Trust 925,100(1) 12.2%(1)
Bradley O. Smith
6043 N. Gatehouse, SE
Grand Rapids, Michigan 49546 1,023,297(2) 13.5%(2)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, llth Fl.
Santa Monica, California 90401 529,400(3) 7.0%(3)
Donald Smith & Co., Inc.
East 80 Route 4 Suite 360
Paramus, New Jersey 07652 382,700(4) 5.1%(4)
Judith A. Sare
4302 Channel Drive
Akron, Ohio 44319 470,163(5) 6.2%(5)
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(1) Bradley O. Smith is a co-trustee of the John J. Smith Trust and shares
voting and investment power over the shares held by the trust.
(2) Includes 554,374 shares owned individually by Mr. Bradley O. Smith, 197,549
shares owned by Mr. Smith jointly with his wife, Sharon A. Smith and 260,128
shares over which Mr. Smith holds sole voting and investment power. Also,
includes 11,090 shares owned by Mr. Smith's wife, Sharon A. Smith. Does not
include 925,100 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. Amount also includes 156 shares which are held in the Company's
401(k) plan.
(3) According to information included in the Form 13G Report filed as of
December 31, 2001, by Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, Dimensional is deemed to have beneficial
ownership of 529,400 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 7.0% of
class is based on Dimensional's reporting of shares held at December 31,
2001, and shares outstanding as of August 31, 2002.
(4) According to information in the Form 13G Report filed as of December 31,
2001, by Donald Smith & Co., Inc., a registered investment advisor, Donald
Smith & Co. is deemed to have beneficial ownership of 382,700 shares of
Common Stock. The 5.1% of class is based on Donald Smith & Co.'s reporting
of shares held at December 31, 2001, and shares outstanding as of August 31,
2002. Donald Smith & Co., Inc is no relation to Mr. Bradley O. Smith or Mrs.
Judith A. Sare.
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(5) Includes 307,012 shares owned individually by Mrs. Judith A. Sare and
159,851 shares owned by Mrs. Sare jointly with her husband Paul W. Sare.
Also, includes 3,300 shares owned by Mrs. Sare's husband Paul W. Sare.
Judith A. Sare is the sister of Bradley O. Smith.
SECURITY OWNERSHIP OF MANAGEMENT:
As of August 31, 2002, 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:
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(7)
------------------------ --------------------- ----------
David W. Hockenbrocht 384,479(1) 5.1%
Douglas E. Johnson 7,873(2) *
Richard L. Langley 27,503(3) *
Charles A. Stranko 3,324(4) *
Alan J. Houghtaling 1,734(5) *
All Officers and Directors 2,398,425(6) 31.6%
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* denotes a percentage of less than 1%.
(1) Includes 10,000 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. Finally, 577 shares are included which are held in his name by the
Company's 401(k) plan.
(2) Includes 2,500 shares which Mr. Johnson has the right to acquire pursuant to
options exercisable within 60 days. Also includes 373 shares which are held
in the Company's 401(k) plan.
(3) Includes 12,500 shares which Mr. Langley has the right to acquire pursuant
to options exercisable within 60 days. Also includes 303 shares which are
held in the Company's 401(k) plan.
(4) Includes 1,875 shares which Mr. Stranko has the right to acquire pursuant to
options exercisable within 60 days. Also includes 199 shares which are held
in the Company's 401(k) plan.
(5) Includes 1,500 shares which Mr. Houghtaling has the right to acquire
pursuant to options exercisable within 60 days. Also includes 234 shares
which are held in the Company's 401(k) plan.
(6) Includes shares under options held by all officers and directors exercisable
within 60 days and 925,100 shares held by the John J. Smith Trust of which
Bradley O. Smith is co-trustee. Mr. Smith shares 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.
3
The following table gives information about the Company's common stock that
may be issued upon the exercise of options, warrants and rights under all of the
Company's equity compensation plans as of June 30, 2002.
NUMBER OF
SECURITIES
NUMBER OF WEIGHTED- REMAINING AVAILABLE
SECURITIES TO BE AVERAGE FOR FUTURE ISSUANCE
ISSUED UPON EXERCISE PRICE OF UNDER EQUITY
EXERCISE OF OUTSTANDING COMPENSATION PLANS
OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
OPTIONS, WARRANTS WARRANTS REFLECTED IN
PLAN CATEGORY AND RIGHTS AND RIGHTS COLUMN (a))
------------- ----------------- ----------------- ---------------------
(a) (b) (c)
Equity compensation plans
approved by security holders 445,500(1) $6.07 346,500
Equity compensation plans not
approved by security holders -- -- --
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(1) Includes 32,000 shares under option to Mr. Hockenbrocht under a prior stock
option plan, which was also approved by security holders.
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 increase the number of authorized shares of Common Stock
in the Company to 15,000,000 shares.
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 depending upon the total number of shares voted. However,
shareholders owning 1,890,886 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 2002 Annual Meeting if there are four nominees.
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ELECTION OF DIRECTORS
The directors whose terms of office expire at the Annual Meeting are
Messrs. Robert J. Kirk, Richard L. Langley, and William I. Noecker. Nominees for
election to a three year term expiring in 2005 are Messrs. Dr. Richard J. Johns,
Richard L. Langley, and William I. Noecker. Mr. Kirk is retiring after having
served as a director for 24 years. 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, DR. RICHARD J. JOHNS, RICHARD L. LANGLEY, AND WILLIAM I.
NOECKER. 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, 2002, and is based upon information
furnished by them.
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 2005
Dr. Richard J. Johns... 76 Distinguished Service Professor, -- -- *
Department of Biomedical Engineering,
Johns Hopkins University School of
Medicine since 1991. Professor of
Medicine in the School of Medicine
and a Physician on the staff at Johns
Hopkins Hospital.
Richard L. Langley..... 57 Chief Financial Officer, Vice 2001 27,503(2) *
President and Treasurer of Sparton
Corporation, Jackson, Michigan.
William I. Noecker..... 53 Chairman of Brasco International 1999 1,440 *
Inc., an aluminum fabricator,
Detroit, Michigan since 1993.
DIRECTORS WHOSE TERMS EXPIRE IN 2003
James N. DeBoer........ 77 Partner, law firm of Varnum, 1971 4,370 *
Riddering, Schmidt & Howlett, LLP,
Grand Rapids, Michigan.
David W. Chief Executive Officer since October 1978 384,479(3) 5.1%
Hockenbrocht......... 67 2000 and President of Sparton
Corporation, Jackson, Michigan since
1978.
5
HAS
SERVED AMOUNT AND
AS A NATURE
DIRECTOR OF BENEFICIAL PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP (1) CLASS (1)
---- --- ------------------------------------- -------- ------------- ----------
James D. Fast.......... 54 Chief Executive Officer and President 2001 1,200 *
of Ionia County National Bank, Ionia,
Michigan.
DIRECTORS WHOSE TERMS EXPIRE IN 2004
David P. Molfenter..... 57 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....... 73 President, Slusser Associates, Inc., 1997 1,000 *
Investment Banking, New York, New
York.
Bradley O. Smith....... 57 Chairman of the Board, Sparton 1998 1,023,297(4) 13.5%
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.
---------------
* 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 (3) of Security Ownership of Management on page 3.
(3) Reference is made to note (1) of Security Ownership of Management on page 3.
(4) Reference is made to note (2) of Principal Shareholders on page 2.
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, a manufacturer of
high performance Digital Storage equipment, and Tyco International Ltd., a
global diversified manufacturing and service company.
Mr. David P. Molfenter is a director of Paravant Inc., a defense
electronics firm.
The Board of Directors, which had six meetings during the past year, has
standing Audit, Compensation, Executive and Nominating Committees.
The Audit Committee met five times last year and consisted of Messrs.
William I. Noecker, James D. Fast (effective October 2001), Robert J. Kirk and
David P. Molfenter. 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 the Chairman of the Board, President and Vice
President-Treasurer and reviews Sparton's internal controls and compliance with
policies. The members of
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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 meets with management and the independent accountants before the
announcement of earnings each quarter. 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 was
filed with the fiscal 2001 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. Mr. Hockenbrocht is a non-voting member of the
committee.
The Executive Committee, which consisted of Messrs. James N. DeBoer, David
W. Hockenbrocht, and Bradley O. Smith, met twice last year.
The Nominating Committee, which consisted of Messrs. David W. Hockenbrocht,
David P. Molfenter, and Bradley O. Smith, held three meetings last year. The
nominating committee reviews the makeup of the existing board of directors and
the tenure of its members consistent with appropriate principles of corporate
governance and applicable regulations. The committee does not have a formal
process for consideration of candidates. The committee also considers candidates
for election to the board, including recommendations from shareholders, and
makes such recommendations as it deems appropriate, consistent with the needs of
the Company and the qualifications of the candidates.
All current directors attended at least 75% of the meetings of the Board
and committees on which they serve.
Effective September 1, 2001, the Board of Directors adjusted the fees to be
paid for attendance at meetings. Non-employee directors receive an annual base
retainer of $7,200. In addition, non-employee directors receive $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 INCREASING AUTHORIZED SHARES
OF COMMON STOCK IN THE COMPANY TO 15,000,000
PROPOSAL TO INCREASE AUTHORIZED SHARES.
Sparton Corporation's Articles of Incorporation presently authorize the
issuance of 8,500,000 shares of Common Stock, par value $1.25 per share.
As of June 30, 2002, 7,934,712 shares of Common Stock were issued (of which
7,559,790 shares were outstanding and 374,922 shares were held in the Company's
treasury), leaving a balance of 565,288 authorized and unissued shares of Common
Stock. In addition, 760,000 shares were reserved for issuance under the Sparton
Corporation Amended and Restated Stock Option Plan, including 194,712 shares
currently held in the treasury.
Because of the limited number of shares of Common Stock remaining to be
issued, the Board of Directors at their meeting on June 28, 2002, determined
that it would be advisable that the Articles of Incorporation, as amended, be
further amended, subject to approval by the stockholders, to increase the
authorized Common Stock from 8,500,000 to 15,000,000 shares. The Board
recommends that the stockholders approve the amendment of Subparagraph (a) of
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Article Four of the Company's Articles of Incorporation so that, as amended, it
shall read as follows:
The total number of shares of Common Stock which the Company shall have
authority to issue is 15,000,000 shares of Common Stock, par value $1.25 per
share.
REASONS FOR PROPOSED INCREASE IN AUTHORIZED SHARES.
The Board of Directors believes it is desirable to have the additional
shares of Common Stock that would be authorized by the proposed amendment
available for issuance in connection with possible future financing
transactions, acquisitions of other companies or business properties, stock
dividends or splits, employee benefit plans and other proper corporate purposes.
Having such additional authorized shares available will give the Company greater
flexibility by permitting such shares to be issued without the expense and delay
of a special meeting of shareowners. Such a delay might deprive the Company of
the flexibility the Board views as important in facilitating the effective use
of the Company's shares.
The issuance of additional shares of Common Stock could be used to make a
change in control of the Company more difficult if the Board caused such shares
to be issued to holders who might side with the Board in opposing a takeover bid
that the Board determines is not in the best interests of the Company and its
shareowners. In addition, the availability of the additional shares might
discourage an attempt by another person or entity to acquire control of the
Company through the acquisition of a substantial number of shares of Common
Stock, since the issuance of such shares could dilute the stock ownership of
such person or entity. Further, the existence or issuance of such shares may
make it more difficult or discourage attempts to remove incumbent management.
The additional shares of Common Stock would be issuable, at the discretion
of the Board of Directors, under circumstances the Board believes to be in the
best interest of the Company and without further action by the shareowners,
unless such action is required by the Articles of Incorporation, Code of
Regulations, or By-Laws of the Company or by applicable law or the rules of any
stock exchange on which the Company's securities are listed. It should be noted
that the Board could not increase the number of shares of Common Stock to be
offered under the Sparton Corporation Amended and Restated Stock Incentive Plan
maintained for the benefit of employees and members of the Board of Directors
without the approval of the shareowners. The Board does not have any current
plans to issue any of the additional shares for any specific purpose.
The additional shares of Common Stock would become part of the existing
class of Common Stock, and the additional shares, when issued, would have the
same rights and privileges as the shares of Common Stock now issued. The holders
of Common Stock do not presently have pre-emptive rights to subscribe for any of
the Company's securities and will not have any such rights to subscribe for the
additional Common Stock proposed to be authorized.
REQUIRED VOTE FOR APPROVAL.
The affirmative vote by the holders of two-thirds of the outstanding shares
of the Company's Common Stock voted at the Annual Meeting, by person or by
proxy, is required for approval. 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 proposal. Shares voted as abstentions will be counted as
votes cast against the proposal. The shares held in the Company's treasury
cannot be voted.
8
BOARD RECOMMENDATION.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK IN THE COMPANY TO
15,000,000 SHARES. 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, 2002, 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, 2002, be included in Sparton's Annual Report on
Form 10-K for the fiscal year ended June 30, 2002, for filing with the
Securities and Exchange Commission.
William I. Noecker, Chairman Robert J. Kirk
James D. Fast David P. Molfenter
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 financial statements, Ernst & Young LLP provided
various other services during 2002. 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 2002 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, 2002, and the reviews of the financial statements included
in Sparton's Quarterly Reports on Form 10-Q for that fiscal year were $258,000.
All Other Fees -- Fees for additional services billed by Ernst & Young LLP for
the fiscal year ended June 30, 2002, primarily for audits of the Company's
employee benefits plans and preparation and review of the Company's income tax
returns, totaled $99,000.
Financial Information Systems Design and Implementation Fees -- Ernst & Young
LLP did not provide any services related to financial information systems design
and implementation during 2002.
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
9
(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 fiscal year ended June 30,
2002, 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 pre-tax 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 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,
2002, was $300,000. In addition, Mr. Hockenbrocht was awarded a bonus of $65,600
and was awarded stock options for 45,000 shares of the Company's Common Stock
for that fiscal year.
W. Peter Slusser, Chairman James N. DeBoer
David P. Molfenter David W. Hockenbrocht
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 non-voting member of the Compensation Committee and as such
participates in establishing compensation for executives of the Company. Mr.
Hockenbrocht does not participate in committee matters involving his personal
compensation.
10
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, 2002, 2001, and 2000.
LONG TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OPTIONS(#) COMPENSATION
--------------------------- ----------- -------- ------- ------------ ------------
David W. Hockenbrocht 2002 $300,000 $65,600 45,000 $8,143(1)
Chief Executive Officer 2001 284,767 50,000 40,000 9,565(2)
and President 2000 270,000 -0- -0- 2,801(3)
Douglas E. Johnson 2002 160,548 47,250 25,000 4,332(4)
Chief Operating Officer and 2001 138,091 33,000 10,000 3,452(4)
Executive Vice President 2000 128,479 -0- -0- 835(4)
Richard L. Langley 2002 131,200 39,360 20,000 6,382(5)
Chief Financial Officer, 2001 125,000 25,000 35,000 3,815(6)
Vice President and Treasurer 2000 115,820 -0- -0- 594(4)
Charles A. Stranko 2002 104,982 -0- 2,500 2,663(4)
Vice President, 2001 100,502 -0- 2,500 1,241(4)
General Manager 2000 91,704 5,000 5,000 -0-
Sparton Technology, Inc.
Alan J. Houghtaling 2002 101,400 16,400 6,000 2,730(4)
Vice President, 2001 96,697 5,000 6,000 2,376(4)
Director Business Development 2000 106,755 -0- -0- -0-
---------------
(1) Directors' fees of $2,850 plus Company contribution to defined contribution
benefit plan of $5,293.
(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) Company contributions to the employee's defined contribution benefit plan.
(5) Directors' fees of $2,850 plus Company contribution to defined contribution
benefit plan of $3,532.
(6) Directors' fees of $700 plus Company contribution to defined contribution
benefit plan of $3,115.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
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 45,000 16.85% $ 7.01 12/21/06 $87,064 $192,740
Douglas E. Johnson 25,000 9.36 7.01 12/21/06 48,369 107,078
Richard L. Langley 20,000 7.49 7.01 12/21/06 38,695 85,662
Charles A. Stranko 2,500 .94 7.01 12/21/06 4,837 10,708
Alan J. Houghtaling 6,000 2.25 7.01 12/21/06 11,609 25,699
11
---------------
(1) These options were granted under the Company's Amended and Restated Stock
Incentive Plan dated October 24, 2001, 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, 2002, options to purchase an
aggregate of 267,000 shares of Common Stock of the Company were granted to
various employees and non-employee directors.
(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, 2002.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED IN THE
UNEXERCISED OPTIONS/SARS MONEY OPTIONS/SARS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
SHARES ----------------------------- -----------------------------
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
---- ----------- -------- ------------ -------------- ------------ --------------
David W. Hockenbrocht -0- $-0- 42,000 75,000 $47,500 $232,050
Douglas E. Johnson -0- -0- 2,500 32,500 11,875 85,375
Richard L. Langley -0- -0- 12,500 42,500 60,313 147,613
Charles A. Stranko -0- -0- 3,125 6,875 16,094 27,006
Alan J. Houghtaling -0- -0- 1,500 10,500 7,125 33,315
---------------
(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, 2002,
when the closing price of the Company's stock was $9.00 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.
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.
12
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, 2002, 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
compensation has been limited by Federal statute to $200,000 for 2002. This
amount is subject to future adjustment by the Internal Revenue Service.
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
200,000 15,135 30,270 45,405 60,540 75,675
The following Named Executives have years of contributory credited service
and current annual earnings under the plan as of June 30, 2002, as follows:
YEARS OF CONTRIBUTORY CURRENT PLAN ANNUAL EARNINGS
OFFICER CREDITED SERVICE (EXCLUDING BONUS)
------- --------------------- ----------------------------
David W. Hockenbrocht 22.25 300,000
Douglas E. Johnson 11.75 160,548
Richard L. Langley 13.75 131,200
Charles A. Stranko -- 104,982
Alan J. Houghtaling 3.75 101,400
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, 2002, if the
individual is currently age 65 or older) for Messrs. Hockenbrocht, Johnson,
Langley, Stranko and Houghtaling are, $9,354, $59,612, $34,718, $97,816, and
$85,534 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, 2002.
13
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,
1997, and the reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
SPARTON CORPORATION, S&P INDEX AND INDUSTRY INDEXES
(INDEX JUNE 30, 1997 = 100)
[GRAPH]
NASDAQ S&P 500 INDEX SPARTON CORPORATION
------ ------------- -------------------
1997 100.00 100.00 100.00
1998 99.00 129.00 70.00
1999 176.00 155.00 51.00
2000 437.00 164.00 35.00
2001 161.00 138.00 58.00
2002 98.00 112.00 76.00
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Mr. David W. Hockenbrocht is a member of the Board of Directors of Cybernet
Systems, Inc. Sparton Corporation receives a Director's fee for the Board
Meetings attended by Mr. Hockenbrocht.
14
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.
SHAREHOLDER PROPOSALS -- 2003 ANNUAL MEETING
Shareholder proposals intended to be presented at the 2003 Annual Meeting
of Shareholders of the Company must be received by the Company not later than
May 30, 2003, 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 2003 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 2003 Annual Meeting of Shareholders,
unless the Company receives notice of such proposal at the above address on or
before August 12, 2003.
By Order of the Board of Directors
JOSEPH S. LERCZAK,
Secretary
Dated: September 27, 2002
15
APPENDIX 1
September 27, 2002
Dear Shareholder,
The Annual Meeting of your Company will be held on October 23, 2002. 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 increase the number of authorized shares of
Common Stock in the Company to 15,000,000 shares.
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 Joseph S. Lerczak, 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 23, 2002 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 shareholder 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 INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK IN THE COMPANY TO 15,000,000 SHARES.
The Board of Directors recommends a vote "FOR" the election of the three named nominees and "FOR" the proposal to increase the
number of authorized shares of Common Stock in the Company to 15,000,000 shares.
FOR WITHHELD
1. Election of Directors: Dr. Richard J. Johns
-------- -----------
Richard L. Langley
-------- -----------
William I. Noecker
-------- -----------
2. Proposal to increase the number of authorized shares of Common Stock in the Company to
15,000,000 shares.
FOR AGAINST ABSTAIN
-------- -------- --------
3. To transact such other business as may properly come before the meeting or at any
adjournments thereof.
---------------------
IMPORTANT: THE PROMPT
RETURN OF PROXIES WILL
SAVE THE CORPORATION
SIGNATURE(S) Dated: THE EXPENSE OF FURTHER
------------------- ------------ REQUESTS FOR PROXIES
TO ENSURE A QUORUM AT
SIGNATURE(S) Dated: THE MEETING. A SELF-
------------------- ------------ ADDRESSED, POSTAGE-
PREPAID ENVELOPE IS
Please sign and date this Proxy exactly as your name(s) appears herein and return in the enclosed ENCLOSED FOR YOUR
envelope which requires no postage. If executing on behalf of a corporation, minor, etc., sign that CONVENIENCE.
name and add signature and capacity of authorized signer. ---------------------