<PAGE> 1
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- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SPARTON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SPARTON CORPORATION
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(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: .......................................................
[ ] 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: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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- --------------------------------------------------------------------------------
<PAGE> 2
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 28, 1998, at 10:00 a.m.,
local 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 consider and act upon a shareholder proposal concerning term
limitations for directors.
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 15, 1998 are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
LAWSON K. SMITH
Secretary
September 28, 1998
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 on page 3 of the Proxy Statement.
<PAGE> 3
SPARTON CORPORATION
2400 East Ganson Street
Jackson, Michigan 49202
------------------
PROXY STATEMENT
------------------
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON OCTOBER 28, 1998
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 1998 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 28, 1998 at 10 a.m.,
local time, and at any and all adjournments thereof. The cost of solicitation
will be paid by the Company. The Company has engaged Georgeson and Company,
specialists in proxy solicitation, to solicit proxies on its behalf from
brokers, bank nominees and other institutional holders of its Common Stock at an
anticipated cost of $6,500, plus certain out-of-pocket expenses. 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, 1998.
At the meeting, the Company's shareholders will act upon the election of
three (3) directors each to serve for a three (3) year term until the annual
meeting held in the year 2001 or until their successors are elected and
qualified, as described in more detail in this Proxy Statement. In addition, the
Company's shareholders will consider and act upon a shareholder's proposal
concerning term limitations for directors.
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 15, 1998, 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 15, 1998, the record date for the Annual Meeting, the
Company had outstanding 7,828,090 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. As of
September 1, 1998, 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
------------------- ------------- --------
<S> <C> <C>
John J. Smith(l)
1839 S. Walmont
Jackson, Michigan 49203 2,523,449(2) 32.24%(2)
</TABLE>
1
<PAGE> 4
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
------------------- ------------- --------
<S> <C> <C>
Lawson K. Smith(l)
14901 Willowbrook Drive
Lake Odessa, Michigan 48849 722,506(3) 9.23(3)
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, llth Fl
Santa Monica, California 90401 537,500(4) 6.87(4)
</TABLE>
- ---------------
(1) Mr. John J. Smith and Mr. Lawson K. Smith are brothers.
(2) Includes 1,920,000 shares owned by Mr. John J. Smith. An additional 180,000
shares are held by a trust over which Mr. Smith has voting control. The
amount also includes 423,449 shares held by several of the Company's
retirement plans as to which Mr. Smith holds voting and investment power in
his capacity as chief executive officer of the Company. Mr. Smith has no
financial interest and disclaims any beneficial interest in these 423,449
shares.
(3) Includes 383,106 shares and 339,400 shares held by the Lawson K. Smith Trust
and Margaret E. Smith Trust, respectively. Lawson K. Smith and his wife,
Margaret E. Smith, have voting and investment control over the shares held
in the trusts bearing their names.
(4) According to information included in the Form 13G Report filed as of
December 31, 1996, by Dimensional Fund Advisors Inc. ("Dimensional"), a
registered investment advisor, Dimensional is deemed to have beneficial
ownership of 537,500 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 disclaims beneficial ownership of all such shares.
As of September 1, 1998, 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 (15 persons):
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME BENEFICIAL OWNERSHIP CLASS(7)
---- -------------------- ----------
<S> <C> <C>
John J. Smith 2,523,449(1) 32.24%
David W. Hockenbrocht 88,202(2) 1.12
Richard D. Mico 19,500(3) .25
Douglas E. Johnson 10,000(4) .13
Richard L. Langley 12,200(5) .16
All Officers and Directors 3,702,611(6) 46.97
</TABLE>
- ---------------
(1) Reference is made to note (2) at the top of this page.
(2) Includes 32,000 shares which Mr. Hockenbrocht has the right to acquire
pursuant to options exercisable within 60 days.
(3) Includes 2,500 shares which Mr. Mico has the right to acquire pursuant to
options exercisable within 60 days.
2
<PAGE> 5
(4) Includes 5,000 shares which Mr. Johnson has the right to acquire pursuant to
options exercisable within 60 days.
(5) Includes 2,500 shares which Mr. Langley 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.
(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 (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 (3) director nominees and "AGAINST" the
shareholder proposal concerning term limitations for directors. THE COMPANY'S
BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS SHAREHOLDER PROPOSAL.
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 Chairman, 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 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 1,957,023 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 1998 Annual
Meeting if there are four nominees.
ELECTION OF DIRECTORS
The following directors whose terms of office expire at the Annual Meeting,
Messrs. John J. Smith, Bradley O. Smith and W. Peter Slusser, are nominees each
for election to a three (3) year term expiring in 2001. 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 (3) 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
3
<PAGE> 6
Meeting, whether by abstention, broker nonvote, or otherwise, will not be
treated as votes cast at the meeting.
It is believed that all three (3) 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 such
substitute nominee or nominees as the persons named in the proxy may in their
discretion select.
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 September 1, 1998, and is based upon information
furnished by them.
<TABLE>
<CAPTION>
HAS
SERVED AMOUNT AND
AS A NATURE OF
DIRECTOR BENEFICIAL PERCENT OF
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP (1) CLASS (1)
---- --- ------------------------------------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING IN 2001
John J. Smith.......... 86 Chairman of the Board and Chief 1950 2,523,449(2) 32.24%
Executive Officer of Sparton
Corporation, Jackson, Michigan.
W. Peter Slusser....... 69 President, Slusser Associates, Inc., 1997 500 .01
Investment Banking, New York, New
York.
Bradley O. Smith....... 53 Private Investor since May 1998. For 1998 301,824(3) 3.86
the preceding 24 years, Owner and
President of Tracy Products, Inc., an
automotive metal stamping company,
Ionia, Michigan.
DIRECTORS WHOSE TERMS EXPIRE IN 1999
Robert J. Kirk......... 85 Financial Consultant, Toledo, Ohio 1978 6,000 .08
William I. Noecker..... 49 Director of Program Management, 1998 40 -0-
Fisher Dynamics Corp., St. Clair
Shores, Michigan since 1996. Chairman
of Brasco International Inc.,
Detroit, Michigan since 1993.
David B. Schoon........ 47 Financial Consultant, Grand Rapids, 1994 -0- -0-
Michigan.
DIRECTORS WHOSE TERMS EXPIRE IN 2000
James N. DeBoer........ 73 Partner, law firm of Varnum, 1971 4370 .06
Riddering, Schmidt & Howlett, LLP,
Grand Rapids, Michigan.
David W. 63 President and Chief Operating Officer 1978 88,202(4) 1.12
Hockenbrocht......... of Sparton Corporation, Jackson,
Michigan.
Rory B. Riggs.......... 45 President of Biomatrix, Inc., 1994 -0- -0-
Richfield, New Jersey, a medical
biotechnology company since 1997, and
President, ITIM Corporation, New
York, New York, an investment
advisory and venture capital firm
since 1991. Mr. Riggs was President
and Chief Executive Officer of RF&P
Corporation, Richmond, Virginia, a
real estate investment company, from
1991 to 1994.
</TABLE>
4
<PAGE> 7
- ---------------
(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) at the top of page 2.
(3) Includes 79,250 shares owned individually by Mr. Bradley O. Smith, 197,549
shares owned by Mr. Smith jointly with his wife, 3,325 shares owned by his
wife, Sharon A. Smith and 21,700 shares over which Mr. Smith holds voting
and investment power.
(4) Reference is made to note (2) at the bottom of page 2.
Mr. Bradley O. Smith is the son of Lawson K. Smith, Secretary and former
director, and the nephew of John J. Smith. There are no other family
relationships between the nominees and the directors. 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.
Mr. Rory B. Riggs is a director of Biomatrix, Inc.
The Board of Directors, which had five (5) meetings during the past year,
has standing audit and compensation committees. There is no nominating
committee. The responsibilities of the audit committee, which met two (2) times
last year and consisted of Robert J. Kirk and Marshall V. Noecker, include
reviewing the general scope of the audit of the Company's financial statements
and the results of the audit with the auditors and management. The compensation
committee, which met once last year and consists of John J. Smith, Robert J.
Kirk, Marshall V. Noecker, Rory B. Riggs, W. Peter Slusser and James N. DeBoer,
establishes the remuneration, including stock options, to be paid or offered to
the Company's executive officers. All Directors attended at least 75% of the
meetings of the Board and committees on which they serve except for Mr. Riggs
who attended 40% of such meetings.
Directors who are not employees of the Company are compensated at the rate
of $350 per month and $500 for each directors' meeting attended. Members of the
audit committee receive $500 for each audit committee meeting attended.
Directors who are employees of the Company receive $350 for each directors'
meeting attended.
The Executive Compensation Committee Report and Performance Graph set forth
below 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 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, 1998, 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.
EXECUTIVE COMPENSATION COMMITTEE REPORT
Decisions on the compensation of the Company's executive officers are made
by the Board's Compensation Committee. This Committee is composed of Mr. John J.
Smith, Chairman of the
5
<PAGE> 8
Board and Chief Executive Officer and five non-employee directors; Messrs.
Noecker, Kirk, Riggs, Slusser and DeBoer.
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 compensation of the Company's key
executives is based, in part, on the Compensation Committee's review of
executive compensation at other companies. The Committee's review entails a
comparison of executive salaries at other companies for purposes of
ascertaining, in general, that the Company's salary structure is at or about
prevailing market rates. This review does not include a quantative or
qualitative analysis of the components of the comparative executive
compensation.
The Company's compensation program was comprised of several elements: cash
compensation (including salary and incentive bonus), incentive stock options and
defined benefit or 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, both discretionary bonuses as well as bonuses under the incentive
bonus compensation plan were paid to the Named Executives.
The Company's Chief Executive Officer is compensated pursuant to employment
agreements that have been in existence since 1950. A description of the current
employment agreement and related compensation of the Company's Chief Executive
Officer is set forth below under the caption "Employment Agreement and Related
Compensation."
<TABLE>
<S> <C>
James N. DeBoer Rory B. Riggs
Robert J. Kirk W. Peter Slusser
Marshall V. Noecker John J. Smith
</TABLE>
EMPLOYMENT AGREEMENT AND RELATED COMPENSATION
An employment agreement with Mr. John J. Smith, the Company's Chief
Executive Officer, expired on June 30, 1997. In September 1998, that agreement
was extended for an additional three years, effective July 1, 1997 and ending
June 30, 2000. Mr. Smith's annual salary is set at $302,969 for each of these
three years. According to its terms, the Board of Directors will consider a
discretionary bonus at the end of each fiscal year. For fiscal 1998, Mr. Smith
received no discretionary bonus.
Pursuant to these prior employment agreements with Mr. Smith, a deferred
compensation account had been established. Mr. Smith was entitled to receive
payments in monthly installments following termination of employment; or,
subject to prior approval of the Company's Board of Directors, from time to time
in lump sums upon Mr. Smith's request. In December 1996, Mr. Smith requested and
received the accumulated balance in his deferred compensation account
($2,288,518).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. John J. Smith is a member of the Compensation Committee and as such
participates in establishing compensation for executives of the Company.
6
<PAGE> 9
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, 1998, 1997 and 1996.
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
FISCAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
John J. Smith 1998 $302,969 $ -0- $ 1,750(1)
Chairman of the Board and 1997 261,716 25,000 2,290,268(2)
Chief Executive Officer 1996 178,200 -0- 1,750(1)
David W. Hockenbrocht 1998 210,384 35,000 1,750(1)
President and Chief 1997 178,200 25,000 1,750(1)
Operating Officer 1996 178,200 -0- 1,750(1)
Richard D. Mico, Vice 1998 110,628 -0- 3,046(3)
President and General 1997 106,302 10,915 4,157(3)
Manager 1996 106,294 11,034 3,304(3)
Douglas E. Johnson, Vice 1998 108,860 27,000 -0-
President and General 1997 103,434 12,000 -0-
Manager 1996 100,000 -0- -0-
Richard L. Langley 1998 95,300 5,000 -0-
Vice President and Treasurer 1997 90,300 3,000 -0-
1996 86,000 -0- -0-
</TABLE>
- ---------------
(1) Directors fees.
(2) Includes payment made pursuant to former deferred compensation arrangement
plus directors' fees of $1,750 paid.
(3) Company contributions to this employee's defined contribution benefit plan.
OPTION GRANTS IN LAST FISCAL YEAR
There were no options granted to any Company officers or other employees
for the fiscal year ended June 30, 1998.
7
<PAGE> 10
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, 1998.
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
SHARES FISCAL YEAR-END YEAR-END(1)
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE REALIZED(2) EXERCISEABLE UNEXERCISEABLE EXERCISEABLE UNEXERCISEABLE
---- ----------- ----------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
John J. Smith -0- $-0- -0- -0- $-0- $-0-
David W. Hockenbrocht -0- -0- 26,560 5,440 44,754 9,166
Richard D. Mico 5,000 25,940 2,500 7,500 -0- -0-
Douglas E. Johnson -0- -0- 5,000 15,000 -0- -0-
Richard L. Langley 2,000 17,500 2,500 7,500 -0- -0-
</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, 1998
(when the closing price of the Company's common stock was $8.31 per share).
For Messrs. Mico, Johnson and Langley, the market price of the Company's
common stock was below the exercise price on their outstanding stock
options. 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.
(2) Represents the aggregate market value of shares acquired at the time of
exercise, less the aggregate exercise price paid by the employees.
RETIREMENT PROGRAMS
The Company maintains a defined benefit retirement plan for employees of
the Company and one subsidiary 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 contribute 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 10-year average
monthly compensation (excluding bonuses) times the participant's years of
contributory credited service to a maximum of 30 years. The following table
shows the estimated annual retirement benefits in specified remuneration and
service classifications upon normal retirement at age 65. 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
8
<PAGE> 11
Federal statute to $160,000 for 1998. This amount is subject to future
adjustment by the Internal Revenue Service.
<TABLE>
<CAPTION>
FINAL 10-YEAR AVERAGE YEARS OF CONTRIBUTORY AND CREDITED SERVICE AT AGE 65
ANNUAL EARNINGS ----------------------------------------------------
(EXCLUDES BONUSES) 10 15 20 25 30
- --------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 60,000 $ 9,270 $13,905 $18,540 $23,175 $27,810
80,000 12,270 18,405 24,540 30,675 36,810
100,000 15,270 22,905 30,540 38,175 45,810
120,000 18,270 27,405 36,540 45,675 54,810
140,000 21,270 31,905 42,540 53,175 63,810
160,000 24,270 36,405 48,540 60,675 72,810
180,000 27,270 40,905 54,540 68,175 81,810
</TABLE>
The following Named Executives have years of contributory credited service
under the plan and current annual earnings as of June 30, 1998:
<TABLE>
<CAPTION>
YEARS OF CONTRIBUTORY CURRENT ANNUAL EARNINGS
OFFICER CREDITED SERVICE (EXCLUDING BONUS)
------- --------------------- -----------------------
<S> <C> <C>
David W. Hockenbrocht 20.50 $210,384
Douglas E. Johnson 10.00 108,860
Richard L. Langley 12.00 95,300
</TABLE>
Mr. John J. Smith and Mr. Richard D. Mico do not participate in the Company's
defined benefit retirement plan.
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, 1998.
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 Electronics Component of the NASDAQ has been
included for the first time this year as the Company believes the entities
included in this index are engaged in operations similar to the Company's
remaining business, electronics. The Company has also included a weighted index
made up of selected S&P 500 indices including Electronics Defense (50%),
Automobiles (25%) and Industrials (25%). The Company had selected this weighted
index because the companies included therein were engaged in operations similar
to the Company's historical operations, including the now discontinued
automotive operations. The comparison assumes a $100 investment on June 30,
1993, and the reinvestment of dividends.
9
<PAGE> 12
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG
SPARTON CORPORATION, S&P 500 INDEX AND INDUSTRY INDEXES
(INDEX JUNE 30, 1993 = 100)
<TABLE>
<CAPTION>
S&P 500
WEIGHTED S&P 500 SPARTON
NASDAQ INDEX INDEX CORPORATION
<S> <C> <C> <C> <C>
1993 100 100 100 100
1994 110 105 101 110
1995 227 142 124 98
1996 240 223 153 81
1997 394 241 202 226
1998 392 267 260 158
</TABLE>
SHAREHOLDER PROPOSAL CONCERNING TERM LIMITATIONS FOR DIRECTORS
Shareholder Proposal
Mr. Dwight A. Pike, 4691 Madison Avenue, Trumbull, Connecticut 06611, owner
of 1,000 shares of Common Stock, has given notice that he intends to present for
action at the Annual Meeting on October 28, 1998, the following resolution:
WHEREAS, action taken by the board of directors in managing the Company's
affairs can significantly impact the value of the shareholders' investment;
WHEREAS, the Company's and shareholders' interests are best served by a
board of directors whose composition changes regularly to permit new independent
viewpoints and perspectives;
WHEREAS, the composition of the Company's current board of directors does
not provide such diversity of ideas; now, therefore, be it
10
<PAGE> 13
RESOLVED, that the Code of Regulations of Sparton Corporation be amended by
adding the following sentence at the end of the last sentence of Article VIII:
"In no event shall any director serve for more than three consecutive
terms, including any director serving on the board of directors at the 1998
Annual Meeting of Shareholders. Any director who has served for more than
three consecutive terms shall resign at the board of directors meeting
following the 1998 Annual Meeting of Shareholders."
SUPPORTING STATEMENT
Historically, Sparton Corporation has had unlimited terms of service for
the members of its board of directors. Over a majority of the members of the
current board have served for twenty years or more. The proponent believes that
the Company's board requires new direction. Limiting the term of service for
directors will give the board an opportunity to consider new ideas and
viewpoints, and benefit from the expertise of new members. The proponent
believes these new ideas and perspectives are essential for the continued
viability and growth of the Company as it meets the challenges of the rapidly
changing economic environment in which it operates. While input from key
management executives is important to board decisions, these executives can
participate in board discussions without being board members.
Term limits will also ensure that the board of directors maintains its
independence from management. In recent years, the Company's board has been too
closely aligned with management. The proponent believes that such alignment may
preclude a board of directors from critically evaluating management's
performance and policies. The proponent believes that an independent board is
better suited to assess management's performance. With management being more
carefully scrutinized, shareholder interests are better served, ultimately
building greater shareholder confidence and value.
The proponent believes that implementation of this proposal will allow
Sparton Corporation to benefit from a regular infusion of new directors who can
make significant contributions to the Company's strategic planning and financial
and business decision-making.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS SHAREHOLDER PROPOSAL
The Board of Directors believes that adoption of the above proposal would
not be in the best interests of the Company and its shareholders. In the Board's
opinion, Directors develop an increased knowledge and understanding of the
business affairs, strategies and policies of the Company and its subsidiaries
through an extended period of service on the Board. Imposing a nine year limit
on a Director's tenure would prematurely deprive the Company of the knowledge
and understanding which experienced outside Directors utilize in analyzing and
responding to the variety of issues encountered by the Company and its
subsidiaries. Currently, four of the Company's nine Directors have served on the
Board in excess of nine years and the continuity of service and depth of
experience they provide have proven extremely valuable to this Company. The
Board of Directors also wishes to note that tenure on the Board, whether or not
such tenure exceeds nine years, remains subject to the mandate of shareholders
since Directors must be re-elected by a vote of shareholders at the end of each
term.
In summary, imposing an arbitrary limit on the tenure of Directors, based
upon the number of years of service, would be disadvantageous to the Company and
its Shareholders and might limit the Company's ability to attract and retain the
most qualified persons as Directors.
The affirmative vote by the holders of a majority of the outstanding shares
of Common Stock entitled to vote and voted at the meeting are required to
approve this shareholder proposal. FOR THE FOREGOING REASONS, THE BOARD OF
DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE AGAINST THIS SHAREHOLDER
PROPOSAL.
11
<PAGE> 14
CERTAIN RELATIONSHIPS AND TRANSACTIONS
W. Peter Slusser, a director since October 1997, also represented the
Company as its investment banker with respect to the sale of Sparton Engineered
Products, Inc. -- KPI Group, approved by shareholders on December 4, 1996 and
with respect to the proposed but unsuccessful sale of Sparton Engineered
Products, Inc. -- Flora Group. Mr. Slusser received $1,160,000, 1.44% of the
purchase price, for his services with respect to the sale of the KPI Group.
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 -- 1999 ANNUAL MEETING
Shareholder proposals intended to be presented at the 1999 Annual Meeting
of Shareholders of the Company must be received by the Company no later than May
31, 1999, 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 1999 Annual Meeting of Shareholders. 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 1999 Annual Meeting of Shareholders, unless the Company
receives notice of the proposal at the above address on or before August 14,
1999.
By Order of the Board of Directors
LAWSON K. SMITH,
Secretary
Dated: September 28, 1998
12
<PAGE> 15
September 28, 1998
Dear Shareholder,
The Annual Meeting of your Company will be held on October 28, 1998. At the
meeting, we will be electing three directors each for a term of three years as
set forth in the Proxy Statement and considering a shareholder proposal
concerning term limitations for directors.
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,
John J. Smith, Chairman
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
REVOCABLE PROXY SPARTON CORPORATION
John J. Smith, Lawson K. Smith 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 28, 1998 at 10:00 A.M., local time, and any and all
adjournments thereof, and to vote thereat as designated on the reverse side of
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 directors
as described in Item 1 and "AGAINST" the shareholder proposal described in Item
2.
The Board of Directors recommends a vote "FOR" the election of the three named
directors and "AGAINST" the shareholder proposal.
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD
1. Election of Directors: John J. Smith
--------- ------------
W. Peter Slusser
--------- ------------
Bradley O. Smith
--------- ------------
2. Shareholder proposal concerning term limitations for directors as set forth
in the Proxy Statement.
FOR AGAINST ABSTAIN
---------- ----------- -------------
</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.
------------------------------------
- --------------------------------------------------------------------------------
