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:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-12
Spectrum Control, Inc.
(Name of Registrant as Specified In Its Charter)
John P. Leemhuis, Jr., Esq.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-
6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] 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 0-11:1
1. Set forth the amount on which the filing fee is calculated and state
how it was determined.
[ ] 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.
Proxies
1) Amount Previously Paid:
Remitted to Lock Box in Pittsburgh, PA
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
SPECTRUM CONTROL, INC.
6000 West Ridge Road
Erie, Pennsylvania 16506
NOTICE OF ANNUAL SHAREHOLDER MEETING
APRIL 1, 1996
SPECTRUM CONTROL, INC.
To the Shareholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders of Spectrum Control, Inc. will be held at the Bel-
Aire Hotel, 2800 West Eighth Street, Erie, Pennsylvania 16505, on
Monday, April 1, 1996, at 9:00 a.m., prevailing time, for the
following purposes:
1. To elect two Directors to hold office for a term
of three years.
2. To approve the adoption of the 1996 Non-Employee
Directors Stock Option Plan.
3. To ratify the appointment of Ernst & Young LLP as
independent auditors of the Company.
4. To transact such other business as may come before
the meeting or any adjournment thereof.
Accompanying this Notice is a Form of Proxy and Proxy Statement.
Shareholders of the Company of record at the close of business on
February 20, 1996, are entitled to notice and the right to vote
at the Annual Meeting. Each holder of shares of Common Stock is
entitled to one (1) vote per share.
ALL SHAREHOLDERS ARE URGED TO ATTEND THE MEETING OR TO VOTE BY
PROXY. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE.
By Order of the Board of Directors
JAMES F. TOOHEY, Secretary
You are urged, whether you own one or many shares, to mark, date,
sign and promptly mail the enclosed Proxy in the enclosed
envelope in order that your Company receives enough proxy vote
returns to conduct its annual meeting.
<PAGE>
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD APRIL 1, 1996
SOLICITATION OF PROXY
This Proxy Statement will be mailed to all Shareholders of
Spectrum Control, Inc., 6000 West Ridge Road, Erie, Pennsylvania
16506 ("Spectrum", "the Corporation" or "the Company") by March
1, 1996, and is furnished in connection with the Directors'
solicitation of proxies for the Annual Meeting of Shareholders to
be held on April 1, 1996 at the time and place and for the
purposes set forth in the Notice of Annual Meeting of
Shareholders accompanying this Proxy Statement. Only holders of
Common Stock of record at the close of business on February 20,
1996, will be entitled to vote. On that date there were
10,718,900 shares of Common Stock outstanding, the holders of
which will vote together as a class.
Each share of Common Stock entitles the holder thereof to
one (1) vote. With respect to the election of Directors,
Shareholders have the right to vote cumulatively. This means
that each Shareholder may multiply the number of shares he owns
by the number of Directors to be elected and distribute this
number among any number or all of the candidates in any manner he
desires. Cumulative voting enables Shareholders to concentrate
the voting of their shares in favor of the election of a lesser
number of nominees than the total number of Directors being voted
upon; persons holding less than a majority of shares voting may
thereby be able to elect one or more Directors.
REVOCATION OF PROXY
The giving of a proxy does not preclude the right to vote in
person should the person giving the proxy desire, and the person
giving the proxy has the power to revoke the same at any time
before it has been exercised. This right of revocation is not
limited nor is it subject to any formal procedure.
ANNUAL REPORT
The Annual Report of the Company for the year ended November
30, 1995, is being mailed to Shareholders concurrently with this
Proxy Statement.
CORPORATE GOVERNANCE
The By-Laws of the Corporation provide that the business
shall be managed by a Board of Directors, up to eleven (11) in
number, who need not be residents of Pennsylvania or Shareholders
of the Corporation, and who normally serve for terms of three (3)
years each. The Company presently has eight (8) Directors.
During the past fiscal year, the Board of Directors met nine
times. All Directors attended more than 90% of the Board of
Directors and Committee Meetings they were scheduled to attend.
<PAGE>
Because of the multitude of matters requiring Board
consideration, the Board of Directors has established a number of
committees to devote attention to specific subjects, as further
described below.
COMMITTEES OF THE BOARD
ACQUISITION AND DIVESTITURE COMMITTEE: This committee
reviews and recommends to the Board matters involving
acquisition of companies and product lines, and divestiture
of plant and/or product lines. The members of this
committee are John L. Johnston, Chairman; Edwin R. Bindseil;
Melvin Kutchin; and Gerald A. Ryan. It met two times in
1995.
AUDIT COMMITTEE: The Audit Committee recommends to the
Board the engagement of independent public accountants to
audit the financial statements of the Company. It also
recommends the fee to be paid by the Company to the Auditors
for audit and non-audit services. Its responsibility
further includes reviewing the proposed scope and results of
the audit, as well as the scope, adequacy and results of the
Company's internal audit and control procedures. The
members of the Audit Committee are: John M. Petersen,
Chairman; John P. Leemhuis, Sr. and Gerald A. Ryan. It met
four times in 1995.
COMPENSATION COMMITTEE: The Compensation Committee
shall review and make recommendations to the Board on
salary, incentive compensation practices and benefit
programs for the compensation of the President and other key
employees; recommend to the Board the amount and method of
compensation of Board members; and review annually the
operation and performance of incentive compensation plans
that apply to the President and other key employees of the
Company. The members of this committee are James F. Toohey,
Chairman; Edwin R. Bindseil; John M. Petersen and Gerald A.
Ryan. It met four times in 1995.
FINANCE COMMITTEE: The Finance Committee of the Board
of Directors has the responsibility of analysis of the
financial condition and trends of the Company. The
Committee reports the information to the full Board for
possible resolution or action. Included as specific
responsibilities of this Committee are: ratifying and
approving all financial projections, forecasts and
expectations that are intended for submission to banks,
financial institutions or the public. The members of this
Committee are John P. Freeman, Chairman; Edwin R. Bindseil;
John L. Johnston; John M. Petersen and Gerald A. Ryan. It
met eight times in 1995.
<PAGE>
NOMINATING COMMITTEE: This Committee has the
responsibility for recommending to the Board of Directors
nominees to fill Board vacancies. The Nominating Committee
also has the responsibility for providing the evaluation of
director performance, bringing to the Board recommendations
for the membership of the Committees of the Board, and
recommending to the Board a successor to the Chief Executive
Officer when a vacancy occurs through retirement or
otherwise. The Committee will consider nominees recommended
by management or shareholders, and such recommendations,
together with appropriate biographical information, may be
delivered in writing to the attention of the Nominating
Committee Chairman at the Company's principal executive
offices. The members of this Committee are John P.
Leemhuis, Sr., Chairman; John L. Johnston and James F.
Toohey. It met two times in 1995.
ELECTION OF DIRECTORS
The Company presently has eight (8) Directors. It is
intended that the proxies given to Directors will be used to
elect the two (2) nominees named below, both of whom are now
members of the Board of Directors and whose present terms expire
at the time of this meeting.
First Term
Elected to
Name Age Director Term End
Edwin R. Bindseil 65 1991 3 yrs. 1999
John P. Freeman 41 1991 3 yrs. 1999
<PAGE>
The terms of the following five (5) Directors extend beyond the
time of this meeting:
First Term
Elected to
Name Age Director Term End
John L. Johnston 53 1991 3 yrs. 1997
Melvin Kutchin 70 1994 3 yrs. 1998
John M. Petersen 67 1970 3 yrs. 1998
Gerald A. Ryan 60 1968 3 yrs. 1997
James F. Toohey 61 1968 3 yrs. 1998
The term of John P. Leemhuis, Sr. expires in 1996. For
personal health reasons, Mr. Leemhuis has requested not to be
nominated for a new term at this time.
<PAGE>
DIRECTORS OF THE COMPANY
Edwin R. Bindseil obtained his undergraduate degree in
Chemical Engineering from the University of Detroit and an MBA
from Harvard University. In 1989, Mr. Bindseil retired from AMSCO
after 31 years of service, 22 years of which he served in senior
executive management positions, including general management,
marketing, operations, research and development, acquisitions and
corporate strategic planning. Since 1990, Mr. Bindseil has been
an independent businessman, consultant and entrepreneur. He also
serves as a Director of a number of privately held companies.
John P. Freeman is a graduate of Gannon University in
Accounting and is a Certified Public Accountant and Certified
Management Accountant. He joined the Company in 1988 as
Controller. Prior to that time, he was a principal in a public
accounting firm. In January of 1990, he was named Vice President
and Chief Financial Officer.
John L. Johnston is a graduate of Gannon University in
General Science and was elected in 1990 as President and Chief
Executive Officer of the Company. Prior to joining Spectrum, Mr.
Johnston held executive positions with Allen-Bradley, Murata-Erie
North America and Erie Technological Products.
Melvin Kutchin is a graduate of the University of
Pennsylvania and was appointed a Director of the Company in
October of 1994. He served as President of Kitchen and Kutchin,
Inc., manufacturer's representative of electronic components from
1961 through January 1994 when he became Chairman of the Board.
From 1980 through 1990, he was President of JBM Electronics,
manufacturer of delay lines and other magnetic devices.
John P. Leemhuis, Sr. is a graduate of Holy Cross College
and the University of Pennsylvania Law School and is a practicing
member and former President of the Erie County Bar Association.
He is a member of the firm of Quinn, Buseck, Leemhuis, Toohey &
Kroto, Inc., general counsel to the Company, and has been a
Director of the Company since its inception. He also serves as a
Director of Morris Coupling Company of Erie, Pennsylvania.
John M. Petersen is a graduate of the University of
Pittsburgh. He is the retired President and Chief Executive
Officer of Erie Family Life Insurance Company, Erie Indemnity
Company, Erie Insurance Company and Flagship City Insurance
Company, comprising the Erie Insurance Group, and serves as a
Director of each of these Companies. Mr. Petersen is a founder
and has served as a Director of Spectrum since 1970.
Gerald A. Ryan is a graduate of the Massachusetts Institute
of Technology and has been a Director of the Company since its
inception and Chairman since 1991. Mr. Ryan is a principal with
Erie Business Management Corporation, Erie, Pennsylvania, which
invests in and manages various businesses. Mr. Ryan serves as
Chairman of the Board of Automated Industrial Systems, Inc. and
Rent-Way, Inc. (OTC) and is Chairman and Chief Executive Officer
of Skinner Engine Company; all of Erie, Pennsylvania.
<PAGE>
James F. Toohey is a graduate of Gannon University and
Dickinson School of Law and is a practicing member of the Erie
County Bar Association. He is a member of the law firm of Quinn,
Buseck, Leemhuis, Toohey & Kroto, Inc., general counsel to the
Company, and has been a Director and Secretary of the Company
since its organization.
COMPENSATION OF DIRECTORS
Directors who are not full-time employees are compensated
for services as Directors as authorized and approved by the full
Board of Directors. In 1995, the Directors received annual
compensation, paid monthly, as follows:
Board of Directors Annual Retainer $8,000
Attendance at each Board Meeting 500
Attendance at each Committee Meeting 250
Chairman at each Committee Meeting 50
Secretary 2,100
SECURITIES OWNERSHIP
The following table sets forth, as of December 1, 1995, the
securities beneficially owned by each Director of the Company and
all Officers and Directors of the Company as a group. To the
knowledge of the Company, no other person is the beneficial owner
of 5% or more of the Common Stock. Except as otherwise indicated,
all Shareholders listed below have record and beneficial
ownership of, and sole voting and dispositive power over, the
securities listed.
<PAGE>
Total
Beneficial Approximate
Ownership of Percentage of
Shares of Common Stock Common Stock Common Stock
Common Stock Options Outstanding Outstanding
Name Owned Owned(1) (1) (1)
Edwin R.
Bindseil 97,600 - 97,600 .91%
John P.
Freeman 33,730 - 33,730 .31%
John L.
Johnston 319,261 - 319,261 2.97%
Melvin
Kutchin 10,000 - 10,000 .09%
John P.
Leemhuis, Sr. (2) 103,459 - 103,459 .96%
John M.
Petersen (3) 341,935 - 341,935 3.18%
Gerald A.
Ryan 165,340 - 165,340 1.54%
James F.
Toohey (2) 340,334 - 340,334 3.16%
All Officers
and Directors
as a Group
(13 persons) 1,428,634 125,000 1,553,634 14.44%
(1) Includes only Common Stock Options exercisable within sixty
days of the date of this Proxy Statement, which securities
are deemed for purposes of the Securities Act of 1933 to be
owned beneficially (but not of record) by their respective
holders. The shares underlying these securities are deemed
to be outstanding for purposes of determining the percent of
class with respect to each Holder and all Directors and
Officers as a group.
(2) Messrs. Toohey and Leemhuis are members of the law firm of
Quinn, Buseck, Leemhuis, Toohey and Kroto, Inc. which holds
339,310 shares of Common Stock in its Profit Sharing Plan.
Of this amount, 197,385 and 101,250 shares are included in
the table above for Messrs. Toohey and Leemhuis,
respectively. Messrs. Toohey and Leemhuis disclaim
beneficial ownership as to all other shares held by such
firm and do not have voting or dispositive power with
respect thereto.
<PAGE>
(3) 200,800 shares are owned by a company, of which Mr. Petersen
is a Director. These shares have not been included in the
shares beneficially owned by Mr. Petersen.
EXECUTIVE COMPENSATION
The Securities and Exchange Commission ("SEC") has issued
regulations regarding the disclosure of executive officer
compensation. The SEC's goal is to ensure that stockholders
receive information about executive compensation that is easier
to understand and more relevant to proxy voting and investment
decisions. The Company has prepared this proxy statement in
accordance with a specifically prescribed format under the SEC
regulations. The reporting format consists of the following
tables which are designed and intended to simplify the disclosure
of executive compensation.
<TABLE>
SUMMARY COMPENSATION TABLE. The following table shows the
compensation paid to the President and Chief Executive Officer
and each of the next two most highly compensated executive
officers of the Company who served as executive officers at the
end of the 1995 fiscal year, for services rendered to the Company
and its subsidiaries during fiscal year 1995. The table also
includes details relating to the fiscal years 1993 and 1994. In
addition, inapplicable column headings have been omitted.
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
OTHER AWARDS
ANNUAL ALL OTHER
COMPEN- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION OPTIONS SATION
($)(1) ($)(2) ($)(3) (#) ($)(4)
<S> <C> <C> <C> <C> <C> <C>
John L. Johnston 1995 194,500 - 11,101 20,000 3,850
President & Chief 1994 186,576 69,300 2,286 30,000 4,971
Executive Officer 1993 165,577 40,000 - - 5,139
Richard A. Southworth 1995 123,500 - - - 3,088
Vice President, General 1994 117,924 26,036 - 20,000 3,174
Manager of Electromagnetic 1993 102,888 23,000 - - 3,152
Division
Joseph J. Gaynor 1995 108,673 - - - 1,274
Vice President, General 1994 104,615 17,969 - 20,000 2,891
Manager of Spectrum 1993 100,154 23,000 - - 3,079
Control Technology, Inc.
<PAGE>
<FN>
(1) Includes amounts deferred pursuant to Section 401(k) of the
Internal Revenue Code.
(2) Management Incentive Plan awards paid in 1994 and 1993
attributable to 1993 and 1992, respectively, including
amounts deferred pursuant to Section 401(k) of the Internal
Revenue Code.
(3) Amounts earned under the Company's Directors' Performance
Incentive Plan.
(4) Matching contributions made by the Company to the Spectrum
Control, Inc. 401(k) Profit Sharing Plan on behalf of the
named executive officers.
</FN>
</TABLE>
<TABLE>
1995 OPTION GRANTS
The following table shows information regarding grants of stock
options in fiscal year 1995 to the named executive officers.
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock Price
Appreciation For
Individual Grants Option Term (3)
% of Total
Options
Granted to
Options Employees Exercise Expi-
Granted in 1995 Price ration
Name (#)(1) Fiscal Yr(2) ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
John L. Johnston 20,000 24 1.875 12/28/99 10,350 22,913
Richard A.
Southworth - - - - - -
Joseph J. Gaynor - - - - - -
<FN>
(1) Such options were all granted under the Company's Non-
Qualified Stock Option Plan. Options are exercisable in
three equal annual installments commencing two years from
the date of grant. All unexercised options expire five
years from the date of grant.
(2) The Company granted options representing 84,500 shares to
employees during fiscal year 1995.
<PAGE>
(3) The dollar amounts under these columns are the result of
calculations at 5% and 10% annual rates of appreciation as
prescribed by the Securities and Exchange Commission. The
dollar amounts are not intended to forecast possible future
appreciation, if any, of the stock price. The Company did
not use an alternative formula for a grant date valuation,
as it is not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown
or volatile factors.
</FN>
</TABLE>
<TABLE>
OPTION EXERCISES AND 1995 FISCAL YEAR END VALUES TABLE. The
table shown below summarizes the unexercised options to acquire
the Company's Common Stock granted in 1995 and prior fiscal years
under the Non-Qualified Stock Option Plan and held by each of the
named executive officers of the Company at November 30, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Shares Value Options at Fiscal Year End(#) at Fiscal Year End ($)(2)
Acquired on Realized
Exercise(3) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
Name
<S> <C> <C> <C> <C> <C> <C>
John L. Johnston - - - 50,000 - 27,500
Richard A.
Southworth - - 80,000 20,000 190,000 -
Joseph J. Gaynor 20,000 30,000 40,000 20,000 80,000 -
<FN>
(1) Market value of underlying securities on date of exercise,
minus the exercise price.
(2) Total value of options (market value minus exercise price)
based on a per share fair market value of Company Common
Stock of $3.25 at November 30, 1995.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As discussed above, the members of the Compensation
Committee during 1995 were Messrs. Bindseil, Petersen, Ryan and
Toohey. All four members are non-management or outside
directors. None of the executive officers of the Company has
served on the Board of Directors or Compensation Committee of any
other entity of which any member of the Spectrum Board is in any
way affiliated.
<PAGE>
COMPENSATION COMMITTEE REPORT
The Company's Compensation Committee is charged with the
responsibility of recommending an executive compensation program,
plans and policies to the Board of Directors.
The Compensation Committee is committed to compensating the
key executives in such a manner as to permit them to develop
business strategies to capitalize on Spectrum's position in the
electronic filter business and to grow in new technology markets.
The Committee is dedicated to attracting and retaining the best
executive talent available to achieve its aggressive strategy.
Accordingly, in 1993 the Committee retained the services of
the Wyatt Company, compensation consultants, to prepare an
executive compensation study. This was completed and submitted
to the Committee in September of 1993 and adopted by the Board of
Directors in October of 1993. The study addressed the following
matters:
BASE SALARY
The Committee's goal was to establish base salaries which
are fair, reasonable and competitive with similar industrial
companies. With this in mind, the Committee reviewed and
analyzed the consultant's report and determined to establish base
salaries within plus or minus 20% of the estimated average
compensation levels of similar companies as indicated in the
report. Base salaries were then set for the executive group, all
of which were below the competitive 50th percentage. The Board
accepted this recommendation.
ANNUAL CASH AWARDS
The Company's executive officers are eligible for annual
cash awards under the Company's Management Incentive Plan (the
"MIP"). The purpose of the Plan is to provide strong incentive
for key employees to properly motivate individuals under their
direction, thereby obtaining for the shareholders the best
financial results possible under the prevailing circumstances.
The MIP generally provides for cash awards commencing upon
attainment of 90% of the Annual Operating Plan. Based upon these
factors, aggregate awards of $306,000 were earned for the fiscal
year 1995. In accordance with the terms of the MIP, these
amounts will be paid in 1996.
LONG-TERM PERFORMANCE BASED INCENTIVE
In recognition that an overall compensation package should
include rewards for efforts which impact on the value of the
company stock, the Committee has recommended and the Board has
adopted a policy to award competitive amounts, not to exceed 1%
of the total outstanding shares, of annual stock options to the
key executives of Spectrum priced at 100% of fair market value as
of the date of grant. The grant of these options shall be
consistent with the adoption of the Annual Operating Plan.
<PAGE>
Through 1995, the Company has utilized the Non-Qualified
Stock Option Plan of 1987 to provide the annual grant of stock
options. The Stock Option Plan of 1995, approved at the last
Annual Meeting will continue this prior practice.
1995 CHIEF EXECUTIVE OFFICER COMPENSATION
The annual review of the Chief Executive Officer was
completed after the Wyatt study was finalized and pursuant to the
information provided by the Wyatt Company, the Compensation
Committee recommended and the Board approved an annual salary
effective April 1, 1993 of $180,000 which was increased to
$189,000 on April 1, 1994 and $200,000 on April 1, 1995. The
Management Incentive Plan for 1995 provided for an award to Mr.
Johnston not to exceed 65% of his annualized salary. This award
is calculated and paid upon completion of the year end audit and
is arithmetically determined based upon performance, achievement
to budget, and attainment of specifically provided objectives.
Based upon these factors, an award of $123,000 was earned for
performance in fiscal year 1995, to be paid in 1996.
EMPLOYEE 401(k) PROFIT SHARING PLAN
The Company maintains a Qualified Employee 401(k) Profit
Sharing Plan. The Company makes annual profit sharing
contributions to the Plan in an amount determined by the Board of
Directors. The assets of the Plan are held in trust and invested
in various mutual funds under the direction of the Plan
participants. All employees with at least one year of service
are automatically eligible for participation in the Plan. The
annual allocation to each Employee's Profit Sharing Account is
based upon the actual compensation paid to the Participant.
A participant becomes fully vested in his Profit Sharing
Account balance on the earliest of the following dates: (i) upon
the completion of seven years of service; (ii) upon attaining
normal retirement age of 65; (iii) upon incurring total
disability; or (iv) on the date of the Participant's death. A
Participant may not receive a distribution from the Employee
Profit Sharing Account prior to the earliest of the following
dates: (i) termination of employment with the Company; (ii)
retirement or (iii) death. The Plan provides that distribution
of the Participant's entire interest in the Plan must begin no
later than the taxable year in which the Participant attains age
seventy and one-half (70-2) or, if later, the year the
Participant retires and terminates employment with the Employer.
The Plan includes a tax deferred employee savings plan
pursuant to Section 401(k) of the Internal Revenue Code. The
Company matches an employee's contribution to the savings plan at
a rate determined by the Board of Directors. The Company's
matching contribution to the 401(k) plan is not subject to any
vesting requirements.
<PAGE>
DIRECTORS' PERFORMANCE INCENTIVE PLAN
The Board of Directors has adopted a Directors' Performance
Incentive Plan (the "DPIP") which provides for an annual cash
payment to each Director of an amount equal to the price
appreciation of 5,224 common shares. Price appreciation is
measured over a five-year period, ending on June 30 of the
current year, and is subject in all cases of adjustments for
stock splits, combinations and similar transactions. Aggregate
amounts of $89,000 in 1995 and $16,000 in 1994 were paid under
the DPIP. No payments were made under the DPIP during the
preceding three fiscal years. In connection with the adoption of
the 1996 Non-Employee Directors Stock Option Plan, the Board of
Directors amended the DPIP to terminate effective July 1, 2000.
STOCK PRICE PERFORMANCE GRAPH
The following graph shows the Company's total return to
shareholders compared to the S&P 500 Index and the NASDAQ
Electronic Component Stock Index over the five year period from
1991 though 1995. The graph assumes that $100 was invested on
December 1, 1990, in the Company's Common Stock and in each of
the other indices.
1990 1991 1992 1993 1994 1995
SPECTRUM 100 283 667 1150 533 867
S&P 500 100 136 152 173 178 244
NASDAQ
Electronic
Component
Stock Index 100 127 198 305 344 467
APPROVAL OF ADOPTION OF
1996 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
The 1996 Non-Employee Directors Stock Option Plan (the
"Plan") was adopted by the Corporation's Board of Directors on
January 22, 1996, subject to approval by the Corporation's
stockholders. If stockholder approval is obtained, the Plan will
become effective on the date of the Annual Meeting.
The Board of Directors recommends that the stockholders vote
"FOR" approval of adoption of the Plan. Unless otherwise
directed therein, the proxies solicited hereby will be voted for
approval of adoption of the Plan.
<PAGE>
THE COMPLETE TEXT OF THE PLAN IS AVAILABLE UPON REQUEST TO
SPECTRUM CONTROL, INC., 6000 WEST RIDGE ROAD, ERIE, PA 16506
814/835-4000. THE FOLLOWING SUMMARY OF CERTAIN MATERIAL FEATURES
OF THE PLAN DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE PLAN.
GENERAL
The purposes of the Plan are to promote the long-term
success of the Corporation by creating a long-term mutuality of
interests between the non-employee directors and the stockholders
of the Corporation, to provide an additional inducement for the
non-employee directors to remain with the Corporation and to
provide a means through which the Corporation may attract able
persons to serve as directors of the Corporation. The Plan will
replace the Directors' Performance Incentive Plan (the "DPIP")
which will terminate effective July 1, 2000. No concurrent award
will be made under the Plan and the DPIP.
The aggregate number of shares which may be issued, and as
to which stock options may be granted, under the Plan is 500,000
shares of the Corporation's Capital Stock plus an additional
amount each year of one half percent (1/2%) of the Company's
outstanding shares as of December 31 of the preceding calendar
year, subject to proportionate adjustment in the event of stock
splits and similar events. If any stock option granted under the
Plan is canceled by mutual consent or terminates or expires for
any reason without having been exercised in full, the number of
shares subject to the stock option will again be available for
purposes of the Plan.
The shares of the Corporation's Capital Stock which may be
issued under the Plan may be either authorized but unissued
shares or treasury shares or partly each.
ADMINISTRATION
The Plan is required to be administered by a Committee
appointed by the Board of Directors and consisting of not less
than two members of the Board. The Board has appointed the
Compensation Committee of the Board (the "Committee") as the
Committee to administer the Plan.
The Committee has the power to interpret the Plan and to
prescribe rules, regulations and procedures in connection with
the operation of the Plan. All questions of interpretation and
application of the Plan, or as to stock options granted under the
Plan, are subject to the determination of the Committee, which
will be final and binding.
Notwithstanding the discretion to administer the Plan
granted to the Committee, the selection of the directors to whom
stock options are to be granted, the timing of stock option
grants, the number of shares subject to any stock option, the
exercise price of any stock option, the periods during which any
stock option may be exercised and the term of any stock option
are as set forth in the Plan. The Committee has no discretion as
to these matters.
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The grant of each stock option will be confirmed by a stock
option agreement between the Corporation and the grantee.
STOCK OPTIONS
On the third business day following the day of each Annual
Meeting of Stockholders in the years 1996 through 2005, each
person who is then a member of the Board of Directors of the
Corporation and who is not then an employee of the Corporation or
any of its subsidiaries will be granted a "nonstatutory stock
option" to purchase 7,500 shares of the Corporation's Capital
Stock. A nonstatutory stock option is a stock option which does
not qualify under Section 422 or 423 of the Internal Revenue Code
of 1986 (the "Code"). If the number of shares remaining
available for the grant of stock options under the Plan on one of
such days is not sufficient for each non-employee director to be
granted an option for 7,500 shares, then each non-employee
director will be granted an option for a number of whole shares
equal to the number of shares then remaining available under the
Plan divided by the number of non-employee directors,
disregarding any fraction of a share.
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The option price for each stock option will be the fair
market value of the Corporation's Capital Stock on the last
market trading date prior to the day of determination. Fair
market value, for this purpose, will generally be the closing
sales price of the Capital Stock as quoted in the National
Association of Securities Dealers Automated Quotations Systems
listing in The Wall Street Journal on the last market trading
date prior to the day of determination.
No stock option may be exercised during the first two (2)
years of its term and then only as to one-third (a) thereof; two-
thirds (b) may be exercised after three (3) years; and one
hundred percent (100%) after four (4) years unless a shorter
period is provided by the Plan, except in the event of the death
of the optionee or unless the exercise date of the stock option
has been accelerated upon the occurrence of one or more of the
events described under "Acceleration of Options in Certain
Events" below. No stock option may be exercised after the
expiration of five years from the date of grant. A stock option
to the extent exercisable at any time may be exercised in whole
or in part.
If an optionee's service as a director terminates for any
reason other than resignation or removal for cause, any
outstanding stock option will be exercisable by the optionee or,
in the case of death of the optionee, by the legal representation
of the grantee, at any time prior to the expiration date of the
stock option or within three years after the optionee ceases to
be a director, whichever is the shorter period. If a director
resigns or is removed from office for cause, any outstanding
stock option which is not yet exercisable will terminate and any
outstanding stock option which is exercisable must be exercised
<PAGE>
prior to the expiration date of the stock option or within three
months after the optionee ceases to be a director, whichever is
the shorter period. Following the death of an optionee after
ceasing to be a director and during a period when a stock option
is exercisable after resignation from the board or removal from
office for cause, the stock option shall be exercisable by the
person entitled to do so under the Will of the optionee, or, if
the optionee shall fail to make testamentary disposition of the
stock option or shall die intestate, by the legal representative
of the optionee, at any time prior to the expiration date of the
stock option or within one year after the date of death of the
optionee, whichever is the shorter period.
The option price for each stock option will be payable in
full in cash at the time of exercise; however, in lieu of cash
the person exercising the stock option may pay the option price
in whole or in part by delivering to the Corporation previously
owned shares of the Corporation's Capital Stock having a fair
market value on the date of exercise of the stock option equal to
the option price for the shares being purchased, except that any
portion of the option price representing a fraction of a share
must be paid in cash and no shares of Capital Stock which have
been held less than six months may be delivered in payment of the
option price. The Corporation will cooperate with any person
exercising a stock option who participates in a cashless exercise
program of a broker or other agent under which all or part of the
shares received upon exercise of the stock option are sold
through the broker or other agent or under which the broker or
other agent makes a loan to such person.
No stock option granted under the Plan is transferable other
than by Will or by the laws of descent and distribution, and a
stock option may be exercised during an optionee's lifetime only
by the optionee or the optionee's guardian or legal
representative. These restrictions on transferability will not,
however, apply to the extent the restrictions are not at any time
required for the grant of stock options under the Plan to qualify
for the exemption under Rule 16b-3 under the Securities Exchange
Act of 1934 (the "1934 Act").
Subject to the foregoing and the other provisions of the
Plan, any stock options granted under the Plan may be subject to
such restrictions and other terms and conditions, if any, as
shall be determined, in its discretion, by the Committee and set
forth in the stock option agreement.
ACCELERATION OF OPTIONS IN CERTAIN EVENTS
The Plan provides that all outstanding stock options granted
under the Plan will become immediately and fully exercisable upon
the occurrence of one or more events described in Section 6 of
the Plan ("Section 6 Events"). A Section 6 Event is deemed to
have occurred, with certain exceptions, when
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(i) the Corporation acquires actual knowledge that any
person (other than the Corporation, a subsidiary or any
employee benefit plan sponsored by the Corporation) has
acquired beneficial ownership, directly or indirectly, of
securities representing 30% or more of the voting power of
the Corporation,
(ii) a tender offer is made to acquire securities of
the Corporation entitling the holders thereof to 30% or more
of the voting power of the Corporation,
(iii) a solicitation subject to Rule 14a-11 under the
1934 Act (or any successor Rule) relating to the election or
removal of 50% or more of the Board or any class of the
Board is made by any person other than the Corporation or
less than 51% of the members of the Board are Continuing
Directors (as defined below) or
(iv) the stockholders of the Corporation shall approve
a merger, consolidation, share exchange, division or sale or
other disposition of assets of the Corporation as a result
of which the stockholders of the Corporation immediately
prior to the transaction will not hold, directly or
indirectly, immediately following the transaction a majority
of the voting power of (1) in the case of a merger or
consolidation, the surviving or resulting corporation, (2)
in the case of a share exchange, the acquiring corporation
or (3) in the case of a division or sale or other
disposition of assets, each surviving, resulting or
acquiring corporation which, immediately following the
transaction, holds more than 10% of the consolidated assets
of the Corporation immediately prior to the transaction.
A "Continuing Director" means a director of the Corporation
who either (i) was a director of the Corporation on the effective
date of the Plan or (ii) is an individual whose election, or
nomination for election, as a director of the Corporation was
approved by a vote of at least two-thirds of the directors then
still in office who were Continuing Directors (other than an
individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of directors of the Corporation which would be subject
to Rule 14a-11 under the 1934 Act (or any successor Rule)).
POSSIBLE ANTI-TAKEOVER EFFECT
The provisions of the Plan providing for the acceleration of
the exercise date of stock options upon the occurrence of a
Section 6 Event may be considered as having an anti-takeover
effect.
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MISCELLANEOUS
The Board of Directors may amend or terminate the Plan at
any time, provided that no such termination will terminate any
outstanding stock option and provided further that no amendment
of the Plan may (i) be made without stockholder approval if
stockholder approval of the amendment is at the time required
under Rule 16b-3 (or any successor Rule) or by the rules of any
stock exchange on which the Corporation's Capital Stock may then
be listed, (ii) amend more than once every six months the
provisions of the Plan relating to the selection of the directors
to whom stock options are to be granted, the timing of stock
option grants, the number of shares subject to any stock option,
the exercise price of any stock option, the periods during which
any stock option may be exercised and the term of any stock
option other than to comport with changes in the Code or the
rules and regulations thereunder or (iii) otherwise amend the
Plan in any manner that would cause stock options under the Plan
not to qualify for the exemption provided by Rule 16b-3 (or any
successor Rule). No amendment or termination of the Plan may,
without the written consent of the holder of a stock option
theretofore granted under the Plan, adversely affect the rights
of the holder with respect to the stock option.
Notwithstanding the preceding paragraph, the Board of
Directors has the power to amend the Plan in any manner deemed
necessary or advisable for stock options granted under the Plan
to qualify for the exemption provided by Rule 16b-3 (or any
successor Rule), and any such amendment will, to the extent
deemed necessary or advisable by the Board, be applicable to any
outstanding stock options theretofore granted under the Plan.
SECTION 16(b) UNDER 1934 ACT
Directors of the Corporation are subject to Section 16(b) of
the 1934 Act. Under Release 34-28869, Rule 16b-6 and Rule 16b-3
of the Securities and Exchange Commission presently applicable to
the Plan,
(i) the grant of a stock option to a director under the
Plan is not considered a purchase of the Corporation's
Capital Stock for Section 16(b) purposes,
(ii) the delivery to the Corporation of shares of
previously owned Capital Stock by a director in payment of
the option price upon exercise of a stock option granted
under the Plan is not considered a sale of the shares
delivered for Section 16(b) purposes, and
(iii) the acquisition of shares of the Corporation's
Capital Stock by a director upon exercise of a stock option
granted under the Plan is not considered a purchase for
Section 16(b) purposes unless the shares acquired upon
exercise are disposed of within six months of the date of
grant; except that a purchase for Section 16(b) purposes is
considered to be involved upon exercise of a stock option
granted under the Plan if on the date of exercise the fair
market value of the shares acquired is less than the option
price paid for the shares.
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal Federal
income tax consequences of the grant and exercise of nonstatutory
stock options under present law.
A director does not recognize any taxable income for Federal
income tax purposes upon receipt of a nonstatutory stock option.
Upon the exercise of a nonstatutory stock option with cash,
the amount by which the fair market value of the shares received,
determined as of the date of exercise, exceeds the option price
is generally treated as compensation received in the year of
exercise.
If the option price is paid in whole or in part in shares of
the Corporation's Capital Stock, no income, gain or loss is
recognized on the receipt of shares equal in value on the date of
exercise to the shares delivered in payment of the option price.
The fair market value of the remainder of the shares received
upon exercise, determined as of the date of exercise, less the
amount of cash, if any, paid upon exercise, is generally treated
as compensation received on the date of exercise.
Directors are subject to a special Federal income tax rule
upon the exercise of a nonstatutory stock option (i) if the
exercise is within six months of the date of grant or (ii) in the
event the fair market value of the shares acquired is less than
the option price on the date of exercise. In these situations,
unless an election provided for in Section 83(b) of the Code is
made to be taxed as of the date of exercise, the amount taxable
as provided above is determined instead as of the date of
expiration of the period following exercise during which the sale
of the shares received could subject the director to liability
under Section 16(b) of the 1934 Act. The "fair market value" of
shares, as used in this discussion of Federal income tax
consequences, is determined without regard to the fact that the
director is a person subject to Section 16(b).
In each instance that an amount is treated as compensation
received, the Corporation generally is entitled to a
corresponding deduction in the same amount for compensation paid.
The acceleration of the exercise date of a stock option or
the exercise of a stock option following the occurrence of a
Section 6 Event, in certain circumstances, may result in (i) a
20% Federal excise tax (in addition to Federal income tax) to the
optionee on certain amounts associated with the stock option and
(ii) the loss of the compensation deduction which would otherwise
be allowable to the Corporation.
APPOINTMENT OF THE COMPANY'S AUDITORS FOR THE FISCAL YEAR 1996
Upon recommendation of the Audit Committee, the Board of
Directors has resolved to appoint Ernst & Young LLP as the
Company's auditors for the fiscal year ended November 30, 1996,
subject only to ratification by the Shareholders.
<PAGE>
Representatives of Ernst & Young LLP will be present at the
meeting with the opportunity to make a statement, if they desire
to do so, and such representatives will be available to respond
to appropriate questions. All services of the auditors were
reviewed by the Audit Committee and approved by the Board of
Directors prior to commencement. No relationship exits other
than the usual relationship between independent public accountant
and client.
GENERAL MATTERS
The Directors know of no matter, other than those referred
to in this Proxy Statement, which will be presented at the
meeting. However, if other matters properly come before the
meeting or any of its adjournments, the person or persons voting
the proxies will vote them in accordance with their judgment in
such matters. Should any Nominee for the office of Director
become unable to accept nomination or election, the persons named
in the proxy will vote it for the election of such other person,
if any, as the Board of Directors may recommend. The Board of
Directors is not aware that any Nominee named herein will be
unable or unwilling to accept nomination or election.
You are advised that the deadline for submitting Shareholder
proposals for consideration at the next annual meeting is
December 11, 1996.
The cost of soliciting proxies will be borne by the Company.
Regular employees of the Company may solicit proxies personally
or by telephone. In addition to solicitation by mail and regular
employees as aforesaid, arrangements may be made with brokerage
houses and other custodians, nominees and fiduciaries to send
proxies and proxy soliciting material to their principals, and
the Company may reimburse them for their expense in so doing.
You are urged to sign and return your proxy promptly to make
certain your shares will be voted at the meeting. You may revoke
the proxy at any time before it is voted, and if you attend the
meeting, as we hope you will, you may vote your shares in person.
For your convenience, a return envelope is enclosed, requiring no
additional postage if mailed in the United States.
JAMES F. TOOHEY, Secretary
Dated: March 1, 1996
