<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
/ / 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 240.14a-11(c) or 240.14a-12
SPS TECHNOLOGIES, INC.
- - -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
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:
___________________________________________________________________________
<PAGE>
[GRAPHIC OMITTED]
- - --------------------------------------------------------------------------------
March 26, 1999
To our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
SPS Technologies, Inc. The meeting will be held at 10:00 a.m., Tuesday, April
27, 1999, at 17 Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania 19101, in the Forum Room (eighth floor).
Details of the business to be conducted at the Annual Meeting are given in
this Proxy Statement. We will also present a report on the 1998 business
results for SPS and on other matters of current interest to our shareholders.
Whether or not you attend the meeting, it is important that your shares be
represented and voted. We encourage you to read this Proxy Statement and
promptly execute and return your proxy card in the enclosed envelope.
Sincerely,
/s/ Charles W. Grigg
- - ---------------------------------------------
Charles W. Grigg
Chairman of the Board, Chief Executive Officer &
President
Corporate Offices
101 Greenwood Avenue
Suite 470
Jenkintown
Pennsylvania 19046-2611
Phone (215) 517-2000
Fax (215) 517-2032
<PAGE>
Table of Contents
- - --------------------------------------------------------------------------------
Notice of Annual Meeting ............................................... 1
Voting Procedures ...................................................... 2
Revocation of Proxy ................................................. 2
Cost of Soliciting Proxies .......................................... 2
Vote Required and Method of Counting Votes .......................... 2
Other Business ...................................................... 2
Ownership of Voting Securities ......................................... 3
Principal Beneficial Ownership ...................................... 3
Holdings of Executive Officers and Directors ........................ 4
Section 16 Reports ..................................................... 4
Election of Directors* ................................................. 5
Class III - Nominees for a Three-Year Term .......................... 5
Class II - Directors with Terms Expiring in 2000 .................... 5
Class I - Directors with Terms Expiring in 2001 ..................... 6
Board Meetings, Committees and Compensation of Directors ............... 6
Executive Compensation and Stock Option Committee ................... 6
Directors Committee ................................................. 6
Audit Committee ..................................................... 7
Executive Compensation ................................................. 8
Summary Compensation Table .......................................... 8
Option Grants in Last Year Table .................................... 9
Aggregated Option Exercises and Year-End Option Value Table ......... 9
Pension Benefits ....................................................... 10
Supplemental Executive Retirement Plan .............................. 10
Pension Plan Table .................................................. 10
Compensation of Directors .............................................. 11
Termination of Employment and Change of Control Arrangements ........... 12
Certain Relationships and Related Transactions ......................... 13
Compensation Committee Report on Executive Compensation ................ 14
Overview and Philosophy ............................................. 14
Executive Officer Compensation ...................................... 15
Chief Executive Officer Compensation ................................ 16
Common Stock Performance Graph ......................................... 17
Proposal to Amend the SPS 1988 Long Term Incentive Stock Plan* ......... 17
Tax Consequences .................................................... 20
Board Recommendation and Shareholder Vote Required .................. 20
Independent Accountants ................................................ 21
Proposals of Shareholders .............................................. 21
*Bold indicates this year's proposals
<PAGE>
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SPS Technologies, Inc.
101 Greenwood Avenue, Suite 470
Jenkintown, Pennsylvania 19046
- - --------------------------------------------------------------------------------
Notice of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of SPS Technologies, Inc. will be held on
Tuesday, April 27, 1999, at ten o'clock a.m., local time, at 17 Mellon Bank
Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, in the Forum Room
(eighth floor), for the following purposes:
1. To elect two Class III directors for a term of three years;
2. To approve an amendment to the SPS 1988 Long Term Incentive Stock Plan; and
3. To transact such other business as may properly come before the meeting.
Record Date
The Board of Directors has fixed the close of business on March 9, 1999 as the
record date for the purpose of determining shareholders who are entitled to
notice of and to vote at the meeting.
By order of the Board of Directors,
James D. Dee
Secretary
March 26, 1999
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YOUR VOTE IS IMPORTANT
You are urged to mark, sign, date and promptly return your proxy in the
enclosed envelope.
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1
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Proxy Statement
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Voting Procedures
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This proxy statement is furnished to solicit proxies for use at the Annual
Meeting of Shareholders of SPS Technologies, Inc. ("Company"), to be held on
Tuesday, April 27, 1999, and at any adjournments or postponements thereof. This
proxy statement and the enclosed form of proxy are first being mailed to
shareholders on or about March 26, 1999.
Only record holders of Common Stock of the Company at the close of business on
March 9, 1999, are entitled to vote. Shareholders are requested to mark, sign,
date and return in the envelope provided, the enclosed proxy which the Board of
Directors of the Company is soliciting. We have included a postage-paid
envelope for your convenience. If you sign, date and mail your proxy without
indicating how you want to vote, your proxy will be voted as recommended by the
Board of Directors.
If you execute the enclosed proxy, it will not affect your right to attend the
meeting and vote in person.
Revocation of Proxy
If you later wish to revoke your proxy, you may do so by (1) sending a written
statement to that effect to the Secretary of the Company; (2) submitting a
properly signed proxy with a later date; or (3) by attending the meeting and
voting in person.
Cost of Soliciting Proxies
The cost of soliciting proxies will be paid by the Company. Corporate Investor
Communications, Inc., 111 Commerce Road, Carlstadt, New Jersey 07072-2586, has
been employed to solicit proxies by mail, telephone or personal solicitation
for a fee of approximately $4,500, plus expenses. We will also reimburse
brokers, custodians, nominees and fiduciaries for the cost of forwarding
materials to beneficial owners. Directors, officers and employees may solicit
proxies, but they will not be specially compensated for such services.
Vote Required and Method of Counting Votes
o Number of Shares Outstanding. On March 9, 1999 there were issued and
outstanding 12,687,070 shares of Common Stock, par value $.50 per share.
Each share is entitled to one vote and, in the election of directors, has
cumulative voting rights. This means that shareholders have the right to
multiply the number of votes to which they may be entitled by the total
number of directors to be elected in the same election, and they may cast
the whole number of such votes for one nominee or may distribute them among
any two or more nominees. Proxy holders may vote for any or all of the
nominees. The Company intends to have the proxy holders exercise such
cumulative voting rights to elect the maximum number of nominees proposed by
the Board of Directors.
Unless otherwise directed, shares represented by proxies in the accompanying
form will be voted at the Annual Meeting or any adjournments or postponements
thereof FOR the election of the nominated directors as stated under the heading
"Election of Directors," and FOR the proposal to approve an amendment to the
SPS 1988 Long Term Incentive Stock Plan as stated under the heading "Proposal
to Amend the SPS 1988 Long Term Incentive Stock Plan."
Other Business
The Company does not intend to bring any other matters before the meeting, and
we do not know of any additional proposals to be presented by others. However,
if any other matters properly come before the meeting, the persons named in the
accompanying proxy will vote on them in accordance with their best
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judgment. Under the Company's By-laws, proposals of shareholders to be
presented at the meeting must be submitted in accordance with the procedures
summarized under the heading "Proposals of Shareholders."
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Ownership of Voting Securities
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Principal Beneficial Ownership
As of February 28, 1999, the Company knew the following persons to be the
principal beneficial owners of its voting securities:
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<TABLE>
<CAPTION>
Name and Address Amount and Nature of Beneficial
of Beneficial Owner Ownership of Shares of Common Stock Percent of Class
<S> <C> <C>
- - --------------------------------------------------------------------------------
Gabelli Funds, Inc., 2,643,220(a) 20.8%
GAMCO Investors, Inc.,
Gemini Capital Management
Ltd., Marc J. Gabelli and
Mario J. Gabelli
One Corporate Center
Rye, NY 10580-1434
1,992,512(b) 15.7%
Tinicum Investors,
RIT Capital Partners plc,
Putnam L. Crafts, Jr., and
Eric M. Ruttenberg
990 Stewart Avenue
Garden City, NY 11530
</TABLE>
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(a) Based on information supplied by the named entities in a joint filing on
Schedule 13D dated February 9, 1999, with the Securities and Exchange
Commission. According to such filing, the named entities held sole, shared
or no voting and dispositive power over the shares as follows: Gabelli
Funds, Inc. -- 460,200 shares (sole voting and dispositive power); GAMCO
Investors, Inc. -- 2,143,520 (sole voting and dispositive power) and
21,500 shares (no voting and sole dispositive power); Gemini Capital
Management Limited -- 5,000 shares (sole voting and dispositive power);
and Marc J. Gabelli (no voting or dispositive power). Mr. Mario J. Gabelli
is the majority stockholder of Gabelli Funds, Inc. and individually owns
13,000 shares (sole voting and dispositive power) of the Company's Common
Stock.
(b) Based on information supplied by the named entities in a joint filing on
Schedule 13D dated January 24, 1997, with the Securities and Exchange
Commission, as updated by the named entities through February 28, 1999.
According to such information, the named entities held sole, shared or no
voting and dispositive power over the shares as follows: Tinicum Investors
-- 1,518,138 shares (sole voting and dispositive power); RIT Capital
Partners plc -- 264,622 shares (sole voting and dispositive power); Putnam
L. Crafts, Jr. -- 200,000 shares (sole voting and dispositive power); and
Eric M. Ruttenberg -- 9,752 shares (sole voting and dispositive power).
Eric M. Ruttenberg, a director of the Company, is a general partner of
Tinicum Investors.
3
<PAGE>
Holdings of Executive Officers and Directors
The following table shows information pertaining to the voting securities of
the Company beneficially owned, as of February 28, 1999, by each director, by
the Chairman, Chief Executive Officer and President and the four other
executive officers. This information has been supplied by each of the
individuals involved.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Name of Individual Number of Shares Number of Shares Total Shares Percent of Class
or Number of with Direct Acquirable within Beneficially If 1% or
Persons in Group Beneficial Ownership 60 Days Owned(a) More(b)
<S> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------
Charles W. Grigg 79,021 269,592 348,613 2.7%
Howard T. Hallowell III 542,868 1,030 543,898 4.3%
Richard W. Kelso 1,880 1,030 2,910 --
James F. O'Connor 5,270 0 5,270 --
Eric M. Ruttenberg 2,870 6,882 9,752(c) --
Raymond P. Sharpe 4,870 3,124 7,994 --
Harry J. Wilkinson 65,986 64,050 130,036 1.0%
James D. Dee 2,878 7,800 10,678 --
John M. Morrash 5,427 24,300 29,727 --
William M. Shockley 10,951 27,000 37,951 --
Margaret B. Zminda 346 3,400 3,746 --
All Directors and Executive
Officers as a Group (11 persons) 722,367 408,208 1,130,575 8.6%
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Beneficial ownership for purposes of this Proxy Statement is defined in
accordance with the requirements of Rule 13d-3 under the Securities
Exchange Act of 1934, which provides that the beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or
shares voting power or investment power with respect to such security, or
has the right to acquire such voting power or investment power through the
exercise of an option, warrant or right within 60 days. The individuals
named in the table each exercise sole voting and dispositive power over
the shares beneficially owned by them except for 1,442 shares held by Mr.
Hallowell, over which he has shared voting and dispositive power, and 420
shares held by an executive officer's spouse.
(b) For purposes of calculating the percentage of the outstanding shares of
Common Stock on February 28, 1999 for each listed person, the number of
shares of Common Stock includes shares that may be acquired by such person
within 60 days of February 28, 1999 through the exercise of vested stock
options under the SPS 1988 Long Term Incentive Stock Plan.
(c) The indicated shares of Common Stock are beneficially owned directly by Mr.
Ruttenberg. Mr. Ruttenberg is a general partner of Tinicum Investors, a
Delaware partnership ("Investors"), that had direct beneficial ownership
of 1,518,138 shares of Common Stock as of February 28, 1999. Based on
understandings with certain other beneficial owners of Common Stock
described in a Statement on Schedule 13D dated January 24, 1997, as
updated by the named entities through February 28, 1999, Mr. Ruttenberg
and Investors may be deemed to have indirect beneficial ownership of an
additional 464,622 shares of Common Stock beneficially owned directly by
such other beneficial owners as of February 28, 1999. Mr. Ruttenberg
disclaims beneficial ownership of any shares of Common Stock beneficially
owned directly by Investors or such other beneficial owners.
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Section 16 Reports
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Based solely on a review of the reports on Forms 3, 4 and 5 filed with the
Company by its directors, executive officers and known 5% beneficial owners,
and in certain cases upon certificates received from such persons that such
filings are not required, all reports required to be filed during, or with
respect to, the fiscal year of the Company ended December 31, 1998 were filed,
except that Ms. Zminda inadvertently failed to file on a timely basis with the
Securities and Exchange Commission a Form 3 in connection with her appointment
as an officer of the Company.
4
<PAGE>
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Election of Directors
- - --------------------------------------------------------------------------------
The Company currently has seven directors serving in three classes, consisting
of one class of three members and two classes of two members each. The term of
office of one class will expire each year. Members of each class are elected
for terms of three years. If there is a vacancy in any class, the vacancy may
be filled by the Board of Directors for the balance of the term of the class in
which the vacancy exists.
The terms of office of the two Class III directors expire this year.
Accordingly, shareholders are being asked to elect two Class III directors who
will hold office until the 2002 Annual Meeting of Shareholders and until their
successors are duly elected and qualified. Unless you indicate otherwise, your
proxy will be voted in favor of the election of each of the nominees named
below for a three-year term. Should any nominee become unavailable for election
for any unforeseen reason, the Board of Directors or the Executive Committee of
the Board of Directors will determine how the proxies will be voted. The two
nominees who receive the highest number of votes cast at the meeting will be
elected as Class III directors.
Listed below are the names of, and certain other information respecting the two
nominees for election as Class III directors, and the other five directors who
will be continuing in office following the meeting.
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CLASS III - NOMINEES FOR A THREE-YEAR TERM
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Harry J. Wilkinson
Age: 61 Director since 1986
Mr. Wilkinson was President and Chief Operating Officer of the Company from
June of 1987 to March of 1997. He retired from the Company in March of 1998.
Mr. Wilkinson is also a director of Drexelbrook Engineering Co. and Flexible
Circuits, Inc.
- - --------------------------------------------------------------------------------
Eric M. Ruttenberg
Age: 43 Director since 1991
Mr. Ruttenberg has been General Partner of Tinicum Investors, an investment
management company, since December of 1994. He is also a director of
Environmental Strategies Corporation and a trustee of Mount Sinai Medical
Center.
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CLASS II - DIRECTORS WITH TERMS EXPIRING IN 2000
- - --------------------------------------------------------------------------------
Raymond P. Sharpe
Age: 50 Director since 1994
Mr. Sharpe has been Chief Executive Officer of Cookson Electronics, Inc., a
supplier of specialty chemicals, metals, printed circuit board laminates and
equipment to the printed circuit board fabrication and electronic assembly
market, since July of 1995. Mr. Sharpe was Executive Vice President of Cookson
America, Inc., and Chief Operating Officer of the Electronic Materials Division
from October of 1987 to June of 1995. He is also a director of Cookson Group
plc.
- - --------------------------------------------------------------------------------
James F. O'Connor
Age: 58 Director Since 1997
Mr. O'Connor has been Managing Director of The Chartwell Company, a private
merchant and investment bank, since December of 1997. Mr. O'Connor was
Executive Director of Corporate Development for the BBA Group plc, serving the
transportation and industrial markets worldwide, from September of 1994 to
December of 1997. He is also a director of PC Cox Holdings Ltd., and a trustee
of Pope John XXXIII Seminary.
5
<PAGE>
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CLASS I - DIRECTORS WITH TERMS EXPIRING IN 2001
- - --------------------------------------------------------------------------------
Howard T. Hallowell III
Age: 64 Director since 1992
Mr. Hallowell was an Engineering Economist with Eastman Kodak Company, a
leading manufacturer of photographic equipment and supplies, from September of
1965 until his retirement in June of 1993. He is also a director of Rochester's
Child, and a trustee of the Hallowell Foundation.
- - --------------------------------------------------------------------------------
Charles W. Grigg
Age: 59 Director since 1993
Mr. Grigg has been Chairman of the Board and Chief Executive Officer of the
Company since December of 1993, and President of the Company since April of
1997. Mr. Grigg was President and Chief Operating Officer of Watts Industries,
Inc., a manufacturer of valve products, from 1986 to 1993. He is also a
director of Wyman-Gordon Corporation.
- - --------------------------------------------------------------------------------
Richard W. Kelso
Age: 61 Director since 1995
Mr. Kelso has been President and Chief Executive Officer of PQ Corporation, a
global manufacturer of inorganic chemicals, high performance catalysts and
functional glass products, since January of 1991. He is also a director of PQ
Corporation and P.H. Glatfelter Company.
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Board Meetings, Committees and Compensation of Directors
- - --------------------------------------------------------------------------------
During 1998, there were seven meetings of the Company's Board of Directors.
Additionally, during 1998, there was an Executive Compensation and Stock Option
Committee which held two meetings, a Directors Committee which held one meeting
and an Audit Committee which held two meetings.
Executive Compensation and Stock Option Committee
The Executive Compensation and Stock Option Committee, is composed of Messrs.
Sharpe (Chairman), Hallowell, O'Connor, Ruttenberg and Wilkinson. The primary
functions of the Executive Compensation and Stock Option Committee are to:
o Fix the salaries and other compensation of all officers and key executives of
the Company other than the Chief Executive Officer and President of the
Company (whose compensation is fixed by the Board of Directors);
o Evaluate the Company's executive compensation programs to ensure that they
remain effective in attracting and retaining managerial talent; and
o Administer certain of the Company's executive incentive compensation and
stock option plans, including the granting of awards as provided in those
plans.
Directors Committee
The Directors Committee is composed of Messrs. Kelso (Chairman), Grigg,
O'Connor, Ruttenberg and Sharpe. The primary functions of the Directors
Committee are to:
o Nominate candidates for election to the Board of Directors;
o Recommend nominees for service on its standing committees;
o Review programs for senior management succession;
6
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o Make recommendations to the Board on matters of directors' compensation,
benefits, retirement and tenure policy; and
o Consider nominees for director recommended by shareholders.
The Directors Committee will consider shareholder nominations in accordance
with the Company's By-laws. To be considered, notice of a nomination must be
received at least 60 days before the date of the relevant Annual Shareholder
Meeting. The notice must include:
o The name and address of the nominating shareholder;
o A representation that the shareholder is entitled to vote at the meeting and
intends to appear in person or by proxy at the meeting;
o The name, age, business and residence addresses and principal occupation of
the proposed nominee;
o A description of any and all arrangements or understandings between the
shareholder and each proposed nominee;
o Any other information that would be required by the Securities and Exchange
Commission to be included in a proxy statement soliciting proxies for the
election of the proposed nominee; and
o The signed consent of each proposed nominee to serve as a director if
elected.
The Board may require any proposed nominee to furnish other information
reasonably required to determine the proposed nominee's eligibility and
qualifications to serve as a director. Under Pennsylvania law, to be eligible,
a nominee must be an individual 18 years of age or older. Factors relevant to a
nominee's qualifications would include:
o Experience or lack thereof in managing business enterprises;
o Service on other boards of directors;
o Potential or actual conflicts of interest;
o Expertise in a field related to the Company's business;
o Criminal record; and
o Other similar information.
If the Board (after affording the shareholder a reasonable opportunity to cure
any deficiency in the original notice) determines that an individual was not
proposed in accordance with the By-laws, then such individual would not be
eligible for nomination and election as a director. If a nominee is determined
to have been properly proposed by a shareholder, and the Directors Committee
determines not to nominate the person, the shareholder proposing such person
may nominate the candidate at the meeting. The Company will furnish a copy of
its By-laws specifying the requirements for nominations for director to any
shareholder without charge upon written request to the Secretary of the
Company.
Audit Committee
The Audit Committee of the Board of Directors, is composed of Messrs.
Ruttenberg (Chairman), Hallowell, Kelso, O'Connor, and Sharpe. The primary
functions of the Audit Committee are to:
o Meet periodically with the Company's management, internal auditors and
independent accountants to review with each whether they are properly
discharging their respective responsibilities; and
o Make recommendations to the Board of Directors to select and retain the
Company's independent accountants, to establish the scope of their
accounting services and to approve related fees.
In 1998, all of the directors attended more than 75% of the aggregate of the
meetings of the Board and the committees of the Board on which they served.
7
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Executive Compensation
- - --------------------------------------------------------------------------------
The following table sets forth, for the Company's fiscal years ended December
31, 1996 through 1998, the total annual and long-term compensation of the
Chairman, Chief Executive Officer and President and the four other executive
officers of the Company (the "Named Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------- ----------------------------------------
Awards Payouts
-------------------------- ------------
Other Securities
Annual Underlying Long-Range All Other
Compen- Restricted Options Incentive Compen-
Name and Salary Bonus sation Stock Granted Bonus sation
Principal Position Year ($)(1) ($)(2) ($)(3) ($)(4) (#) ($)(5) ($)(6)
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles W. Grigg 1998 536,000 321,600 34,213 160,800 0 160,800 2,211,712
Chairman, Chief Executive 1997 520,833 259,000 23,313 123,462 40,000 123,462 1,313,598
Officer and President 1996 487,667 217,147 16,962 96,800 40,000 96,800 10,193
- - ----------------------------------------------------------------------------------------------------------------------------------
William M. Shockley 1998 187,000 74,800 0 33,660 4,000 41,140 532,900
Vice President, and Chief 1997 170,000 68,000 0 22,690 4,000 34,036 321,631
Financial Officer 1996 150,000 47,879 0 15,000 6,000 22,500 415
- - ----------------------------------------------------------------------------------------------------------------------------------
John M. Morrash 1998 152,000 53,200 2,340 15,960 3,000 29,640 451,486
Vice President, Treasurer 1997 145,000 50,750 1,616 12,096 4,000 22,464 281,638
and Assistant Secretary 1996 133,000 36,485 1,260 9,310 6,000 17,290 566
- - ----------------------------------------------------------------------------------------------------------------------------------
James D. Dee 1998 150,000 52,500 0 15,750 7,000 29,250 68,262
Vice President, General 1997 130,000 39,000 0 10,845 6,000 20,140 515
Counsel and Secretary 1996 98,367 31,200 0 7,280 10,000 13,520 243
- - ----------------------------------------------------------------------------------------------------------------------------------
Margaret B. Zminda 1998 110,000 26,250 0 7,875 7,000 18,375 423
Controller
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts shown include deferrals (where applicable) by the Named Officers
under the Company's Executive Deferred Compensation Plan.
(2) Amounts shown reflect cash payments to the Named Officers under the
Company's Management Incentive Plan.
(3) Amounts shown include directors' fees for 1998 through 1996, respectively
as follows for Mr. Grigg -- $5,000, $5,000 and $4,000. Amounts shown also
reflect, for each of the Named Officers, except Mr. Shockley, Mr. Dee, and
Ms. Zminda, interest accrued in excess of 120% of the applicable federal
long-term rate with respect to the Company's Executive Deferred
Compensation Plan.
(4) As of December 31, 1998 the value of restricted shares held by the Named
Officers was as follows: Mr. Grigg $360,011 (6,494 shares); Mr. Shockley
$58,542 (1,056 shares); Mr. Morrash $33,817 (610 shares); Mr. Dee $27,830
(502 shares); and Ms. Zminda $7,650 (138 Shares). The restricted shares
are valued using a fair market value of $55.4375 per share, which
represents the average trading price of the stock on December 31, 1998.
Restricted share awards based on achievement of financial objectives set
for 1998 were made by the Board on February 9, 1999, for the dollar values
shown as determined in accordance with the Company's Long Range Incentive
Plan. These awards were granted at the fair market value of the Company's
common stock of $43.00 per share on that date under the SPS 1988 Long Term
Incentive Stock Plan to the Named Officers in the following amounts -- Mr.
Grigg (3,740 shares); Mr. Shockley (783 shares); Mr. Morrash (371 shares);
Mr. Dee (366 shares); and Ms. Zminda (183 shares). Restrictions lapse on
20% of the shares awarded annually, over a period of five years.
(5) Amounts shown reflect cash payments to the Named Officers under the
Company's Long Range Incentive Plan.
(6) Amounts shown include payments by the Company on behalf of the Named
Officers for term-life insurance. Amounts shown also reflect compensation
from the exercise of stock options for Messrs. Grigg, Shockley, Morrash
and Dee in 1998 and 1997, respectively, of $2,199,123 (47,407 shares),
$532,363 (14,200 shares), $450,822 (10,100 shares) and $67,625 (2,000
shares) for the year 1998; and $1,302,584 (40,000 shares), $321,153 (8,600
shares) and $281,016 (9,800 shares) for the year 1997. Mr. Dee did not
receive compensation from the exercise of stock options in 1997.
8
<PAGE>
The following tables provide information concerning the number and value of
option grants during the last year and the number and value of options to
purchase the Company's Common Stock held by each of the Named Officers as of
December 31, 1998. All options outstanding were granted under the SPS 1988 Long
Term Incentive Stock Plan at 100% of the fair market value of the Company's
Common Stock on the date of grant. The vesting provisions of the options are
determined by the Executive Compensation and Stock Option Committee.
- - --------------------------------------------------------------------------------
Option Grants in Last Year Table
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- - -------------------------------------------------------------------------------------------------------------
% of Total
Options
Number of Granted to
Securities All
Underlying Employees Exercise
Options in Last Price Expiration
Name Granted Year ($/Sh) Date 5% ($) 10% ($)
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Charles W. Grigg -- -- -- -- -- --
- - -------------------------------------------------------------------------------------------------------------
William M. Shockley 4,000 2.88% 41.0938 Feb. 1, 2008 103,375 261,971
- - -------------------------------------------------------------------------------------------------------------
John M. Morrash 3,000 2.16% 41.0938 Feb. 1, 2008 77,531 196,479
- - -------------------------------------------------------------------------------------------------------------
James D. Dee 7,000 5.04% 41.0938 Feb. 1, 2008 180,905 458,450
- - -------------------------------------------------------------------------------------------------------------
Margaret B. Zminda 2,000 1.44% 41.0938 Feb. 1, 2008 51,687 130,986
5,000 3.60% 49.2813 Oct. 26, 2008 154,964 392,709
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
Aggregated Option Exercises and Year-End Option Value Table
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised "In-the-Money"
Options at Options at Year-End
Year-End ($)(1)
Number of
Shares Dollar
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
====================================================================================================
<S> <C> <C> <C> <C>
Charles W. Grigg 47,407 2,199,123 260,592/72,001 11,223,335/2,031,028
- - ----------------------------------------------------------------------------------------------------
William M. Shockley 14,200 532,363 19,200/25,800 738,038/810,275
- - ----------------------------------------------------------------------------------------------------
John M. Morrash 10,100 450,822 18,100/15,000 773,550/433,706
- - ----------------------------------------------------------------------------------------------------
James D. Dee 2,000 67,625 3,200/17,800 82,713/374,381
- - ----------------------------------------------------------------------------------------------------
Margaret B. Zminda -- -- 1,800/11,200 47,044/162,331
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Unexercised options are valued using a fair market value of $55.4375 per
share which represents the average trading price of the stock on December
31, 1998.
9
<PAGE>
- - --------------------------------------------------------------------------------
Pension Benefits
- - --------------------------------------------------------------------------------
Supplemental Executive Retirement Plan
The following table shows the amount of annual straight life annuity benefits
that a Named Officer, with the exception of Ms. Zminda, would receive
commencing at age 65 for the years-of-service indicated under the Company's
Supplemental Executive Retirement Plan as amended and restated January 1, 1998
(SERP). The SERP is a non-qualified unfunded plan in which a retirement benefit
is accrued based upon the participant's final five-year average base salary and
years-of-service. Such amount would be reduced by amounts payable from (i) the
Company's Retirement Income Plan (RIP), a qualified cash balance plan in which
the benefit is determined by Company contribution credits based on age and
years-of-service, and interest credits based on one-year Treasury rates; (ii)
the Benefit Equalization Plan (BEP), a non-qualified unfunded plan which makes
up retirement benefit reductions under the RIP due to ceilings established by
the Internal Revenue Code and/or reductions due to participation in the
Executive Deferred Compensation Plan; and (iii) primary social security
benefits.
- - --------------------------------------------------------------------------------
Pension Plan Table
- - --------------------------------------------------------------------------------
Years of Service
- - --------------------------------------------------------------------------------
Average Base 15 or More
Salary for Five-Year 5 Years 10 Years Years
Period Preceding Retirement Service Service Service
================================================================================
$150,000 30,000 60,000 90,000
200,000 40,000 80,000 120,000
250,000 50,000 100,000 150,000
300,000 60,000 120,000 180,000
350,000 70,000 140,000 210,000
400,000 80,000 160,000 240,000
450,000 90,000 180,000 270,000
500,000 100,000 200,000 300,000
550,000 110,000 220,000 330,000
600,000 120,000 240,000 360,000
Ms. Zminda's estimated total annual life annuity payable from the Company's RIP
and BEP (as described above) at the normal retirement age of 65 is $85,500. She
will reach age 65 in November of 2023, at which time she would have 40 years of
service.
As of December 31, 1998, the years of credited service for the Named Officers
were as follows: C. W. Grigg -- 15; W. M. Shockley -- 7; J. M. Morrash -- 17;
J. D. Dee -- 10; M. B. Zminda -- 15.
For Mr. Grigg, years-of-service includes service with Watts Industries, Inc.
Mr. Grigg's straight life annuity benefit payable at age 65 will be reduced by
benefits payable under the Watts Industries, Inc. Supplemental Employees
Retirement Plan.
10
<PAGE>
- - --------------------------------------------------------------------------------
Compensation of Directors
- - --------------------------------------------------------------------------------
Each director who is not an employee of the Company receives an annual retainer
of $17,000 plus a fee of $1,000 for each meeting of the Board of Directors or
one of its committees he attends. Each director who is an employee of the
Company receives a fee of $1,000 for each meeting of the Board of Directors he
attends. Each non-employee director on May 2, 1995 received a restricted share
award in the amount of $25,000, or 1,530 shares, based upon the fair market
value of the Company's Common Stock on that date of $16.3438 per share. Mr.
Kelso, who was appointed as a director on October 24, 1995, received a pro rata
restricted share award in the amount of $22,500, based upon the number of
months remaining until May 2, 2000, in accordance with the SPS 1988 Long Term
Incentive Stock Plan, or 1,140 shares based upon the fair market value of the
Company's Common Stock on October 24, 1995 of $19.7188 per share. Each
non-employee director on February 10, 1997 received a restricted share award in
the amount of $25,000, or 740 shares, based upon the fair market value of the
Company's Common Stock on that date of $33.9063 per share. Mr. Wilkinson, who
became an outside director on March 1, 1997, received a pro rata restricted
share award in the amount of $40,416, based upon the number of months remaining
until May 2, 2000 and February 10, 2002, in accordance with the SPS 1988 Long
Term Incentive Stock Plan, or 1,270 shares based upon the fair market value of
the Company's Common Stock on March 3, 1997 of $31.8236 per share. Mr.
O'Connor, who was elected as a director on April 29, 1997, received a pro rata
restricted share award in the amount of $38,750, based upon the number of
months remaining until May 2, 2000 and February 10, 2002, in accordance with
the SPS 1988 Long Term Incentive Stock Plan, or 1,170 shares based upon the
fair market value of the Company's Common Stock on April 29, 1997 of $33.1197
per share. The restrictions on each award lapse on 20% of the shares each year
on the anniversary date of the award for the succeeding five years. After five
years, no restrictions remain.
A director who is not a participant in any of the Company's qualified
retirement plans and who retires (i) at or after age 70 with 5 or more years of
service, or (ii) at or after age 65 with 10 or more years of service, will
receive annually during his lifetime an amount equal to the annual retainer in
effect as of the date of his retirement. A director who retires at or after age
65 but before age 70 with less than 10 years of service will receive annually a
pro rata amount.
A non-employee director may elect to receive discounted options in lieu of all
or a portion of his annual retainer under the SPS 1988 Long Term Incentive
Stock Plan. If he so elects for any year, these discounted options are
available for all or any portion of his annual retainer. The number of options
granted is determined by the amount of retainer he elects divided by the
difference between the fair market value of the Company's Common Stock at the
time of grant less, for each option, the par value per share of fifty cents.
The director must pay fifty cents per option at the time of exercise.
11
<PAGE>
- - --------------------------------------------------------------------------------
Termination of Employment and Change of Control Arrangements
- - --------------------------------------------------------------------------------
The Company has entered into the following agreements and arrangements with the
Named Officers:
1) The Company has entered into an Executive Severance Agreement ("Agreement")
with each of the Named Officers. The Agreement provides that if a
"triggering termination" of employment occurs within three years after a
"change of control" of the Company (as defined in the Agreement), then the
employee is entitled to receive within 15 days after the employee's
termination date, among other benefits, cash in an amount equal to two
times the sum of the employee's annual base salary plus two times the
incentive bonus awards earned by or allocated to the employee in the
previous fiscal year under the Company's Management Incentive Plan (MIP)
and Long Range Incentive Plan (LRIP). A "triggering termination" generally
includes a termination of employment initiated by the Company for any
reason other than a disability qualifying the employee for benefits under
the Company's Long Term Disability Plan, or for "cause" (as defined in the
Agreement), or by the employee for certain reasons set forth in the
Agreement.
Upon a "triggering termination", the employee will also be entitled to
receive the appreciated value of all the employee's stock options
outstanding and unexercised as of the termination date (whether or not
vested), any unpaid salary, all incentive bonus awards payable to, earned by
or allocated to the employee under the MIP and LRIP, and all amounts
deferred by the employee under any incentive plan and under the Company's
Executive Deferred Compensation Plan. The employee will also receive two
additional years of credited service under each of the Company's RIP, BEP
and SERP, and will, for two years, continue to receive certain insurance
benefits on a cost-sharing basis. The employee's benefits from BEP and SERP
are payable in a lump sum within 15 days after the termination date. Any
restrictions remaining on restricted shares that may have been awarded to
the employee lapse, and the employee will own such shares free and clear of
any Company-imposed restriction. Any non-competition agreements (including
non-compete provisions of the MIP) terminate; however, the employee will
continue to be bound by the confidentiality provisions of the Agreement.
Each Agreement provides for compensation to the employee for any adverse
effect of payments under the Agreement determined to be "excess parachute
payments," as defined in the Internal Revenue Code.
2) The Company has a Senior Executive Severance Plan (SESP), under which each
of the Named Officers would receive certain compensation and benefits in
the event of termination of employment with the Company, without a change
of control, for any reason other than for "cause" (as defined in the SESP)
or a disability which qualifies the participant for benefits under the
Company's Long-Term Disability Plan, or if initiated by the participant,
upon the occurrence of certain events described in the SESP. Upon such
termination, the participant is entitled to receive (among other benefits)
the base salary in effect before the termination date for a period of up to
12 months, all bonuses earned under the MIP for completed and uncompleted
(pro rata) periods, under the LRIP for completed periods and all amounts
deferred under the Company's Executive Deferred Compensation Plan. The
participant will remain on the Company's payroll for up to 12 months,
during which all employee benefits to which the participant was entitled
prior to the termination will continue, and the participant will be
entitled to Company-paid professional outplacement services. At the end of
the 12-month period, the participant will be vested in the Company's BEP
and SERP and will be entitled to receive a lump sum payment of these
retirement benefits. Restrictions on restricted shares, if any, issued to
the participant lapse. If the participant is employed by a competitor of
the Company without the Company's consent, the ongoing benefits described
above cease as of the date of such employment. If the participant is
employed on a full-time basis by other than a competitor, the ongoing
benefits cease either as of the date of such employment or six months,
whichever is later. In the event an employee receives a payment under the
Agreement, he is not eligible to receive any payment under the SESP. The
Company has agreed that the SESP will not be terminated or amended to
reduce or eliminate the benefits granted to certain employees, including
the Named Officers. The SESP provides for additional compensation to the
participant if any plan payment is subject to an excise or similar tax
under the Internal Revenue Code. Harry J. Wilkinson, a nominee for
Director, received payments in 1998 totaling $138,295, representing final
amounts due under the SESP.
12
<PAGE>
3) The Company offers retiring executives (including the Named Officers) an
agreement pursuant to which, under certain circumstances, the Company would
be required to pay in a lump sum all amounts otherwise payable periodically
to them under any plan of, or agreement with, the Company. Such lump sum
payment would be made only if, within three years after a "change of
control" (as defined in such agreement), there is a change in two of the
top three executive officers of the Company designated in such agreement.
To date, no such agreements are in effect.
- - --------------------------------------------------------------------------------
Certain Relationships and Related Transactions
- - --------------------------------------------------------------------------------
In connection with the Company's Rights Offering of the Company's Common Stock
which concluded in December, 1994 (the "Rights Offering"), the Company entered
into a Standby Purchase Agreement, dated as of November 16, 1994, with certain
Purchasers and Investors.1 The Purchasers agreed to acquire from the Company,
at the subscription price provided in the Rights Offering, all remaining shares
of Common Stock not subscribed for by the Company's shareholders. Eric M.
Ruttenberg, a director of the Company, is an "Affiliate" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of
certain of the Purchasers.
Pursuant to the Standby Purchase Agreement, the Purchasers acquired 536,760
shares of Common Stock for $6,575,310 and received from the Company $63,088 as
reimbursement for certain expenses incurred by the Purchasers in connection
with the Rights Offering. The Purchasers, Investors and their Affiliates
(collectively the "Affiliated Group") owned an aggregate of 1,570,560 shares of
Common Stock, or approximately 13.93% of the 11,272,718 shares of the Company's
Common Stock outstanding, at the conclusion of the Rights Offering and the
Purchase of unsubscribed shares in accordance with the Standby Purchase
Agreement.
The Standby Purchase Agreement will terminate upon the earliest to occur of:
(a) six years from the date of the Standby Purchase Agreement (the "Term"), or
(b) the date upon which the Affiliated Group no longer beneficially owns Common
Stock representing in excess of 10% of the Total Voting Power (as defined
below), or
(c) removal of or failure to re-elect the designee(s) of the Purchasers and
Investors to the Board of Directors in certain circumstances contemplated
by the Standby Purchase Agreement.
Pursuant to the Standby Purchase Agreement, the Company's Rights Agreement
effective as of November 17, 1998, between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), permits
the Affiliated Group to acquire or beneficially own Common Stock representing
up to 20% (the "Percentage Limitation") of the total voting power in the
general election of directors of the Company ("Total Voting Power"). The
Company further agreed, during the Term, to amend the Rights Agreement as
necessary to permit an increase of the Percentage Limitation in certain
circumstances. If the Company permits any other person, generally, to acquire
or beneficially own Common Stock representing in excess of 18% of the Total
Voting Power, the Percentage Limitation will generally automatically increase
to 110% of the percentage of Total Voting Power that such other person is
permitted to acquire or beneficially own.
The Affiliated Group has agreed for approximately six years, to a broad range
of restrictions prohibiting such activities as: soliciting proxies; generally
making shareholder proposals; engaging in efforts to acquire stock in, or
assets of, the Company (by purchase, merger, or otherwise); or seeking changes
in the composition of the Board of Directors. Such restrictions will be
automatically waived (A) if any person publicly makes a bona fide offer to
acquire a majority of the outstanding Common Stock and the Company's Board of
Directors
- - ------------
1/Tinicum Enterprises, Inc., Tinicum Investors, RUTCO Incorporated, Tinicum
Foreign Investments Corporation, Tinicum Associates, G.P., Putnam L. Crafts,
Jr. and James H. Kasschau (collectively, the "Purchasers"), and RIT Capital
Partners plc, J. Rothschild Capital Management Limited and St. James's Place
Capital plc (collectively, the "Investors"). See "Ownership of Voting
Securities" for more recent information on the Affiliated Group as herein
defined. Eric M. Ruttenberg, a director of the Company, is an "Affiliate" (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934,
as amended) of certain of the Purchasers.
13
<PAGE>
does not oppose such offer, or (B) if any person makes a bona fide offer to
acquire a majority of the outstanding Common Stock and either (i) the Company's
Board of Directors determines to accept such offer, or (ii) the Company's Board
of Directors determines, for example, to seek competing offers or proposes to
effect or negotiate with any person any form of business combination or similar
transaction with the Company, or proposes in response to such bona fide offer,
a recapitalization, share repurchase, extraordinary dividend or other similar
extraordinary transaction involving the Company, its securities or assets, to
the extent necessary to allow the Affiliated Group to make a competing offer to
the Company's Board of Directors to acquire the Company or its securities or
its assets.
The Purchasers and Investors have also agreed that, for approximately six
years, all shares of Common Stock which are directly or indirectly beneficially
owned by the Affiliated Group, other than those shares of Common Stock which
represent voting power of up to 10% of the Total Voting Power, will be voted in
accordance with the recommendation of the majority of the Company's Board of
Directors on all matters submitted to the shareholders for a vote. This
includes the election of directors of the Company, except with respect to any
matter which, pursuant to the Company's By-laws, requires the approval of an
80% super majority of the Company's shareholders. In this case the matter will
be voted pro rata in accordance with the vote of the Company's other
shareholders.
The Purchasers and Investors have further agreed during the Term, with certain
specific exceptions, not to sell or transfer shares of Common stock
representing in excess of 10% of Total Voting Power to any one person in any
transaction or series of transactions, unless such person agrees to be bound by
the terms of the Standby Purchase Agreement.
During the Term, the Company has agreed, generally, to exercise all authority
under applicable law, to cause Eric M. Ruttenberg (or another designee of the
Purchasers and Investors) to be elected to the Company's Board of Directors and
in addition, to the Audit, Executive, Directors and Executive Compensation and
Stock Option Committees of the Board. In the event the Board of Directors is
expanded beyond eight members, the Purchasers and Investors are entitled to
nominate an individual to fill the first out of each three Board member
positions in excess of eight positions (i.e. the ninth, twelfth, etc.).
The Company also entered into a certain Registration Rights Agreement with the
Purchasers and Investors, dated as of November 16, 1994, pursuant to which the
Company, subject to certain terms and conditions, has granted two demand
registration rights and unlimited piggyback registration rights to the
Purchasers and Investors. Accordingly, the Purchasers and Investors may require
the Company to cause shares of Common Stock beneficially owned by them to be
registered for public sale under the Securities Act. The demand registration
rights were not exercisable until November 16, 1997. The piggyback registration
rights are currently exercisable. All such registration rights will terminate
on November 16, 2002.
- - --------------------------------------------------------------------------------
Compensation Committee Report on Executive Compensation
- - --------------------------------------------------------------------------------
Overview and Philosophy
The Executive Compensation and Stock Option Committee of the Board of Directors
("Compensation Committee") is composed entirely of outside directors and is
responsible for developing and making recommendations to the Board with respect
to the Company's executive compensation policies. In addition, the Compensation
Committee annually recommends to the full Board the compensation to be paid to
the Chief Executive Officer and President, and determines the compensation of
each of the other executive officers and Group Presidents of the Company. The
Compensation Committee is free to engage and consult with outside compensation
consultants as it sees fit and generally has access to independent compensation
data.
14
<PAGE>
The objectives of the Company's executive compensation program are to:
o Emphasize long-term performance and increases in shareholder value.
o Provide base compensation and benefit levels that are competitive with those
in the markets in which the Company competes for executive personnel.
o Reward executives for the achievement of short-term and long-term financial
goals and the enhancement of shareholder value.
o Support a performance-oriented environment by providing incentive
compensation that changes in a consistent and predictable way with both the
financial performance of the Company and management performance in support
of strategic objectives.
o Provide a long-term and career-oriented compensation environment.
o Offer meaningful and competitive retirement and supplemental benefits that
are consistent with the Company's objective of retaining key employees.
The executive compensation program provides a compensation package that is
competitive with those offered by similar companies. The Company periodically
reviews the competitive practices of companies in the fabricated metals,
durable manufacturing and other industries, as well as with a broader group of
companies of comparable size and complexity. Actual compensation levels may be
greater or less than average competitive levels in surveyed companies based
upon annual and long-term Company performance as well as individual
performance. The Compensation Committee uses its discretion to set executive
compensation at levels warranted in its judgment by external, internal and
individual circumstances.
Executive Officer Compensation
Executive officer compensation is comprised of base salary, annual cash
incentive compensation, long-term incentive compensation in the form of stock
options and long-range cash and restricted share incentive compensation. In
addition, executive officers receive specific benefits designed to provide
remuneration for career service and various benefits, including medical, life
insurance and savings plans generally available to employees of the Company.
o Base Salary
Base salary levels for the Company's executive officers are competitively set
relative to certain companies in the fabricated metals, durable manufacturing
and other industries as well as other comparable companies. In determining
salaries, the Compensation Committee also takes into account individual
experience, performance and specific expertise beneficial to the Company.
o Incentive Compensation
The Company's incentive programs are intended to provide incentives to achieve
financial and individual objectives, and to reward exceptional performance. The
Management Incentive Plan is the Company's annual incentive program for
executive officers and key managers. The purpose of the plan is to provide a
direct financial incentive in the form of an annual cash bonus to executives
for the attainment of annual financial and individual goals. Threshold, target
and maximum goals for total Company and individual business unit performance
are set by the Compensation Committee at the beginning of each fiscal year. The
Long Range Incentive Plan is the Company's three-year incentive program for
executive officers, group presidents and key managers. The purpose of the Plan
is to provide a direct financial incentive in the form of an annual cash bonus
and a restricted share award under the SPS 1988 Long Term Incentive Stock Plan
to executives for the attainment of long-range financial goals of the Company.
15
<PAGE>
o Equity-Based Compensation
The equity-based compensation component of the Company's executive compensation
program is oriented toward the achievement of increasing shareholder value over
the long term. This component of the program -- the SPS 1988 Long Term
Incentive Stock Plan -- provides for grants of stock options which align the
executives' awards with future shareholder gains. These grants enable
executives to develop and maintain a significant, long-term ownership position
in the Company's Common Stock.
o Executive Benefits
The benefit component of executive compensation is designed to provide
executives with adequate and meaningful retirement benefits which are
reflective of the benefits offered in comparable companies, and which encourage
career-service orientation of the Company's executives. In contrast, other
benefits such as perquisites are rigidly controlled and minimized. The amount
of such perquisites, as determined in accordance with rules of the Securities
and Exchange Commission relating to executive compensation, did not exceed 10%
of salary for fiscal 1998.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer (CEO) is fixed by the full
Board of Directors (other than the CEO) consistent with the practices described
above. Factors considered by the Board of Directors in deciding the
compensation of the CEO include the CEO's experience, the CEO's performance and
the compensation of chief executive officers at other comparable companies.
Effective January 1, 1999, Mr. Grigg's annual base salary was increased by the
Board of Directors from $536,000 to $560,000. The Board believes this increase
is commensurate with the Company's improved financial performance during 1998.
This amount is also believed to be competitive with companies of similar size
and complexity. For 1999, Mr. Grigg has a 60% incentive opportunity under the
Company's Management Incentive Plan and a 60% incentive opportunity under the
Company's Long Range Incentive Plan.
Members of the Executive Compensation and Stock Option Committee -- Raymond P.
Sharpe, Chairman; Howard T. Hallowell, III; James F. O'Connor; Eric M.
Ruttenberg; and Harry J. Wilkinson.
16
<PAGE>
- - --------------------------------------------------------------------------------
Common Stock Performance Graph
- - --------------------------------------------------------------------------------
The graph set forth below shows the cumulative shareholder return (i.e., price
change plus reinvestment of dividends) of the Company's Common Stock during the
five-year period ended December 31, 1998, as compared to the Standard and
Poor's 500 Index and the Standard and Poor's Diversified Manufacturing Index.
Comparison of Five-Year Cumulative Total Return for
SPS, the S&P Index and the S&P Diversified
Manufacturing Index
(see Notes 1 and 2 Below)
[GRAPHIC OMITTED]
- - ------------
Notes:
(1) Total return assumes reinvestment of dividends.
(2) The above graph assumes $100 was invested on December 31, 1993 in SPS
Technologies Common Stock, the S&P 500 Index and the S&P Diversified
Manufacturing Index. The values shown in the graph above are as of the end
of each period indicated. Raw data for the S&P 500 Index and S&P
Diversified Manufacturing Index is supplied by S&P.
- - --------------------------------------------------------------------------------
Proposal to Amend the SPS 1988 Long Term Incentive Stock Plan
- - --------------------------------------------------------------------------------
The Board of Directors has reviewed the Company's compensation practices and
the 1988 Long Term Incentive Stock Plan (the "Plan") and has concluded that the
Plan should be amended, subject to approval by the shareholders of the Company,
as follows:
1. To increase by 250,000 shares of Common Stock the number of shares available
under the Plan in order to allow the continued granting of options and
restricted share awards; and
2. To change the termination date of the Plan to March 23, 2009 or until
termination by the Company's Board of Directors, whichever occurs first.
17
<PAGE>
In determining the recommended number of shares to be approved under this
proposal, the Board of Directors has established an objective of maintaining
the total number of shares under option or available for grant at or below 10%
of the total shares outstanding.
The current termination date of the Plan is April 29, 2000. The proposed new
termination date is March 23, 2009 or until termination by the Board, whichever
occurs first.
The following discussion summarizes the material features of the Plan, as
amended, and is qualified in its entirety by the Plan document, as amended, a
copy of which will be provided without charge upon written request of any
shareholder directed to the Secretary of the Company.
The Plan permits the grant of options to acquire, or the award of, up to
2,484,634 shares (in the aggregate) of the Company's Common Stock. Of such
amount, an aggregate of 1,343,258 shares have been awarded under the Plan (and
are no longer subject to forfeiture) or have been acquired upon the exercise of
options granted under the Plan, and 1,139,674 shares have been issued under the
Plan but remain subject to forfeiture or are subject to options which have been
granted and remain outstanding under the Plan. Consequently, prior to the
effectiveness of the proposed amendment of the Plan, there were 1,702 shares
available to be awarded or optioned under the Plan. The proposed amendment to
the Plan would increase the number of available shares to 251,702. Shares which
are awarded under the Plan and subsequently forfeited and shares subject to
options granted under the Plan which expire without being exercised may again
be awarded or optioned under the Plan.
The purpose of the 1988 Plan is to enable the Company to attract and retain
officers and other key employees, to encourage those employees to increase
their efforts to make the Company and its subsidiaries successful, and to
encourage ownership in the Company by employees and by non-employee directors
whose continued services are considered important to the Company's continued
progress.
Officers, non-employee directors and other key employees of the Company and its
subsidiaries may receive options and restricted share awards under the Plan.
Approximately 87 employees, including 1 employee-director, and 6 non-employee
directors are currently participating in the Plan.
The Plan is administered by the Executive Compensation and Stock Option
Committee (the "Committee") consisting of five non-employee directors appointed
by the Company's Board of Directors, who are generally not eligible to receive
discretionary grants or awards under the Plan. However, non-employee directors,
including members of the Committee, may elect to receive discounted options and
have received restricted share awards as described below.
The Committee has authority to interpret the Plan, to establish rules for its
administration, to determine which employees of the Company and its
subsidiaries shall receive options or awards under the Plan, to grant options
and make share awards under the Plan, and, subject to the terms of the Plan, to
establish the terms and conditions of options, discounted options and
restricted share awards.
Awards under the Plan may take the form of fixed price options, variable price
options, incentive stock options or restricted shares. In addition, discounted
options may be issued to non-employee directors who elect to receive such
discounted options in lieu of all or a part of their annual retainers.
18
<PAGE>
Under the Plan, a non-employee director may elect each year to receive
discounted options in lieu of all or part of the director's annual retainer.
Any such election is irrevocable and must be made prior to January 1 of the
year to which such election applies. A non-employee director making such an
election will receive, on June 1 of such year or the next following business
day, a discounted option for that number of whole shares of Common Stock as is
equal to that part of the director's "annual retainer" to be represented by the
option divided by: the result obtained by subtracting (a) the par value of one
share of Common Stock from (b) the fair market value of one share of Common
Stock. Options so issued become exercisable on the first anniversary of the
date of issuance, except that such an option can become exercisable earlier
upon the death, disability or retirement of the director. Upon the termination
of service of a non-employee director, any portion of an option attributable to
a portion of the annual retainer which was not "earned" as of the date of
termination is cancelled automatically.
Incentive stock options within the meaning of the Internal Revenue Code of
1986, as Amended (the "Code"), may be awarded to employees of the Company by
the Committee as fixed price options that qualify for the tax treatment
specified under the Code.
A restricted share award consists of shares of Company Common Stock issued
pursuant to an agreement with a participant. Such shares are restricted as to
transfer and subject to forfeiture and other conditions and vesting
restrictions as set forth in the Plan, if applicable or the Committee deems
appropriate on the date of award. Restricted share awards totaling 47,491
shares have been made under the Plan since its inception.
All fixed price options awarded under the Plan have an exercise price equal to
the fair market value of the Company's Common Stock on the date the option is
granted. The option exercise price of a discounted option is the par value of
the Company's Common Stock on the date the option is granted (presently, $0.50
per share). For variable price options, the exercise price is initially set at
the fair market value of the Company's Common Stock on the date the option is
granted, but is subject at the time of exercise to reduction by an amount per
share equal to the per share amount of the tax benefit which will inure to the
Company by reason of such exercise. The exercise price with respect to any
option (other than a discounted option issued to a non-employee director) may
be paid in whole or in part with cash or Common Stock of the Company, as the
Committee may determine. All options expire not more than ten years from the
date of grant.
The Plan provides for restricted share awards to be made to each non-employee
director of the Company. Restricted share awards were made on May 2, 1995 and
on February 10, 1997, and may be made periodically up to every five years as
the Committee may determine. Each non-employee director shall receive on each
award date the number of shares of Common Stock (to the nearest whole share)
determined by dividing $25,000 by the fair market value of the Common Stock on
the date the award is made. A person becoming a non-employee director for the
first time shall receive restricted share awards pro-rated based on the length
of time remaining until the next scheduled award date.
All restricted share awards are initially subject to forfeiture should the
participant cease to serve as a director for any reason other than scheduled
retirement, early retirement with the permission of the Board, disability or
death. One-fifth of the shares included in a restricted share award cease to be
subject to a risk of forfeiture on the first anniversary of the date of an
award and on each anniversary thereafter, until all shares awarded are no
longer subject to forfeiture. Restricted share awards are held in escrow by the
Company until restrictions lapse.
Options and restricted shares are non-transferable except by will or pursuant
to the laws of descent and distribution.
In the event of certain changes of control of the Company, all options and
restricted shares, other than discounted options issued to non-employee
directors, become immediately vested in full. See "Termination of Employment
and Change of Control Arrangements."
The number of shares under the Plan and the outstanding but unexercised options
or awards still subject to restriction, and the option exercise price, are all
subject to adjustment for changes in the Company's capitalization under
specified circumstances.
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The Board may terminate, amend and modify the Plan, but it may not, without
shareholder approval (i) increase the number of shares available under the Plan
(other than by a change in capitalization), (ii) materially increase the
benefits accruing to participants under the Plan, or (iii) materially modify
the requirements as to eligibility for participation under the Plan. No
termination, amendment or modification of the Plan will affect adversely the
rights of a participant under a previous award.
Tax Consequences
Generally, there will be no tax consequences to the optionee, the restricted
share award recipient or the Company when a stock option is granted or a
restricted share award is made under the Plan. When an option (other than an
incentive stock option) is exercised, the excess of the then fair market value
of the shares over the option price will constitute ordinary income to the
optionee, and the Company will be entitled to deduct an equal amount as
compensation expense. The exercise of an incentive stock option will result in
neither income to the optionee nor a deduction for the Company. However, the
amount by which the fair market value of the underlying Common Stock exceeds
the exercise price on the date of exercise will be treated as an item of tax
preference and included in the computation of the optionee's alternative
minimum taxable income in the year the incentive stock option is exercised. In
addition, if shares acquired through the exercise of an incentive stock option
are sold within one year following exercise, the optionee will recognize
ordinary income and the Company is entitled to deduct from taxable income an
amount equal to the difference between the option price and the lesser of the
market price on the date of exercise or the net proceeds of the sale. As to
restricted shares, upon the lapse of either the vesting or transferability
restrictions (or both if they lapse together), the participant will recognize
ordinary income equal to the then fair market value of the shares being freed
from restriction, and the Company will be entitled to a corresponding
deduction. Alternatively, the participant may elect, within thirty days after
receipt of the restricted shares, to treat the shares as non-restricted,
thereby causing the recognition of ordinary income upon receipt of the shares
in an amount equal to the fair market value of such shares without regard to
any restrictions.
The acceleration provisions on a change of control described above could
trigger adverse tax consequences to the Company and participants under Sections
280G and 4999 of the Code, including a reduction in the Company's tax
deductions and imposition of a nondeductible 20% excise tax on participants.
The foregoing is not a complete summary of income tax consequences upon
participants or the Company. It also does not reflect the effects of foreign,
state or local tax laws or wage withholding requirements.
In the event that the shareholders do not approve the amendment of the Plan,
the amendment will not take effect. The Plan as in effect prior to such
amendment will remain in full force and effect until it expires by its terms or
is terminated by the Board.
The last reported sales price of the Company's Common Stock as reported on the
New York Stock Exchange Composite Tape on March 19, 1999, was $38.69 per share.
Board Recommendation and Shareholder Vote Required
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE PLAN.
Proxies solicited by the Board of Directors, will, unless otherwise directed,
be voted FOR this proposal. The affirmative vote of a majority of the shares of
Common Stock present or represented at the meeting is necessary to approve the
proposal. Shares held by persons who abstain from voting on the proposal, and
broker "non-votes," will not be voted for or against the proposal but will have
the same effect as votes against the proposal. Shares held by persons
abstaining will be counted in determining whether a quorum is present for the
purpose of voting on the proposal, but broker non-votes will not be counted for
quorum purposes.
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Independent Accountants
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PricewaterhouseCoopers LLP, the Company's independent accountants for the year
1998, has been selected to continue for the year 1999. Representatives of
PricewaterhouseCoopers are expected to be present at the Annual Meeting with
the opportunity to make a statement if they desire to do so and to respond to
appropriate questions.
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Proposals of Shareholders
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Under the Company's By-laws, notice of any proposal to be presented by any
shareholder at a meeting must be received by the Secretary of the Company not
less than 60 days in advance of the meeting. The notice must include the
following:
o Text of the proposal to be presented;
o A brief written statement of the reasons why the shareholder favors the
proposal;
o The name and address of record of the proposing shareholder;
o A representation that the shareholder is entitled to vote at the meeting and
intends to appear at the meeting, in person or by proxy;
o The number of shares of stock beneficially owned by the shareholder; and
o Any material interest of the shareholder in the proposal (other than as a
shareholder).
A copy of the Company's By-laws specifying these requirements will be furnished
to any shareholder without charge upon written request to the Secretary.
Under the rules of the Securities and Exchange Commission, shareholders wishing
to submit proposals for inclusion in the Proxy Statement of the Board of
Directors for the Annual Meeting of Shareholders to be held in 2000 must submit
such proposals so as to be received at the office of the Secretary, SPS
Technologies, Inc., 101 Greenwood Avenue, Suite 470, Jenkintown, PA 19046, no
later than November 26, 1999. The Company's ability to exercise discretionary
voting authority with respect to shareholder proposals will be subject to
certain requirements of the Securities and Exchange Commission.
By order of the Board of Directors,
James D. Dee
Secretary
March 26, 1999
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Upon written request to the Secretary, SPS Technologies, Inc., 101 Greenwood
Avenue, Suite 470, Jenkintown, PA 19046, the Company will provide, without
charge, to any shareholder solicited hereby, a copy of its Annual Report on
Form 10-K, including the financial statements and the schedules thereto.
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