TECH/OPS SEVCON, INC.
155 NORTHBORO ROAD, SOUTHBOROUGH, MASSACHUSETTS 01772
TELEPHONE (508) 281-5510
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the annual meeting of the stockholders of
Tech/Ops Sevcon, Inc., a Delaware corporation, will be held at the offices of
Palmer & Dodge LLP, 20th Floor, 111 Huntington Avenue at Prudential Center,
Boston, Massachusetts, at 5:00 p.m. on Tuesday, January 27, 2004 for the
following purposes:
1. To elect three directors to hold office for a term of three years.
2. To approve amendments to the Company's 1996 Equity Incentive Plan as
described in the proxy statement for the meeting.
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on December 12,
2003 are entitled to notice of the meeting or to vote thereat.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR
PROXY WILL NOT BE USED.
By order of the Board of Directors,
DAVID R. POKROSS, JR.
Secretary
Dated December 29, 2003
PROXY STATEMENT
APPROXIMATE DATE OF MAILING: DECEMBER 29, 2003
INFORMATION CONCERNING THE PROXY SOLICITATION
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Tech/Ops Sevcon, Inc. (the "Company") for use at the annual
meeting of stockholders of the Company to be held on January 27, 2004 at 5:00
p.m. at the offices of Palmer & Dodge LLP, 20th Floor, 111 Huntington Avenue
at Prudential Center, Boston, Massachusetts, or any adjournments or
postponements thereof. It is subject to revocation at any time prior to the
exercise thereof by giving written notice to the Company, by submission of a
later dated proxy or by voting in person at the meeting. The costs of
solicitation, including the preparation, assembly and mailing of proxy
statements, notices and proxies, will be paid by the Company. Such
solicitation will be made by mail and in addition may be made by the officers
and employees of the Company personally or by telephone or telegram. Forms of
proxies and proxy material may also be distributed, at the expense of the
Company, through brokers, custodians and other similar parties to beneficial
owners.
On December 12, 2003, the Company had outstanding 3,125,051 shares of
Common Stock, $.10 par value, which is its only class of stock outstanding and
entitled to vote at the meeting. Stockholders of record at the close of
business on December 12, 2003 will be entitled to vote at the meeting. With
respect to all matters which will come before the meeting, each stockholder
may cast one vote for each share registered in his name on the record date.
The shares represented by every proxy received will be voted, and where a
choice has been specified, the shares will be voted in accordance with the
specification so made. If no choice has been specified on the proxy, the
shares will be voted FOR the election of the nominees as directors, and FOR
the amendments to the 1996 Equity Incentive Plan.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table provides information as to the ownership of
the Company's Common Stock as of December 12, 2003 by (i) persons known to the
Company to be the beneficial owners of more than 5% of the Company's
outstanding Common Stock, (ii) the executive officers named in the Summary
Compensation Table below, and (iii) all current executive officers and
directors of the Company as a group. Beneficial ownership by individual
directors is shown in the table on pages 3 and 4 below.
Name and Address Amount Beneficially Percent
of Beneficial Owner Owned (1) of Class
------------------- ------------------- --------
Paul D. Sonkin /
Hummingbird Management LLC (2) 396,165 (3) 12.7%
153 East 53rd Street 55th Floor
New York, New York 10022
Dr. Marvin G. Schorr 357,278 (4) 11.4%
330 Beacon Street
Boston, MA 02116
Wellington Management Company, LLP 308,000 (5) 9.9%
75 State Street
Boston, MA 02109
Bernard F. Start 235,477 (4) 7.5%
Dotland Grange
Hexham, NE46 2JY, United Kingdom
Dimensional Fund Advisors, Inc. 164,300 (6) 5.3%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Paul A. McPartlin 73,596 (7) 2.4%
Tech/Ops Sevcon, Inc.
155 Northboro Road
Southborough, MA 01772
Matthew Boyle 33,400 (8) 1.1%
Tech/Ops Sevcon, Inc.
155 Northboro Road
Southborough, MA 01772
All current executive officers and
directors as a group (8 persons) 804,381 (9) 25.7%
(1) Unless otherwise indicated, each owner has sole voting and investment
power with respect to the shares listed.
(2) As reported on Schedule 13D filed with the Securities and Exchange
Commission on April 15, 2003, Mr. Sonkin is the managing member and
control person of Hummingbird Management, LLC and of HVF Capital, which
are the investment manager and general partner, respectively, of two
investment funds, and these parties act together as a group with respect
to their shareholdings in the Company.
(3) According to the Schedule 13D, Hummingbird Management, LLC has sole
dispositive power over 394,675 of these shares, which are held by the
investment funds, and Mr. Sonkin has sole dispositive power over 1,490
shares. Mr. Sonkin and Hummingbird Management LLC share voting power over
all 396,165 shares.
(4) Includes 3,000 shares subject to stock options exercisable within sixty
days.
(5) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 12, 2003. Wellington Management Company, LLP,
stated that it had shared voting power over 216,000 shares and shared
investment power over 308,000 shares. The Company believes that
Wellington Management Company LLP has disposed of these shares during
fiscal 2003 and no longer holds a reportable position in the Company.
(6) As reported on Schedule 13G filed with the Securities and Exchange
Commission on February 7, 2003. The Company believes that Dimensional
Fund Advisers, Inc. has reduced its shareholding during fiscal 2003 and
no longer holds a reportable position in the Company.
(7) Includes 4,000 shares subject to stock options exercisable within sixty
days.
(8) Includes 32,000 shares subject to stock options exercisable within sixty
days.
(9) Includes 51,000 shares subject to stock options exercisable within sixty
days.
ELECTION OF DIRECTORS
The Company's Board of Directors has fixed the number of directors at
seven. Members of the Board of Directors are divided into three classes
serving staggered three-year terms. The terms of three of the Company's
current directors expire at the annual meeting. Dr. Marvin G. Schorr, David
R.A. Steadman and Maarten D. Hemsley, who was elected as a director in July
2003, were approved by the Nominating and Governance Committee and are the
Board's nominees for re-election to three-year terms by the stockholders at
the annual meeting. The Company is not presently aware of any reason that
would prevent any nominee from serving as a director if he is elected. If a
nominee should become unavailable for election, the proxies will be voted for
another nominee selected by the Board.
Pursuant to the Company's by-laws, directors will be elected by a
plurality of the votes properly cast at the annual meeting. Abstentions, votes
withheld and broker non-votes will not be treated as votes cast and will not
affect the outcome of the election. A "broker non-vote" occurs when a broker
holding a customer's shares indicates on the proxy that the broker has not
received voting instructions on a matter from the customer and is barred by
applicable rules from exercising discretionary authority to vote on the
matter.
The following table contains information on the three nominees for
election at the annual meeting and each other person whose term of office as a
director will continue after the meeting. The nominees for election at the
meeting are indicated by an asterisk.
Has Been No. of
a Director Common
of the Shares
Company of the Company
or its Owned
Business Experience Predeces- Beneficially on
During Past sor December 12,
Term Five Years and Tech/Ops, 2003
Name Expires Other Directorships Inc. and Percent
Since of Class (1)
Matthew Boyle 2005 President and Chief 1997 33,400
(4) Executive Officer of (1.1%)
Age - 41 the Company since (2)
November 1997. Vice
President and Chief
Operating Officer of
the Company from
November 1996 to
November 1997.
* Maarten D. Hemsley 2004 Chief Financial 2003 -
(5) Officer and a director (#)
Age - 54 (and until July 2001,
President) since 1988
of Sterling Construction
Company, Inc., a company
principally involved in
civil construction in
Texas. Fund manager at
J. O. Hambro Capital
Management Company Ltd.,
London, England, since
March 2001, with
responsibility for
Leisure & Media Venture
Capital Trust, plc.
President of Bryanston
Management Limited, a
specialized financial
services company, since
1993. Director of Nu Nu
Nurseries, plc, an
operator of children's
nurseries in the United
Kingdom, and director
of a number of US and
UK privately-held
companies.
Paul B. Rosenberg 2006 Former Treasurer of the 1988 87,480
(4)(5)(7) Company. (2.8%)
Age - 71 (3)
*Dr. Marvin G. Schorr 2004 Chairman of the Company's 1951 357,278
(4)(6)(7) Board of Directors since (11.4%)
Age - 78 January 1988. Previously (3)
Chairman of the Board of
Directors and President
of Tech/Ops, Inc., the
Company's predecessor.
Also Chairman of Helix
Technology Corporation, a
manufacturer of cryogenic
equipment.
Bernard F. Start 2006 Vice-Chairman of the 1988 235,477
Age - 65 Board since November (7.5%)
1997. President and (3)
Chief Executive Officer
of the Company from
January 1988 to November
1997.
*David R. A. Steadman 2004 President of Atlantic 1997 6,000
(5)(6)(7) Management Associates, ( # )
Age - 66 Inc., a management (3)
services firm, since 1988.
Chairman of Brookwood
Companies Incorporated, a
director of Aavid Thermal
Technologies, Inc., a
manufacturer of thermal
management products and a
director of several
privately held companies.
C. Vincent Vappi 2005 Until May 1991, Chairman 1971 11,150
(5)(6) and Chief Executive ( # )
Age - 77 Officer of Vappi & (3)
Company, Inc., a general
building contractor.
(#) Less than 1%
(1) Unless otherwise indicated, each director has sole voting and
investment power with respect to the shares listed.
(2) Includes 32,000 shares subject to stock options exercisable
within sixty days.
(3) Includes 3,000 shares subject to stock options exercisable
within sixty days.
(4) Member of the Executive Committee.
(5) Member of the Audit Committee.
(6) Member of the Compensation Committee.
(7) Member of the Nominating and Governance Committee.
During the fiscal year ended September 30, 2003, the Board of
Directors held a total of eight meetings. Each director attended more than 75%
of the total number of meetings of the Board of Directors and all committees
of the Board on which the director served.
Committees of the Board
The Board of Directors has an Audit Committee, a Compensation
Committee and a Nominating and Governance Committee, all the members of which
are independent, as defined by Securities and Exchange Commission rules and
American Stock Exchange listing standards, as applicable.
Audit Committee. The Audit Committee, which met four times during the
fiscal year ended September 30, 2003, is composed of four directors. The Board
has determined that at least one of the members of the Committee, Mr.
Rosenberg, is an "audit committee financial expert," as defined by the
Securities and Exchange Commission. The Committee selects, evaluates and
oversees the Company's independent auditors, approves any engagement of the
independent auditors to perform non-audit services, reviews the audited
financial statements and discusses the adequacy and quality of the Company's
financial reporting principles and procedures and its internal controls with
management and the auditors. The Committee operates under a written charter, a
copy of which, as revised by the Board in November 2003, is attached as
Appendix 1. The Audit Committee's report appears on page 15.
Compensation Committee. The Compensation Committee, which met twice
during the fiscal year ended September 30, 2003, reviews and recommends to the
Board the annual salary, bonus, stock options and other benefits of the senior
executives. The Committee also administers the Company's Equity Incentive
Plan. The Compensation Committee's report appears on page 8.
Nominating and Governance Committee. Until the 2003 annual meeting,
the full Board acted as a nominating committee. The Board has appointed the
Nominating and Governance Committee, which has recommended the nominees named
above for election at the 2004 meeting. The Nominating and Governance
Committee approves nominations to the Board and recommends to the Board of
Directors' action related to Board composition, size and effectiveness and
management succession plans for the positions of Chairman of the Board and
Chief Executive Officer.
Director Compensation
Directors of the Company (except Mr. Boyle) are each paid $14,500 a
year for their services. The Chairmen of the Audit Committee (Mr. Rosenberg in
2003) and Compensation Committee (Mr. Steadman in 2003), each receive an
additional $1,000 a year.
Under the Company's 1998 Director Stock Option Plan, on January 28,
1998, Messrs. Rosenberg, Schorr, Start, Steadman and Vappi were each granted
an option for 5,000 shares of Common Stock at a price of $15.1875 per share,
the fair market value of the Common Stock at that date. On his election to the
board on July 21, 2003, Mr. Hemsley was granted an option for 5,000 shares of
Common Stock at a price of $5.40 per share, the fair market value of the
Common Stock at that date. All of the director options will expire 90 days
after the tenth anniversary of the date of grant and will become exercisable
in equal 500 share amounts on each of the first ten anniversaries of the date
of grant. All outstanding options issued under the Plan become immediately
exercisable in full in the event of a "Change in Control" of the Company (as
defined in the Plan).
The Company proposes to discontinue the 1998 Plan and provide for any
future grants of options or other equity to non-employee directors under the
1996 Equity Incentive Plan, as described below.
EXECUTIVE COMPENSATION
The following tables provide information for the last three fiscal
years concerning the compensation of each of the executive officers of the
Company whose total compensation exceeded $100,000 in the most recent fiscal
year, and the value of unexercised stock options held by him at the end of
such years.
Summary Compensation Table
Long-Term
Fiscal Annual Compensation Compensation
Name and Principal Year Awards
Position Other Annual Securities
Salary Bonus Compensation Underlying
(1) Options (#)
Matthew Boyle 2003 $189,213 $ - - 20,000
President and 2002 $186,388 $ - - 10,000
Chief Executive 2001 $182,750 $ - - -
Officer
Paul A. McPartlin 2003 $113,420 $ - $13,122 10,000
Vice President, 2002 $100,190 $ - $ 9,948 -
Chief Financial 2001 $ 93,671 $ - $ 9,671 -
Officer and
Treasurer
(1) Company owned automobile
Option Grants in Last Fiscal Year
The following table shows all stock options granted to the named
executive officers of the Company during the fiscal year ended September 30,
2003:
Potential
Percent Realizable Value
of Total At Assumed
Number of Options Annual Rates
Securities Granted to Exercise of Stock Price
Underlying Employees or Base Appreciation
Options in Fiscal Price Expiration for Option Term
Name Granted (#) Year ($\Sh) Date 5% ($) 10% ($)
---- ---------- ---------- ------- ---------- ------- --------
Matthew Boyle (a) 20,000 26% $4.37 4/30/2013 $55,000 $139,000
Paul A. McPartlin
(b) 10,000 13% $4.37 4/30/2013 $27,000 $ 70,000
(a) These options become exercisable with respect to 2,000 shares on each
anniversary of the grant date (February 28, 2013 in the case of the
last 2,000 shares) or earlier with respect to all shares upon a change
in control of the Company, as defined in the option grant.
(b) These options become exercisable with respect to 2,000 shares on each
anniversary of the grant date or earlier with respect to all shares
upon a change in control of the Company, as defined in the option
grant.
Aggregated Options Exercises During Fiscal 2003 and Fiscal Year-End Option
Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Number of Options Options
Shares At 9/30/2003 at 9/30/2003(a)
acquired on Value Exercisable/ Exercisable/
Name exercise realized Unexercisable Unexercisable
---- ----------- -------- --------------- ---------------
Matthew Boyle - - 26,000 / 54,000 $ - / $80,600
Paul A. McPartlin - - 3,000 / 12,000 $ - / $40,300
(a) Based on the difference between the option exercise price and the
closing price of the underlying Common Stock on September 30, 2003,
which closing price was $5.95 per share.
Retirement Plan
Mr. Boyle and Mr. McPartlin participate in the Company's U.K.
Retirement Plan, a defined benefit plan, under which benefits at age 65 are
based upon 1/60th of final U.K. - base salary (as defined) for each year of
service, subject to a maximum of 2/3rds of final U.K. - base salary. A
spouse's pension of 50% of the employee's pension is payable beginning at the
death of the employee either before or during retirement. Pension payments
escalate by at least 3% per year, compounded, and at a higher rate in certain
circumstances. The employee contributes 5% (4% in 2001) of base salary, with
the balance of the cost being met by the Company.
The following table sets forth information concerning the annual
benefits payable to the employee pursuant to the U.K. Retirement Plan upon
retirement at age 65 for specified compensation levels and years of service
classifications. Benefits under the U.K. Retirement Plan are computed solely
on the U.K. base salary of participants, exclusive of bonuses, incentive and
other compensation, and are not reduced on account of U.K. Social Security
entitlement.
U.K. Retirement Plan Table
Average Annual
Earnings on Estimated Annual Pension Based on
which Retire- Years of Service Indicated
ment Benefits
are based 15 years 20 years 25 years 30 years 35 years
-------------- -------- -------- -------- -------- --------
$ 100,000 $ 25,000 $ 33,300 $ 41,700 $ 50,000 $ 58,300
125,000 31,300 41,700 52,100 62,500 72,900
150,000 37,500 50,000 62,500 75,000 87,500
175,000 43,800 58,300 72,900 87,500 102,100
200,000 50,000 66,700 83,300 100,000 116,700
225,000 56,300 75,000 93,800 112,500 131,300
250,000 62,500 83,300 104,200 125,000 145,800
275,000 68,800 91,700 114,600 137,500 160,400
300,000 75,000 100,000 125,000 150,000 175,000
Credited years of service at September 30, 2003 were 7 for Mr. Boyle
and 27 for Mr. McPartlin. The compensation of Mr. Boyle and Mr. McPartlin is
entirely U.K. based.
COMPENSATION COMMITTEE REPORT
The Company's compensation program is designed to motivate and retain
employees by encouraging and rewarding performance. The program is
administered by the Compensation Committee of the Board of Directors (the
"Committee"), consisting of three independent directors who are not employees
of the Company. The Committee regularly reviews and approves generally all
compensation and fringe benefit programs of the Company, and also reviews and
determines the base salary and incentive compensation of the executive
officers, as well as stock option grants to all employees. All compensation
actions taken by the Committee are reported to the full Board of Directors,
which, excluding employee directors, approves the actions of the Committee.
The Committee also reviews and makes recommendations to the Board on policies
and programs for the development of management personnel, as well as
management structure and organization. The Committee administers the Company's
Equity Incentive Plan.
The Company is now proposing to modify its approach to providing
equity incentives in response to changing business needs and financial
accounting requirements, as described below under "Approval of Amendments to
1996 Equity Incentive Plan." However, historically, the Company has used
stock options as an important incentive to motivate executive officers and
other key employees for improved long-term performance of the Company. When
granting options the Committee has considered stock ownership, options
currently held and options previously granted although it has not set specific
levels of ownership for such grants. In April 2003 Mr Boyle, the President and
Chief Executive Officer, was granted options to purchase 20,000 shares of
common stock and Mr McPartlin, the Chief Financial Officer, was granted
options to purchase 10,000 shares of common stock. Options over a total of
77,000 shares were granted to 12 employees during fiscal 2003.
The Committee believes that the combination of salary and incentive
compensation is the best method for compensating its executive officers and
senior managers to promote uniform excellence, long-term commitment and team
performance. Management salaries are determined based upon individual
performance, level of responsibility and experience. The Committee reviews
these salaries annually and measures them against compensation data obtained
from published compensation surveys and surveys that the Committee makes of a
group of peer companies. The Committee believes that the salaries of the
Company's executive officers are within the range of these surveys. The peer
companies are generally of about the same size as the Company and are in
technical, rather than consumer or distribution fields. The Company believes
that its competitors for executive talent are not necessarily companies which
engage in the same business as the Company and, therefore, the companies used
for comparative compensation purposes differ from the companies included in
the Industrial Controls Industry Index.
The recommended base salary and incentive compensation award for the
President is determined each year by the Committee based upon its subjective
assessment of the overall financial performance of the Company and the
performance of the President relative to corporate objectives and other
factors. In the light of the Company's financial performance during the prior
year Mr. Boyle's base salary during fiscal 2003 increased to $190,000, up 1.7%
from the prior year. No bonuses were awarded to the Company's executive
officers for performance in fiscal 2003.
Members of the Compensation Committee
Marvin G. Schorr
David R. A. Steadman, Chairman
C. Vincent Vappi
PERFORMANCE GRAPH
The following graph compares the cumulative total return (change in
stock price plus reinvested dividends) assuming $100 invested in the Common
Stock of the Company, in the American Stock Exchange ("AMEX") Market Value
Index, and in the Media General Industrial Controls Sector Index during the
period from September 30, 1998 through September 30, 2003.
Value of Investment at September 30,
---------------------------------------
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
Tech/Ops Sevcon, Inc. 100 69 82 68 38 52
AMEX Market Value Index 100 116 139 104 113 140
Media General Industrial Controls
Sector Index 100 110 124 166 225 219
Assumes $100 invested on September 30, 1998 in each of the Company's Stock,
the AMEX Market Value Index, and the Media General Industrial Controls Sector
Index.
APPROVAL OF AMENDMENTS TO 1996 EQUITY INCENTIVE PLAN
The Board of Directors is seeking stockholder approval of changes to the
Company's 1996 Equity Incentive Plan that are intended to permit more
effective performance measures for equity compensation, reduce the cost of
equity compensation on the Company's financial statements should equity
compensation expensing become mandatory, reduce the administrative costs of
plan administration, permit improved tax treatment for employees who receive
equity compensation, and help the Company attract highly qualified directors.
As described in more detail below, the changes to the Equity Incentive
Plan include authority to set performance criteria for receipt of awards,
permit issuing restricted stock units, and permit the exchange of stock
options presently outstanding under the Equity Incentive Plan for restricted
stock or restricted stock units having an equivalent value. The Company also
proposes to issue any future equity compensation to non-employee directors
under the Equity Incentive Plan, rather than under the 1998 Directors Stock
Option Plan. The shares remaining in the Directors Plan that were previously
authorized by the stockholders would be issuable under the Equity Incentive
Plan, but the Company is not otherwise seeking an increase in the number of
shares issuable under the Equity Incentive Plan.
The Current Plans
The Company has relied on the Equity Incentive Plan since 1996 as an
important tool to attract and retain key employees and consultants of the
Company, to provide an incentive for them to achieve long-range performance
goals, and to enable them to participate in the long-term growth of the
Company. Approximately 14 key employees are currently eligible to participate
in the Equity Incentive Plan, which is administered by a committee of not less
than three members of the Board of Directors (the "Committee"), currently the
Compensation Committee. In addition, the Company has granted stock options to
non-employee directors under the Directors Plan, the purpose of which is to
align their interests with those of the stockholders by increasing the
proprietary interest of the directors in the Company's growth and success and
to attract and retain well-qualified persons to serve as directors. Six non-
employee directors currently participate in the Plan.
Summary of Proposed Changes
- The following are the principal changes to the Equity Incentive Plan
approved by the Board of Directors:
- The Committee will be explicitly authorized to set performance goals to
be met before options could become exercisable or other awards could be
earned.
- The types of awards available under the Equity Incentive Plan will be
expanded to include restricted stock units, which are described under
"Description of Awards" below.
- The Committee will be granted the express authority to exchange the stock
options outstanding as of the Annual Meeting under the Equity Incentive Plan
and the Directors Plan for restricted stock, restricted stock units, stock
options, stock appreciation rights or cash having an equivalent value without
further stockholder approval.
- Several plan provisions would be made clearer (e.g., the use of so-called
"cashless," or "broker-assisted," option exercises, express authorization for
performance-vesting of awards, and clearer authority for the Committee to set
terms that improve the tax treatment of awards for foreign nationals).
- Loans to directors and executive officers under the Equity Incentive Plan
for the exercise of options or the purchase of shares will be prohibited.
- No new options will be granted under the Directors Plan, the shares
remaining under that plan will become issuable under the Equity Incentive
Plan, and non-employee directors will become eligible to participate in the
Equity Incentive Plan. All currently outstanding director options will be
unaffected.
- The Equity Incentive Plan will have a term of ten years from the date of
the Annual Meeting.
A copy of the amended Equity Incentive Plan is included as Appendix II to this
proxy statement.
Reasons for the Changes
The Board recommends that the Company's stockholders approve the
amendments to the Equity Incentive Plan for the following reasons:
- The Board believes that it is important to provide the Committee with a
clear means to set performance goals for options to become exercisable or
other awards earned so that it has another tool to effectively tie employee
rewards to stockholder benefits.
- Stockholder approval of the business criteria upon which objective
performance goals may be established by the Committee would permit the company
to take tax deductions for performance-based awards to certain executive-level
employees under Section 162(m) of the tax code.
The rules for accounting for the expense of equity compensation are
expected to change in 2005, making it more advantageous to the Company to use
awards other than stock options.
- Employees and directors may be better served from a tax perspective by
the grant of restricted stock units in the U.S. and abroad.
- Approximately 58% of the outstanding options under the two Plans have
exercise prices that exceed the fair market value of the Company's Common
Stock, in most cases substantially. The Company believes that these are viewed
as providing little or no incentive by the holders. For equity awards to
continue to motivate and retain the Company's key employees and directors, the
Committee needs the flexibility to permit participants to exchange underwater
options for new awards that have an incentive component. The Company does not
intend simply to reduce the exercise price of existing options. Instead, the
Company would exchange existing options for new awards having an aggregate
current value (determined using the Black-Scholes or other established
valuation methods) equivalent to the awards being surrendered.
- The use of a single plan going forward should reduce administrative
costs.
- Periodic equity grants that reflect the cyclical nature of the Company's
business, as are permitted under the Equity Incentive Plan, are more
attractive to prospective non-employee directors than the one-time awards
(upon commencement of initial service and never thereafter) that are provided
under the Directors Plan.
Description of Awards
The amended Equity Incentive Plan provides for the following four basic
types of awards:
Restricted Stock. The Committee may grant shares of Common Stock that are only
earned if specified conditions, such as a completing a term of employment or
satisfying pre-established performance goals, are met and that are otherwise
subject to forfeiture.
Restricted Stock Units. The Committee may grant the right to receive shares of
Common Stock in the future, also based on meeting specified conditions and
subject to forfeiture. These awards are to be made in the form of "units,"
each representing the equivalent of one share of Common Stock, although they
may be settled in either cash or stock. Restricted stock unit awards
represent an unfunded and unsecured obligation of the Company. In the
discretion of the Committee, units may be awarded with rights to the payment
of dividend equivalents.
Stock Options. The Committee may grant options to purchase shares of Common
Stock that are either incentive stock options (ISOs) eligible for the special
tax treatment described below or nonstatutory stock options. No option may
have an exercise price that is less than the fair market value of the Common
Stock on the date of grant or a term of more than ten years. An option may be
exercised by the payment of the option price in cash or with such other lawful
consideration as the Committee may determine, including by delivery of a note
(other than for a director or executive officer) or shares of Common Stock
valued at their fair market value on the date of delivery.
Stock Appreciation Rights. The Committee may grant Stock Appreciation Rights
(SARs), where the participant receives cash, shares of Common Stock or other
property, or a combination thereof, as determined by the Committee, equal in
value to the difference between the exercise price of the SAR and the fair
market value of the Common Stock on the date of exercise. SARs may be granted
in tandem with options (at or after award of the option) or alone and
unrelated to an option. SARs in tandem with an option terminate to the extent
that the related option is exercised, and the related option terminates to the
extent that the tandem SAR is exercised. The exercise price of an SAR may not
be less than the fair market value of the Common Stock on the date of grant or
in the case of a tandem SAR, the exercise price of the related option.
Awards under the Equity Incentive Plan may contain such terms and conditions
consistent with the Plan as the Committee in its discretion approves. In
setting the terms of each award, except as noted above, the Committee has full
discretion to determine the number of shares or units subject to the award,
the exercise price or other consideration, if any, to be paid by the
participant, the term and exercise period of each option granted, the
conditions under which and the time or times at which an option becomes
exercisable or under which the option, shares or units may be forfeited to the
Company, and the other terms and conditions of the award. The Committee may
provide, at the time an award is made or at any time thereafter, for the
acceleration of a participant's rights or cash settlement upon a change in
control of the Company. The terms and conditions of awards need not be the
same for each participant. In general, the Committee has discretion to
administer the Equity Incentive Plan in the manner that it determines, from
time to time, is in the best interest of the Company. The Committee has not
granted any SARs, restricted stock, or restricted stock units under the Equity
Incentive Plan.
The maximum aggregate number of shares that may be granted to an Equity
Incentive Plan participant in any calendar year is 60,000 shares, subject to
adjustment for changes in capitalization. Incorporation of this limit is
intended to qualify awards as performance-based compensation that is not
subject to the $1 million limit on the Federal income tax deduction the
Company may take for compensation paid to certain senior officers.
Shares Available for Issuance under the Plan
The Company's stockholders have authorized a total of 279,000 shares of
Common Stock for issuance under the Equity Incentive Plan. Since 1996, the
Company has granted options to purchase 205,500 shares, of which options to
purchase 42,500 shares were subsequently cancelled on termination of
employment and returned to the Plan. There remain 116,000 shares available
for awards in this Plan. The stockholders have approved a total of 50,000
shares of Common Stock for issuance under the Directors' Plan. Since 1998,
the company has granted options to purchase 40,000 shares, of which 10,000
options were subsequently cancelled on termination of service and returned to
the Plan. There remain 20,000 shares available for awards in the Directors
Plan. As described above, these shares will become issuable under the amended
Equity Incentive Plan. The number and kind of shares that may be issued under
the Equity Incentive Plan are subject to adjustment to reflect stock
dividends, recapitalizations or other changes affecting the Common Stock. If
any award expires or is terminated unexercised or settled in a manner that
results in fewer shares outstanding than were initially awarded, the shares
that would have been issuable will again be available for award under the
plan.
Amendment
The Board may amend the Equity Incentive Plan subject any stockholder approval
required to comply with any applicable tax or regulatory requirement. The
Committee has authority to amend outstanding awards, including changing the
date of exercise and converting an incentive stock option to a nonstatutory
option, if the Committee determines that such action would not adversely
affect the participant.
U.S. Federal Income Tax Consequences Relating to Awards
Incentive Stock Options. An optionee does not realize taxable income for
regular tax purposes upon the grant or exercise of an ISO under the Plan. If
no disposition of shares issued to an optionee pursuant to the exercise of an
ISO is made by the optionee within two years from the date of grant or within
one year from the date of exercise, then (a) upon sale of such shares, any
amount realized in excess of the option price (the amount paid for the shares)
is taxed to the optionee as long-term capital gain and any loss sustained will
be a long-term capital loss, and (b) no deduction is allowed to the Company
for Federal income tax purposes. The exercise of ISOs gives rise to an
adjustment in computing alternative minimum taxable income that may result in
alternative minimum tax liability for the optionee in the year of option
exercise. Under current tax laws, the optionee would pay the greater of the
regular tax liability or the alternative minimum tax liability. In certain
circumstances, optionees may recover all or substantially all of the
alternative minimum tax liability created due to the exercise of an ISO in
later tax years, including the year of sale of the shares. If shares of
Common Stock acquired upon the exercise of an ISO are disposed of before the
expiration of the two-year and one-year holding periods described above (a
"disqualifying disposition"), then (a) the optionee realizes ordinary income
in the year of disposition in an amount equal to the excess (if any) of the
fair market value of the shares at exercise (or, if less, the amount realized
on a sale of such shares) over the option price thereof, and (b) the Company
is entitled to deduct such amount. Any further gain realized is taxed as a
short or long-term capital gain and does not result in any deduction to the
Company. A disqualifying disposition in the year of exercise will generally
avoid the alternative minimum tax consequences of the exercise of an ISO.
Nonstatutory Stock Options. No income is realized by the optionee at the time
a nonstatutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the
option price and the fair market value of the shares on the date of exercise,
and (b) the Company receives a tax deduction for the same amount. Upon
disposition of the shares, appreciation or depreciation after the date of
exercise is treated as a short or long-term capital gain or loss and will not
result in any further deduction by the Company.
Restricted Stock. Generally, a recipient will be taxed at the time the
conditions to earning the award are met. The excess of the fair market value
of the shares at that time over the amount paid, if any, by the recipient for
the shares will be treated as ordinary income. The recipient may instead
elect at the time of grant to be taxed (as ordinary income) on the excess of
the then fair market value of the shares over the amount paid, if any, for the
shares. In either case, the Company receives a tax deduction for the amount
reported as ordinary income to the recipient. Upon disposition of the shares,
any appreciation or depreciation after the taxable event is treated as a short
or long-term capital gain or loss and will not result in any further deduction
by the Company.
Restricted Stock Units. A recipient does not realize taxable income upon the
grant or vesting of a restricted stock unit. The recipient must include as
ordinary income when an award is settled an amount equal to the excess of the
fair market value of the shares (or the amount of cash) distributed to settle
the award. The Company receives a corresponding tax deduction at the time of
settlement. If the award is settled in shares, then any subsequent
appreciation or depreciation is treated as short or long-term capital gain or
loss and will not result in any further deduction by the Company.
Internal Revenue Code Section 162(m). United States tax laws generally do not
allow publicly-held companies to obtain tax deductions for compensation of
more than $1 million paid in any year to any of the five most highly paid
executive officers (each, a "covered person") unless the compensation is
"performance-based" as defined in the Section 162(m) of the tax code. Stock
options and SARs granted under an equity compensation plan are performance-
based compensation if (i) stockholders approve a maximum aggregate per person
limit on the number of shares that may be granted each year, (ii) any stock
options or SARs are granted by a committee consisting solely of outside
directors, and (iii) the stock options or SARs have an exercise price that is
not less than the fair value of common stock on the date of grant.
In the case of restricted stock and restricted stock units, Section
162(m) requires that the general business criteria of any performance goals
that are established by the committee be approved and periodically reapproved
by stockholders in order for such awards to be considered performance-based
and deductible by the employer. Generally, the performance goals must be
established before the beginning of the relevant performance period.
Furthermore, satisfaction of any performance goals during the relevant
performance period must be certified by the committee.
The Compensation Committee has approved the following list of business
criteria upon which it may establish performance goals for deductible
performance-based awards made to covered persons: (i) increases in the price
of the Common Stock; (ii) market share; (iii) sales; (iv) revenue; (v) return
on equity, assets, or capital; (vi) economic profit (economic value added);
(vii) total shareholder return; (viii) costs; (ix) expenses; (x) margins; (xi)
earnings or earnings per share; (xii) cash flow; (xiii) customer satisfaction;
(xiv) operating profit; or (xv) any combination of the foregoing, including
without limitation goals based on any of such measures relative to appropriate
peer groups or market indices. Performance goals may be particular to a
participant or may be based, in whole or in part, on the performance of the
division, department, line of business, subsidiary, or other business unit in
which the participant works, or on the performance of the Company generally.
Stockholder approval of these business criteria will enable the Company to
realize a full income tax deduction for awards under the plan, if any, where
the deduction would otherwise be restricted.
Option Grants and Outstanding Options.
Under the Equity Incentive Plan to date, the Company has granted stock options
to purchase shares of Common Stock in the following amounts: (i) to Matthew
Boyle, President and Chief Executive Officer, 80,000 shares, (ii) to Paul A.
McPartlin, Vice President and Chief Financial Officer, 15,000 shares, (iii) to
all current executive officers as a group (2 persons), 95,000 shares, and (iv)
and to all other employees as a group, 110,500 shares. No one other than
Messrs. Boyle and McPartlin has been granted more than 5% of the options
granted under the Equity Incentive Plan. Grants under the Directors' Plan
have been made as described above under "Election of Directors - Director
Compensation."
Outstanding Options
The following table sets out the status of Securities authorized for issuance
under equity compensation plans at September 30, 2003.
------------------------------------------------------------------------------
Plan Category Number of Weighted- Number of Number of
securities average securities securities
to be exercise remaining remaining
issued upon price of available available
exercise of outstanding for future for future
outstanding options, issuance issuance
options warrants under equity under equity
warrants and rights compensation compensation
and rights plans plans
(excluding (excluding
securities securities
reflected in reflected in
column (a) at column (a) at
end of year beginning of
year
------------------------------------------------------------------------------
(a) (b) (c) (d)
------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders:
1996 Equity
Incentive Plan 163,000 $8.51 116,000 39,500
1998 Director Stock
Option Plan 30,000 $13.56 20,000 25,000
------------------------------------------------------------------------------
Sub Total 193,000 $9.29 136,000 64,500
------------------------------------------------------------------------------
Equity compensation
plans not approved
by security holders - - - -
------------------------------------------------------------------------------
Total 193,000 $9.29 136,000 64,500
------------------------------------------------------------------------------
The closing price of the Common Stock on the American Stock Exchange on
December 12, 2003 was $5.15
Vote Required
Approval of the amendment and restatement of the Equity Incentive Plan will
require the affirmative vote of a majority of the shares of Common Stock
present or represented and entitled to vote at the annual meeting. Broker
non-votes will not be counted as present or represented for this purpose and
accordingly will have no effect on the outcome. Abstentions will be counted
as present and entitled to vote and accordingly will have the effect of
negative votes.
The Directors recommend a vote FOR this proposal.
AUDIT COMMITTEE REPORT
In the course of its oversight of the Company's financial reporting
process, the Audit Committee of the Board of Directors has (i) reviewed and
discussed with management the Company's audited financial statements for the
fiscal year ended September 30, 2003, (ii) discussed with Grant Thornton LLP,
the Company's independent auditors, the matters required to be discussed by
Statement on Accounting Standard No. 61, Communication with Audit Committees,
and (iii) received the written disclosures and the letter from Grant Thornton
LLP required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and discussed with Grant Thornton LLP its
independence.
Based on the foregoing review and discussions, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2003 for filing with the Securities and Exchange Commission.
Members of the Audit Committee
Paul B. Rosenberg, Chairman
Maarten D. Hemsley
David R. A. Steadman
C. Vincent Vappi
AUDITORS
The Company dismissed Arthur Andersen LLP ("Andersen") as its
independent accountants on May 30, 2002. The Company's Audit Committee and
Board of Directors approved this action, which was reported in the Company's
Form 8-K filed with the Securities and Exchange Commission on June 5, 2002.
Andersen's reports on financial statements of the Company for the year
ended September 30, 2001 did not contain an adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles. During the year ended September 30, 2001 and the
interim period between September 30, 2001 and May 30, 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of
Andersen, would have caused it to make reference to the subject matter of the
disagreements in connection with its report. During the year ended September
30, 2001 and the interim period between September 30, 2001 and May 30, 2002,
there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation
S-K).
The Company was unable, after reasonable efforts, to have Arthur
Andersen review and respond to the above disclosure; however, Arthur Andersen
provided a letter dated June 5, 2002 stating that it was in agreement with the
disclosure included in the paragraphs of Item 4 of the Form 8-K, which
disclosure is the same as the disclosure in the preceding paragraph.
On June 26, 2002, the Company engaged Grant Thornton LLP as its new
independent accountant. The Company's Audit Committee and Board of Directors
approved this action. During the year ended September 30, 2001 and the interim
period between September 30, 2001 and June 26, 2002, the Company did not
consult with Grant Thornton LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, (ii) the
type of audit opinion that might be rendered on the Company's financial
statements or (iii) any matter that was either the subject of a disagreement
(as described above) or a reportable event.
Representatives of Grant Thornton LLP are expected to be present at
the meeting with an opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
The fees billed by Grant Thornton LLP, the Company's principal
accountant, for each of the last two fiscal years are set out below:
------------------------------------------------------------------------------
(in thousands of dollars)
------------------------------------------------------------------------------
2003 2002
------------------------------------------------------------------------------
Audit fees $ 125 $ 79
Audit-Related fees 4 4
Tax fees 29 26
All other fees - -
------------------------------------------------------------------------------
Total $ 158 $ 109
------------------------------------------------------------------------------
The audit-related fees in both 2003 and 2002 relate to the audit
of the pension plan for the Company's UK subsidiary. The tax-related fees are
for the filing of the Company's tax returns in both the United States and the
United Kingdom.
All of the above fees were approved by the Audit Committee before
the respective engagements were undertaken. The Company has not adopted pre-
approval policies and procedures relating to non-audit services.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
In order for a stockholder proposal to be considered for inclusion in
the Company's proxy materials for the annual meeting in 2005, it must be
received by the Company at 155 Northboro Road, Southborough, Massachusetts
01772, Attention: Treasurer, no later than August 29, 2004.
ADVANCE NOTICE PROVISIONS FOR
STOCKHOLDER PROPOSALS AND NOMINATIONS
The by-laws of the Company provide that in order for a stockholder to
bring business before or propose director nominations at an annual meeting,
the stockholder must give written notice to the Secretary or other specified
officer of the Company not less than 50 days nor more than 75 days prior to
the meeting, except that if notice thereof is mailed to stockholders or
publicly disclosed less than 65 days in advance, the notice given by the
stockholder must be received not later than the 15th day following the day on
which the notice of such annual meeting date was mailed or public disclosure
made, whichever occurs first. The notice must contain specified information
about the proposed business or each nominee and the stockholder making the
proposal or nomination.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and persons owning more than 10% of our
registered equity securities to file with the Securities and Exchange
Commission reports of their initial ownership and of changes in their
ownership of our common stock and to provide us with copies of all Section
16(a) reports they file.
Based on a review of the reports filed by such persons with respect to
our last fiscal year, the Company believes that all its executive officers and
directors have complied with the Section 16(a) filing requirements. The
shareholder group comprised of Paul D. Sonkin, Hummingbird Management LLC and
related entities filed late its initial report of beneficial ownership and a
report covering two subsequent purchases of shares. The initial report omitted
certain shares and has since been corrected.
OTHER BUSINESS
The Board of Directors does not know of any business which will come
before the meeting except the matters described in the notice. If other
business is properly presented for consideration at the meeting, the enclosed
proxy authorizes the persons named therein to vote the shares in their
discretion.
Dated December 29, 2003
APPENDIX 1
TECH/OPS SEVCON, INC
CHARTER
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE:
The principal purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibility to oversee the Company's accounting
and financial reporting processes and audits of the Company's financial
statements, including by reviewing the financial reports and other financial
information provided by the Company, the Company's disclosure controls and
procedures and internal accounting and financial controls, and the annual
independent audit process.
In discharging its oversight role, the Audit Committee is granted all
responsibilities and authority required by SEC Rule 10A-3, including without
limitation the authority to investigate any matter brought to its attention,
with full access to all books, records, facilities and personnel of the
Company, and the authority to engage independent counsel and other advisers,
as the Committee determines necessary to carry out its duties.
The outside auditor is ultimately accountable to the Board and the Committee,
as representatives of the stockholders. In this connection, the Committee, as
a committee of the Board, shall be directly responsible for the appointment,
compensation and oversight of the work of the outside auditor in preparing or
issuing an audit report or related work, including resolving any disagreements
between Management and the outside auditor regarding financial reporting.
The Committee shall receive direct reports from the outside auditor. The
Committee shall be responsible for overseeing the independence of the outside
auditor and for approving all auditing services and permitted non-audit
services provided by the outside auditor.
The Committee will annually assess its own performance and review and assess
the adequacy of this charter and recommend any changes to the Board
MEMBERSHIP AND TERM OF APPOINTMENT:
The Audit Committee shall consist of not less than three Directors. A
chairperson and the Committee members shall be elected annually by the
affirmative vote of at least a majority of the independent Directors.
All Committee members shall be independent Directors:
- Who have no relationship to the Company that may interfere with the
exercise of their independent judgment;
- Who do not receive, directly or indirectly, any consulting, advisory or
other compensatory fee from the Company, other than in the member's capacity
as a member of the Board or any of its committees;
- Who are not "affiliated persons" (as defined by applicable law or
regulation) of the Company or any subsidiary, other than as members of the
Board or any of its committees; and
- Who are financially literate.
In addition, at least one member of the Committee will have accounting or
related financial management expertise, and, to the extent practicable, be an
"audit committee financial expert" as that term is defined by the SEC.
QUORUM AND VOTING:
At the meetings of the Audit Committee, the presence of a majority of all
members shall be necessary to constitute a quorum for the transaction of
business, and the affirmative vote of a majority of all members shall be
necessary to take any action. The responsibilities of the committee may, to
the extent permitted by applicable law and Amex rules, be delegated to one or
more members of the committee.
RULES:
The Audit Committee may adopt such rules and regulations, not inconsistent
with law nor with the provisions of the Certificate of Incorporation or the
By-Laws, or of any applicable resolution of the Board of Directors, for the
calling and holding of meetings of the Committee and for the transaction of
business at such meetings, as the Committee may deem necessary and desirable.
The Committee shall keep regular minutes of its proceedings, and shall report
the same to the next meeting of the Board of Directors.
RESOURCES AND AUTHORITY:
The Audit Committee shall be provided with the necessary resources, including
staff and administrative support and periodic education, by the Company to
effectively discharge its duties and responsibilities assigned by the Board of
Directors. The Audit Committee shall have the discretion to institute
investigations of improprieties or suspected improprieties, including the
standing authority to retain special counsel or other staff, with full access
to all books, records, facilities and personnel of the Company. The Audit
Committee shall have full authority to approve funding by the Company for the
payment of compensation to outside auditors and any independent counsel or
other advisors retained by the Committee.
KEY RESPONSIBILITIES:
The Audit Committee's role is one of oversight, and it is recognized that
Management is responsible for preparing the Company's financial statements,
and that the outside auditor is responsible for auditing those financial
statements.
The common recurring activities of the Committee in carrying out its oversight
role shall include the following functions, which are set forth as a guide and
may be varied and supplemented from time to time as appropriate under the
circumstances.
- The Committee shall meet at least quarterly and shall call special
meetings, as circumstances require. When appropriate, the Audit Committee
shall meet with legal counsel to discuss legal matters that may have an impact
on the Company's financial statements.
- The Committee shall periodically discuss with Management and the outside
auditor the quality and adequacy of the Company's internal controls and
internal auditing procedures, including any significant deficiencies in the
design or operation of those controls which could adversely affect the
Company's ability to record, process, summarize and report financial data and
any fraud, whether or not material, that involves Management or other
employees who have a significant role in the Company's internal controls, and
discuss with the outside auditor how the Company's financial systems and
controls compare with industry practices.
- The Committee shall periodically review the adequacy and effectiveness of
the Company's disclosure controls and procedures.
- The Committee shall review with Management and the outside auditor the
audited financial statements to be included in the Company's Annual Report on
Form 10-K and the Annual Report to Stockholders, and shall review and consider
with the outside auditor the matters required to be discussed by Statements on
Auditing Standards No. Numbers 61 Communication with Audit Committees and 90
Audit Committee Communications.
- If necessary, the Committee shall review as a whole, or through the
Committee chair, with the outside auditor, prior to filing with the SEC, the
Company's interim financial information to be included in the Company's
Quarterly Reports on Form 10-Q and the matters required to be discussed by SAS
Nos. 61 and 90.
- The Committee shall periodically review with Management and the outside
auditor the quality, as well as acceptability, of the Company's accounting
policies, and discuss with the outside auditor how the Company's accounting
policies compare with those in the industry and all alternative treatments of
financial information within generally accepted accounting principles that
have been discussed with Management, the ramifications of use of such
alternative disclosures and treatments, and the treatment preferred by the
outside auditor.
- The Committee shall periodically discuss with the outside auditor whether
all material correcting adjustments identified by the outside auditor in
accordance with generally accepted accounting principles and the rules of the
SEC are reflected in the Company's financial statements.
- The Committee shall review with Management and the outside auditor any
material financial or other arrangements of the Company which do not appear on
the Company's financial statements, and any transactions or courses of dealing
with third parties that are significant in size or involve terms or other
aspects that differ from those that would likely be negotiated with
independent parties, and which arrangements or transactions are relevant to an
understanding of the Company's financial statements.
- The Committee shall review with Management and the outside auditor the
Company's critical accounting policies and practices.
- The Committee shall review with the outside auditor all material
communications between the outside auditor and Management, such as any
management letter or schedule of unadjusted differences.
- The Committee shall request from the outside auditor annually a formal
written statement delineating all relationships between the auditor and the
Company consistent with Independence Standards Board Standard 1 - Independence
Discussions with Audit Committees and such other requirements as may be
established by the Public Company Accounting Oversight Board, discuss with the
outside auditor any such disclosed relationships and their impact on the
outside auditor's independence, and take appropriate action regarding the
independence of the outside auditor.
- The Committee shall periodically review and evaluate the qualifications
and performance of the outside auditor, including obtaining annual reports on
the outside auditor's quality control procedures, any material issues raised
by the most recent internal quality control and peer reviews of the outside
auditor and any inquiry or investigation by governmental or professional
authorities within the preceding five years respecting any independent audits
carried out by the outside auditor, and any steps taken to deal with such
issues.
- The Committee shall review and discuss with Management the Company's
policies with respect to earnings press releases and earnings guidance,
including the use of pro forma information, to be provided by the Company
publicly or to analysts and ratings agencies.
- The Committee shall discuss with Management the Company's major financial
risk exposures and the steps Management has taken to monitor and control such
exposures.
- On an ongoing basis, the Committee shall conduct an appropriate review
of, and report to the Board with respect to, all proposed related-party
transactions with the Company where the amount involved exceeds $60,000. All
such transactions shall be subject to prior approval by the Committee.
"Related-party transactions" shall be defined in accordance with the broadest
applicable Amex, SEC or statutory definition then in effect, and generally
shall include transactions between the Company and Company Directors;
executive officers; nominees for election as director; stockholders; or their
respective affiliates or immediate family members.
- The Committee shall approve the engagement of the outside auditor and
shall approve, in advance, all audit services and all permitted non-audit
services to be provided to the Company by the outside auditor (subject to any
de minimus exception permitted by SEC rules), taking into account whether such
non-audit services are compatible with maintaining the outside auditor's
independence. The Committee may designate an individual Committee member to
pre-approve audit and permissible non-audit services, provided that such
approvals be presented to the full Committee at the next scheduled meeting.
- The Committee shall recommend to the Board whether, based on the reviews
and discussions referred to above, the financial statements should be included
in the Company's Annual Report on Form 10-K.
Complaint Procedures:
Any issue of significant financial misconduct shall be brought to the
attention of the Committee for its consideration. In this connection, the
Committee shall establish procedures for (i) the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (ii) the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters.
The existence and nature of the reporting procedures shall be communicated to
all employees and, to the extent appropriate, to agents of the Company. It
shall be a violation of the code of ethics to intimidate or impose any form of
retribution on any employee or agent who utilizes such reporting system in
good faith to report suspected violations (except that appropriate action may
be taken against such employee or agent if such individual is one of the
wrongdoers).
APPENDIX II
TECH/OPS SEVCON, INC.
1996 EQUITY INCENTIVE PLAN
(As Amended and Restated)
1. Purpose and History
The purpose of the Tech/Ops Sevcon, Inc. 1996 Equity Incentive Plan as amended
and restated (the "Plan") is to attract and retain key employees, directors,
and consultants of the Company and its Affiliates, to provide an incentive for
them to achieve long-range performance goals, and to enable them to
participate in the long-term growth of the Company.
The Plan was originally adopted by the Board and approved by the Company's
stockholders effective as of January 31, 1996. The Board and the Company's
stockholders subsequently approved an amendment to the Plan effective as of
January 21, 2003 increasing the number of shares available for award.
The Board and the Company's stockholders also adopted and approved the
establishment of the 1998 Director Stock Option Plan effective as of January
28, 1998 (the "Directors' Plan"). Effective as of January 27, 2004, non-
employee directors of the Company shall be eligible to participate in this
Plan, any remaining shares of Common Stock available for grant under the
Directors' Plan shall instead be available for issue under this Plan, and no
further options shall be granted under the Directors' Plan. Any options that
are outstanding under the Directors' Plan as of January 27, 2004, shall
continue to be governed by the terms and conditions of the Directors' Plan and
the relevant grant agreements.
2. Definitions
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Restricted Stock,
Restricted Stock Unit, or Foreign National Award granted under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to time,
or any successor law.
"Committee" means one or more committees each comprised of not less than three
members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. If a Committee is authorized to grant Awards to a
Reporting Person or Covered Employee, each member shall be a "disinterested
person" or the equivalent within the meaning of applicable Rule 16b-3 under
the Exchange Act or an "outside director" or the equivalent within the meaning
of Section 162(m) of the Code, respectively.
"Common Stock" or "Stock" means the Common Stock, $.10 par value, of the
Company.
"Company" means Tech/Ops Sevcon, Inc.
"Covered Employee" means a "covered employee" within the meaning of Section
162(m)(3) of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant, in
a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time
to time, or any successor law.
"Fair Market Value" means, with respect to Common Stock or any other property,
the fair market value of such property as determined by the Committee in good
faith or in the manner established by the Committee from time to time.
"Foreign National Award" - See Section 9(i).
"Incentive Stock Option" - See Section 6(a).
"Nonstatutory Stock Option" - See Section 6(a).
"Option" - See Section 6(a).
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Goals" means with respect to any Performance Period, one or more
objective performance goals based on one or more of the following objective
criteria established by the Committee prior to the beginning of such
Performance Period or within such period after the beginning of the
Performance Period as shall meet the requirements to be considered "pre-
established performance goals" for purposes of Code Section 162(m):
(i) increases in the price of the Common stock; (ii) market share;
(iii) sales; (iv) revenue; (v) return on equity, assets, or capital;
(vi) economic profit (economic value added); (vii) total shareholder return;
(viii) costs; (ix) expenses; (x) margins; (xi) earnings or earnings per share;
(xii) cash flow; (xiii) customer satisfaction; (xiv) operating profit; or
(xv) any combination of the foregoing, including without limitation goals
based on any of such measures relative to appropriate peer groups or market
indices. Such Performance Goals may be particular to a Participant or may be
based, in whole or in part, on the performance of the division, department,
line of business, subsidiary, or other business unit, whether or not legally
constituted, in which the Participant works or on the performance of the
Company generally.
"Performance Period" means the period of service designated by the Committee
applicable to an Award subject to Section 9(l) during which the Performance
Goals will be measured.
"Reporting Person" means a person subject to Section 16 of the Exchange Act.
"Restricted Period" - See Section 8(a).
"Restricted Stock" - See Section 8(a).
"Restricted Stock Unit" - See Section 8(c).
"Stock Appreciation Right" or "SAR" - See Section 7(a).
3. Administration
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The
Committee's decisions shall be final and binding. To the extent permitted by
applicable law, the Committee may delegate to one or more executive officers
of the Company the power to make Awards to Participants who are not subject to
Section 16 of the Exchange Act and all determinations under the Plan with
respect thereto, provided that the Committee shall fix the maximum amount of
such Awards for all such Participants, a maximum for any one Participant, and
such other features of the Awards as required by applicable law.
4. Eligibility
All employees and, in the case of Awards other than Incentive Stock Options
under Section 6, consultants and directors of the Company or any Affiliate,
capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocably elected not to be eligible,
are eligible to be Participants in the Plan. Incentive Stock Options may be
granted only to persons eligible to receive such Options under the Code.
5. Stock Available for Awards
(a) Amount. Subject to adjustment under subsection (b), Awards may be made
under the Plan for up to 250,000 shares of Common Stock, together with all
shares of Common Stock available for issue under the 1987 Plan on January 31,
1996, and all shares of stock available for issuance under the Directors' Plan
as of January 27, 2004. If any Award (including any grant under the 1987 Plan
or the Directors' Plan) expires or is terminated unexercised or is forfeited
or settled in a manner that results in fewer shares outstanding than were
awarded, the shares subject to such Award, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for award under
the Plan. Common Stock issued through the assumption or substitution of
outstanding grants from an acquired company shall not reduce the shares
available for Awards under the Plan. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
(b) Adjustment. In the event that the Committee determines that any stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination, exchange of shares, or
other transaction affects the Common Stock such that an adjustment is required
in order to preserve the benefits intended to be provided by the Plan, then
the Committee (subject in the case of Incentive Stock Options to any
limitation required under the Code) shall equitably adjust any or all of (i)
the number and kind of shares in respect of which Awards may be made under
the Plan, (ii) the number and kind of shares subject to outstanding Awards,
and (iii) the exercise price with respect to any of the foregoing, and if
considered appropriate, the Committee may make provision for a cash payment
with respect to an outstanding Award, provided that the number of shares
subject to any Award shall always be a whole number.
(c) Limit on Individual Grants. The maximum number of shares of Common Stock
subject to all Awards that may be granted under this Plan to any Participant
in the aggregate in any calendar year shall not exceed 60,000 shares, subject
to adjustment under subsection (b).
6. Stock Options
(a) Grant of Options. Subject to the provisions of the Plan, the Committee
may grant options ("Options") to purchase shares of Common Stock (i)
complying with the requirements of Section 422 of the Code or any successor
provision and any regulations thereunder ("Incentive Stock Options") and (ii)
not intended to comply with such requirements ("Nonstatutory Stock Options").
The Committee shall determine the number of shares subject to each Option and
the exercise price therefor, which shall not be less than 100% of the Fair
Market Value of the Common Stock on the date of grant. No Incentive Stock
Option may be granted hereunder more than ten years after the effective date
of the Plan.
(b) Terms and Conditions. Each Option shall be exercisable at such times and
subject to such terms and conditions as the Committee may specify in the
applicable grant or thereafter; provided that no Option shall be exercisable
after the expiration of ten years from the date the Option is granted. The
Committee may impose such conditions with respect to the exercise of Options,
including conditions relating to applicable securities laws, as it considers
necessary or advisable.
(c) Payment. No shares shall be delivered pursuant to any exercise of an
Option until payment in full of the exercise price therefor is received by the
Company. Such payment may be made in whole or in part in cash or through a
so-called "cashless" or "broker-assisted" exercise. To the extent permitted by
the Committee at or after the grant of the Option, such payment may also be
made by delivery of a note (subject to the limitations of Section 9(g)) or
shares of Common Stock owned by the optionee, including vested Restricted
Stock, or by retaining shares otherwise issuable pursuant to the Option, in
each case valued at their Fair Market Value on the date of delivery or
retention, or such other lawful consideration as the Committee may determine.
7. Stock Appreciation Rights
(a) Grant of SARs. Subject to the provisions of the Plan, the Committee may
grant rights to receive any excess in value of shares of Common Stock over the
exercise price ("Stock Appreciation Rights" or "SARs") in tandem with an
Option (at or after the award of the Option), or alone and unrelated to an
Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised. The Committee shall determine at
the time of grant or thereafter whether SARs are settled in cash, Common Stock
or other securities of the Company, Awards or other property.
(b) Exercise Price. The Committee shall fix the exercise price of each SAR
or specify the manner in which the price shall be determined. An SAR granted
in tandem with an Option shall have an exercise price not less than the
exercise price of the related Option. An SAR granted alone and unrelated to
an Option may not have an exercise price less than 100% of the Fair Market
Value of the Common Stock on the date of the grant.
(c) Limited SARs. An SAR related to an Option, which SAR can only be
exercised upon or during limited periods following a change in control of the
Company, may entitle the Participant to receive an amount based upon the
highest price paid or offered for Common Stock in any transaction relating to
the change in control or paid during a specified period immediately preceding
the occurrence of the change in control in any transaction reported in the
stock market in which the Common Stock is normally traded.
8. Restricted Stock and Restricted Stock Units
(a) Grant of Restricted Stock. Subject to the provisions of the Plan, the
Committee may grant shares of Common Stock subject to forfeiture ("Restricted
Stock") and determine the duration of the period (the "Restricted Period")
during which, and the conditions under which, the shares may be forfeited to
the Company and the other terms and conditions of such Awards. Shares of
Restricted Stock may be issued for no cash consideration or such minimum
consideration as may be required by applicable law.
(b) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may determine. Any certificates
issued in respect of shares of Restricted Stock shall be registered in the
name of the Participant and unless otherwise determined by the Committee,
deposited by the Participant, together with a stock power endorsed in blank,
with the Company. At the expiration of the Restricted Period, the Company
shall deliver such certificates to the Participant or if the Participant has
died, to the Participant's Designated Beneficiary.
(c) Restricted Stock Units. Subject to the provisions of the Plan, the
Committee may grant the right to receive in the future shares of Common Stock
subject to forfeiture ("Restricted Stock Units") and determine the duration of
the Restricted Period during which, and the conditions under which, the Award
may be forfeited to the Company and the other terms and conditions of such
Awards. Restricted Stock Unit Awards shall constitute an unfunded and
unsecured obligation of the Company, and shall be settled in shares of Common
Stock or cash, as determined by the Committee at the time of grant or
thereafter. Such Awards shall be made in the form of "units" with each unit
representing the equivalent of one share of Common Stock.
9. General Provisions Applicable to Awards
(a) Reporting Person Limitations. Notwithstanding any other provision of the
Plan, to the extent required to qualify for the exemption provided by Rule
16b-3 under the Exchange Act, Awards made to a Reporting Person shall not be
transferable by such person other than by will or the laws of descent and
distribution and are exercisable during such person's lifetime only by such
person or by such person's guardian or legal representative. If then
permitted by Rule 16b-3, such Awards shall also be transferable pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act or the rules thereunder.
(b) Documentation. Each Award under the Plan shall be evidenced by a writing
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan (including but not limited to the requirement
that a Participant satisfy Performance Goals) or to comply with applicable tax
and regulatory laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in addition
to or in relation to any other Award. The terms of each type of Award need
not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the
time of grant or at any time thereafter.
(d) Dividends and Cash Awards. In the discretion of the Committee, any Award
under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(e) Termination of Employment or Service. The Committee shall determine the
effect on an Award of the disability, death, retirement or other termination
of employment or service of a Participant and the extent to which, and the
period during which, the Participant's legal representative, guardian or
Designated Beneficiary may receive payment of an Award or exercise rights
thereunder. Unless the Committee provides otherwise in any case, a
Participant's employment or other service shall have terminated for purposes
of this Plan at the time the entity by which the Participant is employed or to
which the Participant renders service ceases to be an Affiliate of the
Company.
(f) Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take
one or more of the following actions: (i) provide for the acceleration of
any time period relating to the exercise or payment of the Award, (ii)
provide for payment to the Participant of cash or other property with a Fair
Market Value equal to the amount that would have been received upon the
exercise or payment of the Award had the Award been exercised or paid upon the
change in control, (iii) adjust the terms of the Award in a manner determined
by the Committee to reflect the change in control, (iv) cause the Award to be
assumed, or new rights substituted therefor, by another entity, or (v) make
such other provision as the Committee may consider equitable to Participants
and in the best interests of the Company.
(g) Loans. The Committee may authorize the making of loans or cash payments
to Participants in connection with the grant or exercise any Award under the
Plan, which loans may be secured by any security, including Common Stock,
underlying or related to such Award (provided that the loan shall not exceed
the Fair Market Value of the security subject to such Award), and which may be
forgiven upon such terms and conditions as the Committee may establish at the
time of such loan or at any time thereafter. Notwithstanding the foregoing,
no loans may be made to any director or executive officer (or equivalent
thereof) of the Company which would be prohibited by Section 13(k) of the
Exchange Act.
(h) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. In the Committee's discretion, such
tax obligations may be paid in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued
at their Fair Market Value on the date of delivery. The Company and its
Affiliates may, to the extent permitted by law, deduct any such tax obligations
from any payment of any kind otherwise due to the Participant.
(i) Foreign National Awards. Notwithstanding anything to the contrary
contained in this Plan, Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable laws.
(j) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and
converting an Incentive Stock Option to a Nonstatutory Stock Option, provided
that the Participant's consent to such action shall be required unless the
Committee determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
(k) Exchange Programs. In addition to the authority granted to the Committee
in Section 9(j), the Committee may, without further shareholder approval,
engage in one or more exchange offers under which Participants may elect to
exchange or surrender their outstanding Awards (including awards made under
the Directors' Plan) for other Awards or cash (each, an "Exchange Program").
Each Exchange Program shall provide that each eligible Participant must
exchange or surrender Awards with a fair value (as determined by the Committee
using established methods including but not limited to Black-Scholes) equal to
or greater than the fair value of the replacement Award or the present value
of any cash consideration, as the case may be. No Award granted on or after
January 27, 2004, shall be eligible for any Exchange Program.
(l) Code Section 162(m) Provisions. If the Committee determines at the time
Restricted Stock or a Restricted Stock Unit is granted to a Participant that
such Participant is, or may be as of the end of the tax year for which the
Company would claim a tax deduction in connection with such Award, a Covered
Employee, then the Committee may provide that the Participant's right to
receive cash, Shares, or other property pursuant to such Award shall be
subject to the satisfaction of Performance Goals during a Performance Period.
Prior to the payment of any Award subject to this Section 9(l), the Committee
shall certify in writing that the Performance Goals applicable to such award
were met. The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 9(l) as it may deem necessary
or appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code.
10. Miscellaneous
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award. Neither the Plan nor any Award hereunder shall be deemed to
give any employee the right to continued employment or service, or to limit
the right of the Company to discharge any Participant at any time.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the
time of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. Subject to the approval of the stockholders of the
Company, the Plan as herein amended and restated shall be effective on January
27, 2004. Unless terminated earlier by the Board, the Plan shall terminate
such that no further Awards shall be made as of January 27, 2014.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, subject to such stockholder approval as the
Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
(FORM OF PROXY CARD) APPENDIX III
TECH/OPS SEVCON, INC.
Proxy Solicited by the Board of Directors for Annual Meeting
of Stockholders to be held January 27, 2004
The undersigned appoints Marvin G. Schorr, Paul A. McPartlin
and David R. Pokross, Jr. and each of them, the attorneys and
proxies of the undersigned, with power of substitution, to vote
all the shares of Tech/Ops Sevcon, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held
January 27, 2004 at the offices of Palmer & Dodge, 20th Floor,
111 Huntington Avenue at Prudential Center, Boston, Massachusetts
at 5:00 p. m. and at any adjournments thereof.
Please complete, sign and date on reverse side
and mail in enclosed envelope
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_____
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE \____\
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE \ X \
\____\
1. Election of Directors for three-year terms
Nominees:
Schorr O
Steadman O
Hemsley O
\__\ FOR ALL
NOMINEES
\__\ WITHOLD AUTHORITY
FOR ALL NOMINEES
\__\ FOR ALL EXCEPT (see instructions below)
INSTRUCTION To withhold authority for any individual nominee(s) mark \_\
FOR ALL EXCEPT and fill in the circle next to each nominee you wish to withhold
as shown here O
2 Proposal to amend the 1996 Equity Incentive Plan
\__\ FOR
\__\ AGAINST
\__\ ABSTAIN
This proxy will be voted FOR all nominees for Director and FOR the proposal
to amend the 1996 Equity Incentive Plan if no contrary instructions are given.
The Proxies are authorized to vote in their discretion upon other business
that may properly come before the meeting.
To change the address on your account, please check the box a right \_\
and indicate your new address in the address space above. Please note
that changes to the registered name(s) on the account may not be
submitted via this method.
Signature of Stockholder ____________ Date:____________
Signature of Stockholder ____________ Date:____________
Note: Please sign exactly as your name of names appear on this proxy.
When shares are held jointly, each holder should sign. When signing
as executor, administrator, attorney, trustee of guardian, please
give full title as such. If signer is a corporation, please sign
full corporate name by duly authorized officer, giving full title as
such. If signer is a partnership, please sign in partnership name by
authorized person.