UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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 Under Rule l4a-l2
STANDARD MOTOR PRODUCTS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules l4a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(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
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|_| Fee paid previously with preliminary materials.
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was paid previously. Identify the previous filing by registration
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STANDARD MOTOR PRODUCTS, INC.
37-18 NORTHERN BLVD.
LONG ISLAND CITY, NEW YORK 11101
APRIL 17, 2007
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of Standard Motor Products, Inc. to be held at the offices of JPMorgan Chase,
One Chase Manhattan Plaza, New York, NY 10081, on Thursday, May 17, 2007 at 2:00
p.m. (Eastern Daylight Time).
At the Annual Meeting, you will be asked to (a) elect eight directors
and (b) ratify the appointment of Grant Thornton LLP as the Company's
independent registered public accounting firm for our 2007 fiscal year. The
Board of Directors recommends that you vote "FOR" each of the above proposals.
Please refer to the Proxy Statement for a detailed explanation of each of the
proposals.
The formal notice of the Annual Meeting, the Proxy Statement and the
Proxy Card are enclosed. We have also enclosed a copy of our Annual Report to
Stockholders, which includes our Form 10-K for our 2006 fiscal year.
YOUR VOTE IS IMPORTANT! The Board of Directors appreciates and
encourages stockholder participation in the Company's affairs and invites you to
attend the Annual Meeting in person. It is important, however, that your shares
be represented at the Annual Meeting in any event, and for that reason, we ask
that whether or not you expect to attend the Annual Meeting, you take a moment
to complete, date, sign and return the accompanying proxy in the enclosed
postage-paid envelope. You should be aware that only votes cast "FOR" or
"AGAINST" a proposal are used in determining the results of a vote.
On behalf of the Board of Directors, I would like to thank you for your
continued support of the Company. I look forward to seeing you at the Annual
Meeting.
Sincerely,
/s/ LAWRENCE I. SILLS
---------------------
Lawrence I. Sills
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
STANDARD MOTOR PRODUCTS, INC.
37-18 NORTHERN BLVD.
LONG ISLAND CITY, NEW YORK 11101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2007
TO OUR STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
STANDARD MOTOR PRODUCTS, INC. (the "Company") will be held at the offices of
JPMorgan Chase, One Chase Manhattan Plaza, New York, NY 10081, on Thursday, May
17, 2007 at 2:00 p.m. (Eastern Daylight Time). The Annual Meeting will be held
for the following purposes:
1. To elect eight directors of the Company, all of whom shall
hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified;
2. To ratify the appointment of Grant Thornton LLP as the
Company's independent registered public accounting firm for
the fiscal year ending December 31, 2007; and
3. To transact such other business as may properly come before
the Annual Meeting.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this notice. The Board of Directors has fixed the close
of business on April 6, 2007 as the record date for the determination of
stockholders entitled to notice of and to vote at, the Annual Meeting or any
adjournment thereof.
Whether or not you plan to attend the Annual Meeting, please vote, date
and sign the enclosed proxy, which is solicited by the Board of Directors of the
Company, and return it in the pre-addressed envelope, to which no postage need
be affixed, if mailed in the United States.
By Order of the Board of Directors
/S/ CARMINE J. BROCCOLE
-----------------------
Carmine J. Broccole
VICE PRESIDENT GENERAL COUNSEL
AND SECRETARY
Long Island City, New York
April 17, 2007
STANDARD MOTOR PRODUCTS, INC.
37-18 NORTHERN BLVD.
LONG ISLAND CITY, NEW YORK 11101
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2007
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Standard Motor Products, Inc. (the
"Company") for use at the Annual Meeting of Stockholders of the Company to be
held on May 17, 2007 or at any adjournment thereof. Proxy material is being
mailed on or about April 17, 2007 to the Company's 553 stockholders of record.
The total number of shares of Common Stock outstanding and entitled to vote on
April 6, 2007 was 18,762,234.
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy Statement.
VOTING RIGHTS AND SOLICITATION
INFORMATION AS TO VOTING SECURITIES
The close of business on April 6, 2007 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and vote at, the Annual Meeting. Holders of Common Stock have the
right to one vote for each share registered in their names on the books of the
Company as of the close of business on the record date.
In order to conduct business at the Annual Meeting, our Bylaws require
the presence in person or by proxy of stockholders holding a majority of the
voting power of the outstanding shares of Common Stock entitled to vote on the
matters presented at the Annual Meeting. If a quorum is not present, a vote
cannot occur, and our Annual Meeting may be adjourned to a subsequent date for
the purpose of obtaining a quorum. Proxy cards received by us but marked
"Withheld," abstentions and broker non-votes will be included in the calculation
of the number of shares considered in determining whether or not a quorum
exists. A broker non-vote occurs when a nominee holding shares for a beneficial
owner does not vote on a particular proposal because the nominee does not have
discretionary voting power with respect to that item and has not received voting
instructions from the beneficial owner.
-2-
VOTING AND REVOCATION OF PROXIES
You can vote your shares by completing and returning a proxy card or by
voting in person. If you hold your shares in "street name," you should provide
your broker or other nominee with voting instructions to ensure that your shares
are voted.
The persons named in the accompanying form of proxy will vote the
shares represented thereby, as directed in the proxy, if the proxy appears to be
valid on its face and is received on time. With respect to the election of
directors, stockholders may vote in favor of all nominees, withhold their votes
as to all nominees, or withhold their votes as to specific nominees. With
respect to Proposal No. 2, stockholders may vote for or against the proposal.
Stockholders should specify their choices on the accompany proxy card. In the
absence of specific instructions, proxies so received will be voted: (1) "FOR"
the election of the named nominees to the Company's Board of Directors; and (2)
"FOR" the ratification of Grant Thornton LLP as the Company's independent
registered public accounting firm.
Proxies are revocable at any time before they are exercised by (a)
sending in a later-dated proxy (with the same or other instructions), (b)
appearing at the Annual Meeting and voting in person, or (c) notifying the
Secretary of the Company that the proxy is revoked via fax at 718-784-3284 or
via mail to Carmine J. Broccole, Secretary, Standard Motor Products, Inc., 37-18
Northern Blvd., Long Island City, NY 11101. If you hold shares through a bank or
brokerage firm, you must contact that bank or firm to revoke any prior voting
instructions.
VOTES REQUIRED
Nominees receiving a plurality of the votes cast will be elected as
directors. Proposal No. 2 requires the approval of the affirmative vote of a
majority of the shares of Common Stock present or represented by proxy and
entitled to vote at the Annual Meeting. Only those votes cast "FOR" or "AGAINST"
a proposal are used in determining the results of a vote. An abstention or a
broker non-vote shall not constitute a vote cast.
METHOD AND EXPENSE OF PROXY SOLICITATION
The solicitation of proxies will be made primarily by mail. Proxies may
also be solicited personally and by telephone by regular employees of the
Company at nominal cost.
The Company does not expect to pay compensation for any solicitation of
proxies but may pay brokers and other persons holding shares in their names, or
in the name of nominees, their expenses for sending proxy material to beneficial
owners for the purpose of obtaining their proxies. The Company will bear all
expenses in connection with the solicitation of proxies.
-3-
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, eight directors are to be elected to hold office
until the next annual meeting of stockholders and until their successors are
duly elected and qualified. Unless individual stockholders specify otherwise,
each executed proxy will be voted "FOR" the election to the Board of Directors
of the eight nominees named below, all of whom are currently directors of the
Company.
Due to the retirement of Kenneth A. Lehman from the Board of Directors
in March 2007, there is currently one vacancy on our Board. The Nominating and
Corporate Governance Committee of the Board of Directors is actively engaged in
seeking a candidate to fill this vacancy. Vacancies may be filled by the vote of
a majority of the Board.
INFORMATION REGARDING NOMINEES
Each person listed below has consented to be named as a nominee and
agreed to serve if elected. If any of those named are not available for election
at the time of the Annual Meeting, discretionary authority will be exercised to
vote for substitutes unless the Board chooses to reduce the number of directors.
Management is not aware of any circumstances that would render any nominee
listed below unavailable.
DIRECTOR
NAME OF DIRECTOR POSITION WITH THE COMPANY AGE SINCE
---------------- ------------------------- --- -----
Lawrence I. Sills................. Chairman of the Board and
Chief Executive Officer 67 1986
William H. Turner(1)(2)........... Presiding Independent Director 67 1990
Robert M. Gerrity(1)(3)........... Director 69 1996
Arthur S. Sills................... Director 63 1995
Peter J. Sills.................... Director 60 2004
Frederick D. Sturdivant(1)........ Director 69 2001
Richard S. Ward(1)(4)............. Director 66 2004
Roger M. Widmann(1)............... Director 67 2005
---------------
(1) Member of the Company's Audit Committee, Compensation and
Management Development Committee, and Nominating and Corporate
Governance Committee.
(2) Chairman of the Audit Committee.
(3) Chairman of the Compensation and Management Development Committee.
(4) Chairman of the Nominating and Corporate Governance Committee.
LAWRENCE I. SILLS has served as our Chairman of the Board and Chief
Executive Officer since December 2000 and has been a director of the Company
since 1986. From 1986 to 2000, Mr. Sills served as our President and Chief
Operating Officer. From 1983 to 1986, he served as our Vice President of
Operations. Mr. Sills is the brother of Arthur S. Sills and Peter J. Sills, each
a director of the Company, and is the father of Eric Sills, our Vice President
Engine Management Division.
-4-
WILLIAM H. TURNER has served as our Presiding Independent Director
since January 2006 and as a director of the Company since May 1990. Since 2004,
Mr. Turner has been the Dean of the College of Business at Stony Brook
University. He is also a director of Ameriprise Financial, Inc., Franklin
Electronic Publishers, Inc., Volt Information Sciences, Inc. and New Jersey
Resources Corporation. Mr. Turner served as the Senior Partner of Summus Ltd., a
consulting firm, from 2002 to 2004. From 1997 until 2002, he served in various
capacities at PNC Bank NJ, including President, Chief Executive Officer and
Chairman Northeast Region. He was President and Co-Chief Executive Officer of
Franklin Electronic Publishers, Inc. from 1996 to 1997. Prior to that time, he
was the Vice-Chairman, Chase Manhattan Bank and its predecessor, Chemical
Banking Corporation.
ROBERT M. GERRITY has served as a director of the Company since July
1996. Mr. Gerrity currently serves as the Chairman of the Industrial Group of
Glencoe Capital, a private equity firm, and is a director and principal of
Gerrity Partners, a consulting business. He is also a director of the Rimrock
Corporation, Federal Signal Corporation and Polyair Inter Pack Inc. Mr. Gerrity
served as Chairman and Chief Executive Officer of the Antrim Group, Inc. from
1996 to 2000. Prior to 1996, he served as Vice Chairman of New Holland, n.v., an
agricultural and construction equipment company.
ARTHUR S. SILLS has served as a director of the Company since October
1995. Mr. Sills was an educator and administrator in the Massachusetts school
districts for thirty years prior to his retirement in 2000. Mr. Sills is the
brother of Lawrence I. Sills and Peter J. Sills, and is the uncle of Eric Sills.
PETER J. SILLS has served as a director of the Company since July 2004
and from December 2000 until May 2004. Mr. Sills is a writer and was an
attorney. Mr. Sills is the brother of Arthur S. Sills and Lawrence I. Sills, and
is the uncle of Eric Sills.
FREDERICK D. STURDIVANT has served as a director of the Company since
December 2001. Mr. Sturdivant has been an independent consultant and a Visiting
Professor at the Warrington College of Business at the University of Florida
since 2002. Mr. Sturdivant was Chairman of Reinventures LLC from 2000 to 2002.
From 1998 to 2000, he was Executive Managing Director of Navigant Consulting.
From 1996 to 1998, he was President of Index Research and Advisory Services, a
subsidiary of Computer Sciences Corporation. After completing his PhD at
Northwestern University, Mr. Sturdivant held professorships at the University of
Southern California, University of Texas at Austin, the Harvard Business School,
and an endowed chair at Ohio State University.
RICHARD S. WARD has served as a director of the Company since July
2004. He is a private investor and legal consultant. From 1969 until 1998, he
served in various capacities at ITT Corporation, including Executive Vice
President and General Counsel, and served as a member of the ITT Management
Committee. In 2000 Mr. Ward served as Chairman of the Large, Complex Case
Committee of the American Arbitration Association. Prior to 1998, Mr. Ward
served as a director of STC, plc, a British telecommunications company, and ITT
Sheraton Corporation.
-5-
ROGER M. WIDMANN has served as a director of the Company since May
2005. Mr. Widmann is also a director of Paxar Corporation and Cedar Shopping
Centers, Inc. He currently serves as a director of the March of Dimes of Greater
New York, a director of Oxfam America, a senior moderator of the Executive
Seminar (Humanities) at The Aspen Institute, and a senior mentor of the Henry
Crown Fellowship Program. He previously served as Chairman of the Board of
Lydall, Inc., a manufacturing company, from 1974 to 2004 and was a principal of
Tanner & Co., Inc., an investment banking firm, from 1997 to 2004. Prior to that
time, he was Senior Managing Director of Chemical Securities Inc. (now JPMorgan
Chase Corporation).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES
LISTED ABOVE.
PROPOSAL 2
RATIFICATION OF GRANT THORNTON LLP
The Audit Committee of our Board of Directors plans to appoint Grant
Thornton LLP as the Company's independent registered public accounting firm to
audit its consolidated financial statements for the 2007 fiscal year. Although
the Company is not required to seek stockholder approval of this appointment,
the Board believes it to be sound corporate governance to do so and is asking
stockholders to ratify the appointment of Grant Thornton LLP. If the appointment
is not ratified, the Audit Committee will investigate the reasons for
stockholder rejection and will reconsider the appointment. Representatives of
Grant Thornton LLP are expected to attend the Annual Meeting where they will be
available to respond to questions and, if they desire, to make a statement.
FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF GRANT THORNTON LLP AS THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM.
AUDIT AND NON-AUDIT FEES
The following table presents fees for professional services rendered by
Grant Thornton LLP, our principal accountants, in the fiscal years ended
December 31, 2006 and 2005:
2006 2005
---- ----
Audit fees................................... $2,202,329 $2,621,100
Audit-related fees (1)....................... 266,859 111,625
Tax fees (2)................................. 81,135 175,425
All other fees............................... -- --
---------- ----------
Total................................... $2,550,323 $2,908,150
========== ==========
-----------------
(1) Audit-related fees consisted principally of audits of financial
statements of certain employee benefit plans.
(2) Tax fees consist primarily of U.S. and international tax compliance and
planning.
It is the policy of the Audit Committee to pre-approve any audit and
non-audit services provided to the Company by its independent auditors. All of
the fees paid to the Company's independent auditors described above were for
services pre-approved by the Audit Committee.
-6-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 15, 2007 by:
o each person known by the Company to own beneficially more than 5% of
the Company's Common Stock;
o each director and nominee for director of the Company;
o our principal executive officer, principal financial officer and each
of our other most highly compensated executive officers named in the
Summary Compensation Table below; and
o all directors and officers as a group.
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP (1) OF CLASS
---------------- --------- --------
GAMCO Investors, Inc.............................................. 2,076,766 (2) 10.9%
One Corporate Center
Rye, NY
Peter J. Sills.................................................... 1,650,932 (3) 8.8
Arthur S. Sills................................................... 1,619,441 (4) 8.7
Dimensional Fund Advisors Inc..................................... 1,562,984 (5) 8.4
1299 Ocean Avenue
Santa Monica, CA
Marilyn F. Cragin................................................. 1,323,524 (6) 7.1
Bears Stearns Asset Management, Inc............................... 1,234,102 (7) 6.6
383 Madison Avenue
New York, NY
Arthur D. Davis................................................... 1,189,542 (8) 6.3
Lawrence I. Sills................................................. 1,064,916 (9) 5.7
Susan F. Davis.................................................... 946,253 (10) 5.0
John P. Gethin.................................................... 63,733 (11) *
James J. Burke.................................................... 55,915 (12) *
William H. Turner................................................. 29,017 (13) *
Robert M. Gerrity................................................. 25,181 (14) *
Dale Burks........................................................ 24,577 (15) *
Frederick D. Sturdivant........................................... 23,493 (16) *
Richard S. Ward................................................... 11,936 (17) *
Roger M. Widmann.................................................. 11,257 (18) *
Carmine J. Broccole............................................... 3,348 (19) *
Directors and Officers as a group (eighteen persons).............. 3,374,824 (20) 17.8%
-----------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Applicable percentage of ownership is calculated by dividing (a) the total
number of shares beneficially owned by the stockholder by (b) 18,691,910,
which is the number shares of Common Stock outstanding as of March 15,
2007, plus that number of additional shares, if any, which may be acquired
through the exercise of options or convertible debentures within 60 days of
March 15, 2007. Beneficial ownership is calculated based on the
requirements of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person, shares of Common Stock
subject to options and our convertible debentures held by that person that
are currently exercisable or exercisable within 60 days of March 15, 2007
are deemed outstanding. Regarding our convertible debentures, at March 15,
2007 our convertible debentures were convertible into 31.068 shares of
Common Stock for each $1,000 of convertible debentures converted and the
conversion price for our convertible debentures was equivalent to
approximately $32.19 per share. Shares subject to options or our
-7-
convertible debentures, however, are not deemed outstanding for the purpose
of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table, the stockholder named in the
table has sole voting power and sole investment power with respect to the
shares set forth opposite such stockholder's name. Unless otherwise
indicated, the address of each individual listed in the table is c/o
Standard Motor Products, Inc., 37-18 Northern Blvd., Long Island City, New
York.
In footnotes 3, 4 and 9, where more than one director of our company is a
co-trustee of a trust or co-director of a foundation, and shares voting
power and investment power with another director with respect to a certain
number of shares, such shares are counted as being beneficially owned by
each director who shares such voting power and investment power. However,
in computing the aggregate number of shares owned by directors and officers
in footnote 20, these same shares are only counted once.
(2) The information for GAMCO Investors, Inc. and certain of its affiliates
("GAMCO") is based solely on an amendment to its Schedule 13D filed with
the SEC on January 30, 2007, wherein GAMCO states that it beneficially owns
an aggregate of 2,076,766 shares of our Common Stock. GAMCO states that it
has sole voting power for 2,065,226 shares and has sole investment power
for 2,076,766 shares.
(3) Includes 1,056,619 shares of Common Stock, of which: (a) 289,687 shares are
held as co-trustee with Lawrence I. Sills and Arthur S. Sills, for which
Peter J. Sills has shared voting and investment power; and (b) 766,932
shares are held by the Sills Family Foundation, Inc., of which Peter J.
Sills is a director and officer and shares voting and investment power
with, among others, Arthur S. Sills. In his capacity as a trustee and
director of the foundation, Peter J. Sills disclaims beneficial ownership
of the shares so deemed "beneficially owned" by him within the meaning of
Rule 13d-3 of the Exchange Act.
(4) Includes 1,056,619 shares of Common Stock, of which: (a) 289,687 shares are
held as co-trustee with Lawrence I. Sills and Peter J. Sills, for which
Arthur S. Sills has shared voting and investment power; and (b) 766,932
shares are held by the Sills Family Foundation, Inc., of which Arthur S.
Sills is a director and officer and shares voting and investment power
with, among others, Peter J. Sills. In his capacity as a trustee and
director of the foundation, Arthur S. Sills disclaims beneficial ownership
of the shares so deemed "beneficially owned" by him within the meaning of
Rule 13d-3 of the Exchange Act.
(5) The information for Dimension Fund Advisors Inc. ("Dimension") is based
solely on an amendment to its Schedule 13G filed with the SEC on February
9, 2007, wherein Dimension states that it beneficially owns an aggregate of
1,562,984 shares of our Common Stock. Dimension states that it has sole
voting and sole investment power for all of such shares.
(6) The information for Marilyn Cragin is based solely on her Schedule 13D
filed with the SEC on February 25, 2005, wherein Ms. Cragin states that she
beneficially owns an aggregate of 1,323,524 shares of our Common Stock. Ms.
Cragin states that she has sole voting and sole investment power for
667,794 shares and has shared voting and investment power for 655,730
shares.
(7) The information for Bear Stearns Asset Management Inc. ("Bear Stearns") is
based solely on its Schedule 13G filed with the SEC on February 13, 2007,
wherein Bear Stearns states that it beneficially owns an aggregate of
1,234,102 shares of our Common Stock. Bear Stearns states that it has sole
voting power of 605,430 shares, shared voting and investment power of
217,321 shares, and sole investment power of 612,656 shares.
(8) The information for Arthur D. Davis is based on his Schedule 13D filed with
the SEC on February 25, 2005 and subsequent information provided by Mr.
Davis to us. Mr. Davis states that he beneficially owns an aggregate of
1,189,542 shares of our Common Stock. Mr. Davis states that he has sole
voting and sole investment power for 456,745 shares and has shared voting
and investment power for 732,797 shares.
(9) Includes 356,248 shares of Common Stock, of which: (a) 289,687 shares are
held as co-trustee with Arthur S. Sills and Peter J. Sills, for which
Lawrence I. Sills has shared voting and investment power; (b) 2,812 shares
are owned by Mr. Sills' wife; and (c) 63,749 shares are held by Lawrence I.
Sills which were subject to options exercisable within 60 days of March 15,
2007. In his capacity as a trustee and for shares of stock held by his
wife, Lawrence I. Sills disclaims beneficial ownership of the shares so
deemed "beneficially owned" by him within the meaning of Rule 13d-3 of the
Exchange Act.
-8-
(10) The information for Susan F. Davis is based solely on her Schedule 13D
filed with the SEC on February 25, 2005, wherein Ms. Davis states that she
beneficially owns an aggregate of 946,253 shares of our Common Stock. Ms.
Davis states that she has sole voting and sole investment power for 195,936
shares and has shared voting and investment power for 750,317 shares.
(11) Includes options to purchase 45,041 shares of Common Stock.
(12) Includes options to purchase 38,250 shares of Common Stock.
(13) Includes options to purchase 15,400 shares of Common Stock.
(14) Includes options to purchase 15,400 shares of Common Stock.
(15) Includes options to purchase 20,050 shares of Common Stock.
(16) Includes options to purchase 7,400 shares of Common Stock.
(17) Includes options to purchase 2,000 shares of Common Stock.
(18) Includes options to purchase 2,000 Shares of Common Stock.
(19) Includes options to purchase 1,500 shares of Common Stock.
(20) Includes options to purchase 252,490 shares of Common Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's Common Stock, to file with the
Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership and reports of changes in ownership of the Common Stock of
the Company. Officers, directors and greater than ten percent stockholders are
required by regulation of the Securities and Exchange Commission to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely upon a review of the copies of such reports furnished to
the Company and written representations from our directors and executive
officers that no other reports were required during the fiscal year ended
December 31, 2006, the Company believes that all Section 16(a) filing reports
applicable to the Company's directors and officers were timely filed.
-9-
CORPORATE GOVERNANCE
The Company's Board of Directors has adopted policies and procedures
that the Board believes are in the best interests of the Company and its
stockholders as well as compliant with the Sarbanes-Oxley Act of 2002, the rules
and regulations of the Securities and Exchange Commission, and the listing
standards of the New York Stock Exchange. In particular:
o The Board has adopted Corporate Governance Guidelines;
o The Board has appointed a Presiding Independent Director, who is
independent under the New York Stock Exchange standards and applicable
Securities and Exchange Commission rules.
o A majority of the Board is independent, and each member of the Audit
Committee, Compensation and Management Development Committee, and
Nominating and Corporate Governance Committee is independent under the
New York Stock Exchange standards and applicable Securities and
Exchange Commission rules.
o The Board has adopted charters for each of the Committees of the Board
and the Presiding Independent Director;
o The Company's Corporate Governance Guidelines provide that the
independent directors meet periodically in executive session without
management and that the Presiding Independent Director chairs the
executive sessions;
o Interested parties are able to make their concerns known to
non-management directors or the Audit Committee by e-mail or by mail
(see "Communications to the Board" below);
o The Company has a Corporate Code of Ethics that applies to all company
employees, officers and directors and a Whistleblower Policy with a
hotline available to all employees; and
o The Company has established stock ownership guidelines that apply to
its independent directors and executive officers.
Certain information relating to corporate governance matters can be
viewed at WWW.SMPCORP.COM. Copies of the Company's (1) Corporate Governance
Guidelines, (2) charters for the Audit Committee, Compensation and Management
Development Committee, Nominating and Corporate Governance Committee, and the
Presiding Independent Director, and (3) Corporate Code of Ethics and
Whistleblower Policy are available on the Company's website. Copies will also be
provided to any stockholder free of charge upon written request to the Secretary
of the Company at 37-18 Northern Blvd., Long Island City, NY 11101.
-10-
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
In 2006 the total number of meetings of the Board of Directors,
including regularly scheduled and special meetings, was five. All of our
directors attended at least 75% of the meetings of the Board and the Committees
during the period for which he was a director in 2006.
The Company encourages all Board members to attend its Annual Meeting
of Stockholders. All Directors were present at the 2006 Annual Meeting of
Stockholders held on May 18, 2006.
The Board currently has three committees: an Audit Committee, a
Compensation and Management Development Committee, and a Nominating and
Corporate Governance Committee. The members of each committee consist of all of
our independent directors: William H. Turner (Chairman of the Audit Committee
and Presiding Independent Director), Robert M. Gerrity (Chairman of the
Compensation and Management Development Committee), Frederick D. Sturdivant,
Richard S. Ward (Chairman of the Nominating and Corporate Governance Committee),
and Roger M. Widmann. In addition, Kenneth A. Lehman was an independent director
and a member of each of these Committees until his retirement in March 2007.
AUDIT COMMITTEE
The Audit Committee recommends to the Board of Directors the engagement
of the independent auditors of the Company, reviews with the independent
auditors the scope and results of the Company's audits, pre-approves the
professional services furnished by them to the Company, and reviews their
management letter with comments on the Company's internal accounting controls.
The Audit Committee held five meetings in 2006.
The Board of Directors has determined that each committee member is
financially literate and independent. In addition, the Board has determined that
at least one member of the Audit Committee meets the New York Stock Exchange
standard of having accounting or related financial management expertise. The
Board has also determined that William H. Turner, the Audit Committee's
Chairman, meets the Securities and Exchange Commission criteria of an "audit
committee financial expert."
COMPENSATION AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development Committee's function is to
approve the compensation packages of the Company's officers, to administer the
Company's equity incentive plans, to review the Company's overall compensation
policies, to review the performance, training and development of Company
management in achieving corporate goals and objectives, and to oversee the
Company's management succession planning. The Compensation and Management
Development Committee held three meetings in 2006.
The Compensation and Management Development Committee has the exclusive
authority and responsibility to determine all aspects of executive compensation
packages. The Committee may, at its discretion, solicit the input of our
executive officers (including our Chief Executive Officer) or any independent
consultant or advisor in satisfying its responsibilities.
-11-
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
The Nominating and Corporate Governance Committee's function is to
assist the Board of Directors in discharging and performing the duties and
responsibilities of the Board with respect to corporate governance, including:
o The identification and recommendation to the Board of individuals
qualified to become or continue as directors;
o The continuous improvement in corporate governance policies and
practices;
o The annual self-assessment of the performance of the Board;
o The recommendation of members for each committee of the Board; and
o The compensation arrangements for members of the Board.
The Nominating and Corporate Governance Committee held four meetings in
2006. The Nominating and Corporate Governance Committee has the exclusive
authority and responsibility to determine all aspects of director compensation.
The Committee may, in its discretion, solicit the input of any independent
consultant or advisor in satisfying its responsibilities.
Qualifications for consideration as a director nominee vary according
to the particular areas of expertise being sought as a complement to the
existing board composition. However, in making nominations, the Nominating and
Corporate Governance Committee seeks candidates who possess (1) the highest
level of integrity and ethical character, (2) strong personal and professional
reputation, (3) sound judgment, (4) financial literacy, (5) independence, (6)
significant experience and proven superior performance in professional
endeavors, (7) an appreciation for board and team performance, (8) the
commitment to devote the time necessary for Board activities, (9) skills in
areas that will benefit the Board, and (10) the ability to make a long-term
commitment to serve on the Board.
In recommending candidates for election to the Board, the Nomination
and Corporate Governance Committee considers nominees recommended by directors,
officers, employees, stockholders and others, using the same criteria to
evaluate all candidates. The Committee reviews each candidate's qualifications,
including whether a candidate possesses any of the specific qualities and skills
desirable in certain members of the Board. Evaluations of candidates generally
involve a review of background materials, internal discussions and interviews
with selected candidates as appropriate. Upon selection of a qualified
candidate, the Committee would recommend the candidate for consideration by the
full Board. The Committee may engage consultants or third-party search firms to
assist in identifying and evaluating potential nominees.
Stockholders may propose director candidates for consideration by the
Nominating and Corporate Governance Committee. In order for stockholder
candidates to be considered, written notice of such stockholder recommendation
(a) must be provided to the Secretary of the Company not less than 45 days nor
more than 75 days prior to the first anniversary of the record date for the
preceding year's annual meeting, and (b) must contain the name of any
recommended candidate for director, together with a brief biographical sketch, a
document indicating the candidate's willingness to serve, if elected, and
evidence of the nominating person's ownership of Company stock. Both stockholder
-12-
proposed candidates and other candidates identified and evaluated by the
Nominating and Corporate Governance Committee must comply with the procedures,
and meet the qualification of directors, as outlined in the Charter of the
Committee and the Bylaws of the Company. To recommend a prospective nominee for
the Nomination and Corporate Governance Committee's consideration, submit the
candidate's name and qualifications to the Secretary of the Company at 37-18
Northern Blvd., Long Island City, NY 11101.
PRESIDING INDEPENDENT DIRECTOR
The Presiding Independent Director of the Company is William H. Turner,
who also serves as the Chairman of our Audit Committee. The term of the
Presiding Independent Director is three years. The role of the Presiding
Independent Director is to aid and assist the Chairman and the remainder of the
Board in assuring effective corporate governance in managing the affairs of the
Board and the Company.
COMMUNICATIONS TO THE BOARD
Stockholders and other interested parties may communicate with the
Board of Directors or individual directors pursuant to the procedures
established by the Nominating and Corporate Governance Committee from time to
time. The Nominating and Corporate Governance Committee shall review such
correspondence that first is delivered to the attention of the Secretary of the
Company at 37-18 Northern Blvd., Long Island City, NY 11101, which
correspondence the Secretary will forward to the Committee. The Nominating and
Corporate Governance Committee shall have the discretion to distribute only such
correspondence to the Board or individual members of the Board that the
Committee determines in good faith has a valid business purpose or is otherwise
appropriate for the Board or individual member thereof to receive.
CORPORATE CODE OF ETHICS
The Board of Directors of the Company has adopted a Corporate Code of
Ethics to (1) promote honest and ethical conduct, including fair dealing and the
ethical handling of actual or apparent conflicts of interest, (2) promote full,
fair, accurate, timely and understandable disclosure, (3) promote compliance
with applicable laws and governmental rules and regulations, (4) ensure the
protection of the Company's legitimate business interests, including business
opportunities, assets and confidential information, and (5) deter wrongdoing.
The Corporate Code of Ethics is available on the Company's website at
WWW.SMPCORP.COM.
DIRECTOR INDEPENDENCE
The Board of Directors has affirmatively determined that each member of
the Board and committees thereof, other than Lawrence I. Sills, Arthur S. Sills
and Peter J. Sills, is independent under the criteria established by the New
York Stock Exchange and the Securities and Exchange Commission for independent
board members. In that regard, the Board considered whether any director has,
and generally has not had in the most recent three years, any material
relationships with the Company, including any affiliation with our independent
auditors.
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DIRECTOR COMPENSATION
The following table sets forth the compensation paid by the Company to
our non-employee directors in 2006.
FEES EARNED STOCK
OR PAID AWARDS ALL OTHER
NAME IN CASH (1) (2) COMPENSATION TOTAL
---- ------- ------ ------------ -----
William H. Turner.............................. $ 87,500 $ 32,550 $ - $ 120,050
Frederick D. Sturdivant........................ 52,000 27,550 14,000(3) 93,550
Robert M. Gerrity.............................. 60,000 27,550 - 87,550
Richard S. Ward................................ 50,000 37,550 - 87,550
Kenneth A. Lehman (5).......................... 55,000 27,550 - 82,550
Roger M. Widmann............................... 50,000 27,550 - 77,550
Arthur S. Sills................................ 6,000 - 12,096(4) 18,096
Peter J. Sills................................. 5,000 - 12,096(4) 17,096
----------------
(1) Includes (a) the cash portion of the annual retainer paid to
independent directors, (b) the annual retainer paid each Chairman of
our Committees of the Board, and (c) fees for director attendance at
Board and Committee meetings.
(2) Represents the value in accordance with SFAS 123(R) of (a) the Company
Common Stock received by an independent director as part of his annual
retainer, (b) any portion of the annual cash retainer which an
independent director chose to take in Company Common Stock, and (c)
shares of restricted stock granted to each independent director.
The number of outstanding stock awards and option awards held by each
independent director at December 31, 2006 are set forth below:
OUTSTANDING OUTSTANDING
STOCK OPTION
NAME AWARDS AWARDS
---- ------ ------
William H. Turner.................. 1,000 15,400
Robert M. Gerrity.................. 1,000 15,400
Kenneth A. Lehman.................. 1,000 11,400
Frederick D. Sturdivant............ 1,000 7,400
Richard S. Ward.................... 1,000 2,000
Roger M. Widmann................... 1,000 2,000
(3) Represents fees for consulting services provided to the Company by
such director, which services were authorized by the Board in
connection with the preparation of the Company's strategic plans.
(4) Represents the value of medical benefits provided to such directors.
(5) Kenneth A. Lehman retired from the Board in March 2007. The 1,000
shares of restricted stock granted to Mr. Lehman in May 2006, which
shares are reflected in the "Stock Awards" column above, have been
forfeited since he retired prior to the vesting date of such shares.
-14-
For 2006, the annual cash retainer for each independent director was
$35,000, of which any portion can be taken in Company Common Stock at the
discretion of each director; in 2006 Mr. Turner and Mr. Ward elected to receive
$5,000 and $10,000, respectively, of such retainer in Company Common Stock. In
addition, each independent director receives on the date of each annual meeting
of stockholders an automatic restricted stock award of 1,000 shares, and an
additional award of Common Stock valued at $20,000, based on the fair market
value of the Company's Common Stock as of the date of the annual stockholder
meeting. Independent director restricted stock grants vest one year after the
grant date, so long as the director remains continuously in office. Independent
directors are also eligible to receive other types of awards under the 2006
Omnibus Incentive Plan, but such awards are discretionary. In the event of a
merger or asset sale, vesting of all of the shares of restricted stock will
accelerate, and such shares will become vested in full.
In 2006 William H. Turner received an additional annual retainer of
$20,000 and $7,500 for his services as our Presiding Independent Director and
Chairman of the Audit Committee, respectively. Robert M. Gerrity, as Chairman of
our Compensation and Management Development Committee, and Richard S. Ward, as
Chairman of our Nominating and Corporate Governance Committee, each received an
additional annual retainer of $5,000 for their services as Chairman of such
Committees. Non-employee directors also received $1,000 for each Board and
Committee meeting they attend and are reimbursed for meeting expenses. In
addition, Arthur S. Sills and Peter J. Sills are covered under the Company's
medical plan. Lawrence I. Sills, being an officer of the Company, received no
payment for the fulfillment of his directorial responsibilities; please refer to
the Summary Compensation Table for disclosure regarding Mr. Sills' compensation.
In addition, in connection with providing certain consulting services on behalf
of, and at the authorization of, the Board, Frederick D. Sturdivant received
compensation of $14,000 plus expenses for assisting the Company in developing
its long term strategic plans.
POLICY ON POISON PILLS
The Company does not have a poison pill and is not presently
considering the adoption of such a device. If the Company were ever to adopt a
stockholder rights agreement, the Company would seek prior stockholder approval,
unless due to time constraints or other reasons, the Board, in the exercise of
its fiduciary responsibilities, determines that it would be in the best
interests of stockholders to adopt a stockholder rights agreement before
obtaining stockholder approval. If the Company's Board were ever to adopt a
stockholder rights agreement without prior stockholder approval, the Board would
submit such agreement to stockholders for ratification within one year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All members of the Board's Compensation and Management Development
Committee during 2006 were independent directors, and none of them were
employees or former employees of the Company. During 2006, no executive officer
of the Company served on the compensation committee (or equivalent) or the board
of directors of another entity whose executive officer(s) served on the
Company's Compensation and Management Development Committee or Board of
Directors.
-15-
MANAGEMENT INFORMATION
Our officers, and their ages and positions as of March 15, 2007, are:
NAME AGE POSITION
---- --- --------
Lawrence I. Sills(1)............... 67 Chairman of the Board and
Chief Executive Officer
John P. Gethin(1).................. 58 President and Chief Operating Officer
James J. Burke(1).................. 51 Vice President Finance and Chief Financial
Officer
Carmine J. Broccole................ 41 Vice President General Counsel and Secretary
Dale Burks......................... 47 Vice President Temperature Control Division
Robert Kimbro...................... 52 Vice President Distribution Sales
Ray Nicholas....................... 43 Vice President Information Technology
Eric Sills......................... 38 Vice President Engine Management Division
Thomas S. Tesoro................... 52 Vice President Human Resources
Luc Gregoire....................... 47 Corporate Controller and Chief Accounting
Officer
Robert H. Martin................... 60 Treasurer and Assistant Secretary
----------------
(1) Member of the Office of Chief Executive.
LAWRENCE I. SILLS has served as our Chief Executive Officer and
Chairman of the Board since 2000 and has been a director of the Company since
1986. From 1986 to December 2000, Mr. Sills served as our President and Chief
Operating Officer. From 1983 to 1986, he served as our Vice President of
Operations. Mr. Sills is the brother of Arthur S. Sills and Peter J. Sills, each
of whom are directors of the Company, and is the father of Eric Sills, our Vice
President Engine Management Division.
JOHN P. GETHIN has served as our President and Chief Operating Officer
since December 2000. From 1997 to 2000, Mr. Gethin served as our Senior Vice
President of Operations. From 1998 to 2003, he served as the General Manager of
our Temperature Control Division. From 1995 to 1997, Mr. Gethin was our Vice
President and General Manager of EIS Brake Parts Division (a former business
unit of ours).
JAMES J. BURKE has served as our Vice President Finance and Chief
Financial Officer since 1999. From 1998 to 1999, Mr. Burke served as our
Director of Finance, Chief Accounting Officer. From 1993 to 1997, he served as
our Corporate Controller.
CARMINE J. BROCCOLE has served as our Vice President General Counsel
and Secretary since January 2006 and was our General Counsel from August 2004 to
January 2006. Prior to such time, Mr. Broccole was a Partner of Kelley Drye &
Warren LLP.
-16-
DALE BURKS has served as our Vice President Temperature Control
Division since September 2006. From July 2003 to September 2006, Mr. Burks
served as our General Manager - Temperature Control Division. From 1984 until
2003, he served in various capacities for our company including Director - Sales
& Marketing, Regional Manager and Territory Manager.
ROBERT KIMBRO has served as our Vice President Distribution Sales since
September 2006. Since 1984, Mr. Kimbo served in a variety of sales capacities in
our company, most recently as Regional Sales Manager for the East Region
beginning January 1997.
RAY NICHOLAS has served as our Vice President Information Technology
since September 2006. From 1990 until September 2006, Mr. Nicholas served as the
Manager and Director of Information Systems for our Temperature Control
Division.
ERIC SILLS has served as our Vice President Engine Management Division
since September 2006. From 1991 until September 2006, Mr. Sills served in
various capacities in our company, most recently as General Manager, LIC
Operations, Director of Product Management, and Plant Manager, Oxygen Sensor
Business Unit. He is the son of Lawrence I. Sills and the nephew of Arthur S.
Sills and Peter J. Sills.
THOMAS S. TESORO has served as our Vice President Human Resources since
September 2006 after joining our company in July 2006. From 1999 to July 2006,
Mr. Tesoro served as Senior Vice President of Human Resources for Vertrue Inc.
Prior to such time, he served in a variety of senior human resources related
positions for a number of Fortune 500 companies.
LUC GREGOIRE has served as our Corporate Controller and Chief
Accounting Officer since July 2005. From 1992 to 2005, Mr. Gregoire served in
various capacities for Merck & Co., Inc., most recently as Controller of the
Human Health Europe, Middle East & Africa. Prior to such time, he was a Partner
of Arthur Andersen.
ROBERT H. MARTIN has served as our Treasurer and Assistant Secretary
since 1999. From 1993 to 1999, Mr. Martin served as the Controller of our Engine
Management Division. From 1989 to 1993, he was the Division Controller of one of
our subsidiaries.
OFFICE OF CHIEF EXECUTIVE
The Company has established the Office of the Chief Executive to
strengthen the executive management structure of the Company. The Office of
Chief Executive is primarily responsible for the development of policy, strategy
and quality assurance, and the provision of leadership. Its functions also
include (a) supporting and providing timely and quality advice to the Chief
Executive Officer; (b) promoting the policies of the Company; and (c) improving
communications between management, customers, the Board of Directors and
stockholders. The Office of Chief Executive is comprised of Lawrence I. Sills,
our Chairman and Chief Executive Officer, John P. Gethin, our President and
Chief Operating Officer, and James J. Burke, our Vice President Finance and
Chief Financial Officer.
-17-
EXECUTIVE COMPENSATION AND RELATED INFORMATION
COMPENSATION DISCUSSION AND ANALYSIS
OVERVIEW. Our Compensation and Management Development Committee of the
Board of Directors (the "Committee") is responsible for, among other things, (1)
reviewing the overall goals, policies, objectives and structure of our executive
compensation programs, (2) approving the compensation packages of the Company's
executive officers, and (3) administering the Company's equity incentive plans.
In performing its duties, the Committee may, in its discretion, solicit the
input of any of our executive officers (including our Chief Executive Officer),
any of our other employees, or any other independent consultant or advisor.
PRIMARY OBJECTIVES OF COMPENSATION.Our executive compensation program
is designed to (1) attract, motivate and retain exceptional talent whose
abilities are critical to the Company's long-term success, (2) maintain a
portion of the executive's total compensation at risk, tied to achievement of
annual and long-term financial, organizational and management performance goals,
and (3) provide variable compensation incentives directly linked to the
performance of the Company and improvement in stockholder return so that
executives manage from the perspective of owners with an equity stake in the
Company. In this regard, the levels of executive compensation established by the
Committee are designed to be competitive with the median compensation available
to other executives in comparable companies.
The principal elements of our executive compensation program are base
salary, annual cash incentives, long-term equity incentives, perquisites and
other benefits. Our Chief Executive Officer, Chief Operating Officer and Chief
Financial Officer generally participate in the same executive compensation plans
and arrangements available to the other executive officers; however, they have a
larger percentage of their target variable compensation based upon performance
criteria relating to the Company's strategic goals.
While the elements of compensation are considered separately, the
Committee also considers the complete compensation package provided by the
Company to the individual executive to ensure that it will be effective in
motivating and incentivizing such executive and to assess its competitiveness at
other comparable companies. We determine the appropriate levels of our total
compensation, and each compensation element, based on several factors, such as
our overall performance, each executive's individual performance, the desire to
maintain internal equity and consistency among our executives, and other
considerations that we deem to be relevant. In addition, we generally do not
retain compensation consultants to review our policies and procedures with
respect to executive compensation. We conduct annual informal benchmark reviews
of the aggregate level of our executive compensation, as well as the mix of
elements used to compensate our executive officers. This review is based in part
on publicly available resources and surveys and other databases to which we
subscribe. In 2006, we also engaged Hewitt Associates, an independent consulting
firm, to assist us in reviewing our equity compensation program. We have not
currently adopted any formal or informal policy for allocating compensation
between long-term and short-term, between cash and non-cash, or among the
different forms of non-cash compensation.
-18-
BASE SALARY. Base salaries for our executive officers are determined by
evaluating the responsibilities of the position, the experience of the
individual, and the competitive marketplace. We believe that our base salaries
are an important element of our executive compensation program because they
provide our executives with a steady income stream that is not contingent upon
our overall performance. Generally, we believe that executive base salaries
should be set near the median of the range of salaries for executives in similar
positions and with similar responsibilities at comparable companies. We believe
that maintaining base salary amounts at or near the industry median minimizes
competitive disadvantage, while avoiding paying amounts in excess of what we
believe to be necessary to motivate executives to meet corporate goals.
Base salaries for executive officers are reviewed typically in January
of each year, at the time of a promotion, upon a change in level of
responsibilities, or when competitive circumstances may require review. Any
increase in base salary is dependent upon the Company's performance and
individual performance. The salaries of our executive officers are set by the
Committee and may be based on the recommendations of our Chief Executive
Officer, except with respect to his own salary. Our Chief Executive Officer is
not compensated for his services as a director and Chairman of the Board.
For 2006, the base salaries of our Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer remained the same as their
respective 2005 base salaries because the Committee determined that a salary
increase was not appropriate due to the Company not achieving certain strategic
performance targets in 2005. However, the Committee approved increases in the
year-over-year annual base salaries for our other named executive officers in
view of their contributions to the Company.
ANNUAL BONUS. We utilize annual incentive cash bonuses to reward each
of our named executive officers when we achieve certain company-level financial
objectives under our EVA program (as described below) and the applicable
executive officer achieves certain individual performance objectives (or MBO
goals). Our annual cash bonuses are designed to more immediately reward our
executives for their performance during the most recent year. We believe that
the immediacy of these cash bonuses, in contrast to our equity grants which vest
over a period of time, provides a significant incentive to our executives
towards achieving their respective individual objectives, and thus our
company-level objectives. We believe our cash bonuses are an important
motivating factor for our executives, in addition to being a significant factor
in attracting and retaining our executives.
Near the beginning of each year, annual target cash bonuses are
determined as a percentage of each executive officer's total cash compensation
for the fiscal year. The target bonuses are set at levels that, upon achievement
of 100% of the target amount, are likely to result in bonus payments that the
Committee believes to be at or near the median for target bonus amounts for
comparable companies; however, actual bonuses may be higher or lower based upon
achievement of MBO and EVA goals. The Committee reviews and approves a detailed
set of individual MBO goals (which are generally quantifiable performance
objectives) initially prepared by management. Individual MBO goals, for example,
might include developing strategic opportunities, developing our executive team,
or improving operating efficiency and cost position. At the beginning of the
following year, the Committee determines the level of achievement for each MBO
goal of each executive and, together with the company-level financial
achievements based on our EVA program, final bonuses are determined.
-19-
With respect to company-level financial objectives, the Company
utilizes an Economic Value Added (EVA) based bonus program to more closely align
executive compensation to continuous improvements in corporate performance and
increases in stockholder value. Simply stated, EVA is equal to net operating
profit after tax, less a charge for the cost of capital. Bonuses tied to EVA are
such that increasing EVA year over year will be favorable for the Company's
stockholders as well as those whose compensation is based on EVA. In the event
of decreasing EVA, bonuses will be negative (up to a maximum of 100%). EVA
bonuses earned in any one year may not necessarily be paid out in full. In order
to promote longer-term stockholder improvement and to keep part of an
executive's bonus at risk, the entire bonus structure is monitored through a
"banking" feature. The "bank" allows only a portion of the year's earnings to be
paid out in any given year. Specifically, in a year with positive EVA an
executive officer may receive only up to 130% of their target EVA amount plus
one-third of any remaining EVA balance, with the remaining two-thirds of any EVA
balance deposited into an executive officer's "bank." Due to this feature, it is
possible to receive a nominal bonus in a poor year only because an executive has
a bank upon which to draw. It is also possible to completely exhaust the bank or
create a negative bank. In the case of a negative bank, bonuses tied to EVA
would not be paid until the bank is once again positive. However, the Committee
may in its discretion reset negative bank balances to zero in order to preserve
an incentive for continuous effort in future years. For 2006, bank balances for
our named executive officers were set at negative 100%, other than for Dale
Burks who had a zero bank balance carried over from 2005. Accordingly, the
bonuses paid to our named executive officers in 2006 were reduced by the
following amounts due to their negative bank balances: (1) $227,500 for Lawrence
I. Sills; (2) $175,000 for John P. Gethin; (3) $140,000 for James J. Burke; and
(4) $32,480 for Carmine J. Broccole.
Under the EVA bonus program, the 2006 bonuses of our named executive
officers are based on a range of 65% or greater on year-over-year improvement in
Company EVA and the remaining 35% or less on MBO goals approved by the
Committee. Earned MBO bonuses are paid out in full each year.
In the event of a financial restatement in a downward direction, the
Committee has not considered whether it would attempt to recover bonuses paid to
our executive officers based on our restated financial performance.
LONG-TERM INCENTIVE PROGRAMS. As part of the Company's compensation
program, the Committee grants equity stock to the Company's executive officers
and other key employees. We believe that equity grants provide our executive
officers with a strong link to our long-term performance goals, create an
ownership culture, and closely align the interests of our executive officers and
our stockholders. In addition, the vesting feature of our equity grants should
aid officer retention because this feature provides an incentive to our
executive officers to remain in our employ during the vesting period. In
determining the size of equity grants to our executive officers, the Committee
considers our company-level performance, the applicable executive officer's
performance, comparative share ownership of our competitors, the amount of
equity previously awarded to the applicable executive officer, the vesting of
such awards, and the recommendations of management and any other consultants or
advisors that the Committee may choose to consult.
-20-
STOCK OPTION PLANS. Prior to 2006, the primary form of equity
compensation that we awarded to our executive officers consisted of incentive
stock options. We selected this form of equity compensation because of the
favorable accounting and tax treatments and the expectation by our executives
that they would receive stock options. We granted stock options to our executive
officers under our 1994 Omnibus Stock Option Plan and 2004 Omnibus Stock Plan.
Under the 1994 Omnibus Stock Option Plan, we granted stock options
which become exercisable over a three to five year period and expire at the end
of five years following the date they become exercisable. Under the 2004 Omnibus
Stock Plan, we granted stock options which become exercisable over a three to
five year period and expire at the end of ten years following the date of grant.
Our board of directors has determined not to grant any additional stock options
under these plans. However, these plans will continue to govern the terms and
conditions of the outstanding awards granted under such plans.
Historically, stock options for our executive officers were granted in
installments, such that the exercise price of the initial installment was equal
to the fair market value of our Common Stock on the date of grant and the
exercise price of the remaining one to three installments were either (a) one
dollar above the prior installment or (b) equal to 110% of the fair market value
of our Common Stock on the date of grant. Stock options had vesting periods of
two to four years. We spread the vesting of our options over a period of time to
compensate our executives for their contribution over a period of time and as a
retention tool. In addition, we increased the exercise price of the stock
options after the initial installment as an additional incentive to our
executives. Our stock options may be accelerated automatically upon the death or
disability of an optionee or upon a "change in control" of the Company.
We typically granted stock options once per year or every other year.
It is our policy to ensure that we do not award stock options in connection with
the release, or the withholding, of material non-public information, and that
the exercise price of all stock options is equal to or greater than the fair
market value of our Common Stock on the date of grant.
2006 OMNIBUS INCENTIVE PLAN. Beginning in 2006, the accounting
treatment for stock options changed as a result of Statement of Financial
Accounting Standards No. 123(R), making the accounting treatment of stock
options less attractive. As a result, we assessed the desirability of granting
restricted stock awards and performance share awards to our executive officers
and other key employees and concluded that such awards would provide an equally
motivating form of incentive compensation while permitting us to issue fewer
shares, thereby reducing potential dilution. Because shares of restricted stock
have a defined value at the time the restricted stock grants are issued,
restricted stock grants are often perceived as having more immediate value than
stock options, which have a less calculable value when granted. In addition, we
provide performance shares to our executive officers because we believe that
their contributions to the Company have a direct relationship to the achievement
of the Company's strategic goals.
In May 2006, we granted our executive officers restricted stock and
performance shares under our 2006 Omnibus Incentive Plan ("Incentive Plan"). The
Incentive Plan also permits the grant of incentive and nonqualified stock
options, stock appreciation rights, restricted stock units, and other
stock-based awards to our officers, directors, employees and consultants.
However, we currently only intend to grant restricted stock and performance
shares under the Incentive Plan. Each restricted stock award issued under the
-21-
Incentive Plan is subject to a three year vesting schedule. If an executive
officer ceases to remain employed with the Company before the end of the vesting
period, such person shall forfeit the entire restricted stock award. Restricted
stock awards may become immediately vested in full in cases of death, retirement
at or after age 65, total disability (as determined by the Committee in its sole
discretion), or upon a "change in control" of the Company.
We also awarded our executive officers performance shares under the
Incentive Plan in amounts initially comparable to the number of shares of
restricted stock issued to such executives, although the actual number of
performance shares awarded may be higher or lower. In order for the performance
shares to be earned, the Company must achieve certain performance target goals
at the end of the three-year performance period covered by the awards. The
performance share awards are also subject to a three-year vesting period. The
target performance goals are based on the achievement of a certain level of
earnings before taxes of the Company. The amount of performance shares actually
awarded to an executive officer depends on the level of the performance goal
achieved, and the performance goals are scaled so that the recipient can receive
part of an award in the event that acceptable, but not the desired, results are
achieved. We believe that the achievement of the 100% of performance target is
achievable with diligent performance by all executives of the Company.
It is our intent to grant restricted stock and performance shares once
per year on the date of our Annual Meeting of Stockholders. It is our policy to
ensure that we do not award equity grants in connection with the release, or the
withholding, of material non-public information, and that the grant value of all
equity awards is equal to the fair market value on the date of grant.
STOCK OWNERSHIP GUIDELINES. We established stock ownership guidelines
for our executive officers. Our guidelines provide that executive officers are
expected to own and hold a number of shares of Company Common Stock with a value
that represents either (a) 50 percent of their base salary, with respect to the
Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer,
or (b) 30 percent of their base salary, with respect to each of the other
executive officers of the Company. Stock ownership levels should be achieved by
each executive officer within a period of time as determined at the discretion
of the Committee. We do not allow our executive officers to hedge the economic
risk of their stock ownership.
TERMINATION-BASED COMPENSATION. As discussed in more detail in the
"Severance and Change of Control Arrangements" section below, our executive
officers are eligible to receive termination-related benefits under the
Company's Supplemental Unemployment Benefit Plan (which is available to all
eligible employees) and Supplemental Executive Retirement Plan. In addition,
John P. Gethin, our President and Chief Operating Officer, and James J. Burke,
our Vice President Finance and Chief Financial Officer, are entitled to certain
benefits upon the termination of their respective employment pursuant to
Severance Compensation Agreements, Retention Bonus and Insurance Agreements and
the Supplemental SERP. As stated previously, our stock option plans and our
Incentive Plan have provisions that would accelerate the vesting of stock
options and restricted stock upon certain events, including a change of control
of the Company. We believe these severance and change of control benefits are an
essential element of our executive compensation package and assist us in
recruiting and retaining talented individuals.
-22-
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Committee has
considered the potential impact of Section 162(m) of the Internal Revenue Code
on the compensation paid to the Company's executive officers. Section 162(m)
disallows a tax deduction for any publicly held corporation for individual
compensation exceeding $1 million in any taxable year for any of the named
executive officers, unless compensation is performance-based. In general, it is
the Committee's policy to qualify, to the maximum extent possible, its
executives' compensation for deductibility under applicable tax laws. In
approving the amount and form of compensation for the Company's executive
officers, the Committee will continue to consider all elements of the cost to
the Company of providing such compensation, including the potential impact of
Section 162(m).
RETIREMENT PLANS. SERP. The Company has established a Supplemental
Executive Retirement Plan for our executive officers and other eligible
employees. The purpose of this plan is to enable the Company to supplement the
benefits under the Company's 401(k) Capital Accumulation/Profit Sharing Plan as
well as to provide a means whereby certain amounts payable by the Company to our
executive officers may be deferred to some future period. An eligible employee
may irrevocably elect to defer receipt of (a) all or a portion of their bonus
for the year and (b) their base compensation which would otherwise be payable
for the applicable plan year up to a maximum of 50%. In addition, the Company
generally makes an annual cash contribution into the SERP on behalf of each
participant.
SUPPLEMENTAL SERP. The Company maintains an unfunded supplemental SERP
for eligible employees. The only participants in this plan at the current time
are John P. Gethin and James J. Burke. The supplemental SERP provides that, upon
attainment of a participant's normal retirement age (i.e., 60 years of age), the
participant shall be entitled to 50% of such participant's highest average
annual base salary plus bonus in three of the last five years of service. If a
participant terminates his employment voluntarily prior to age 60 or is
terminated for cause, such participant will forfeit his benefits under the
supplemental SERP. The benefits under this plan are in addition to benefits
payable to participants under the Company's 401(K) Capital Accumulation Plan and
SERP.
ESOP. Our executive officers are eligible to receive Company Common
Stock pursuant to our Employee Stock Ownership Plan, which is available for all
eligible employees. This stock grant plan gives our executives an opportunity to
share directly in the growth of the Company through stock ownership. Currently,
a total of 750,000 shares of Common Stock have been set aside for distribution
over a 10-year period beginning in 1999. The Company's stock contributions for
the current calendar year are made in the first quarter of such year. Typically,
the Company makes a contribution to the ESOP in a sufficient amount to permit an
allocation of the number of shares necessary (exclusive of forfeitures) up to
the market value of 2% of the gross annual cash compensation of all eligible
participants. Under the plan, each participant must comply with a seven year
vesting schedule.
RETIREE MEDICAL BENEFITS. The Company has a retiree medical benefit
plan for eligible employees. Lawrence I. Sills is currently eligible to receive
benefits under this plan, and James J. Burke and Dale Burks will become eligible
to receive benefits under this plan if they remain employees of the Company for
one and three additional years, respectively. The plan provides medical coverage
(which is secondary to Medicare) to such executive officers beginning at the age
of 65 and remains in effect as long as such executive officers continue to make
the same contributions as made by active employees. In 2005, the Company changed
the plan such that no employee hired after January 1, 1995 would be eligible
under the plan. Accordingly, none of our other executive officers are eligible
to receive any benefits under this plan.
-23-
PERQUISITES AND OTHER BENEFITS. We provide our executive officers
certain perquisites and other benefits. We provide these benefits to provide an
additional incentive for our executives and to remain competitive in the general
marketplace for executive talent. The primary perquisite for our executive
officers is allowances for leasing an automobile. In addition, we maintain
broad-based benefits that are provided to all employees, including health
insurance, life and disability insurance, accidental death and dismemberment
insurance, dental insurance, 401(K) Capital Accumulation/Profit Sharing plan and
an employee stock purchase plan. In particular circumstances, we also utilize
cash signing bonuses when certain executives join us. Whether a signing bonus is
paid and the amount thereof is determined on a case-by-case basis under the
specific hiring circumstances.
REPORT OF THE COMPENSATION
AND MANAGEMENT DEVELOPMENT COMMITTEE
The Compensation and Management Development Committee of the Board of
Directors has reviewed and discussed the Company's Compensation Discussion and
Analysis with management. Based on this review and discussion, the Committee
recommended that the Board of Directors include the Compensation Discussion and
Analysis in this Proxy Statement.
COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE
Robert M. Gerrity, Chairman
Frederick D. Sturdivant
William H. Turner
Richard S. Ward
Roger M. Widmann
-24-
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by the
Company during fiscal 2006 to our principal executive officer, our principal
financial officer and our other most highly compensated executive officers as
defined in the regulations of the Securities and Exchange Commission (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
CHANGE
IN PENSION
VALUE AND
NAME NONQUALIFIED
AND DEFERRED ALL
PRINCIPAL STOCK COMPENSATION OTHER
POSITION YEAR SALARY BONUS (1) AWARDS (2) EARNINGS (3) COMPENSATION TOTAL
(4)
---------------------------------- ------- ---------- --------------------- --------------- ---------------------------
Lawrence I . Sills............... 2006 $ 403,000 $ 298,594 $ 13,800 $ - $33,453 $748,847
Chief Executive Officer and
Chairman of the Board
John P. Gethin................... 2006 503,000 229,688 12,938 506,262 43,965 1,295,853
President and Chief
Operating Officer
James J. Burke................... 2006 403,000 183,750 12,938 0 34,513 634,201
Vice President Finance and
Chief Financial Officer
Carmine J. Broccole.............. 2006 263,000 120,865 11,168 - 18,987 414,020
Vice President General
Counsel and Secretary
Dale Burks....................... 2006 253,000 120,411 11,168 - 12,452 397,031
Vice President Temperature
Control Division
-----------------
(1) The amounts in this column constitute the annual cash bonus awards and
take into account any reductions as a result of applicable negative EVA
bank balances. See related discussion in the "Compensation Discussion
and Analysis" section above. In addition, Mr. Broccole received $15,000
as the deferred portion of his signing bonus.
(2) The amounts in this column represent the SFAS 123(R) compensation cost
we recognized in 2006 for the restricted stock awards. For a discussion
of the valuation assumptions, see Note 12 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year
ended December 31, 2006. Please see "Grants of Plan-Based Awards" and
"Outstanding Equity Awards at Fiscal Year-End" for more information
regarding our stock awards.
(3) We do not pay "above market" interest on non-qualified deferred
compensation, therefore, this column reflects pension accruals only.
The amounts shown are attributable to the change in the actuarial
present value of the accumulated benefit under our Supplemental SERP at
December 31, 2006 as compared to December 31, 2005. For Mr. Burke, the
change in actuarial present value of the accumulated benefit was a
decrease of $7,358. Messrs. Gethin and Burke are the only participants
of the Supplemental SERP. Please see "Pension Benefits" for more
information.
(4) The amounts in this column represent (a) car allowances for leased
automobiles, (b) Company contributions to the 401(K) Capital
Accumulation/Profit Sharing Plan, ESOP and SERP programs on behalf of
the Named Executive Officers, and (c) Company payments for life
insurance premiums for Messrs. Gethin and Burke. The amount
attributable to each perquisite for each Named Executive Officer does
not exceed the greater of $25,000 or 10% of the total amount of
perquisites received by such officer.
-25-
The following table sets forth certain information with respect to
stock awards granted to the Named Executive Officers during 2006. The Company
does not have any non-equity incentive award plans and therefore has omitted the
corresponding columns.
GRANTS OF PLAN-BASED AWARDS
ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE ALL OTHER STOCK
PLAN AWARDS (1) AWARDS: NUMBER OF
GRANT SHARES OF STOCK OR GRANT DATE
DATES THRESHOLD (#) TARGET (#) MAXIMUM (#) UNITS (#) (2) FAIR VALUE(3)
----- ------------- ---------- ----------- ------------- ----------
Lawrence I. Sills...............5/18/06 1,000 2,000 4,000 $ 13,800
5/18/06 2,000 13,800
John P. Gethin..................5/18/06 938 1,875 3,750 $ 12,938
5/18/06 1,875 12,938
James J. Burke..................5/18/06 938 1,875 3,750 $ 12,938
5/18/06 1,875 12,938
Carmine J. Broccole.............5/18/06 250 500 1,000 $3,450
5/18/06 500 3,450
9/1/06 375 750 1,500 7,718
9/1/06 750 7,718
Dale Burks......................5/18/06 250 500 1,000 $3,450
5/18/06 500 3,450
9/1/06 375 750 1,500 7,718
9/1/06 750 7,718
-----------------
(1) These columns reflect threshold, target and maximum payout levels for
performance share awards granted under our 2006 Omnibus Incentive
Plan. The performance share awards have a three year vesting period
and performance target goals relating to the Company's earnings before
taxes measured at the end of a three year period. To the extent that
the Company does not achieve the threshold level of earnings before
taxes at the end of the measuring period, no performance shares will
be issued. Holders of performance share awards are not entitled to
stockholder rights, including voting rights or dividends. Additional
information regarding our 2006 Omnibus Incentive Plan is included in
the "Compensation Discussion and Analysis" section above.
(2) This column reflects the number of shares of restricted stock issued
under our 2006 Omnibus Incentive Plan. Shares of restricted stock have
a three year vesting period and are not entitled to dividends;
however, holders of restricted stock are entitled to voting rights. To
the extent that an officer ceases to be an employee of the Company
before the end of the vesting period, the entire restricted stock
award shall be forfeited. These awards are also described in the
"Outstanding Equity Awards at Fiscal Year-End" below.
(3) The SFAS 123(R) value of these awards is $6.90 per share at target for
awards granted on May 18, 2006 and $10.29 per share at target for
awards granted on September 1, 2006.
-26-
The following table summarizes the equity awards that we have made to our
Named Executive Officers which are outstanding as of December 31, 2006.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Option Awards Stock Awards (1)
------------------------------------------------- -------------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Number of Value of
Market Unearned Unearned
Number of Number of Number of Value of Shares, Shares,
Securities Securities Shares or Shares or Units Units
Underlying Underlying Units of Units of or Other or Other
Unexercised Unexercised Option Option Stock That Stock That Rights That Rights
Grant Options Options Exercise Exercise Have Not Have Not Have Not That Have
Name Date Exercisable Unexercisable Price Date Vested Vested(2) Vested Not Vested
---- ---- ----------- ------------- ----- ---- ------ --------- ------ ----------
Lawrence I. Sills 5/27/1999 8,333 $ 24.84(3) 5/27/2007
5/18/2000 8,333 10.29(4) 5/18/2007
5/18/2000 8,333 11.29(3) 5/18/2008
2/14/2003 6,667 13.74(5) 2/14/2009
2/14/2003 6,667 14.74(4) 2/14/2010
2/14/2003 6,666 15.74(3) 2/14/2011
5/24/2004 6,250 13.55(5) 5/24/2014
5/24/2004 6,250 14.91(4) 5/24/2014
5/19/2005 6,250 10.55(5) 5/19/2015
5/19/2005 6,250 11.61(4) 5/19/2015
5/18/2006 2,000 $ 29,960 2,000 $ 29,960
John P. Gethin 5/27/1999 6,666 $ 24.84(3) 5/27/2007
5/18/2000 3,500 10.29(4) 5/18/2007
5/18/2000 7,500 11.29(3) 5/18/2008
2/14/2003 6,000 13.74(5) 2/14/2009
2/14/2003 6,000 14.74(4) 2/14/2010
2/14/2003 6,000 15.74(3) 2/14/2011
5/24/2004 5,625 13.55(5) 5/24/2014
5/24/2004 5,625 14.91(4) 5/24/2014
5/19/2005 5,625 10.55(5) 5/19/2015
5/19/2005 5,625 11.61(4) 5/19/2015
5/18/2006 1,875 $ 28,088 1,875 $ 28,088
James J. Burke 7/3/2000 5,000 $ 24.84(3) 5/27/2007
5/18/2000 5,000 10.29(4) 5/18/2007
5/18/2000 5,000 11.29(3) 5/18/2008
2/14/2003 4,000 13.74(5) 2/14/2009
2/14/2003 4,000 14.74(4) 2/14/2010
2/14/2003 4,000 15.74(3) 2/14/2011
5/24/2004 3,750 13.55(5) 5/24/2014
5/24/2004 3,750 14.91(4) 5/24/2014
5/19/2005 3,750 10.55(5) 5/19/2015
5/19/2005 3,750 11.61(4) 5/19/2015
5/18/2006 1,875 $ 28,088 1,875 $ 28,088
-27-
Option Awards Stock Awards (1)
------------------------------------------------- -------------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market or
Awards: Payout
Number of Value of
Market Unearned Unearned
Number of Number of Number of Value of Shares, Shares,
Securities Securities Shares or Shares or Units Units
Underlying Underlying Units of Units of or Other or Other
Unexercised Unexercised Option Option Stock That Stock That Rights That Rights
Grant Options Options Exercise Exercise Have Not Have Not Have Not That Have
Name Date Exercisable Unexercisable Price Date Vested Vested(2) Vested Not Vested
---- ---- ----------- ------------- ----- ---- ------ --------- ------ ----------
Carmine J. Broccole 5/19/2005 1,500 $ 10.55(5) 5/19/2015
5/19/2005 1,500 11.61(4) 5/19/2015
5/18/2006 1,250 $ 18,725 1,250 $ 18,725
Dale Burks 5/18/2000 2,000 $ 10.29(4) 5/18/2007
5/18/2000 2,000 11.29(3) 5/18/2008
2/14/2003 1,600 13.74(5) 2/14/2009
2/14/2003 1,600 14.74(4) 2/14/2010
2/14/2003 1,600 15.74(3) 2/14/2011
5/24/2004 3,750 13.55(5) 5/24/2014
5/24/2004 3,750 14.91(4) 5/19/2014
5/19/2005 3,750 10.55(5) 5/19/2015
5/19/2005 3,750 11.61(4) 5/19/2015
5/18/2006 1,250 $ 18,725 1,250 $ 18,725
-----------------
(1) Shares of restricted stock vest on the third anniversary of the date
of grant. Performance shares vest on the third anniversary of the date
of grant, provided that certain performance goals have been met at the
end of the three year measuring period. Please refer to the
"Compensation Discussion and Analysis" section above for additional
information regarding equity awards granted under our 2006 Omnibus
Incentive Plan.
(2) The market value is based on the closing price of the Company's Common
Stock of $14.98 per share as of December 29, 2006 (the last trading
day of 2006).
(3) These options vest on the third anniversary of the date of grant.
(4) These options vest on the second anniversary of the date of grant.
(5) These options vest on the first anniversary of the date of grant.
-28-
The following table provides additional information about the value
realized by our Named Executive Officers on option award exercises during the
year ended December 31, 2006. Since there were no stock awards that vested for
any Named Executive Officer during 2006, the corresponding columns have been
omitted.
OPTION EXERCISES AND STOCK VESTED
OPTION AWARDS
--------------------------------------------------
NUMBER OF SHARES VALUE REALIZED
NAME ACQUIRED ON EXERCISE ON EXERCISE
---- -------------------- -----------
Lawrence I. Sills............. - -
John P. Gethin................ 7,500 $20,484
James J. Burke................ - -
Carmine J. Broccole........... - -
Dale Burks.................... - -
The following table shows the present value of accumulated benefits
payable to each of our Named Executive Officers, including the number of years
of service credited to each Named Executive Officer, under our Supplemental SERP
as of December 31, 2006.
PENSION BENEFITS
NUMBER OF YEARS
CREDITED PRESENT VALUE OF PAYMENTS DURING
NAME PLAN NAME (1) SERVICES (2) ACCUMULATED BENEFIT (3) LAST FISCAL YEAR
---- --------- -------- ------------------- ----------------
Lawrence I. Sills.............. - - - -
John P. Gethin................. Supplemental SERP 12 $ 3,701,058 $ 0
James J. Burke................. Supplemental SERP 27 1,367,620 0
Carmine J. Broccole............ - - - -
Dale Burks..................... - - - -
-----------------
(1) The Supplemental SERP is an unfunded supplemental retirement program
for eligible employees. The Supplemental SERP provides that, upon
attainment of a participant's normal retirement age (i.e., 60 years of
age), the participant shall be entitled to 50% of such participant's
highest average annual base salary plus bonus in three of the last
five years of service. If a participant terminates his employment
voluntarily prior to age 60 or is terminated for cause, such
participant will forfeit his benefits under the Supplemental SERP.
Please refer to the "Compensation Discussion and Analysis" section
above and the "Severance and Change of Control Arrangements" section
below for additional information regarding our Supplemental SERP.
(2) The number of years of credited service reflects the Named Executive
Officer's actual service with us. We do not credit additional years of
service under the Supplemental SERP, other than as may be required
under the respective Severance Compensation Agreements with Messrs.
Gethin and Burke.
(3) The amounts reflected in this column represent the benefit the Named
Executive Officer has accrued based upon his salary and the number of
years of credited service as of December 31, 2006.
-29-
The following table shows the aggregate earnings and balances for each of
our Named Executive Officers under our Supplemental Executive Retirement Plan as
of December 31, 2006.
NONQUALIFIED DEFERRED COMPENSATION
EXECUTIVE REGISTRANT AGGREGATE AGGREGATE AGGREGATE
CONTRIBUTIONS CONTRIBUTIONS EARNINGS WITHDRAWALS/ BALANCE
NAME IN LAST FY (1)IN LAST FY (2) IN LAST FY (3) DISTRIBUTION AT LAST FYE
---- ----------- ----------- ----------- ------------ -----------
Lawrence I . Sills................... $143,513 $15,583 $285,789 $ - $2,784,831
John P. Gethin....................... - 18,398 70,331 - 680,200
James J. Burke....................... - 12,467 21,100 - 205,328
Carmine J. Broccole.................. - 1,157 110 - 1,267
Dale Burks........................... - 2,597 3,817 - 37,207
-----------------
(1) The Supplemental Executive Retirement Plan contributions were based on
the officer's deferral election, and were reported under the "Salary"
and "Bonus" amounts shown in the Summary Compensation Table for 2006.
Please refer to the "Compensation Discussion and Analysis" section
above and the "Severance and Change of Control Arrangements" section
below for additional information regarding our Supplemental Executive
Retirement Plan.
(2) The amounts shown in this column are reflected in the Summary
Compensation Table as part of the "All Other Compensation" amount for
2006.
(3) Earnings are not above market and therefore are not reportable in the
Summary Compensation Table.
EQUITY COMPENSATION PLAN INFORMATION
The following table presents a summary of shares of Company Common Stock
that may be issued under our existing equity plans.
NUMBER OF SECURITIES TO WEIGHTED AVERAGE NUMBER OF SECURITIES
BE ISSUED UPON EXERCISE EXERCISE PRICE OF REMAINING AVAILABLE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, FOR FUTURE ISSUANCE
WARRANTS AND RIGHTS WARRANTS AND RIGHTS UNDER EQUITY
PLAN CATEGORY COMPENSATION PLANS
------------- ---------------------- -------------------- ----------------------
Equity compensation plans approved by
security holders (1).................... 1,084,673 (2) $13.61 606,225
Equity compensation plans not
approved by security holders............ - - -
---------------------- -------------------- ----------------------
All plans............................... 1,084,673 (2) $13.61 606,225
====================== ==================== ======================
-----------------
(1) Represents shares of the Company's Common Stock issued or issuable (a)
under the 2006 Omnibus Incentive Plan and (b) upon exercise of options
outstanding under our 1994 Omnibus Stock Option Plan, 1996 Independent
Outside Directors' Stock Option Plan, 2004 Omnibus Stock Option Plan
and 2004 Independent Outside Directors' Stock Option Plan.
(2) This amount includes options to purchase 990,898 shares of the
Company's Common Stock issuable under our several stock option plans
and 93,775 shares of restricted stock and performance shares issued or
issuable under our 2006 Omnibus Incentive Plan. Since the restricted
stock and performance shares have no exercise price, they are not
included in the weighted average exercise price calculation in the
table above.
-30-
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
SEVERANCE COMPENSATION AGREEMENTS
In December 2001, the Company entered into Severance Compensation
Agreements with each of John P. Gethin and James J. Burke. The agreements
provide that if a change in control of the Company occurs, and within 12 months
thereafter the executive's employment is terminated by the Company without cause
or by the executive for certain specific reasons, then the executive will
receive severance payments and certain other benefits. The specific reasons
which allow the executive to resign and receive the benefits are: (1) a
reduction or change in status, position or reporting responsibility; (2) a
reduction in the executive's annual rate of base salary; and (3) relocation of
more than 15 miles from the Company's current office.
If the executive resigns for one of the specific reasons, or is
terminated without cause, the executive will be entitled to receive: (1) a
severance payment equal to three times his base salary plus standard bonus,
payable over a two year period on a pro rata, semi-monthly basis; (2) continued
participation for a period of thirty six months in group medical, dental and/or
life insurance plans; (3) an immediate three years of additional service credit
for all purposes under the Company's Supplemental Compensation Plan and any
other applicable welfare plans; (4) exclusive use of a company automobile for
the duration of the lease then in effect; (5) outplacement services; and (6)
accelerated vesting of any unvested options.
For purposes of these agreements, a change in control of the Company
means the occurrence of any of the following events: (1) a sale of all or
substantially all of the assets of the Company to any person or group other than
certain designated individuals; (2) any person or group, other than certain
designated individuals, become the beneficial owner or owners of more than 50
percent of the total voting stock of the Company, including by way of merger,
consolidation or otherwise; or (3) Lawrence I. Sills ceases to be the Chairman
of the Board or the Chief Executive Officer of the Company.
RETENTION BONUS AND INSURANCE AGREEMENTS
In December 2006, the Company entered into Retention Bonus and
Insurance Agreements with each of John P. Gethin and James J. Burke. The
agreements provide among other things: (1) agreement by each officer to remain
an employee of the Company for a term of not less than three additional years
after such officer reaches the age of 60 (the "Extension Period"); (2)
additional compensation to each officer comprised of one year's salary plus any
applicable bonus at par payable in a lump sum; and (3) extension of the life
insurance policies for each of the officers during the Extension Period. The
bonus payable under these agreements would be forfeited in the event that the
officer's employment is terminated for any reason, other than a disability, in
which case the officer shall be entitled to a pro rata bonus calculated as
provided in the respective agreement.
-31-
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
The Company has established a Supplemental Executive Retirement Plan
(SERP) for our executive officers and other eligible employees. The purpose of
this plan is to enable the Company to supplement the benefits under the
Company's 401(K) Capital Accumulation/Profit Sharing Plan as well as to provide
a means whereby certain amounts payable by the Company to our executive officers
may be deferred to some future period. To the extent that an eligible employee
retires or is terminated, their accounts in the SERP shall be paid either in a
lump sum or over a period not to exceed ten years, at the election of the
employee. In the event of a change of control of the Company, the Company shall,
as soon as possible, but in no event longer than 60 days following the change of
control event, make an irrevocable contribution to the trust account in the
amount that is sufficient to pay each SERP participant or beneficiary the
benefits to which SERP participants or their beneficiaries would be entitled
pursuant to the terms of the SERP as of the date on which the change of control
event occurred. Upon a change of control event, each participant's account shall
be fully vested.
SUPPLEMENTAL SERP
The Company maintains a Supplemental SERP for John P. Gethin and James
J. Burke. The supplemental SERP provides that, upon attainment of a
participant's normal retirement age (i.e., 60 years of age), the participant
shall be entitled to 50% of such participant's highest average annual base
salary plus bonus in three of the last five years of service. If a participant
terminates his employment voluntarily prior to age 60 or is terminated for
cause, such participant will forfeit his benefits under the supplemental SERP.
The benefits under the Supplemental SERP are in addition to benefits payable to
participants under the Company's 401(K) Capital Accumulation Plan and SERP.
Benefits under the Supplemental SERP will be paid from general corporate funds
in the form of a single life annuity and are not subject to any deduction for
Social Security or other offset amounts.
2006 OMNIBUS INCENTIVE PLAN
As previously discussed in the "Compensation Discussion and Analysis"
section above, we granted our Named Executive Officers shares of restricted
stock. Under the terms of the 2006 Omnibus Incentive Plan, any unvested shares
of restricted stock shall immediately vest upon death, retirement at or after
the age of 65, total disability, or upon a change in control of the Company. For
purposes of the Incentive Plan, a "change of control" means any of the following
events:
(a) Any person, other than certain designated persons, become the
beneficial ownership of 20% or more of the total voting stock of the
Company;
(b) Individuals who constitute the Board as of May 18, 2006 cease for any
reason to constitute at least a majority of the Board, other than in
certain circumstances;
(c) Consummation of a reorganization, merger, or consolidation of the
Company or a sale or other disposition of all or substantially all of
the assets of the Company, in each case unless, (i) the beneficial
owners of the Company before such event hold less than 50% of the
voting stock after such event; (ii) no person beneficially owns,
directly or indirectly, 20% or more of the total voting stock of the
successor entity, except to the extent that such ownership existed
prior to the business combination; and (iii) at least a majority of
the members of the board of directors of the successor entity were
members of the incumbent Board at the time of the execution of the
initial agreement or of the action of the Board providing for such
business combination; or
(d) Approval by the stockholders of the Company of a complete liquidation
or dissolution of the Company.
-32-
STOCK OPTIONS PLANS
We granted stock options to our Named Executive Officers under our 1994
Omnibus Stock Option Plan and 2004 Omnibus Stock Plan. Under the 1994 Plan, any
unvested stock options shall immediately vest upon the death, disability or any
of the following events:
(1) the dissolution or liquidation of the Company;
(2) the reorganization, merger or consolidation of the Company in which
the Company will become a wholly-owned subsidiary of another
corporation or the Company is not the surviving corporation;
(3) the sale of all or substantially all of the assets of the Company;
(4) a tender offer for the Common Stock commences or an unaffiliated third
party becomes a 25% or more holder of the Company's voting stock; or
(5) a majority of the members of the Board of Directors are replaced with
newly elected individuals (other than as management nominees), or such
existing directors cease to constitute a majority of the Board of
Directors.
Under the 2004 Plan, a "change in control" occurs principally (i) when
a person (or group of persons acting in concert) acquires 25% or more of the
Company's Common Stock (other than those presently holding such amount), (ii)
when there is a change in the composition of a majority of the Board of
Directors when compared with those who are currently serving or (iii) when the
stockholders of the Company approve a reorganization, merger, consolidation or
other transaction as a result of which the Company or its subsidiary is not the
surviving entity.
Based upon a hypothetical termination date of December 31, 2006, the
severance, termination, retirement or change of control benefits for our Named
Executive Officers would have been as follows:
ESTIMATED BENEFITS UPON TERMINATION FOLLOWING A CHANGE IN CONTROL
SEVERANCE EARLY EARLY
COMPENSATION RETENTION SUPPLEMENTAL VESTING OF VESTING OF
AGREEMENT AGREEMENT SERP SERP STOCK RESTRICTED
NAME AMOUNT (1) AMOUNT (2) AMOUNT (3) AMOUNT (4) OPTIONS (5) STOCK (6) OTHER (7) TOTAL
---- ---------- ---------- ---------- ---------- ----------- --------- --------- -----
Lawrence I. Sills.... - - $ 2,784,831 - $ 21,063 $ 29,960 - $ 2,835,854
John P. Gethin....... $ 2,259,000 $ 0 680,200 $ 4,268,940 18,956 28,088 $ 91,632 7,346,816
James J. Burke....... 1,809,000 0 205,328 1,367,620 12,638 28,088 45,075 3,467,749
Carmine J. Broccole.. - - 1,267 - 5,055 18,725 - 25,067
Dale Burks........... - - 37,207 - 12,638 18,725 - 68,570
-----------------
(1) This amount represents three times the sum of the executive officer's
2006 base salary and standard bonus.
(2) Assuming a termination date of December 31, 2006, neither Messrs
Gethin nor Burke would be entitled to any payments under this
agreement at such time.
(3) This amount represents the payouts under the SERP.
(4) This amount represents the payouts under the Supplemental SERP.
(5) The intrinsic value of the unexercisable options (that is, the value
based upon the Company's stock price of $14.98 minus the exercise
price of $11.61) as of December 31, 2006 was $3.37.
(6) The value of the restricted stock on December 31, 2006 is shown at
$14.98 per share.
(7) This amount represents Company payments for group medical, dental
and/or life insurance plans for a 36 month period and use of a company
automobile for the duration of the lease then in effect, pursuant to
the terms of the Severance Compensation Agreements.
-33-
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Our Board has adopted a written policy relating to the review, approval
or ratification of "related-person transactions" between the Company or its
subsidiaries and related persons. Under SEC rules, a related person is a
director, officer, nominee for director, or 5% stockholder of the Company since
the beginning of the last fiscal year and their immediate family members. The
Company's policies and procedures apply to any transaction or series of
transactions in which the Company or a subsidiary is a participant, the amount
involved exceeds $120,000, and a related person has a direct or indirect
material interest.
Our policy requires that all related party transactions be disclosed to
the Nominating and Corporate Governance Committee (with respect to Directors) or
the Audit Committee (with respect to officers). The applicable Committee then
reviews the material facts of such related party transactions and either
approves or disapproves of the entry into or ratifies the related party
transaction. In determining whether to approve or ratify a related party
transaction, the Committee will take into account, among other factors it deems
appropriate, whether the related party transaction is on terms no less favorable
than terms generally available to an unaffiliated third-party under the same or
similar circumstances and the extent of the related person's interest in the
transaction. In addition, our policy provides that any related party transaction
may be consummated or continue if (1) the transaction is approved by the
disinterested members of the Board of Directors or (2) the transaction involves
compensation approved by the Company's Compensation and Management Development
Committee. No Director shall participate in any discussion or approval of a
transaction for which he or she is the related party.
In 2006, there was one related-person transaction under the relevant
standards. Eric Sills, our Vice President Engine Management Division, is the son
of our Chairman and CEO, Lawrence I. Sills, and is the nephew of our Directors,
Arthur S. Sills and Peter J. Sills. Eric Sills received total compensation of
$292,096 for 2006, calculated in the same manner as in the Summary Compensation
Table. The Compensation and Management Development Committee reviewed and
approved of this compensation arrangement.
-34-
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. The Committee is comprised of five
directors who are "independent" as defined under the listing standards of the
New York Stock Exchange. The Committee met five times in 2006 and operates under
a written charter adopted by the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process, including
the Company's systems of internal controls. In fulfilling its oversight
responsibilities, the Committee reviewed with management the audited financial
statements in the Annual Report on Form 10-K for the fiscal year ended December
31, 2006, including a discussion of the quality and the acceptability of the
Company's financial reporting and controls.
The Committee also reviewed with Grant Thornton LLP, the Company's
independent registered public accounting firm, that is responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the quality
and the acceptability of the Company's financial reporting, and such other
matters as are required to be discussed with the Committee under generally
accepted auditing standards, including SAS No. 61 (Codification of Statements on
Auditing Standards, AU Section 380). In addition, the Committee discussed with
Grant Thornton the auditors' independence from management and the Company,
including the matters in the auditors' written disclosures required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committee).
The Committee also discussed with the Company's internal and
independent auditors the overall scope and plans for their respective audits.
The Committee meets periodically with the internal and the independent auditors,
with and without management present, to discuss the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors that the audited financial
statements be included in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2006 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
William H. Turner, Chairman
Robert M. Gerrity
Frederick D. Sturdivant
Richard S. Ward
Roger M. Widmann
-35-
STOCKHOLDER PROPOSALS FOR THE 2008 ANNUAL MEETING
To be considered for inclusion in next year's Proxy Statement pursuant
to the provisions of Rule 14a-8 of the Exchange Act, stockholder proposals must
be received at the Company's offices no later than the close of business on
December 19, 2007. Proposals should be addressed to Carmine J. Broccole,
Secretary, Standard Motor Products, Inc., 37-18 Northern Blvd., Long Island
City, New York 11101.
For any stockholder proposal that is not submitted for inclusion in the
next year's Proxy Statement, but is instead sought to be presented directly at
the 2008 Annual Meeting, rules of the Securities and Exchange Commission permit
management to vote proxies in its discretion if the Company: (1) receives notice
of the proposal before close of business on March 2, 2008, and advises
stockholders in the 2008 Proxy Statement about the nature of the matter and how
management intends to vote on such matter; or (2) does not receive notice of the
proposal prior to the close of business on March 2, 2008. Notice of intention to
present proposals at the 2008 Annual Meeting should be addressed to Carmine J.
Broccole, Secretary, Standard Motor Products, Inc., 37-18 Northern Blvd., Long
Island City, New York 11101.
FORM 10-K
THE COMPANY'S 2006 ANNUAL REPORT HAS BEEN MAILED TO STOCKHOLDERS. A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2006 IS INCLUDED IN THE 2006 ANNUAL REPORT AND WILL ALSO BE
FURNISHED TO ANY STOCKHOLDER WHO REQUESTS THE SAME FREE OF CHARGE (EXCEPT FOR
EXHIBITS THERETO FOR WHICH A NOMINAL FEE COVERING REPRODUCTION AND MAILING
EXPENSES WILL BE CHARGED).
OTHER MATTERS
On the date this Proxy Statement went to press, management knew of no
other business that will be presented for action at the Annual Meeting. In the
event that any other business should come before the Annual Meeting, it is the
intention of the proxy holders named in the proxy card to take such action as
shall be in accordance with their best judgment.
By Order of the Board of Directors
/S/ CARMINE J. BROCCOLE
-----------------------
Carmine J. Broccole
VICE PRESIDENT GENERAL COUNSEL
AND SECRETARY
Dated: April 17, 2007
-36-
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
STANDARD MOTOR PRODUCTS, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2007
The undersigned stockholder of STANDARD MOTOR PRODUCTS, INC. (the "Company")
hereby appoints LAWRENCE I. SILLS, JOHN P. GETHIN and JAMES J. BURKE, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and vote as designated on this Proxy, all of the shares of the
Company's Common Stock held of record by the undersigned on April 6, 2007 at the
Annual Meeting of Stockholders of the Company to be held on May 17, 2007, or at
any adjournment thereof.
COMMON
1. Election of Directors
FOR ELECTION OF ALL WITHHOLD VOTE FOR ALL FOR ALL EXCEPT
NOMINEES NOMINEES
[--] [--] [--]
ROBERT M. GERRITY, ARTHUR S. SILLS, LAWRENCE I. SILLS, PETER J. SILLS,
FREDERICK D. STURDIVANT, WILLIAM H. TURNER, RICHARD S. WARD AND ROGER M. WIDMANN
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), MARK
"FOR ALL EXCEPT" AND WRITE THE NAME OF SUCH NOMINEE(S) IN THE SPACE PROVIDED
BELOW.
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DIRECTORS
RECOMMEND:
FOR 2. Proposal to ratify the appointment of Grant Thornton LLP as the
Company's independent registered public accounting firm for the fiscal
year ending December 31, 2007.
FOR AGAINST ABSTAIN
[--] [--] [--]
Note: In their discretion, the Proxies are authorized to vote upon
such other business as may properly come before the meeting or any
adjournment thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" ALL OF THE
NOMINEES NAMED ABOVE AND "FOR" PROPOSAL 2. AT THE PRESENT
TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE ANNUAL MEETING.
Please be sure to sign and date this Proxy in the box below.
Date
Stockholder sign above Co-Owner (if any) sign above
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
STANDARD MOTOR PRODUCTS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please sign exactly as your name appears on this card. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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