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
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STANDARD MOTOR PRODUCTS
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N/A
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STANDARD MOTOR PRODUCTS, INC.
37-18 Northern Boulevard
Long Island City, New York 11101
April 19, 2005
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Standard Motor Products, Inc. to be held in the offices of JPMorgan Chase, One
Chase Manhattan Plaza, New York, NY 10081, on Thursday, May 19, 2005 at 2:00
p.m. (New York Time).
At the Annual Meeting, you will be asked to (a) elect nine directors, (b)
consider and vote upon a stockholder proposal concerning preferred share
purchase rights, and (c) ratify the appointment of Grant Thornton LLP as the
Company's independent registered public accounting firm for our 2005 fiscal
year. 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 2004 fiscal year.
You will notice in reading the Proxy Statement that John L. Kelsey, a
director of the Company since 1964, is retiring from the Board of Directors
effective as of the date of the Annual Meeting. We want to express our deep
appreciation to him for his valuable contributions to the Company during the
past 40 years and wish him a well-deserved retirement. Our Nominating and
Corporate Governance Committee of the Board of Directors has nominated Roger M.
Widmann as a director to replace Mr. Kelsey. Mr. Widmann previously served as
the Chairman of the Board of Lydall, Inc., a manufacturing company, was a
principal of Tanner & Co., Inc., an investment banking firm, and was a Senior
Managing Director of Chemical Securities Inc., a subsidiary of Chemical Banking
Corporation (now JPMorgan Chase).
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, and 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 Boulevard
Long Island City, New York 11101
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 19, 2005
To our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of STANDARD
MOTOR PRODUCTS, INC. (the "Company") will be held in the offices of JPMorgan
Chase, One Chase Manhattan Plaza, New York, NY 10081, on Thursday, May 19, 2005
at 2:00 p.m. (New York Time). The Annual Meeting will be held for the following
purposes:
1. To elect nine directors of the Company, all of whom shall hold office
until the next annual meeting of stockholders and until their
successors are elected and qualified;
2. To consider and vote upon a stockholder proposal concerning preferred
share purchase rights;
3. To ratify the appointment of Grant Thornton LLP as the Company's
independent registered public accounting firm for the fiscal year
ending December 31, 2005; and
4. To transact such other business as may properly come before the Annual
Meeting.
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/ Sanford Kay
SANFORD KAY
Secretary
Long Island City, New York
April 19, 2005
ONLY STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL 8, 2005 WILL BE
ENTITLED TO NOTICE OF OR TO VOTE AT THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF.
STANDARD MOTOR PRODUCTS, INC.
37-18 Northern Boulevard
Long Island City, New York 11101
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 19, 2005
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 19, 2005 or at any adjournment thereof. Proxy material is being
mailed on or about April 19, 2005 to the Company's approximately 452
stockholders of record. The total number of shares of Common Stock outstanding
and entitled to vote on April 8, 2005 was 19,833,728.
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 8, 2005 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 by-laws 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.
Voting and Revocation of Proxies
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. 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; (2) "AGAINST" the stockholder proposal
concerning preferred share purchase rights; and (3) "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 sending in a
later-dated proxy (with the same or other instructions), by appearing at the
Annual Meeting and voting in person, or by notifying the Company that the proxy
is revoked.
Votes Required
Nominees receiving a plurality of the votes cast will be elected as
directors. Proposal Nos. 2 and 3 require 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. Abstentions 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.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, nine directors are to be elected to hold office
until the next annual meeting of stockholders and until their successors are
elected and qualified. Unless individual stockholders specify otherwise, each
executed proxy will be voted for the election to the Board of Directors of the
nine nominees named below, all of whom other than Roger M. Widmann, are
currently directors of the Company.
John L. Kelsey, a director of the Company since 1964, is retiring from the
Board effective as of the date of the Annual Meeting. In connection with the
retirement of Mr. Kelsey, we engaged a professional search firm to assist the
Nominating and Corporate Governance Committee in identifying, evaluating and
conducting due diligence on potential nominees, and the search firm identified
Mr. Widmann as a potential candidate to our Board.
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. The nominees are:
Robert M. Gerrity Kenneth A. Lehman Arthur S. Sills
Lawrence I. Sills Peter J. Sills Frederick D. Sturdivant
William H. Turner Richard S. Ward Roger M. Widmann
2
Information Regarding Nominees
Robert M. Gerrity, 67, 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. 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. He is also a director of the Rimrock Corporation, Federal
Signal Corporation (FSS) and Polyair Inter Pack Inc. (PPK).
Kenneth A. Lehman, 61, has served has a director of the Company since April
1999. Mr. Lehman has been Managing Director of the KKP Group LLC since April
1999. From 1990 to 1998, he was Co-Chairman and Chief Executive Officer of
Fel-Pro Incorporated. He is also a director of Gold Eagle Co.
Arthur S. Sills, 61, 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, who is our Chairman and Chief Executive Officer,
and Peter J. Sills, who is a director of the Company.
Lawrence I. Sills, 65, has served as our Chief Executive Officer and
Chairman of the Board since December 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.
Peter J. Sills, 58, has served as a director of the Company since July 2004
and from December 2000 until May 2004. Mr. Sills has been a writer for the past
ten years and is also an attorney. Mr. Sills is the brother of Arthur S. Sills
and Lawrence I. Sills.
Frederick D. Sturdivant, 67, has served as a director of the Company since
December 2001. Mr. Sturdivant has been Chairman of the Tylor Group Inc. since
April 2002. Mr. Sturdivant was Chairman of Reinventures LLC from October 2000 to
March 2002. From June 1998 to September 2000, he was Executive Managing Director
of Strategic Decisions Group/Navigant. From 1996 to 1998, he was President of
Index Research and Advisory Services, a subsidiary of Computer Sciences
Corporation.
William H. Turner, 65, has served as a director of the Company since May
1990. Since January 2004, Mr. Turner has been the Acting Dean of the College of
Business at Stony Brook University. From August 1997 until September 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. He is also a director of Franklin
Electronic Publishers, Inc., Volt Information Sciences, Inc. and New Jersey
Resources Corporation.
Richard S. Ward, 63, has served as a director of the Company since July
2004. He is a private investor and a legal consultant. Until 1998, he served as
Executive Vice President, General Counsel, Corporate Secretary of ITT
Corporation and served as a member of the ITT Management Committee.
3
Roger M. Widmann, 65, currently serves as a director of Paxar Corporation
and Cedar Shopping Centers, Inc. Mr. Widmann previously served as the Chairman
of the Board of Lydall, Inc., a manufacturing company, and was a principal of
Tanner & Co., Inc., an investment banking firm. Prior to that time, he was a
Senior Managing Director of Chemical Securities Inc., a subsidiary of Chemical
Banking Corporation (now JPMorgan Chase Corporation). 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 in the Humanities at The Aspen
Institute, and a senior mentor of the Henry Crown Fellowship Program.
The Board of Directors recommends a vote "FOR" each of the nominees listed
above.
PROPOSAL 2
STOCKHOLDER PROPOSAL
CONCERNING PREFERRED SHARE PURCHASE RIGHTS
GAMCO Investors, Inc., One Corporate Center, Rye, New York 10580-1434,
which claims beneficial ownership of 2,634,063 shares of the Company's Common
Stock (as shown in an amendment filed with the Securities and Exchange
Commission on December 28, 2004 with respect to its earlier Schedule 13D), has
submitted the following proposal:
"RESOLVED: that the stockholders of Standard Motor Products, Inc. (the
"Company") request the Board of Directors redeem the Preferred Share
Purchase Rights issued pursuant to the Rights Agreement, dated as of
February 15, 1996, unless the holders of a majority of the outstanding
shares approve the issuance at a meeting of the stockholders held as soon
as practical."
The stockholder's statement in support of the proposal is as follows:
On February 15, 1996, the Board of Directors adopted a Rights Agreement.
The Rights represent a corporate anti-takeover device, commonly known as a
"poison pill." Absent Board intervention, the Rights are exercisable when a
person or group acquires a beneficial interest in 20% or more of the Company's
common shares then outstanding. Once exercisable, the Rights entitle holders to
purchase shares of the Company's Series A Participating Preferred Stock or the
right to receive shares of the acquiring entity.
We oppose the use of Rights to prevent a potential bidder from effecting
any merger or tender offer that is not approved by the Board of Directors. A
poison pill stops a potential bidder from taking their offer directly to the
stockholders even if an overwhelming majority would have accepted the offer. The
potential bidder must instead negotiate with management, and a Board or
management may sometimes have interests that conflict with interests of the
stockholders. In effect, the pill allows a Board to arrogate to itself the sole
right to determine what price a potential buyer must pay to acquire an entire
company.
The power of stockholders to accept an offer by a potential bidder provides
an important check and balance on management and the Board in their stewardship
of the stockholders' interests. We believe the stockholders should retain the
right to decide for themselves what
4
represents a fair price for their holdings. Last year, a majority of the
stockholders supported a similar proposal.
WE URGE STOCKHOLDERS TO VOTE IN FAVOR OF THIS PROPOSAL.
The Company's Statement in Opposition to this Proposal
On February 15, 1996, the Board of Directors adopted the Rights Agreement
to enhance its ability to preserve and protect stockholder value in the event of
unsolicited takeover attempts. Nothing has happened since February 1996 to cause
the Board to change this position.
The Board believes that the Rights Agreement encourages negotiations
between a potential acquiror and the Board, which would allow the Board to be in
a better position to defend against coercive or unfair offers. The Board also
believes that the Rights Agreement ensures that the Board will have adequate
time, if confronted with an attempted takeover of the Company, to evaluate such
an attempt and to consider all the steps that might be taken to maximize
stockholder value.
The Rights Agreement is not intended to, and will not, prevent a takeover
on terms determined by the Board to be fair and equitable to all stockholders,
nor is it expected that the Rights Agreement will deter a prospective acquiror
who is willing to negotiate in good faith with the Board. If the Board
determines that an offer adequately reflects the value of the Company and is in
the best interests of all stockholders, the Board may redeem the Rights.
Similar rights plans have been adopted by a majority of the corporations
included in the Standard & Poor's 500, and independent studies have validated
the economic benefits of rights plans to stockholders. The Board believes that
the Rights Agreement will serve its purpose to enhance stockholder value in the
event of any hostile takeover situations of the Company.
The Board's fiduciary duty to the stockholders dictates that it evaluate
the merits of each and every acquisition proposal presented to it and seek to
insure that any proposed business combination or acquisition delivers full value
to the stockholders. The Board believes that redeeming the Rights would remove
an important tool the Board should have in the event of an unfair or coercive
offer for the Company. Accordingly, even though a majority of stockholders
supported the redemption of the Rights at the 2004 Annual Meeting, the Board
does not believe this proposal is in the best interests of the stockholders. The
Board continues to believe that any decision to redeem the Rights should be made
in the context of a specific acquisition proposal.
For these reasons, the Board of Directors recommends a vote "AGAINST" this
proposal.
5
PROPOSAL 3
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 2005 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.
Before selecting Grant Thornton LLP, the Audit Committee carefully
considered Grant Thornton LLP's qualifications as independent auditors. This
included a review of the qualifications of the engagement team, the quality
control procedures the firm has established, any issues raised by the most
recent quality control review of the firm, as well as its reputation for
integrity and competence in the fields of accounting and auditing. The Audit
Committee's review also included matters to be considered under the rules of the
Securities and Exchange Commission, including the nature and extent of non-audit
services, to ensure that the auditors' independence will not be impaired. The
Audit Committee expressed its satisfaction with Grant Thornton LLP in all of
these respects.
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 ("Grant Thornton") for the fiscal year ended December 31,
2004 and by KPMG LLP, our prior auditors ("KPMG"), for the years ended December
31, 2004 and 2003:
2004 2003
---- ----
Grant Thornton KPMG (3) KPMG
-------------- -------- ----
Audit fees, including fees paid in 2005 for
services performed in 2004 and excluding
audit-related fees ..................... $1,425,094 $ 774,817 $1,004,000
Audit-related fees (1) .................... -- 20,350 76,000
Tax fees (2) .............................. 7,250 97,350 117,000
All other fees ............................ -- -- 2,000
---------- ---------- ----------
Total ................................ $1,432,344 $ 892,517 $1,199,000
========== ========== ==========
(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.
(3) KPMG resigned as our independent registered public accounting firm as of
August 19, 2004.
6
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 in 2004 and
2003 were for services pre-approved by the Audit Committee.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
KPMG LLP
On August 19, 2004, the Company was informed in writing by KPMG that KPMG
resigned as of such date as the Company's independent registered public
accounting firm. KPMG had not previously advised management or the Audit
Committee of its intention to resign.
The audit reports of KPMG on the consolidated financial statements of the
Company as of and for the two fiscal years ended December 31, 2002 and 2003 did
not contain any adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of the consolidated financial statements of
the Company for fiscal years ended December 31, 2002 and 2003 and the subsequent
interim period through August 19, 2004, there were no disagreements between the
Company and KPMG on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedures, which disagreements, if
not resolved to KPMG's satisfaction, would have caused KPMG to make reference
thereto in its opinions thereon.
No reportable event of the type described in Item 304(a)(1)(v) of
Regulation S-K occurred during the two fiscal years ended December 31, 2002 and
2003 and the subsequent interim period through August 19, 2004.
Grant Thornton LLP
On September 27, 2004, the Company engaged Grant Thornton as its
independent registered public accounting firm to audit the Company's
consolidated financial statements for the fiscal year ended December 31, 2004.
The Audit Committee recommended and the Board approved Grant Thornton's
engagement.
During the two fiscal years ended December 31, 2002 and 2003 and through
September 27, 2004, the Company has not consulted with Grant Thornton on any
matter that (a) involved the application of accounting principles to a specific
completed or contemplated transaction, or the type of audit opinion that might
be rendered on the Company's financial statements, in each case where written or
oral advice was provided that was an important factor considered by the Company
in reaching a decision as to the accounting, auditing or financial reporting
issue; or (b) was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of
Regulation S-K) or a reportable event (as described in Item 304(a)(1)(v) of
Regulation S-K).
7
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, 2005 by:
o each person known by the Company to beneficially own more than 5% of
the Common Stock;
o each director and nominee for director of the Company;
o our chief executive officer and each of our other four most highly
compensated executive officers during 2004;
o all directors and officers as a group.
Amount and
Nature of
Beneficial Percentage
Name and Address Ownership(1) of Class
---------------- ------------ --------
GAMCO Investors, Inc. ............................... 2,634,063(2) 13.1%
One Corporate Center
Rye, NY
Lawrence I. Sills ................................... 1,754,018(3) 8.8
Wellington Management Company, LLP .................. 1,700,950(4) 8.6
9 State Street
Boston, MA
Dana Corporation .................................... 1,378,760(5) 7.0
P.O. Box 1000
Toledo, OH
Dimensional Fund Advisors Inc. ...................... 1,291,650(6) 6.4
1299 Ocean Avenue
Santa Monica, CA
Peter J. Sills ...................................... 1,144,120(7) 5.8
Arthur S. Sills ..................................... 1,130,629(8) 5.7
John P. Gethin ...................................... 79,717(9) *
Joseph G. Forlenza .................................. 67,465(10) *
James J. Burke ...................................... 65,356(11) *
Donald E. Herring ................................... 57,461(12) *
John L. Kelsey ...................................... 20,506(13) *
William H. Turner ................................... 19,476(14) *
Robert M. Gerrity ................................... 17,699(15) *
Frederick D. Sturdivant ............................. 15,011(16) *
Kenneth A. Lehman ................................... 13,366(17) *
Richard S. Ward ..................................... 1,339 *
Roger M. Widmann .................................... -- *
Directors and Officers as a group (seventeen persons) 3,639,449(18) 17.9%
* Represents beneficial ownership of less than 1% of the outstanding shares
of Common Stock.
(1) Applicable percentage of ownership is based on 19,833,728 shares of Common
Stock outstanding as of March 15, 2005. 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 and the
percentage ownership of that person, shares of Common Stock subject to
options held by that person that are currently exercisable or exercisable
within 60 days of March 15, 2005 are deemed outstanding. Shares subject to
options, 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.
8
In footnotes 3, 7 and 8, 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 or directors 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 18, these same shares are only
counted once.
Unless otherwise indicated, the address of each individual listed in the
table is Standard Motor Products, Inc., 37-18 Northern Boulevard, Long
Island City, New York.
(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 December 28, 2004, wherein GAMCO stated that it beneficially
owned an aggregate of 2,634,063 shares of our Common Stock. GAMCO states
that it has sole voting power for 2,598,063 shares and has sole dispositive
power for 2,634,063 shares.
(3) Includes 1,108,423 shares of Common Stock, of which: (a) 430,312 shares are
held as co-trustee with Arthur S. Sills and Peter J. Sills, for which
Lawrence I. Sills has shared voting and shared investment power; (b)
580,770 shares are held by the Estate of Nathaniel I. Sills, for which
Lawrence I. Sills is executor and has sole voting and investment power; (c)
5,695 shares are allocated to Lawrence I. Sills under the Standard Motor
Products ESOP; (d) 2,812 shares are owned by Mr. Sills' wife; and (e)
88,834 shares are held by Lawrence I. Sills which were subject to options
exercisable within 60 days of March 15, 2005. In his capacity as a trustee
and executor 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. Lawrence I.
Sills is the brother of Arthur S. Sills and Peter J. Sills.
(4) The information for Wellington Management Company, LLP ("Wellington") is
based solely on an amendment to its Schedule 13G filed with the SEC on
February 14, 2005, wherein Wellington stated that it beneficially owned an
aggregate of 1,700,950 shares of our Common Stock. Wellington states that
it has shared voting power for 889,650 shares and has shared dispositive
power for 1,700,950 shares.
(5) Dana Corporation acquired 1,378,760 shares of our Common Stock as part of
the purchase price we paid for Dana's Engine Management Division on June
30, 2003.
(6) The information for Dimension Fund Advisors Inc. ("Dimension") is based
solely on its Schedule 13G filed with the SEC on February 9, 2005, wherein
Dimension stated that it beneficially owned an aggregate of 1,291,550
shares of our Common Stock. Dimension states that it has sole voting and
sole dispositive power for 1,291,550 shares.
(7) Includes 586,474 shares of Common Stock, of which: (a) 430,312 shares are
held as co-trustee with Lawrence I. Sills and Arthur S. Sills, for which
Peter J. Sills has shared voting and shared investment power; and (b)
156,162 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. Peter J. Sills is the brother of Lawrence
I. Sills and Arthur S. Sills.
(8) Includes 586,474 shares of Common Stock, of which: (a) 430,312 shares are
held as co-trustee with Lawrence I. Sills and Peter J. Sills, for which
Arthur S. Sills has shared voting and shared investment power; and (b)
156,162 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. Arthur S. Sills is the brother of Lawrence
I. Sills and Peter J. Sills.
(9) Includes (a) 1,717 shares of Common Stock allocated to the account of John
P. Gethin under the Standard Motor Products ESOP and (b) 64,500 shares of
Common Stock held by Mr. Gethin which were subject to options exercisable
within 60 days of March 15, 2005.
9
(10) Includes (a) 4,465 shares of Common Stock allocated to the account of
Joseph G. Forlenza under the Standard Motor Products ESOP, (b) 48,500
shares of Common Stock held by Mr. Forlenza which were subject to options
exercisable within 60 days of March 15, 2005, and (c) 2,500 shares of
Common Stock owned by Mr. Forlenza's wife, of which Mr. Forlenza disclaims
"beneficial ownership" of such shares within in the meaning of Rule 13d-3
of the Exchange Act.
(11) Includes (a) 3,858 shares of Common Stock allocated to the account of James
J. Burke under the Standard Motor Products ESOP and (b) 51,500 shares of
Common Stock held by Mr. Burke which were subject to options exercisable
within 60 days of March 15, 2005.
(12) Includes (a) 3,560 shares of Common Stock allocated to the account of
Donald E. Herring under the Standard Motor Products ESOP and (b) 48,500
shares of Common Stock held by Mr. Herring which were subject to options
exercisable within 60 days of March 15, 2005.
(13) Includes 12,400 shares of Common Stock held by John L. Kelsey which were
subject to options exercisable within 60 days of March 15, 2005.
(14) Includes 12,400 shares of Common Stock held by William H. Turner which were
subject to options exercisable within 60 days of March 15, 2005.
(15) Includes 12,400 shares of Common Stock held by Robert M. Gerrity which were
subject to options exercisable within 60 days of March 15, 2005.
(16) Includes 3,400 shares of Common Stock held by Frederick D. Sturdivant which
were subject to options exercisable within 60 days of March 15, 2005.
(17) Includes 7,400 shares of Common Stock held by Kenneth A. Lehman which were
subject to options exercisable within 60 days of March 15, 2005.
(18) All of our directors and officers as a group have (a) 28,274 shares of
Common Stock allocated to them under the Standard Motor Products ESOP and
(b) 464,034 shares of Common Stock which were subject to options
exercisable within 60 days of March 15, 2005.
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
representations that no other reports were required during the fiscal year ended
December 31, 2004, all Section 16(a) filing requirements applicable to its
officers and directors were in compliance.
10
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 A majority of the Board is independent, and all of the members of the
Audit Committee, Compensation Committee, and Nominating and Corporate
Governance Committee are independent;
o The Board has adopted charters for the Audit Committee, Compensation
Committee, and Nominating and Corporate Governance Committee;
o The Company's Corporate Governance Guidelines provide that the
independent directors meet periodically in o executive session without
management and that one of the independent directors is selected by
the other independent directors to assume the responsibility of
chairing 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); and
o The Company has a Corporate Code of Ethics that applies to all company
employees and directors and, as part of the Corporate Code of Ethics,
has established a hotline available to all employees.
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 Committee, and
Nominating and Corporate Governance Committee, and (3) Corporate Code of Ethics
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 Boulevard, Long Island City, NY 11101.
Meetings of the Board of Directors and its Committees
In 2004 the total number of meetings of the Board of Directors, including
regularly scheduled and special meetings, was five. All of our directors, other
than Richard S. Ward, attended at least 75% of the meetings of the Board and the
committees on which he serves in 2004. Mr. Ward became a director on July 20,
2004, and he thereafter attended at least 75% of the meetings of the Board and
the committees on which he serves.
The Company encourages all Board members attend its Annual Meeting of
Stockholders. All Directors, other than Richard S. Ward, were present at the
2004 Annual Meeting of Stockholders held on May 20, 2004.
11
The Board currently has three committees: an Audit Committee, a
Compensation Committee, and a Nominating and Corporate Governance Committee. The
members of each committee consist of all of our independent directors, who are
Robert M. Gerrity (Chairman of the Compensation Committee), Kenneth A. Lehman,
Frederick D. Sturdivant, William H. Turner (Chairman of the Audit Committee),
Richard S. Ward (Chairman of the Nominating and Corporate Governance Committee),
and John L. Kelsey, who will retire effective as of the date of the Annual
Meeting. It is anticipated that Roger M. Widmann will serve on each of the above
committees if elected to the Board.
Audit Committee
The Audit Committee recommends to the Board of Directors the engagement of
the independent auditors of the Company and reviews with the independent
auditors the scope and results of the Company's audits, the professional
services furnished by them to the Company and their management letter with
comments on the Company's internal accounting controls. The Audit Committee held
eleven meetings in 2004.
The Board of Directors has determined that each committee member is
financially literate. 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 Committee
The Compensation Committee's function is to approve the compensation
packages (salary and bonus) of the Company's officers, to administer the
Company's stock option plans and to review the Company's overall compensation
policies. The Compensation Committee held two meetings in 2004.
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; and
o The recommendation of members for each committee of the Board.
The Nominating and Corporate Governance Committee held five meetings in 2004.
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 that possess (1) the highest level of
integrity and ethical character, (2) strong personal and
12
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.
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
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.
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
Boulevard, 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 I. 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.
13
Directors Compensation
In 2004, independent directors were paid a retainer of $30,000, of which at
least $10,000 was in shares of the Company's Common Stock valued as of the date
of the 2004 Annual Meeting of Stockholders. The Chairman of the Audit Committee
received an additional retainer of $7,500 and the Chairman of each of the
Compensation Committee and the Nominating and Corporate Governance Committee
received an additional retainer of $5,000. In addition, pursuant to the
Company's 2004 Independent Outside Directors' Stock Option Plan, the Outside
Directors (as defined therein) each received a stock option grant of up to 2,000
shares of the Company's Common Stock with an exercise price per share equal to
the price of the Common Stock on the New York Stock Exchange as of the date of
the 2004 Annual Meeting of Stockholders. Independent directors also received
$1,000 for each Board and Committee meeting they attended and are reimbursed for
meeting expenses. In addition, Arthur S. Sills and Peter J. Sills received
$1,000 for each Board meeting they attended, reimbursement for meeting expenses
and are covered under the Company's medical plan. All other directors, being
officers of the Company, received no payment for the fulfillment of their
directorial responsibilities.
Compensation Committee Interlocks and Insider Participation
All members of the Board's Compensation Committee during 2004 were
independent directors, and none of them were employees or former employees of
the Company. During 2004, 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 Committee
or Board of Directors.
MANAGEMENT INFORMATION
Our officers, and their ages and positions as of March 15, 2005, are:
Name Age Position
---- --- --------
Lawrence I. Sills................ 65 Chairman of the Board, Chief
Executive Officer and Director
John P. Gethin................... 56 President and Chief Operating Officer
James J. Burke................... 49 Vice President Finance, Chief Financial
Officer
Joseph G. Forlenza............... 61 Vice President and General Manager of
Engine Management Division
Donald E. Herring................ 62 Vice President of Aftermarket Sales
Sanford Kay...................... 62 Vice President of Human Resources
and Secretary
Nitin Parikh..................... 65 Vice President of Information Systems
Carmine J. Broccole.............. 39 General Counsel
Robert H. Martin................. 58 Treasurer and Assistant Secretary
14
Lawrence I. Sills has served as our Chief Executive Officer and Chairman of
the Board since December 2000 and has been a director of the Company since 1966.
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.
John P. Gethin has served as our President and Chief Operating Officer
since December 2000. From 1997 to November 2000, Mr. Gethin served as our Senior
Vice President of Operations. From 1998 to June 2003, he served as General
Manager of our Temperature Control Division. From 1995 to 1997, Mr. Gethin was
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, 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.
Joseph G. Forlenza has served as our Vice President and General Manager of
our Engine Management Division since 1993. From 1988 to 1993, Mr. Forlenza
served as Vice President and General Manager of our Champ Service Line division
(a former business unit of ours).
Donald E. Herring has served as our Vice President of Aftermarket Sales
since 1993. From 1990 to 1992, Mr. Herring served as our National Sales Manager.
Sanford Kay has served as our Vice President of Human Resources since 1988
and as our Secretary since 1993. From 1987 to 1988, Mr. Kay served as our
Director of Labor Relations.
Nitin Parikh has served as our Vice President of Information Systems since
1985. From 1978 to 1985, Mr. Parikh served as our Manager of Information
Systems.
Carmine J. Broccole has served as our General Counsel since August 2004.
From June 2001 to August 2004, Mr. Broccole was a Partner of Kelley Drye &
Warren LLP, our outside legal counsel, and prior to that, he was most recently a
Special Counsel of O'Melveny & Myers LLP.
Robert H. Martin has served as our Treasurer and Assistant Secretary since
1999. From 1993 to 1999, Mr. Martin served as Controller of our Engine
Management Division. From 1989 to 1993, he was the Division Controller of
Stanric, Inc., our subsidiary.
15
Executive Compensation
The following table sets forth the annual compensation paid or incurred by
the Company during fiscal 2004, 2003 and 2002 to our Chief Executive Officer and
our four other most highly compensated executive officers in 2004 (the "Named
Executive Officers").
Summary Compensation Table
Annual Compensation Long-Term
------------------------------------------------- Compensation
Other Annual Awards All Other
Name and Principal Position Year Salary Bonus Compensation(1) Option(#) Compensation(2)
---------------------------------- ---- ------ ----- --------------- --------- ---------------
Lawrence I. Sills ................ 2004 $403,000 $204,060 $-- 12,500 $ 29,654
Chief Executive Officer, .... 2003 403,000 255,200 -- 20,000 32,688
Chairman and Director ....... 2002 353,000 364,850 -- -- 18,887
John P. Gethin ................... 2004 478,000 175,780 -- 11,250 31,039
President and Chief Operating 2003 453,000 208,800 -- 18,000 31,718
Officer .......................... 2002 403,000 291,880 -- -- 22,958
James J. Burke ................... 2004 328,000 130,900 -- 7,500 20,233
Vice President Finance, ..... 2003 303,000 170,000 -- 12,000 21,339
Chief Financial Officer ..... 2002 278,000 145,940 -- -- 14,944
Joseph G. Forlenza ............... 2004 355,000 44,790 -- 7,500 18,077
Vice President and General .. 2003 338,000 51,688 -- 12,000 24,863
Manager of Engine Management 2002 322,000 244,449 -- -- 18,506
Division
Donald Herring ................... 2004 241,000 65,146 -- 7,500 13,297
Vice President of Aftermarket 2003 230,000 60,516 -- 12,000 14,932
Sales ....................... 2002 221,000 117,110 -- -- 11,905
(1) Does not include compensation associated with perquisites because such
amounts do not exceed the lesser of either $50,000 or 10% of total salary
and bonus disclosed.
(2) Represents Company contributions to the Profit Sharing, 401K, ESOP and SERP
programs on behalf of the named individual.
Option Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------
Potential Realizable Values at
Number of % of Total Assumed Annual Rates of
Securities Options Granted Stock Price Appreciation for
Underlying to Employees In Exercise Option Term (3)
Options Fiscal Price Expiration ------------------------------
Name Granted Year ($/Share)(1) Dates(1)(2) 5% 10%
-------------------------- ---------- --------------- ------------- ---------- ------------------------------
Lawrence I. Sills.......... 12,500 5.2% $13.55-$14.91 5/24/14 $185,252 $469,799
John P. Gethin............. 11,250 4.7 $13.55-$14.91 5/24/14 100,599 255,083
James J. Burke............. 7,500 3.1 $13.55-$14.91 5/24/14 67,066 170,056
Joseph G. Forlenza......... 7,500 3.1 $13.55-$14.91 5/24/14 67,066 170,056
Donald Herring............. 7,500 3.1 $13.55-$14.91 5/24/14 67,066 170,056
16
(1) Stock options granted in 2004 vest equally over a two year period beginning
at the anniversary of the grant. The exercise price in the first year is
$13.55 and increases 10% to $14.91 in the subsequent year.
(2) Stock option grants expire at the end of ten years from the date of grant.
(3) No gain to the optionees is possible without an increase in the stock
price, which would benefit all stockholders commensurately. The dollar
amounts under the columns are the result of calculations at five percent
and ten percent rates set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price.
Option Exercises and Holdings
The following table provides information with respect to option exercises
in 2004 by the Named Executive Officers and the value of such Named Executives
Officers' unexercised options at December 31, 2004.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Options at December 31,2004 At December 31, 2004 (1)
Acquired Value --------------------------- ----------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- --------------------------- ----------------------------
Lawrence I. Sills.............. - $ - 82,167 25,833 $151,485 $27,092
John P. Gethin................. 4,000 22,040 58,500 23,250 85,470 24,383
James J. Burke................. - - 49,500 15,500 90,890 16,255
Joseph G. Forlenza............. 3,800 20,938 44,500 15,500 58,340 16,255
Donald Herring................. - - 44,500 15,500 58,340 16,255
(1) Market value of unexercised options is based on the closing price of the
Company's Common Stock on the New York Stock Exchange of $15.80 per share
on December 31, 2004 (the last trading day of 2004) minus the exercise
price.
17
Equity Compensation Plan Information
The following table presents a summary of outstanding stock options
available for future grant under our stockholder approved equity compensation
plans as of December 31, 2004.
Number of Securities
Number of Securities to be Weighted Average Remaining Available
Issued upon Exercise of Exercise Price of for Future Issuance
Outstanding Stock Outstanding under Equity
Plan Category Options Stock Option Compensation Plans
---------------------------------------- -------------------------- ----------------- --------------------
Equity compensation plans approved by
security holders (1).................... 1,191,745 $ 16.20 302,500
--------- ------- -------
Equity compensation plans not
approved by security holders............ -- -- --
--------- ------- -------
All plans............................... 1,191,745 $ 16.20 302,500
========= ======= =======
(1) Represents shares of the Company's Common Stock issuable 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.
Supplemental Retirement Program
Effective October 1, 2001, the Company adopted an unfunded supplemental
retirement program for eligible employees. Participation is limited to those
employees who as of the effective date have been designated by the Compensation
Committee. The benefits under this supplemental retirement program (the
"Supplemental Program") are computed under a formula which takes into account a
percentage of the participant's average annual base salary plus bonus and other
incentive compensation earned in three (3) of the last five (5) years of service
prior to age 60 ("Final Average Earnings") and years of participating service.
The maximum benefit payable to a participant under the Supplemental Program is
an amount equal to 50% of the participant's Final Average Earnings. If a
participant terminates his employment voluntarily prior to age 60 or is
terminated for cause (as defined under the Supplemental Program), such
participant will forfeit his benefits under the Supplemental Program. The
benefits under the Supplemental Program are in addition to benefits payable to
participants under the Company's 401(k) Plan and SERP. Benefits under the
Supplemental Program 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.
It is not possible to calculate exactly each participant's benefits under
the Supplemental Program prior to retirement. However, the tables below indicate
the aggregate amount of annual benefits payable under the Supplemental Program
using the formula described above for the specified final average earnings and
years of participating service for Category A and Category B participants,
respectively, and are based upon retirement at age 60 and payment in the form of
a life annuity. A participant must have completed the number of years of
participating service specified in order to receive the benefit listed. Benefits
do not increase pro rata between the years of participating service categories
specified.
18
Category A
----------
Annual Benefit Years of Participating Service
---------------------------------------------
Final Average Earnings 2 5 6 7 or more
----------------------------------------- ------- -------- -------- ---------
$570,000................................. $71,250 $142,500 $213,750 $285,000
$610,000................................. 76,250 152,500 228,750 305,000
$650,000................................. 81,250 162,500 243,750 325,000
$690,000................................. 86,250 172,500 258,750 345,000
$730,000................................. 91,250 182,500 273,750 365,000
$770,000................................. 96,250 192,500 288,750 385,000
$810,000................................. 101,250 202,500 303,750 405,000
Category B
----------
Annual Benefit Years of Participating Service
---------------------------------------------
Final Average Earnings 4 10 12 14 or more
----------------------------------------- ------- -------- -------- ----------
$370,000................................. $46,250 $92,500 $138,750 $185,000
$410,000................................. 51,250 102,500 153,750 205,000
$450,000................................. 56,250 112,500 168,750 225,000
$490,000................................. 61,250 122,500 183,750 245,000
$530,000................................. 66,250 132,500 198,750 265,000
$570,000................................. 71,250 142,500 213,750 285,000
$610,000................................. 76,250 152,500 228,750 305,000
The only participants in the Supplemental Program at the current time are
John P. Gethin, our President and Chief Operating Officer, in Category A and
James J. Burke, our Vice President Finance, Chief Financial Officer, in Category
B. The approximate number of years of participating service at December 31, 2004
for each of Messrs. Gethin and Burke was three.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is responsible for
approving the compensation packages (base salary and bonus) of the Company's
executive officers, for administering the Company's stock option plans, and for
reviewing the Company's overall compensation policies including the structure of
its bonus program. The Committee is comprised of six directors who are
"independent" as defined under the listing standards of the New York Stock
Exchange. The Committee met two times in 2004 and operates under a written
charter adopted by the Board of Directors.
Executive Compensation Philosophy
The Company's 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
consistent with those available to other executives in comparable companies.
19
Elements of Compensation
The key elements of the Company's executive compensation are generally base
salary, bonus and long-term equity incentives. 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 with comparable positions at
other comparable companies.
Base Salary. Base salaries for executive officers are determined by
evaluating the responsibilities of the position, the experience of the
individual, and the competitive marketplace. Base salary adjustments are
determined annually by evaluating the factors above, the Company's financial
performance, the Company's achievement of certain non-financial performance
measures, and the performance of the executive officer.
Bonus. Effective January 1, 1998 the Company modified its MBO Bonus Program
into an Economic Value Added (EVA) based 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 affected negatively to the point of erasing the portion
based upon EVA. 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
provide for years which may produce "negative EVA" results, 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, saving the
remainder for lean year's growth or negative growth. Due to this feature, it is
possible to receive a nominal bonus in a poor year only because the individual
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 Board
may in its discretion reset negative bank balances to zero in order to preserve
an incentive for continuous effort in future years. In January 2001, 2002 and
2003, negative bank balances were reset to zero. For 2004, bank balances were
set at negative 100%.
Under the EVA bonus program, the bonuses of the officers are based on a
range of 40% -80% on year-over-year improvement in Company EVA and the remaining
20% - 60% on MBO goals approved by the Compensation Committee. Earned MBO
bonuses are paid out in full each year.
Long-Term Equity Incentives. As part of the Company's compensation program,
the Compensation Committee from time to time grants stock options to the
Company's executive officers and other key employees. This feature further
strengthens the link between continuous Company improvement and long-term
compensation. These grants generally include proportional vesting over
multi-year periods at increasing exercise prices. The grants also require a
holding period before they may be exercised.
20
Chief Executive Officer Compensation
The executive compensation policy described above is applied in setting the
compensation of our Chief Executive Officer, Lawrence I. Sills. Mr. Sills
generally participates in the same executive compensation plans and arrangements
available to the other senior executives. Accordingly, his compensation also
consists of an annual base salary, a potential annual cash bonus and,
potentially, long-term equity-linked compensation in the form of stock options.
The Compensation Committee's general approach in establishing Mr. Sills'
compensation is to be competitive with peer companies, but to have a large
percentage of his target compensation based upon certain performance criteria
and targets established in the Company's strategic plan.
Mr. Sills' compensation for the fiscal year ended December 31, 2004
included $403,000 in base salary and bonus compensation of $204,060. Mr. Sills'
compensation for 2004 was based on, among other factors, the Company's
performance and the 2003 compensation of chief executives of comparable
companies, although his compensation was not linked to any particular group of
these companies. In 2004, Mr. Sills received a grant of stock options to
purchase 12,500 shares of Common Stock. The Company may make other grants of
stock options to Mr. Sills in the future.
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 $1.0 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).
Compensation Committee
Robert M. Gerrity, Chairman
John L. Kelsey
Kenneth A. Lehman
Frederick D. Sturdivant
William H. Turner
Richard S. Ward
21
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 six Directors
who are "independent" as defined under the listing standards of the New York
Stock Exchange. The Committee met eleven times in 2004 and operates under a
written charter (see Appendix A) 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, 2004, 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, who are 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, 2004 for filing with the Securities and Exchange Commission.
Audit Committee
William H. Turner, Chairman
Robert M. Gerrity
John L. Kelsey
Kenneth A. Lehman
Frederick D. Sturdivant
Richard S. Ward
22
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions with Management
During 2004, Lawrence I. Sills, Chairman of the Board and Chief Executive
Officer, was indebted to the Company as a result of loans previously made to him
by the Company. In August 2000, Mr. Sills borrowed $75,500 to purchase Common
Stock of the Company under a plan that was put in place on November 11, 1999
allowing officers of the Company to borrow up to 25% of their gross annual
salary to purchase shares of the Company's Common Stock. The loan must be paid
back in four years at an interest rate equal to the Company's short-term
interest rate. The greatest amount of Mr. Sills' indebtedness with respect to
all loans in 2004 was $44,885, which amount was repaid in full in 2004.
Under the rules of the Sarbanes-Oxley Act of 2002 loans to officers are no
longer allowed. The loan mentioned above was granted prior to the passage of
this Act. The Company will no longer grant loans to officers except for
permitted loans in the case of relocation.
Change in Control Arrangements
The Company has long-term retention agreements with John P. Gethin and
James J. Burke. If a change in control of the Company occurs, and within twelve
months thereafter the executive's employment is terminated by the Company
without cause, or by the executive for certain specific reasons, 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 in status or position with the Company; (2) a reduction by the Company
in the executive's annual rate of base salary; and (3) relocation.
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; (2) continued participation for a period of thirty six months
in group medical, dental and/or life insurance plans; and (3) enhanced benefits
under the Company's Supplemental Compensation Plan.
A change in control of the Company for these purposes means the occurrence
of any of these 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.
23
STOCK PERFORMANCE GRAPH
The following graph compares the five year cumulative total return on the
Company's Common Stock to the total returns on the Standard & Poor's 500 Stock
Index and a Peer Group. The comparisons in this table are required by the
Securities and Exchange Commission and are not intended to forecast or be
indicative of possible future performance of the Company's Common Stock or the
referenced indices.
FIVE YEAR PERFORMANCE GRAPH
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
SMP S&P 500 Peer Group(1)
----- ------- -------------
1999............................ $100 $100 $100
2000............................ 48 91 52
2001............................ 92 80 65
2002............................ 89 62 59
2003............................ 86 80 90
2004............................ 114 89 103
[THE TABLE ABOVE WAS DEPICTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
* Assumes $100 invested on December 31, 1999 in Standard Motor Products, Inc.
Common Stock, S&P 500 Stock Index and a Peer Group. The total return
assumes the reinvestment of dividends.
(1) The Peer Group companies consist of Dana Corp., ArvinMeritor, Inc. and R&B,
Inc.
24
STOCKHOLDER PROPOSALS FOR THE 2006 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 21, 2005. Proposals should be addressed to Sanford Kay, Secretary,
Standard Motor Products, Inc., 37-18 Northern Boulevard, 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 2006 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 4, 2006, and advises
stockholders in the 2006 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 4, 2006. Notice of intention to
present proposals at the 2006 Annual Meeting should be addressed to Sanford Kay,
Secretary, Standard Motor Products, Inc., 37-18 Northern Boulevard, Long Island
City, New York 11101.
The Company's 2004 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,
2004 is included in the 2004 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/ Sanford Kay
Sanford Kay
Secretary
Dated: April 19, 2005
25
Appendix A
----------
STANDARD MOTOR PRODUCTS, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
(as amended in April 2005)
I. AUDIT COMMITTEE
---------------
There shall be an Audit Committee of the Board of Directors, composed of at
least three Directors, appointed annually by the Board of Directors, each of
whom shall have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company and shall
otherwise satisfy the applicable membership requirements under the rules of the
New York Stock Exchange, Inc. ("NYSE"), as such requirements are interpreted by
the Board of Directors in its business judgment. All members of the Audit
Committee shall have a basic understanding of finance and accounting and be able
to read and understand fundamental financial statements, and at least one member
of the Audit Committee shall have accounting or related financial management
expertise.
II. AUDIT COMMITTEE PURPOSE
-----------------------
The Audit Committee is appointed by the Board of Directors to assist the Board
of Directors in fulfilling its oversight responsibilities. In fulfilling their
responsibilities hereunder, it is recognized that members of the Audit Committee
are not full-time employees of the Company. Each member is independent according
to the specified criteria of the Securities Exchange Act of 1934, the NYSE and
the Sarbanes-Oxley Act of 2002. All members shall have sufficient financial
experience and ability to enable them to discharge their responsibilities and at
least one member shall be a financial expert subject to the SEC's definition of
a "financial expert." The Audit Committee's primary duties are to:
1. Review the integrity of the Company's financial statements and financial
reporting process and systems of internal controls regarding finance,
accounting, legal and regulatory compliance.
2. Review the independence, qualifications and performance of the Company's
independent auditors and internal auditing department.
3. Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of Directors.
4. Prepare the report of the Audit Committee that the SEC rules require to be
included in the Company's annual proxy statement.
The Audit Committee has the authority to conduct any investigation appropriate
in fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
1
III. AUDIT COMMITTEE RESPONSIBILITIES
--------------------------------
The Audit Committee's primary duties and responsibilities are to:
1. Review, and discuss with management and the independent auditors, the
annual audited financial statements and the quarterly financial statements
(including reviewing the Company's specific disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of Operations")
contained in the Annual Report of Form 10-K and in the Quarterly Reports on
Form 10-Q prior to filing. The Audit Committee shall discuss with the
independent auditors any significant changes to the Company's accounting
principles and any items required to be communicated by the independent
auditors in accordance with Statement of Auditing Standards (SAS) No. 61.
2. Review and discuss the Company's earnings press releases prior to their
release to the public. The Audit Committee shall also discuss generally the
types of financial information and earnings guidance to be provided to
analysts, rating agencies and others. The Audit Committee's responsibility
to discuss such financial information and earnings guidance may be
discharged generally (i.e., discussion of the types of information to be
disclosed and the type of presentation to be made). The Audit Committee
need not discuss in advance each instance in which the Company may provide
earnings guidance.
3. Appoint, retain and, where appropriate, terminate the independent auditors.
On an annual basis, approve the compensation and the terms of engagement of
the independent auditors (including the pre-approval of all audit and
non-audit service fees) and evaluate the performance of the independent
auditors. The Audit Committee shall also regularly review with the
independent auditors any difficulties the auditors encountered in the
course of the audit work, including any restrictions on the scope of the
independent auditors' activities or on access to requested information, and
any significant disagreements with management. The independent auditors
shall report directly to the Audit Committee. The independent auditors are
ultimately accountable to the Board of Directors and the Audit Committee,
as representatives of the Company's stockholders.
4. Assess, at least annually, the independent auditors' independence. The
Audit Committee shall establish and/or approve policies regarding the
hiring of employees or former employees of the Company's independent
auditors.
5. Obtain and review, at least annually, a report by the independent auditors
describing the firm's internal quality control procedures, any material
issues raised by the most recent internal quality-control review or peer
review of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, in respect of
one or more independent audits carried out by the firm, and any steps taken
to deal with any such issues. The report from the independent auditors
shall also address all relationships between the independent auditors and
the Company, in order to allow the Audit Committee to assess the
independence of the independent auditors.
6. Review the independent auditors' Management Letter recommendations
concerning internal controls. The Audit Committee shall discuss with
management policies relating to risk assessment and risk management,
including significant financial risk exposures and the steps
2
management has taken to monitor, control, and report such exposures. The
Audit Committee shall receive and review the report on the Company's
internal accounting controls contemplated by Section 404 of the
Sarbanes-Oxley Act and the report from the independent auditors with
respect to the same.
7. Review the resources, the internal audit charter, risk assessment and the
scope of work of the internal audit department.
8. Review the quarterly summary reports to management prepared by the internal
audit department.
9. Maintain procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters and the confidential and anonymous submission by
Company employees of concerns regarding accounting or auditing matters.
10. Obtain from the independent auditors assurance that Section 10A of the
Securities Exchange Act of 1934 (added by the Private Securities Litigation
Reform Act of 1995) has not been implicated.
11. Obtain reports from management, the Company's senior internal audit
executive and the independent auditors that the Company's
subsidiary/foreign affiliated entities are in conformity with applicable
legal requirements and the Company's Corporate Code of Ethics.
12. Review and update the Audit Committee Charter periodically, at least
annually, as conditions dictate. The Charter shall be submitted to the
Board of Directors for approval and published at least every three years in
accordance with SEC regulations. The Audit Committee also shall conduct an
annual evaluation of the Audit Committee's performance.
13. Annually prepare a report to stockholders as required by the SEC. The
report should be included in the Company's annual proxy statement.
IV. MEETINGS
--------
The Audit Committee shall meet as and when deemed appropriate by the Chair of
the Committee, however, not less than four times annually. Three members of the
Committee shall constitute a quorum for the transactions of business. The Audit
Committee shall periodically meet in separate sessions with management, with
internal auditors and with independent auditors.
V. REPORTING OF COMMITTEE ACTIVITIES AND RECOMMENDATIONS
-----------------------------------------------------
The Audit Committee shall regularly report to the Board of Directors. The Audit
Committee will maintain minutes and other relevant records of its meetings that
will document its activities and recommendations. The General Auditor or the
General Counsel, each of whom shall act as Secretary to the Audit Committee,
will compile said documentation.
3
[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 19, 2005
The undersigned stockholder of Standard Motor Products, Inc. (the
"Company") hereby appoints Lawrence I. Sills and John P. Gethin, 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 8, 2005 at the
annual meeting of the stockholders of the Company to be held on May 19, 2005, or
at any adjournment thereof.
COMMON
For Withhold
Election Vote
of All For All For All
Nominees Nominees Except
1. Election of Directors [_] [_] [_]
Robert M. Gerrity, Kenneth A. Lehman, Arthur S. Sills, Lawrence I. Sills,
Peter J. Sills, Frederick D. Sturdivant, Willam 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.
--------------------------------------------------------------------------------
DIRECTORS RECOMMEND AGAINST
For Against Abstain
2. Stockholder proposal concerning preferred share [_] [_] [_]
purchase rights.
DIRECTORS RECOMMEND FOR
3. Proposal to ratify the appointment of Grant Thornton [_] [_] [_]
LLP as the Company's independent registered public
accounting firm for the fiscal year ending December
31,2005.
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
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, "AGAINST" PROPOSAL 2
AND "FOR" PROPOSAL 3. 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 | Date |
this Proxy in the box below. | |
--------------------------------------------------------------------------------
| |
| |
-----------Stockholder sign above----------Co-holder (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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