SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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 14a-12
SPS TECHNOLOGIES
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(Name of Registrant as Specified in Its Charter)
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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 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number 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
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
SPS
TECHNOLOGIES
[graphic]
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April 1, 2002
To our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
SPS Technologies, Inc. The meeting will be held at 10:00 a.m. on Tuesday,
April 30, 2002, at 17 Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania 19101, in the Forum Room (eighth floor).
Details of the business to be conducted at the Annual Meeting are given in
the enclosed Proxy Statement. We will also present a report on the SPS
business results for the year 2001 and on other matters of current interest to
our shareholders.
Whether or not you attend the meeting, it is important that your shares be
represented and voted. We encourage you to read the enclosed Proxy Statement
and promptly execute and return your proxy card in the enclosed envelope.
Sincerely,
/s/ Charles W. Grigg
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Charles W. Grigg
Chairman of the Board & Chief Executive Officer
Important
Please note that due to new security procedures, you will be required to show
a form of picture identification to gain access to the Mellon Bank Center if
you plan to attend the Annual Meeting. We ask that you advise the Company of
your intention to attend the meeting by calling the Company's Investor
Relations Department at (215) 517-2001 or by sending an e-mail to
spscorp@spstech.com.
Corporate Offices
Two Pitcairn Place
Suite 200
165 Township Line Road
Jenkintown
Pennsylvania 19046-2611
Phone (215) 517-2000
Fax (215) 517-2032
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SPS Technologies, Inc.
Two Pitcairn Place, Suite 200
165 Township Line Road
Jenkintown, Pennsylvania 19046
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Notice of Annual Meeting of Shareholders
The Annual Meeting of Shareholders of SPS Technologies, Inc. will be held on
Tuesday, April 30, 2002, at ten o'clock a.m., local time, at 17 Mellon Bank
Center, 1735 Market Street, Philadelphia, Pennsylvania 19101, in the Forum
Room (eighth floor), for the following purposes:
1. To elect three Class III directors for a term of three years;
2. To approve an amendment to the SPS 1988 Long Term Incentive Stock Plan; and
3. To transact such other business as may properly come before the meeting.
Record Date
The Board of Directors has fixed the close of business on March 12, 2002 as
the record date for the purpose of determining shareholders who are entitled
to notice of and to vote at the meeting.
By order of the Board of Directors,
James D. Dee
Secretary
April 1, 2002
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YOUR VOTE IS IMPORTANT
You are urged to mark, sign, date and promptly return your proxy card in the
enclosed envelope.
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Table of Contents
Voting Procedures ........................................................ 1
Revocation of Proxy..................................................... 1
Cost of Soliciting Proxies.............................................. 1
Vote Required and Method of Counting Votes.............................. 1
Other Business.......................................................... 1
Ownership of Voting Securities ........................................... 2
Principal Beneficial Ownership ........................................ 2
Holdings of Executive Officers and Directors .......................... 3
Section 16(a) Beneficial Ownership Reporting Compliance .................. 4
Election of Directors* ................................................... 4
Class III - Nominees for a Three-Year Term ............................ 4
Class II - Directors with Terms Expiring in 2003 ...................... 5
Class I - Directors with Terms Expiring in 2004 ....................... 5
Board Meetings, Committees and Compensation of Directors ................. 6
Executive Compensation and Stock Option Committee ..................... 6
Directors Committee ................................................... 6
Audit Committee ....................................................... 7
Executive Compensation ................................................... 8
Summary Compensation Table ............................................ 8
Option Grants in Last Year Table ...................................... 9
Aggregated Option Exercises and Year-End Option Value Table ........... 9
Pension Benefits ......................................................... 10
Supplemental Executive Retirement Plan ................................ 10
Pension Plan Table .................................................... 10
Compensation of Directors ................................................ 11
Termination of Employment and Change of Control Arrangements ............. 11
Certain Relationships and Related Transactions ........................... 13
Audit Committee Report ................................................... 13
Independent Accountants and Related Fees ................................. 14
Compensation Committee Report on Executive Compensation .................. 15
Overview and Philosophy ............................................... 15
Executive Officer Compensation ........................................ 15
Chief Executive Officer Compensation .................................. 16
Common Stock Performance Graph ........................................... 17
Proposal to Amend the SPS 1988 Long Term Incentive Stock Plan* ........... 18
Tax Consequences ...................................................... 20
Board Recommendation and Shareholder Vote Required .................... 20
Proposals of Shareholders ................................................ 21
Appendix I - SPS Technologies, Inc. Audit Committee Charter .............. A-1
*Bold indicates this year's proposals
Proxy Statement
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Voting Procedures
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This proxy statement and the enclosed proxy card are being furnished in
connection with the solicitation by the Board of Directors of proxies for use
at the Annual Meeting of Shareholders of SPS Technologies, Inc. ("Company"),
to be held on Tuesday, April 30, 2002, and at any adjournments or
postponements thereof. This proxy statement and the enclosed form of proxy are
first being mailed to shareholders on or about April 1, 2002.
Only record holders of Common Stock of the Company at the close of business on
March 12, 2002, are entitled to vote. Shareholders are requested to mark,
sign, date and return the enclosed proxy card in the envelope provided. We
have included a postage-paid envelope for your convenience. If you sign, date
and mail your proxy card without indicating how you want to vote, your proxy
will be voted as recommended by the Board of Directors.
If you execute the enclosed proxy card, it will not affect your right to
attend the meeting and vote in person.
Revocation of Proxy
If you later wish to revoke your proxy, you may do so by (1) sending a written
statement to that effect to the Secretary of the Company; (2) submitting a
properly signed proxy with a later date; or (3) by attending the meeting and
voting in person.
Cost of Soliciting Proxies
The cost of soliciting proxies will be paid by the Company. Georgeson
Shareholder, 111 Commerce Road, Carlstadt, New Jersey 07072-2586, has been
employed to solicit proxies by mail, telephone or personal solicitation for a
fee of approximately $5,000, plus expenses. We will also reimburse brokers,
custodians, nominees and fiduciaries for the cost of forwarding materials to
beneficial owners. Directors, officers and employees may solicit proxies, but
they will not be specially compensated for such services.
Vote Required and Method of Counting Votes
o Number of Shares Outstanding. On March 12, 2002 there were issued and
outstanding 13,141,233 shares of Common Stock, par value $.50 per share.
Each share is entitled to one vote and, in the election of directors, has
cumulative voting rights. This means that shareholders have the right to
multiply the number of votes to which they may be entitled by the total
number of directors to be elected in the same election, and they may cast
the whole number of such votes for one nominee or may distribute them
among any two or more nominees. Proxy holders may vote for any or all of
the nominees. The Company intends to have the proxy holders exercise such
cumulative voting rights to elect the maximum number of nominees proposed
by the Board of Directors.
Unless otherwise directed, shares represented by proxies in the accompanying
form will be voted at the Annual Meeting or any adjournments or postponements
thereof FOR the election of the nominated directors as stated under the
heading "Election of Directors," and FOR the proposal to approve an amendment
to the SPS 1988 Long Term Incentive Stock Plan as stated under the heading
"Proposal to Amend the SPS 1988 Long Term Incentive Stock Plan".
Other Business
The Company does not intend to bring any other matters before the meeting, and
we do not know of any additional proposals to be presented by others. However,
if any other matters properly come before the meeting, the persons named in
the accompanying proxy will vote on them in accordance with their best
judgment. Under the Company's By-laws, proposals of shareholders to be
presented at the meeting must be submitted in accordance with the procedures
summarized under the heading "Proposals of Shareholders."
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Ownership of Voting Securities
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Principal Beneficial Ownership
As of February 28, 2002, the Company knew the following persons to be the
principal beneficial owners of its voting securities:
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Name and Address Amount and Nature of Beneficial
of Beneficial Owner Ownership of Shares of Common Stock Percent of Class
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Gabelli Funds, LLC, 3,724,644(a) 28.4%
GAMCO Investors, Inc.,
Gabelli International Limited
Gabelli & Company, Inc.
Gabelli Group Capital
Partners, Inc. and
Mario J. Gabelli
One Corporate Center
Rye, NY 10580-1434
Tinicum Investors, 2,004,481(b) 15.3%
RIT Capital Partners plc,
Putnam L. Crafts, Jr., and
Eric M. Ruttenberg
990 Stewart Avenue
Garden City, NY 11530
Wachovia Corporation 866,931(c) 6.6%
One Wachovia Center
Charlotte, NC 28288-0137
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(a) Based on information supplied by the named entities in a joint filing on
Schedule 13D dated January 15, 2002, with the Securities and Exchange
Commission, as updated by the named entities through February 28, 2002.
According to such information, the named entities held sole, shared or no
voting and dispositive power over the shares as follows: Gabelli Funds, LLC
- 528,500 shares (sole voting and dispositive power); GAMCO Investors, Inc.
- 3,132,044 (sole voting and dispositive power) and 47,000 shares (no
voting and sole dispositive power); Gabelli International Limited - 2,600
(sole voting and dispositive power); Gabelli & Company, Inc. - 500 shares
(sole voting and dispositive power), Gabelli Group Capital Partners, Inc. -
1,000 shares (sole voting and dispositive power). Mr. Mario J. Gabelli is
the majority stockholder of Gabelli Group Capital Partners, Inc. (the
ultimate parent company of Gabelli Funds, LLC and GAMCO Investors, Inc.)
and individually owns 13,000 shares (sole voting and dispositive power) of
the Company's Common Stock.
(b) Based on information supplied by the named entities in a joint filing on
Schedule 13D dated January 24, 1997, with the Securities and Exchange
Commission, as updated by the named entities through February 28, 2002.
According to such information, the named entities held sole, shared or no
voting and dispositive power over the shares as follows: Tinicum Investors
- 1,528,138 shares (sole voting and dispositive power); RIT Capital
Partners plc - 264,622 shares (sole voting and dispositive power); Putnam
L. Crafts, Jr. - 200,000 shares (sole voting and dispositive power); and
Eric M. Ruttenberg - 11,721 shares (sole voting and dispositive power).
Eric M. Ruttenberg, a director of the Company, is a general partner of
Tinicum Investors.
(c) Based on information supplied by the named entity in a filing on Schedule
13G dated December 31, 2001, with the Securities and Exchange Commission,
as updated by the named entities through February 28, 2002. According to
such information, the named entity held sole, shared or no voting and
dispositive power over the shares as follows: 32,000 shares (sole voting
and shared dispositive power); 1,350 shares (sole voting and sole
dispositive power); 826,533 shares (no voting and shared dispositive
power); 7,000 shares (sole voting and no dispositive power); 48 shares (no
voting and sole dispositive power). Wachovia Corporation filed the Schedule
13G pursuant to Rule 13d-1(b)(1)(ii)(G), as the parent company of First
Union Securities Inc. and First Union National Bank. First Union Securities
Inc. is an investment advisor for mutual funds or other clients. The
securities reported by First Union Securities Inc. are beneficially owned
by such mutual funds or other clients. First Union National Bank holds the
securities reported in a fiduciary capacity for its customers.
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Holdings of Executive Officers and Directors
The following table shows information pertaining to the voting securities of
the Company beneficially owned, as of February 28, 2002, by each director, by
the Chairman and Chief Executive Officer and five other executive officers.
This information has been supplied by each of the individuals involved.
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Name of Individual Number of Shares Number of Shares Total Shares Percent of Class
or Number of with Direct Acquirable Within Beneficially If 1% or
Persons in Group Beneficial Ownership 60 Days Owned(a) More(b)
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Charles W. Grigg 150,606 207,282 357,888 2.68%
Richard W. Kelso 2,671 2,208 4,879 -
James F. O'Connor 6,061 1,178 7,239 -
Eric M. Ruttenberg 4,443 7,278 11,721(c) -
Raymond P. Sharpe 5,661 4,302 9,963 -
John S. Thompson 20,000 40,000 60,000 -
Harry J. Wilkinson 102,913 0 102,913 -
James W. Zug 2,490 0 2,490 -
Thomas S. Cross 581 9,600 10,181 -
James D. Dee 5,306 20,200 25,506 -
William M. Shockley 14,892 36,200 51,092 -
Margaret B. Zminda 748 9,100 9,848 -
All Directors and Executive
Officers as a Group (13 persons) 314,928 339,848 654,776 4.86%
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(a) Beneficial ownership for purposes of this proxy statement is defined in
accordance with the requirements of Rule 13d-3 under the Securities
Exchange Act of 1934, which provides that the beneficial owner of a
security includes any person who, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has or
shares voting power or investment power with respect to such security, or
has the right to acquire such voting power or investment power through the
exercise of an option, warrant or right within 60 days. The individuals
named in the table each exercise sole voting and dispositive power over the
shares beneficially owned by them.
(b) For purposes of calculating the percentage of the outstanding shares of
Common Stock on February 28, 2002 for each listed person, the number of
shares of Common Stock includes shares that may be acquired by such person
within 60 days of February 28, 2002 through the exercise of vested stock
options.
(c) The indicated shares of Common Stock are beneficially owned directly by Mr.
Ruttenberg. Mr. Ruttenberg is a general partner of Tinicum Investors, a
Delaware partnership ("Investors"), that had direct beneficial ownership of
1,528,138 shares of Common Stock as of February 28, 2002. Based on
understandings with certain other beneficial owners of Common Stock
described in a Statement on Schedule 13D dated January 24, 1997, as updated
by the named entities through February 28, 2002, Mr. Ruttenberg and
Investors may be deemed to have indirect beneficial ownership of an
additional 464,622 shares of Common Stock beneficially owned directly by
such other beneficial owners as of February 28, 2002. Mr. Ruttenberg
disclaims beneficial ownership of any shares of Common Stock beneficially
owned directly by Investors or such other beneficial owners.
3
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Section 16(a) Beneficial Ownership Reporting Compliance
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Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, as well as persons who beneficially own more
than 10 percent of the Company's Common Stock, to file initial reports of
ownership and reports of changes in ownership of Common Stock of the Company
with the Securities and Exchange Commission. To the Company's knowledge, based
solely on a review of copies of such the reports filed with the Company by its
directors, executive officers and known 10% beneficial owners, and on written
representations from such persons, the Company believes that all reports
required to be filed during, or with respect to, the fiscal year of the
Company ended December 31, 2001 were filed on a timely basis.
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Election of Directors
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The Company currently has eight directors serving in three classes, consisting
of two classes of three members each and one class of two members. The term of
office of one class will expire each year. Members of each class are elected
for terms of three years. If there is a vacancy in any class, the vacancy may
be filled by the Board of Directors for the balance of the term of the class
in which the vacancy exists.
The terms of office of the three Class III directors expire this year.
Accordingly, shareholders are being asked to elect three Class III directors
who will hold office until the 2005 Annual Meeting of Shareholders and until
their successors are duly elected and qualified. Unless you indicate
otherwise, your proxy will be voted in favor of the election of each of the
nominees named below for a three-year term. Should any nominee become
unavailable for election for any unforeseen reason, the Board of Directors or
the Executive Committee of the Board of Directors will determine how the
proxies will be voted. The three nominees who receive the highest number of
votes cast at the meeting will be elected as Class III directors.
Listed below are the names of, and certain other information regarding, the
three nominees for election as Class III directors, and the other five
directors who will be continuing in office following the meeting.
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CLASS III - NOMINEES FOR A THREE-YEAR TERM
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Harry J. Wilkinson
Age: 64 Director since 1986
Mr. Wilkinson was President and Chief Operating Officer of the Company from
June of 1987 to March of 1997. He retired from the Company in March of 1998.
Mr. Wilkinson is also a director of Phillips Screw Company and Flexible
Circuits, Inc.
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Eric M. Ruttenberg
Age: 46 Director since 1991
Mr. Ruttenberg has been General Partner of Tinicum Investors, an investment
management company, since December of 1994. He has been the Managing Member of
the general partner of Tinicum Capital Partners, L.P., a private investment
partnership, since 1998. He is also a director of Environmental Strategies
Corporation, Haynes Holdings, Inc. and Haskel International, Inc., and a
trustee of Mount Sinai Medical Center and St. Paul's School.
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John S. Thompson
Age: 54 Director since 2000
Mr. Thompson has been President and Chief Operating Officer of the Company since
October of 1999. Mr. Thompson was employed from 1975 until 1999 with BTR PLC, a
diversified engineered products company, and was a member of BTR PLC's Board of
Directors and Executive Committee. From 1993 until October of 1999, he held the
title of President & Chief Executive of BTR, Inc., the U.S. holding company of
BTR PLC.
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CLASS II - DIRECTORS WITH TERMS EXPIRING IN 2003
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Raymond P. Sharpe
Age: 53 Director since 1994
Mr. Sharpe has been Chief Executive Officer of Cookson Electronics, Inc., a
supplier of specialty chemicals, metals, printed circuit board laminates and
equipment to the printed circuit board fabrication and electronic assembly
market, since July of 1995. Mr. Sharpe was Executive Vice President of Cookson
America, Inc., and Chief Operating Officer of the Electronic Materials Division
from October of 1987 to June of 1995. He is also a director of Cookson Group
plc.
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James F. O'Connor
Age: 61 Director since 1997
Mr. O'Connor has been Managing Director of The Chartwell Company, a private
merchant and investment bank, since December of 1997. Mr. O'Connor was
Executive Director of Corporate Development for the BBA Group plc, serving the
aviation and materials technology markets worldwide, from September of 1994 to
December of 1997. He is also a director of PC Cox Holdings Ltd., and is a
trustee of Blessed John XXIII Seminary.
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CLASS I - DIRECTORS WITH TERMS EXPIRING IN 2004
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Charles W. Grigg
Age: 62 Director since 1993
Mr. Grigg has been Chairman of the Board and Chief Executive Officer of the
Company since December of 1993, and held the title of President of the Company
from April of 1997 until October of 1999. Mr. Grigg was President and Chief
Operating Officer of Watts Industries, Inc., a manufacturer of valve products,
from 1986 to 1993. He is also a director of Haskel International, Inc.
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Richard W. Kelso
Age: 64 Director since 1995
Mr. Kelso was President and Chief Executive Officer of PQ Corporation, a
global manufacturer of inorganic chemicals, high performance catalysts and
functional glass products, from January of 1991 until his retirement in
September of 2000.
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James W. Zug
Age: 61 Director since 2001
Mr. Zug was employed from 1964 until his retirement in July of 2000 with
PricewaterhouseCoopers LLP, the Company's independent accountants. From July
of 1998 until his retirement, he held the title of Global Leader - Global
Deployment for PricewaterhouseCoopers. From October of 1993 until June of
1998, Mr. Zug held the title of Managing Director - International for Coopers
and Lybrand. He also held the position of Audit Engagement Partner from 1994
through 1998. Mr. Zug serves on the Board of Directors of the Philadelphia
Orchestra Association, the Regional Performing Arts Center, the Brandywine
Fund, Inc., the Brandywine Blue Fund, Inc. and is a member of the Board of
Governors of the Merion Golf Club.
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Board Meetings, Committees and Compensation of Directors
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During 2001, there were seven meetings of the Company's Board of Directors.
Additionally, during 2001, the Executive Compensation and Stock Option
Committee held four meetings, the Directors Committee held one meeting, and
the Audit Committee held two meetings.
Executive Compensation and Stock Option Committee
The Executive Compensation and Stock Option Committee is composed of Messrs.
Sharpe (Chairman), O'Connor, Ruttenberg and Zug. The primary functions of the
Executive Compensation and Stock Option Committee are to:
o Fix the salaries and other compensation of all officers and key executives
of the Company other than the Chairman, Chief Executive Officer and the
President of the Company (whose compensation is fixed by the Board of
Directors);
o Evaluate the Company's executive compensation programs to ensure that they
remain effective in attracting and retaining managerial talent; and
o Administer certain of the Company's executive incentive compensation and
stock option plans, including the granting of awards as provided in those
plans.
Directors Committee
The Directors Committee is composed of Messrs. Kelso (Chairman), O'Connor,
Ruttenberg, Sharpe and Wilkinson. The primary functions of the Directors
Committee are to:
o Nominate candidates for election to the Board of Directors;
o Recommend nominees for service on its standing committees;
o Review programs for senior management succession;
o Make recommendations to the Board on matters of directors' compensation,
benefits, retirement and tenure policy; and
o Consider nominees for director recommended by shareholders.
The Directors Committee will consider shareholder nominations in accordance
with the Company's By-laws. To be considered, notice of a nomination must be
received at least 60 days before the date of the relevant Annual Shareholder
Meeting. The notice must include:
o The name and address of the nominating shareholder;
o A representation that the shareholder is entitled to vote at the meeting
and intends to appear in person or by proxy at the meeting;
o The name, age, business and residence addresses and principal occupation
of the proposed nominee;
6
o A description of any and all arrangements or understandings between the
shareholder and each proposed nominee;
o Any other information that would be required by the Securities and
Exchange Commission to be included in a proxy statement soliciting proxies
for the election of the proposed nominee; and
o The signed consent of each proposed nominee to serve as a director if
elected.
The Board may require any proposed nominee to furnish other information
reasonably required to determine the proposed nominee's eligibility and
qualifications to serve as a director. Under Pennsylvania law, to be eligible,
a nominee must be an individual 18 years of age or older. Factors relevant to
a nominee's qualifications would include:
o Experience or lack thereof in managing business enterprises;
o Service on other boards of directors;
o Potential or actual conflicts of interest;
o Expertise in a field related to the Company's business;
o Criminal record; and
o Other similar information.
If the Board (after affording the shareholder a reasonable opportunity to cure
any deficiency in the original notice) determines that an individual was not
proposed in accordance with the By-laws, then such individual would not be
eligible for nomination and election as a director. If a nominee is determined
to have been properly proposed by a shareholder, and the Directors Committee
determines not to nominate the person, the shareholder proposing such person
may nominate the candidate at the meeting. The Company will furnish a copy of
its By-laws specifying the requirements for nominations for director to any
shareholder without charge upon written request to the Secretary of the
Company.
Audit Committee
The Audit Committee of the Board of Directors is composed of Messrs.
Ruttenberg (Chairman), Kelso, O'Connor, Sharpe and Zug. The primary functions
of the Audit Committee are to:
o Meet periodically with the Company's management, internal auditors and
independent accountants to review with each whether they are properly
discharging their respective responsibilities; and
o Make recommendations to the Board of Directors to select and retain the
Company's independent accountants, to establish the scope of their
accounting services and to approve related fees.
In 2001, all of the directors attended more than 75% of the aggregate of the
meetings of the Board and the committees of the Board on which they served.
7
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Executive Compensation
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The following table sets forth, for the Company's fiscal years ended December
31, 1999 through 2001, the total annual and long-term compensation of the
Chief Executive Officer and the five other most highly compensated executive
officers of the Company serving in such capacity as of December 31, 2001 (the
"Named Officers").
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Summary Compensation Table
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Annual Compensation Long-Term Compensation
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Awards Payouts
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Other Securities
Annual Underlying All Other
Compen- Restricted Options Long-Range Compen-
Name and Salary Bonus sation Stock Granted Incentive Bonus sation
Principal Position Year ($)(1) ($)(2) ($)(3) ($)(4) (#) ($)(5) ($)(6)
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Charles W. Grigg 2001 617,400 0 35,801 0 20,000 0 1,744,114
Chairman and Chief 2000 588,000 194,275 31,715 0 15,000 0 2,059,069
Executive Officer 1999 560,000 226,968 30,165 141,039 40,000 141,039 1,453,126
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John S. Thompson 2001 420,000 0 7,000 0 20,000 0 2,622
President and Chief 2000 400,000 110,160 6,000 0 15,000 0 2,622
Operating Officer 1999 100,000 33,780 0 0 75,000 0 219
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William M. Shockley 2001 300,000 0 0 0 10,000 0 105,733
Vice President, Chief 2000 285,000 62,786 0 0 6,000 0 190,572
Financial Officer 1999 222,500 55,391 0 30,978 21,000 37,862 99,284
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James D. Dee 2001 190,000 0 0 0 3,000 0 499
Vice President, General 2000 175,000 33,075 0 0 3,000 0 40,579
Counsel and Secretary 1999 160,000 39,696 0 14,104 3,000 26,193 18,173
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Thomas S. Cross 2001 141,000 0 0 0 2,500 0 800
Vice President, Human 2000 134,000 22,150 0 0 2,500 0 509
Resources 1999 123,333 20,518 0 4,911 6,500 11,459 675
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Margaret B. Zminda 2001 141,000 0 0 0 2,500 0 68,749
Treasurer, Assistant 2000 134,000 22,150 0 0 2,500 0 335
Secretary and Director, 1999 125,000 25,325 0 7,870 0 18,364 444
Investor Relations
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(1) Amounts shown include deferrals (where applicable) by the Named Officers
under the Company's Executive Deferred Compensation Plan.
(2) Amounts shown reflect cash payments to the Named Officers under the
Company's Management Incentive Plan.
(3) Amounts shown include directors' fees for 2001 through 1999, respectively
as follows: for Mr. Grigg - $7,000, $6,000 and $6,000, and for Mr. Thompson
- $7,000, $6,000 and $0. Amounts shown also reflect, for Mr. Grigg,
interest accrued in excess of 120% of the applicable federal long-term rate
with respect to the Company's Executive Deferred Compensation Plan.
(4) As of December 31, 2001 the value of restricted shares held by the Named
Officers was as follows: Mr. Grigg $260,014 (7,446 shares); Mr. Shockley
$53,567 (1,534 shares); Mr. Dee $24,968 (715 shares); Mr. Cross $4,190 (120
shares) and Ms. Zminda $12,501 (358 shares). The restricted shares are
valued using a fair market value of $34.92 per share, which represents the
closing market price of the stock on December 31, 2001. Mr. Thompson held
no restricted shares as of December 31, 2001.
(5) Amounts shown reflect cash payments to the Named Officers under the
Company's Long Range Incentive Plan.
8
(6) Amounts shown include payments by the Company on behalf of the Named
Officers for term-life insurance. Amounts shown also reflect compensation
from the exercise of stock options for Messrs. Grigg and Shockley in 2001,
2000 and 1999, respectively, of $1,737,202 (45,704 shares) and $104,911
(3,000 shares) for the year 2001; $2,052,157 (57,407 shares) and $189,863
(6,000 shares) for the year 2000; and $1,453,126 (55,000 shares) and
$98,719 (3,000 shares) for the year 1999. Mr. Dee received compensation
from the exercise of stock options in 2000 and 1999, respectively, of
$40,125 (2,000 shares) and $17,594 (1,000 shares). Ms. Zminda received
compensation from the exercise of stock options in 2001 of $68,391 (3,000
shares). Mr. Thompson and Mr. Cross did not receive compensation from the
exercise of stock options in 2001, 2000 or 1999.
The following tables provide information concerning the number and value of
option grants during the last year and the number and value of options to
purchase the Company's Common Stock held by each of the Named Officers as of
December 31, 2001. All options outstanding were granted under the SPS 1988
Long Term Incentive Stock Plan or pursuant to contractual agreements with the
employee at 100% of the fair market value of the Company's Common Stock on the
date of grant. The vesting provisions of the options are determined by the
Executive Compensation and Stock Option Committee.
- -------------------------------------------------------------------------------
Option Grants in Last Year Table
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- -----------------------------------------------------------------------------------------------------------------------------------
% of Total
Options
Number of Granted to
Securities All
Underlying Employees Exercise
Options in Last Price Expiration
Name Granted Year ($/Sh) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Charles W. Grigg 14,000 8.12% 51.100 Feb. 14, 2011 449,911 1,140,163
6,000 3.48% 49.025 Apr. 29, 2011 184,989 468,799
- -----------------------------------------------------------------------------------------------------------------------------------
John S. Thompson 20,000 11.60% 51.100 Feb. 14, 2011 642,730 1,628,805
- -----------------------------------------------------------------------------------------------------------------------------------
William M. Shockley 10,000 5.80% 51.100 Feb. 14, 2011 321,365 814,402
- -----------------------------------------------------------------------------------------------------------------------------------
James D. Dee 3,000 1.74% 51.100 Feb. 14, 2011 96,410 244,321
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas S. Cross 2,500 1.45% 51.100 Feb. 14, 2011 80,341 203,601
- -----------------------------------------------------------------------------------------------------------------------------------
Margaret B. Zminda 2,500 1.45% 51.100 Feb. 14, 2011 80,341 203,601
- -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Aggregated Option Exercises and Year-End Option Value Table
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Number of Value of Unexercised
Unexercised "In-the-Money"
Options at Options at Year-End
Year-End ($)(1)
Number of
Shares Dollar
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Charles W. Grigg 45,704 1,737,202 185,482/64,000 2,915,034/68,824
- -----------------------------------------------------------------------------------------------------------------------------------
John S. Thompson -- -- 33,000/77,000 13,849/55,394
- -----------------------------------------------------------------------------------------------------------------------------------
William M. Shockley 3,000 104,911 40,200/29,800 416,237/14,051
- -----------------------------------------------------------------------------------------------------------------------------------
James D. Dee -- -- 15,800/11,200 52,572/8,369
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas S. Cross -- -- 7,600/9,400 21,180/5,967
- -----------------------------------------------------------------------------------------------------------------------------------
Margaret B. Zminda 3,000 68,391 7,100/7,900 5,353/6,302
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Unexercised options are valued using a fair market value of $35.585 per
share which represents the average trading price of the stock on December
31, 2001.
9
- -------------------------------------------------------------------------------
Pension Benefits
- -------------------------------------------------------------------------------
Supplemental Executive Retirement Plan
The following table shows the amount of annual straight life annuity benefits
that a Named Officer, with the exception of Mr. Cross and Ms. Zminda, would
receive commencing at age 65 for the years-of-service indicated under the
Company's Supplemental Executive Retirement Plan as amended and restated
effective July 31, 2001 (SERP). The SERP is a non-qualified unfunded plan in
which an enhanced retirement benefit is accrued based upon the participant's
final five-year average pensionable earnings and years-of-service. Such amount
would be reduced by amounts payable from (i) the Company's Retirement Income
Plan (RIP), a qualified cash balance plan in which the benefit is determined
by Company contribution credits based on age and years-of-service, and
interest credits based on one-year Treasury rates; (ii) the Benefit
Equalization Plan (BEP), a non-qualified unfunded plan which makes up
retirement benefit reductions under the RIP due to ceilings established by the
Internal Revenue Code and/or reductions due to participation in the Executive
Deferred Compensation Plan; and (iii) primary social security benefits.
- -------------------------------------------------------------------------------
Pension Plan Table
- -------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Years of Service
- -----------------------------------------------------------------------------------------------------------------------------------
Average Base 15 or More
Salary for Five-Year 5 Years 10 Years Years
Period Preceding Retirement Service Service Service
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
$150,000 30,000 60,000 90,000
200,000 40,000 80,000 120,000
250,000 50,000 100,000 150,000
300,000 60,000 120,000 180,000
350,000 70,000 140,000 210,000
400,000 80,000 160,000 240,000
450,000 90,000 180,000 270,000
500,000 100,000 200,000 300,000
550,000 110,000 220,000 330,000
600,000 120,000 240,000 360,000
Mr. Cross' estimated total annual life annuity payable from the Company's RIP
and BEP (as described above) at the normal retirement age of 65 is $70,600. He
will reach age 65 in June of 2016, at which time he would have 41 years of
service.
Ms. Zminda's estimated total annual life annuity payable from the Company's
RIP and BEP (as described above) at the normal retirement age of 65 is
$83,000. She will reach age 65 in November of 2023, at which time she would
have 40 years of service.
As of December 31, 2001, the years of credited service for the Named Officers
were as follows: Mr. Grigg - 18; Mr. Thompson - 26; Mr. Shockley - 10; Mr. Dee -
13; Ms. Zminda - 18; Mr. Cross - 27.
For Mr. Grigg, years-of-service includes service with Watts Industries, Inc.
Mr. Grigg's straight life annuity benefit payable at age 65 will be reduced by
benefits payable under the Watts Industries, Inc. Supplemental Employees
Retirement Plan.
For Mr. Thompson, years-of-service includes service with BTR, Inc. Mr.
Thompson's straight life annuity benefit payable at age 65 will be reduced by
benefits payable under the BTR, Inc. Qualified Salaried Pension Plan.
10
- -------------------------------------------------------------------------------
Compensation of Directors
- -------------------------------------------------------------------------------
Each director who is not an employee of the Company receives an annual
retainer of $17,000 plus a fee of $1,000 for each meeting of the Board of
Directors or one of its committees he attends. Each director who is an
employee of the Company receives a fee of $1,000 for each meeting of the Board
of Directors he attends. Each non-employee director on May 2, 1995 received a
restricted share award in the amount of $25,000, or 1,530 shares, based upon
the fair market value of the Company's Common Stock on that date of $16.3438
per share. Mr. Kelso, who was appointed as a director on October 24, 1995,
received a pro rata restricted share award in the amount of $22,500, based
upon the number of months remaining until May 2, 2000, in accordance with the
SPS 1988 Long Term Incentive Stock Plan, or 1,140 shares based upon the fair
market value of the Company's Common Stock on October 24, 1995 of $19.7188 per
share. Each non-employee director on February 10, 1997 received a restricted
share award in the amount of $25,000, or 740 shares, based upon the fair
market value of the Company's Common Stock on that date of $33.9063 per share.
Mr. Wilkinson, who became an outside director on March 1, 1997, received a pro
rata restricted share award in the amount of $40,416, based upon the number of
months remaining until May 2, 2000 and February 10, 2002, in accordance with
the SPS 1988 Long Term Incentive Stock Plan, or 1,270 shares based upon the
fair market value of the Company's Common Stock on March 3, 1997 of $31.8236
per share. Mr. O'Connor, who was elected as a director on April 29, 1997,
received a pro rata restricted share award in the amount of $38,750, based
upon the number of months remaining until May 2, 2000 and February 10, 2002,
in accordance with the SPS 1988 Long Term Incentive Stock Plan, or 1,170
shares based upon the fair market value of the Company's Common Stock on April
29, 1997 of $33.1197 per share. Each non-employee director on May 2, 2000
received a restricted share award in the amount of $25,000, or 791 shares,
based upon the fair market value of the Company's Common Stock on that date of
$31.5938 per share. Mr. Zug, who was elected as a director on April 30, 2001,
received a pro rata restricted share award in the amount of $23,750, based
upon the number of months remaining until February 10, 2002 and May 2, 2005,
in accordance with the SPS 1988 Long Term Incentive Stock Plan, or 490 shares
based upon the fair market value of the Company's Common Stock on April 30,
2001 of $49.025 per share. The restrictions on each award lapse on 20% of the
shares each year on the anniversary date of the award for the succeeding five
years. After five years, no restrictions remain.
A director who is not a participant in any of the Company's qualified
retirement plans and who retires (i) at or after age 70 with 5 or more years
of service, or (ii) at or after age 65 with 10 or more years of service, will
receive annually during his lifetime an amount equal to the annual retainer in
effect as of the date of his retirement. A director who retires at or after
age 65 but before age 70 with less than 10 years of service will receive
annually a pro rata amount.
A non-employee director may elect to receive discounted options in lieu of all
or a portion of his annual retainer under the SPS 1988 Long Term Incentive
Stock Plan. The number of options granted is determined by the amount of
retainer he elects divided by the difference between the fair market value of
the Company's Common Stock at the time of grant less, for each option, the par
value per share of fifty cents. The options are granted at the beginning of
June each year. The director must pay fifty cents per option at the time of
exercise.
- -------------------------------------------------------------------------------
Termination of Employment and Change of Control Arrangements
- -------------------------------------------------------------------------------
The Company has entered into the following agreements and arrangements with
the Named Officers:
1) The Company has entered into an Executive Severance Agreement ("Agreement")
with each of the Named Officers. The Agreement provides that if a
"triggering termination" of employment occurs within three years after a
"change of control" of the Company (as defined in the Agreement), then the
employee is entitled to receive within 15 days after the employee's
termination date, among other benefits, cash in an amount equal to two times
the sum of the employee's annual base salary plus two times the incentive
bonus awards earned by or allocated to the employee in the previous fiscal
year under the Company's Management Incentive Plan (MIP) and Long Range
Incentive Plan (LRIP). A "triggering termination"
11
generally includes a termination of employment initiated by the Company for
any reason other than a disability qualifying the employee for benefits
under the Company's Long Term Disability Plan, or for "cause" (as defined
in the Agreement), or by the employee for certain reasons set forth in the
Agreement. Upon a "triggering termination", the employee will also be
entitled to receive the appreciated value of all the employee's stock
options outstanding and unexercised as of the termination date (whether or
not vested), any unpaid salary, all incentive bonus awards payable to,
earned by or allocated to the employee under the MIP and LRIP, and all
amounts deferred by the employee under any incentive plan and under the
Company's Executive Deferred Compensation Plan. The employee will also
receive two additional years of credited service under each of the
Company's RIP, BEP and SERP, and will, for two years, continue to receive
certain insurance benefits on a cost-sharing basis. The employee's benefits
from BEP and SERP are payable in a lump sum within 15 days after the
termination date. Any restrictions remaining on restricted shares that may
have been awarded to the employee lapse, and the employee will own such
shares free and clear of any Company-imposed restriction. Any
non-competition agreements (including non-compete provisions of the MIP)
terminate; however, the employee will continue to be bound by the
confidentiality provisions of the Agreement. Each Agreement provides for
payment of additional compensation to the employee to offset any adverse
effect of payments under the Agreement determined to be "excess parachute
payments," as defined in the Internal Revenue Code.
2) The Company has a Senior Executive Severance Plan (SESP), under which each
of the Named Officers would receive certain compensation and benefits in the
event of termination of employment with the Company, without a change of
control, for any reason other than for "cause" (as defined in the SESP) or a
disability which qualifies the participant for benefits under the Company's
Long-Term Disability Plan, or if initiated by the participant, upon the
occurrence of certain events described in the SESP. Upon such termination,
the participant is entitled to receive (among other benefits) the base
salary in effect before the termination date for a period of up to 12
months, all bonuses earned under the MIP for completed and uncompleted (pro
rata) periods, under the LRIP for completed periods and all amounts deferred
under the Company's Executive Deferred Compensation Plan. The participant
will remain on the Company's payroll for up to 12 months, during which
employee benefits to which the participant was entitled prior to the
termination will continue, and the participant will be entitled to Company-
paid professional outplacement services. Restrictions on restricted shares,
if any, issued to the participant lapse. If the participant is employed by a
competitor of the Company without the Company's consent, the ongoing
benefits described above cease as of the date of such employment. If the
participant is employed on a full-time basis by other than a competitor, the
ongoing benefits cease either as of the date of such employment or six
months, whichever is later. In the event an employee receives a payment
under an Executive Severance Agreement, he is not eligible to receive any
payment under the SESP. The SESP provides that the plan shall not be
terminated or amended to reduce or eliminate the benefits granted to certain
employees, including the Named Officers. The SESP further provides for
additional compensation to the participant if any plan payment is subject to
an excise or similar tax under the Internal Revenue Code.
3) The Company offers retiring executives (including the Named Officers) an
agreement pursuant to which, under certain circumstances, the Company would
be required to pay in a lump sum all amounts otherwise payable periodically
to them under any plan of, or agreement with, the Company. Such lump sum
payment would be made only if, within three years after a "change of
control" (as defined in such agreement), there is a change in two of the top
three executive officers of the Company designated in such agreement. To
date, no such agreements are in effect.
12
- -------------------------------------------------------------------------------
Certain Relationships and Related Transactions
- -------------------------------------------------------------------------------
In connection with the Company's Rights Offering of the Company's Common Stock
which concluded in December of 1994 (the "Rights Offering"), the Company
entered into a Registration Rights Agreement with certain Purchasers and
Investors1, dated as of November 16, 1994, pursuant to which the Company,
subject to certain terms and conditions, granted two demand registration
rights and unlimited piggyback registration rights to the Purchasers and
Investors. Accordingly, the Purchasers and Investors may require the Company
to cause shares of Common Stock beneficially owned by them to be registered
for public sale under the Securities Act. All such registration rights will
terminate on November 16, 2002.
On February 6, 2001, SPS-AAA Aircraft Supply, LLC acquired all of the
outstanding shares of AAA Aircraft Supply, Inc. and changed the name of the
company to AAA Aircraft Supply, LLC ("AAA"). Harry J. Wilkinson, a director of
the Company, is a director and a shareholder of AAA, owning 5% of the AAA
shares. The Company is the majority shareholder of AAA, owning 88.75% of the
AAA shares. In 2001, Mr. Wilkinson received distributions from AAA as follows:
$42,000 on July 27, 2001, and $58,000 on December 18, 2001, for total
distributions in 2001 of $100,000.
- ---------------
(1) Tinicum Enterprises, Inc., Tinicum Investors, RUTCO Incorporated, Tinicum
Foreign Investments Corporation, Tinicum Associates, G.P., Putnam L.
Crafts, Jr. and James H. Kasschau (collectively, the "Purchasers"), and RIT
Capital Partners plc, J. Rothschild Capital Management Limited and St.
James's Place Capital plc (collectively, the "Investors"). See "Ownership
of Voting Securities" for more recent information on the Affiliated Group
as herein defined. Eric M. Ruttenberg, a director of the Company, is an
"Affiliate" (as such term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of certain of the Purchasers.
- -------------------------------------------------------------------------------
Audit Committee Report
- -------------------------------------------------------------------------------
The responsibilities of the Audit Committee of the Board of Directors of the
Company are set forth in the charter of the Audit Committee, which was
approved by the Company's Board of Directors. A copy of the charter is
attached as Appendix I to this Proxy Statement.
As set forth in the charter, the Audit Committee's primary responsibilities
include the following:
o The Committee is charged with monitoring the preparation of quarterly and
annual financial reports by the Company's management, including
discussions with management and the Company's independent accountants
about draft annual financial statements and key accounting and reporting
matters;
o The Committee is responsible for matters concerning the relationship
between the Company and its independent accountants, including
recommending their appointment or removal; reviewing the scope of their
audit services and related fees, as well as any other services being
provided to the Company; and determining whether the independent
accountants are independent (based in part on the annual letter provided
to the Company pursuant to Independence Standards Board Standard No. 1);
and
o The Committee oversees management's implementation of effective systems of
internal controls, including review of policies relating to legal and
regulatory compliance, ethics and conflicts of interests; and review of
the activities and recommendations of the Company's internal audit
program.
The Board has made a determination that the Directors who serve on the Audit
Committee satisfy the requirements of the New York Stock Exchange as to
independence, financial literacy and experience.
The Committee has implemented procedures to ensure that during the course of
each fiscal year it devotes the attention that the Committee deems necessary
or appropriate to each of the matters assigned to it under the Committee's
charter. In carrying out its responsibilities, the Committee met twice during
fiscal 2001.
In overseeing the preparation of the Company's financial statements, the
Committee met with both management and the Company's independent accountants
to review and discuss the financial statements prior to their issuance and to
discuss significant accounting issues. Management advised the Committee that
all financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee discussed the statements with both
management and the independent accountants. The
13
Committee's review included discussion with the independent accountants of
matters required to be discussed pursuant to Statement on Auditing Standards
No. 61 (Communication with Audit Committees).
With respect to the Company's independent accountants, the Committee, among
other things, discussed with PricewaterhouseCoopers LLP matters relating to
its independence, including the written disclosures made to the Committee as
required by the Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees).
Finally, the Committee continued to monitor the scope and adequacy of the
Company's internal audit program, including proposals for adequate staffing
and strengthening internal procedures and controls where appropriate.
On the basis of these reviews and discussions, the Committee recommended to
the Board of Directors that the Board approve the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
In accordance with the rules of the Securities and Exchange Commission, the
foregoing information, which is required by paragraphs (a) and (b) of
Regulation S-K Item 306, shall not be deemed to be "soliciting material" or
"filed" with the Commission or subject to the Commission's regulation 14A,
other than as provided in Item 306, or to the liabilities of section 18 of the
Securities Exchange Act of 1934, except to the extent that the Company
specifically requests that the information be treated as soliciting material
or specifically incorporates it by reference into a document filed under the
Securities Act of 1933, or the Securities Exchange Act of 1934.
Members of the Audit Committee - Eric M. Ruttenberg (Chairman); Richard W.
Kelso; James F. O'Connor, Raymond P. Sharpe and James W. Zug.
- -------------------------------------------------------------------------------
Independent Accountants and Related Fees
- -------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, the Company's independent accountants for the year
2001, have been selected to continue for the year 2002. Representatives of
PricewaterhouseCoopers are expected to be present at the Annual Meeting. They
will be provided the opportunity to make a statement at the meeting if they
desire to do so and to respond to appropriate questions.
The aggregate fees billed to the Company for professional services rendered
for the year 2001 were as follows:
o Audit Fees $454,200
o Financial Information Systems Design
and Implementation Fees None
o All Other Fees $585,331
--------
TOTAL $1,039,531
Audit fees include fees for the audit of the Company's annual financial
statements for the fiscal year ended December 31, 2001, and the reviews of the
financial statements included in the Company's Quarterly Reports on Form 10-Q
for fiscal 2001. "All Other Fees" represents the aggregate fees billed for all
other services rendered by PricewaterhouseCoopers LLP for fiscal 2001,
including advice and compliance services related to actuarial and tax matters.
The Audit Committee of the Board of Directors has determined that the
provision of the services provided by the Company's accountants is compatible
with maintaining the independence of PricewaterhouseCoopers LLP.
14
- -------------------------------------------------------------------------------
Compensation Committee Report on Executive Compensation
- -------------------------------------------------------------------------------
Overview and Philosophy
The Executive Compensation and Stock Option Committee of the Board of
Directors ("Compensation Committee") is composed entirely of outside directors
and is responsible for developing and making recommendations to the Board with
respect to the Company's executive compensation policies. In addition, the
Compensation Committee annually recommends to the full Board the compensation
to be paid to the Chairman, Chief Executive Officer and the President, and
determines the compensation of each of the other executive officers and Group
Presidents of the Company. The Compensation Committee is free to engage and
consult with outside compensation consultants as it sees fit and generally has
access to independent compensation data.
The objectives of the Company's executive compensation program are to:
o Emphasize long-term performance and increases in shareholder value.
o Provide base compensation and benefit levels that are competitive with
those in the markets in which the Company competes for executive
personnel.
o Reward executives for the achievement of short-term and long-term
financial goals and the enhancement of shareholder value.
o Support a performance-oriented environment by providing incentive
compensation that changes in a consistent and predictable way with both
the financial performance of the Company and management performance in
support of strategic objectives.
o Provide a long-term and career-oriented compensation environment.
o Offer meaningful and competitive retirement and supplemental benefits that
are consistent with the Company's objective of retaining key employees.
The executive compensation program provides a compensation package that is
competitive with those offered by similar companies. The Company periodically
reviews the competitive practices of companies in the fabricated metals,
durable goods manufacturing and other industries, as well as with a broader
group of companies of comparable size and complexity. Actual compensation
levels may be greater or less than average competitive levels in surveyed
companies based upon annual and long-term Company performance as well as
individual performance. The Compensation Committee uses its discretion to set
executive compensation at levels warranted in its judgment by external,
internal and individual circumstances.
Executive Officer Compensation
Executive officer compensation is comprised of base salary, annual cash
incentive compensation, long-term incentive compensation in the form of stock
options, long-range cash and restricted share incentive compensation, specific
benefits designed to provide remuneration for career service, and various
benefits, including medical, life insurance and savings plans generally
available to employees of the Company.
o Base Salary
Base salary levels for the Company's executive officers are competitively set
relative to certain companies in the fabricated metals, durable goods
manufacturing and other industries as well as other comparable companies. In
determining salaries, the Compensation Committee also takes into account
individual experience, performance and specific expertise beneficial to the
Company.
o Incentive Compensation
The Company's incentive programs are intended to provide incentives to achieve
financial and individual objectives, and to reward exceptional performance.
The Management Incentive Plan is the Company's annual incentive program for
executive officers and key managers. The purpose of the plan is to provide a
direct
15
financial incentive in the form of an annual cash bonus to executives for the
attainment of annual financial and individual goals. Threshold, target and
maximum goals for total Company and individual business unit performance are
set by the Compensation Committee at the beginning of each fiscal year. The
Long Range Incentive Plan is the Company's three-year incentive program for
executive officers and key managers. The purpose of the Plan is to provide a
direct financial incentive in the form of an annual cash bonus and a
restricted share award under the SPS Restricted Stock Award Plan to executives
for the attainment of long-range financial goals of the Company.
o Equity-Based Compensation
The equity-based compensation component of the Company's executive
compensation program is oriented toward the achievement of increasing
shareholder value over the long term. This component of the program - the SPS
1988 Long Term Incentive Stock Plan - provides for grants of stock options
which align the executives' awards with future shareholder gains. These grants
enable executives to develop and maintain a significant, long-term ownership
position in the Company's Common Stock.
o Executive Benefits
The benefit component of executive compensation is designed to provide
executives with adequate and meaningful retirement benefits which are
reflective of the benefits offered in comparable companies, and which
encourage career-service orientation of the Company's executives. In contrast,
other benefits such as perquisites are rigidly controlled and minimized. The
amount of such perquisites, as determined in accordance with rules of the
Securities and Exchange Commission relating to executive compensation, did not
exceed 10% of salary for fiscal 2001.
Chief Executive Officer Compensation
The compensation of the Chief Executive Officer (CEO) is fixed by the full
Board of Directors (other than the CEO and the President) consistent with the
practices described above. Factors considered by the Board of Directors in
deciding the compensation of the CEO include the CEO's experience, the CEO's
performance and the compensation of chief executive officers at other
comparable companies. Effective January 1, 2002, Mr. Grigg's annual base
salary was changed by the Board of Directors from $617,400 to $300,000. The
Board believes this change is consistent with the transition of the CEO
responsibilities from Mr. Grigg to Mr. Thompson, which will be effective April
30, 2002. For the year 2002, Mr. Grigg has a 60% incentive opportunity under
the Company's Management Incentive Plan and a 50% incentive opportunity under
the Company's Long Range Incentive Plan. Effective January 1, 2002, Mr.
Thompson's annual base salary was increased by the Board of Directors from
$420,000 to $500,000. The Board believes this change is consistent with the
transition of the CEO responsibilities to Mr. Thompson. This amount is also
believed to be competitive with companies of similar size and complexity. For
the year 2002, Mr. Thompson has a 60% incentive opportunity under the
Company's Management Incentive Plan and a 50% incentive opportunity under the
Company's Long Range Incentive Plan.
Members of the Executive Compensation and Stock Option Committee - Raymond P.
Sharpe (Chairman); James F. O'Connor; Eric M. Ruttenberg and James W. Zug.
16
- -------------------------------------------------------------------------------
Common Stock Performance Graph
- -------------------------------------------------------------------------------
The graph set forth below shows the cumulative shareholder return (i.e., price
change plus reinvestment of dividends) of the Company's Common Stock during
the five-year period ended December 31, 2001, as compared to the Standard and
Poor's 500 Index and the Standard and Poor's Diversified Manufacturing Index.
COMPARISON of FIVE-YEAR CUMULATIVE TOTAL RETURN for
SPS, the S&P 500 INDEX and the S&P DIVERSIFIED
MANUFACTURING INDEX
(see NOTES 1 and 2 BELOW)
[graphic]
Notes:
(1) Total return assumes reinvestment of dividends.
(2) The above graph assumes $100 was invested on December 31, 1996 in SPS
Technologies Common Stock, the S&P 500 Index and the S&P Diversified
Manufacturing Index. The values shown in the graph above are as of the end
of each period indicated. Raw data for the S&P 500 Index and S&P
Diversified Manufacturing Index is supplied by S&P.
17
- -------------------------------------------------------------------------------
Proposal to Amend the SPS 1988 Long Term Incentive Stock Plan
- -------------------------------------------------------------------------------
The Board of Directors has reviewed the Company's compensation practices and
the 1988 Long Term Incentive Stock Plan (the "Plan") and has concluded that
the Plan should be amended, subject to approval by the shareholders of the
Company, to increase by 230,000 shares of Common Stock the number of shares
available under the Plan in order to allow the continued granting of options
and restricted share awards.
In determining the recommended number of shares to be approved under this
proposal, the Board of Directors has established an objective of maintaining
the total number of shares under option or available for grant at or below 10%
of the total shares outstanding.
The following discussion summarizes the material features of the Plan, as
amended, and is qualified in its entirety by the Plan document, as amended, a
copy of which will be provided without charge upon written request of any
shareholder directed to the Secretary of the Company.
The Plan permits the grant of options to acquire, or the award of, up to
3,109,634 shares (in the aggregate) of the Company's Common Stock. Of such
amount, an aggregate of 1,883,434 shares have been awarded under the Plan (and
are no longer subject to forfeiture) or have been acquired upon the exercise
of options granted under the Plan, and 1,140,301 shares have been issued under
the Plan but remain subject to forfeiture or are subject to options which have
been granted and remain outstanding under the Plan. Consequently, prior to the
effectiveness of the proposed amendment of the Plan, there were 84,964 shares
available to be awarded or optioned under the Plan. The proposed amendment to
the Plan would increase the number of available shares to 314,964. Shares
which are awarded under the Plan and subsequently forfeited and shares subject
to options granted under the Plan which expire without being exercised may
again be awarded or optioned under the Plan.
The purpose of the Plan is to enable the Company to attract and retain
officers and other key employees, to encourage those employees to increase
their efforts to make the Company and its subsidiaries successful, and to
encourage ownership in the Company by employees and by non-employee directors
whose continued services are considered important to the Company's continued
progress.
Officers, non-employee directors and other key employees of the Company and
its subsidiaries may receive options and restricted share awards under the
Plan. Approximately 109 employees, including 2 employee-directors, and 6 non-
employee directors are currently participating in the Plan.
The Plan is administered by the Executive Compensation and Stock Option
Committee (the "Committee") consisting of four non-employee directors
appointed by the Company's Board of Directors, who are generally not eligible
to receive discretionary grants or awards under the Plan. However, non-
employee directors, including members of the Committee, may elect to receive
discounted options and have received restricted share awards as described
below.
The Committee has authority to interpret the Plan, to establish rules for its
administration, to determine which employees of the Company and its
subsidiaries shall receive options or awards under the Plan, to grant options
and make share awards under the Plan, and, subject to the terms of the Plan,
to establish the terms and conditions of options, discounted options and
restricted share awards.
Awards under the Plan may take the form of fixed price options, variable price
options, incentive stock options or restricted shares. In addition, discounted
options may be issued to non-employee directors who elect to receive such
discounted options in lieu of all or a part of their annual retainers.
Under the Plan, a non-employee director may elect each year to receive
discounted options in lieu of all or part of the director's annual retainer.
Any such election is irrevocable and must be made prior to January 1 of the
year to which such election applies. A non-employee director making such an
election will receive, on June 1 of such year or the next following business
day, a discounted option for that number of whole shares of Common Stock as is
equal to that part of the director's "annual retainer" to be represented by
the option divided by: the result obtained by subtracting (a) the par value of
one share of Common Stock from (b) the fair market value of one share of
Common Stock. Options so issued become exercisable on the first
18
anniversary of the date of issuance, except that such an option can become
exercisable earlier upon the death, disability or retirement of the director.
Upon the termination of service of a non-employee director, any portion of an
option attributable to a portion of the annual retainer which was not "earned"
as of the date of termination is cancelled automatically.
Incentive stock options within the meaning of the Internal Revenue Code of
1986, as Amended (the "Code"), may be awarded to employees of the Company by
the Committee as fixed price options that qualify for the tax treatment
specified under the Code.
A restricted share award consists of shares of Company Common Stock issued
pursuant to an agreement with a participant. Such shares are restricted as to
transfer and subject to forfeiture and other conditions and vesting
restrictions as set forth in the Plan, if applicable or the Committee deems
appropriate on the date of award. Restricted share awards totaling 51,978
shares have been made under the Plan since its inception.
All fixed price options awarded under the Plan have an exercise price equal to
the fair market value of the Company's Common Stock on the date the option is
granted. The option exercise price of a discounted option is the par value of
the Company's Common Stock on the date the option is granted (presently, $0.50
per share). For variable price options, the exercise price is initially set at
the fair market value of the Company's Common Stock on the date the option is
granted, but is subject at the time of exercise to reduction by an amount per
share equal to the per share amount of the tax benefit which will inure to the
Company by reason of such exercise. The exercise price with respect to any
option (other than a discounted option issued to a non-employee director) may
be paid in whole or in part with cash or Common Stock of the Company, as the
Committee may determine. All options expire not more than ten years from the
date of grant.
The Plan provides for restricted share awards to be made to each non-employee
director of the Company. Restricted share awards were made on May 2, 1995,
February 10, 1997 and May 2, 2000, and may be made periodically up to every
five years as the Committee may determine. Each non-employee director shall
receive on each award date the number of shares of Common Stock (to the
nearest whole share) determined by dividing $25,000 by the fair market value
of the Common Stock on the date the award is made. A person becoming a non-
employee director for the first time shall receive restricted share awards
pro-rated based on the length of time remaining until the next scheduled award
date.
All restricted share awards are initially subject to forfeiture should the
participant cease to serve as a director for any reason other than scheduled
retirement, early retirement with the permission of the Board, disability or
death. One fifth of the shares included in a restricted share award cease to
be subject to a risk of forfeiture on the first anniversary of the date of an
award and on each anniversary thereafter, until all shares awarded are no
longer subject to forfeiture. Restricted share awards are held in escrow by
the Company until restrictions lapse.
Options and restricted shares are non-transferable except by will or pursuant
to the laws of descent and distribution.
In the event of certain changes of control of the Company, all options and
restricted shares, other than discounted options issued to non-employee
directors, become immediately vested in full. See "Termination of Employment
and Change of Control Arrangements."
The number of shares under the Plan and the outstanding but unexercised
options or awards still subject to restriction, and the option exercise price,
are all subject to adjustment for changes in the Company's capitalization
under specified circumstances.
The Board may terminate, amend and modify the Plan, but it may not, without
shareholder approval (i) increase the number of shares available under the
Plan (other than by a change in capitalization), (ii) materially increase the
benefits accruing to participants under the Plan, or (iii) materially modify
the requirements as to eligibility for participation under the Plan. No
termination, amendment or modification of the Plan will affect adversely the
rights of a participant under a previous award. If not sooner terminated, the
Plan will expire on March 23, 2009.
19
Tax Consequences
Generally, there will be no tax consequences to the optionee, the restricted
share award recipient or the Company when a stock option is granted or a
restricted share award is made under the Plan. When an option (other than an
incentive stock option) is exercised, the excess of the then fair market value
of the shares over the option price will constitute ordinary income to the
optionee, and the Company will be entitled to deduct an equal amount as
compensation expense. The exercise of an incentive stock option will result in
neither income to the optionee nor a deduction for the Company if the optionee
elects to hold the shares related to the option exercise. However, the amount
by which the fair market value of the underlying Common Stock exceeds the
exercise price on the date of exercise will be treated as an item of tax
preference and included in the computation of the optionee's alternative
minimum taxable income in the year the incentive stock option is exercised.
In addition, if shares acquired through the exercise of an incentive stock
option are sold within one year following exercise, the optionee will
recognize ordinary income and the Company is entitled to deduct from taxable
income an amount equal to the difference between the option price and the
lesser of the market price on the date of exercise or the net proceeds of the
sale. As to restricted shares, upon the lapse of either the vesting or
transferability restrictions (or both if they lapse together), the participant
will recognize ordinary income equal to the then fair market value of the
shares being freed from restriction, and the Company will be entitled to a
corresponding deduction. Alternatively, the participant may elect, within
thirty days after an award of restricted shares, to treat the awarded shares
as non-restricted, thereby causing the recognition of ordinary income upon
award of the shares in an amount equal to the fair market value of such shares
without regard to any restrictions.
The acceleration provisions on a change of control described above could
trigger adverse tax consequences to the Company and participants under
Sections 280G and 4999 of the Code, including a reduction in the Company's tax
deductions and imposition of a nondeductible 20% excise tax on participants.
The foregoing is not a complete summary of income tax consequences upon
participants or the Company. It also does not reflect the effects of foreign,
state or local tax laws or wage withholding requirements.
In the event that the shareholders do not approve the amendment of the Plan,
the amendment will not take effect. The Plan as in effect prior to such
amendment will remain in full force and effect until it expires by its terms
or is terminated by the Board.
The last reported sales price of the Company's Common Stock as reported on the
New York Stock Exchange Composite Tape on March 12, 2002, was $40.42 per
share.
Board Recommendation and Shareholder Vote Required
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO AMEND THE PLAN.
Proxies solicited by the Board of Directors, will, unless otherwise directed,
be voted FOR this proposal. The affirmative vote of a majority of the shares
of Common Stock present or represented at the meeting is necessary to approve
the proposal. Shares held by persons who abstain from voting on the proposal,
and broker "non-votes," will not be voted for or against the proposal but will
have the same effect as votes against the proposal. Shares held by persons
abstaining will be counted in determining whether a quorum is present for the
purpose of voting on the proposal, but broker non-votes will not be counted
for quorum purposes.
20
- -------------------------------------------------------------------------------
Proposals of Shareholders
- -------------------------------------------------------------------------------
Under the Company's By-laws, notice of any proposal to be presented by any
shareholder at a meeting must be received by the Secretary of the Company not
less than 60 days in advance of the meeting. The notice must include the
following:
o Text of the proposal to be presented;
o A brief written statement of the reasons why the shareholder favors the
proposal;
o The name and address of record of the proposing shareholder;
o A representation that the shareholder is entitled to vote at the meeting
and intends to appear at the meeting, in person or by proxy;
o The number of shares of stock beneficially owned by the shareholder; and
o Any material interest of the shareholder in the proposal (other than as a
shareholder).
A copy of the Company's By-laws specifying these requirements will be
furnished to any shareholder without charge upon written request to the
Secretary.
Under the rules of the Securities and Exchange Commission, shareholders
wishing to submit proposals for inclusion in the Proxy Statement of the Board
of Directors for the Annual Meeting of Shareholders to be held in 2003 must
submit such proposals so as to be received at the office of the Secretary, SPS
Technologies, Inc., Two Pitcairn Place, Suite 200, 165 Township Line Road,
Jenkintown, PA 19046, no later than November 26, 2002. The Company's ability
to exercise discretionary voting authority with respect to shareholder
proposals will be subject to certain requirements of the Securities and
Exchange Commission.
By order of the Board of
Directors,
James D. Dee
Secretary
April 1, 2002
- -------------------------------------------------------------------------------
Upon written request to the Secretary, SPS Technologies, Inc., Two Pitcairn
Place, Suite 200, 165 Township Line Road, Jenkintown, PA 19046, the Company
will provide, without charge, to any shareholder solicited hereby, a copy of
its Annual Report on Form 10-K, including the financial statements and the
schedules thereto.
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21
APPENDIX I
SPS Technologies, Inc.
Audit Committee Charter
Membership
The Committee shall be comprised of not less than three members of the Board
and the Committee's composition will meet the requirements of the Audit
Committee Policy of the New York Stock Exchange.
Accordingly, all of the members will be directors:
1. Who have no relationship to the Company that may interfere with the exercise
of their independence from management and the Company; and
2. Who are financially literate or who become financially literate within a
reasonable period of time after appointment to the Committee. In addition,
at least one member of the Committee will have accounting or related
financial management expertise.
Key Responsibilities
The Audit Committee shall have the duty of monitoring the financial affairs of
the Company and maintaining a direct line of communication between the Board
of Directors and the Company's independent accountants, and, in discharge of
such duties, shall:
1. Select, evaluate and, where appropriate, replace the outside auditors (the
outside auditors are ultimately accountable to the Board of Directors and
Audit Committee);
2. Review with management and the outside auditors the audited financial
statements to be included in the Company's Annual Report on Form 10-K (or
the Annual Report to Shareholders if distributed prior to the filing of Form
10-K) and review and consider with the outside auditors the matters required
to be discussed by Statement of Auditing Standards ("SAS") No. 61;
3. Ensure that the outside auditors submit on a periodic basis to the Audit
Committee a formal written statement delineating all relationships between
the auditors and the Company, and then discussing the impact of those
relationships on the auditors' independence;
4. Evaluate the scope of the audit to be performed;
5. From time to time review the Company's system of internal control and report
thereon to the Board;
6. Review proposed major changes to accounting policy;
7. Review the adequacy of this Charter annually and recommend any proposed
changes to the Board for approval; and
8. Perform such other duties and make such other recommendations as it shall
deem necessary or appropriate to discharge its duties.
The Audit Committee shall keep regular minutes of its proceedings and shall
cause a copy thereof to be submitted to the Board of Directors at its regular
meeting immediately following any meeting of the Audit Committee.
A-1
[LOGO] SPS TECHNOLOGIES, INC.
PROXY
Jenkintown, PA 19046
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints John S. Thompson and
William M. Shockley or either of them, proxies, with full power of substitution,
to represent and to vote as specified on the reverse side hereof all of the
shares of Common Stock that the undersigned would be entitled to vote if
personally present at the Annual Meeting of Shareholders of SPS Technologies,
Inc. to be held at 17 Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania in the Forum Room (eighth floor), on Tuesday, April 30, 2002, at
10:00 a.m., local time, and any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED,
WILL BE VOTED FOR THE NOMINEES FOR DIRECTOR, AND FOR THE PROPOSAL TO APPROVE AN
AMENDMENT TO THE SPS 1988 LONG TERM INCENTIVE STOCK PLAN IN THE MANNER STATED IN
THE PROXY STATEMENT.
Please mark, sign and date this proxy card on the reverse side hereof and
return it promptly using the enclosed envelope.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Please mark
|X| your votes as
indicated in
this example
1. ELECTION OF DIRECTORS:
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Nominees:
CLASS III: 01 Eric M. Ruttenberg, 02 John S. Thompson and
03 Harry J. Wilkinson
VOTE FOR WITHHOLD
all nominees listed AUTHORITY
(except as marked to to vote for all
the contrary) nominees listed
|_| |_|
DISCRETION IS GRANTED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE SPS 1988 LONG TERM INCENTIVE
STOCK PLAN.
FOR AGAINST ABSTAIN
|_| |_| |_|
The Board of Directors recommends a vote FOR this proposal.
The undersigned hereby revokes any proxy heretofore given for said meeting and
ratifies and confirms all that the name proxies shall do by virtue hereof. The
undersigned has received the Notice of said meeting including the Proxy
Statement and the 2001 Annual Report.
Please sign exactly as name appears hereon. 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.
Signature_____________________ Signature_____________________ Date________, 2002
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT TO US. PLEASE COMPLETE, DATE AND SIGN THE
ABOVE PROXY CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
[LOGO]
SPS TECHNOLOGIES, INC.
Savings and Investment Plan
Voting Instruction Card for 2002 Annual Meeting
Solicited on Behalf of the Board of Directors of SPS Technologies, Inc.
This is a ballot for voting the shares of SPS Technologies, Inc. Common
Stock held in your SPS Technologies, Inc. Savings and Investment Plan account.
Please complete the card and return it in the envelope provided. Vanguard
Fiduciary Trust Company, as Trustee of the Plan, will vote all shares held in
your account as directed on the card at the Annual Meeting of Shareholders of
SPS Technologies, Inc. to be held on April 30, 2002.
Indicate your voting instructions for each proposal on the card, sign and
date it, and return it in the envelope provided. Your card must be received on
or before April 19, 2002 in order to be counted. Your voting instructions will
be kept confidential.
If you properly sign and return your card, the Trustee will vote your
shares according to your instructions. If you fail to provide voting
instructions, the Trustee will vote your shares "FOR" the nominees for director
and "FOR" the proposal to approve an amendment to the SPS 1988 Long Term
Incentive Stock Plan as recommended by the Board of Directors.
If you do not properly sign and return your card, the Trustee will not
vote your shares.
Please vote, date and sign on the reverse side.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
|X| Please mark
your votes as
indicated in
this example
1. ELECTION OF DIRECTORS:
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
Nominees:
CLASS III: 01 Eric M. Ruttenberg, 02 John S. Thompson and
03 Harry J. Wilkinson
VOTE FOR WITHHOLD
all nominees listed AUTHORITY
(except as marked to to vote for all
the contrary) nominees listed
|_| |_|
DISCRETION IS GRANTED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY
COME BEFORE THE MEETING
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE SPS 1988 LONG TERM INCENTIVE
STOCK PLAN.
FOR AGAINST ABSTAIN
|_| |_| |_|
The Board of Directors recommends a vote FOR this proposal.
Please sign EXACTLY as your name appears at left.
Signature________________________________________________ Date____________, 2002
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT TO US. PLEASE COMPLETE, DATE AND SIGN THE
ABOVE PROXY CARD AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.