Sypris Solutions DEF 14A 2006
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Sypris Solutions, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice of 2006 Annual Meeting
SYPRIS SOLUTIONS, INC.
101 Bullitt Lane, Suite 450
Louisville, Kentucky 40222
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
John R. McGeeney
General Counsel and Secretary
March 24, 2006
TABLE OF CONTENTS
We are providing these proxy materials in connection with the solicitation by the Board of Directors of Sypris Solutions, Inc. of proxies to be voted at our 2005 Annual Meeting of Stockholders, and at any postponement or adjournment thereof. In this Proxy Statement, we refer to Sypris Solutions, Inc. as Sypris, Sypris Solutions, we, our or the Company.
You are cordially invited to attend the Annual Meeting on May 2, 2006, beginning at 10:00 a.m. EDT. The Annual Meeting will be held at 101 Bullitt Lane, Lower Level Seminar Room, Louisville, Kentucky 40222.
We are first mailing this Proxy Statement and accompanying forms of proxy and voting instructions on or about March 24, 2006, to holders of our Common Stock at the close of business on March 9, 2006, the Record Date for the Annual Meeting.
Proxies and Voting Procedures
Your vote is important. Because many stockholders cannot attend the Annual Meeting in person, it is necessary that a large number of stockholders be represented by proxy. Most stockholders have a choice of voting over the Internet, using a toll-free telephone number or completing a proxy card and mailing it in the postage-paid envelope provided. Please refer to your proxy card or the information forwarded by your bank, broker or other nominee to see which options are available to you. Please be aware that if you vote over the Internet, you might incur costs such as telephone and Internet access charges for which you will be responsible. The Internet and telephone voting facilities for eligible stockholders of record will close at 11:59 p.m. EDT on May 1, 2006.
You can revoke your proxy at any time before it is exercised by timely delivery of a properly executed, later-dated proxy (including an Internet or telephone vote) or by voting by ballot at the Annual Meeting.
In order to vote over the Internet or via telephone, stockholders must have their voting form in hand and call the number or go to the website identified on the enclosed form and follow the instructions to vote on the Internet or via telephone.
The method by which you vote will in no way limit your right to vote at the Annual Meeting if you later decide to attend in person. If your shares are held in the name of a bank, broker or other nominee, you must obtain a proxy, executed in your favor, from the holder of record, to be able to vote in person at the Annual Meeting.
All shares entitled to vote and represented by properly completed proxies received prior to the Annual Meeting, and not revoked, will be voted at the Annual Meeting in accordance with your instructions. If you do not indicate how your shares should be voted on a matter, the shares represented by your properly completed proxy will be voted as the Board of Directors recommends.
If any other matters are properly presented for consideration at the Annual Meeting, including, among other things, consideration of a motion to adjourn the meeting to another time or place in order to solicit additional
proxies in favor of the recommendations of the Board of Directors, the persons named as proxies and acting thereunder will have discretion to vote on those matters according to their best judgment to the same extent as the person delivering the proxy would be entitled to vote. At the date this Proxy Statement went to press, we did not anticipate that any other matters would be raised at the Annual Meeting.
Stockholders Entitled to Vote
Stockholders of Sypris Common Stock at the close of business on the Record Date are entitled to notice of and to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote on each matter properly brought before the meeting. Stockholders do not have the right to cumulate their votes in the election of directors.
On the Record Date, March 9, 2006, there were 18,274,308 shares of Sypris Common Stock outstanding. A list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting and for 10 days prior to the Annual Meeting at the Companys offices at 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222, between the hours of 8:30 a.m. and 5:30 p.m. local time.
The presence, in person or by proxy, of the holders of a majority of the shares entitled to vote is necessary to constitute a quorum at the meeting for the election of directors. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining whether a quorum exists. A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner.
As of the Record Date, the Gill family beneficially owned an aggregate of 8,640,111 shares or 46.7% of the Companys outstanding Common Stock. For further information on ownership of Common Stock by the Gill family, see Stock Ownership of Certain Beneficial Owners.
Multiple Stockholders Sharing the Same Address
In accordance with a notice sent to eligible stockholders who share a single address by one or more banks, brokers or nominees with accountholders who are Sypris stockholders, those stockholders will receive only one Annual Report and Proxy Statement at that address. This practice, known as householding, is designed to reduce printing and postage costs. However, if a stockholder residing at such an address wishes to receive a separate Annual Report or Proxy Statement in the future, he or she may contact the bank, broker or nominee directly or contact Sypris at 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222 or at 502-329-2000. If you own your shares through a bank, broker or other nominee, and you are receiving multiple copies of our Annual Report and Proxy Statement, you can request householding by contacting the bank, broker or nominee.
Cost of Proxy Solicitation
Sypris will pay the cost of soliciting proxies. Sypris may reimburse brokerage firms and other persons representing beneficial owners of shares for expenses incurred in forwarding solicitation materials to such beneficial owners. Proxies may be solicited on behalf of the Company by directors, officers or employees of the Company, without additional compensation, in person or by telephone, facsimile or other electronic means.
Board of Directors
Our Board of Directors has adopted the Sypris Solutions, Inc. Guidelines on Corporate Governance (the Guidelines) to address significant corporate governance issues. The Guidelines provide a framework for the Companys corporate governance initiatives and cover topics including, but not limited to, Board of Director and Committee composition and operation, director compensation and stock ownership requirements, and director tenure. The Nominating and Governance Committee is responsible for overseeing and reviewing the Guidelines on a regular basis, and reporting any recommended changes to the Board of Directors. On December 14, 2005, pursuant to a recommendation by the Nominating and Governance Committee, the Board of Directors amended the Guidelines to align the valuation of director holdings for director stock ownership requirements with the determination used for the stock holding requirements of the Companys officers. A current copy of the Guidelines is available on the Companys website at www.sypris.com.
During 2005, the Board of Directors held six meetings, and the Committees held sixteen meetings. All directors attended at least 75% of the Board meetings and meetings of Committees of which they are members. Although the Company does not have a formal policy regarding attendance by members of the Board of Directors at the Companys Annual Meeting of Stockholders, more than a majority of the directors have attended all Annual Meetings. Eight of nine directors attended the 2005 Annual Meeting.
The Board of Directors has determined that John F. Brinkley, William G. Ferko, Henry F. Frigon, William L. Healey, Sidney R. Petersen and Robert Sroka are independent directors, as such term is defined in NASD Rule 4200(a)(15).
In December 2005, the Board of Directors appointed William G. Ferko to serve a one-year term as Lead Independent Director. In this capacity, Mr. Ferko has frequent contact with our management, consulting with our executive officers and others on a broad range of matters. Mr. Ferko, as Lead Independent Director, presides over periodic independent sessions of the Board of Directors in which only independent directors participate. Stockholders and other parties interested in communicating directly with the Lead Independent Director or with the independent directors as a group may do so by writing Lead Independent Director, Sypris Solutions, Inc., 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222.
Communications with Stockholders
Our Board of Directors welcomes communications from our stockholders. Stockholders may send communications to the Board of Directors, or to any director in particular, c/o Sypris Solutions, Inc., 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222. Any correspondence addressed to the Board of Directors, or to any director in particular, in care of the Company, is forwarded by us to the addressee, without review by management.
Committees of the Board of Directors
During 2005, the Board of Directors had four ongoing Committees: the Audit and Finance Committee, the Compensation Committee, the Executive Committee and the Nominating and Governance Committee.
The current members of the Audit and Finance Committee are Sidney R. Petersen (Chairman), William G. Ferko and Robert Sroka. During 2005, the Audit and Finance Committee met seven times.
The current members of the Compensation Committee are Henry F. Frigon (Chairman), Sidney R. Petersen, Robert Sroka and John F. Brinkley, who was appointed to this Committee by the Board of Directors upon his election to the Board in April 2005. During 2005, the Compensation Committee met six times.
The current members of the Executive Committee are Robert E. Gill (Chairman), Henry F. Frigon, Jeffrey T. Gill and R. Scott Gill. During 2005, the Executive Committee held no meetings and took actions via unanimous written consent on two occasions.
The current members of the Nominating and Governance Committee are William G. Ferko (Chairman), Henry F. Frigon and John F. Brinkley, who was appointed to this Committee by the Board of Directors upon his election to the Board in April 2005. William L. Healey served on the Nominating and Governance Committee until April 2005. During 2005, the Nominating and Governance Committee met three times.
Audit and Finance Committee
The Audit and Finance Committee currently consists of three directors, each of whom satisfies the independence requirements set forth in NASD Rule 4200(a)(15) and Rule 10A-3(b)(1) promulgated under the Securities Exchange Act of 1934, as amended. In addition, the Audit and Finance Committee, composed of the directors named in the preceding section, satisfies the requirements of NASD Rule 4350(d)(2). The Board of Directors has also determined that Sidney R. Petersen qualifies for and currently serves as the Committees financial expert for purposes of Item 401(h) of Regulation S-K promulgated by the SEC. The functions of the Audit and Finance Committee are described below under the heading Audit and Finance Committee Report. The Audit and Finance Committee operates pursuant to a formal written charter that sets out the functions that this Committee is to perform. The Audit and Finance Committee reviews and reassesses the adequacy of the Audit and Finance Committee Charter on an annual basis. The Audit and Finance Committee Charter is attached as Exhibit A to this Proxy Statement.
The Compensation Committee currently consists of four directors, each of whom has no financial or personal ties to the Company (other than director compensation and equity ownership as described in this Proxy Statement) and meets the NASD standard for independence set forth in NASD Rule 4200(a)(15). The functions of the Compensation Committee include administering management incentive compensation plans, establishing the compensation of officers and reviewing the compensation of directors. The Compensation Committee operates pursuant to a formal written charter that sets out the functions that this Committee is to perform. The Compensation Committee reviews and reassesses the adequacy of the Compensation Committee Charter on an annual basis. A current copy of the Compensation Committee Charter is available on the Companys website at www.sypris.com.
The Executive Committee currently consists of four directors. The functions of the Executive Committee include exercising the duties of the full Board of Directors when and if necessary between regular meetings of the Board of Directors. The Executive Committee possesses all of the power of the full Board of Directors, except for certain powers under Delaware law which can only be exercised by the full Board. The Executive Committee operates pursuant to a formal written charter setting out the functions that this Committee is to perform. A current copy of the Executive Committee Charter is available on the Companys website at www.sypris.com.
Nominating and Governance Committee
The Nominating and Governance Committee currently consists of three directors, each of whom satisfy the independence requirements set forth in NASD Rule 4200(a)(15). The functions of the Nominating and Governance Committee include recommending nominees to the Board of Directors for election as directors of the Company, and evaluating the performance and effectiveness of the Board of Directors, including a periodic assessment of the effectiveness of each of the directors. The Nominating and Governance Committee also makes recommendations to the Board of Directors from time to time as to matters of corporate governance.
The Nominating and Governance Committee employs an independent director profile to describe the process by which candidates for inclusion in the Companys recommended slate of independent director nominees may be selected. The Nominating and Governance Committee takes a number of attributes into account during the nomination process, including an individuals demonstrated leadership, maturity and public company experience. The Nominating and Governance Committee also places a value on building a diversity of viewpoints on the Board. In addition, the Nominating and Governance Committee will consider an individuals integrity and commitment, as well as the candidates experience in our core market industries, certain targeted knowledge areas, complex multi-industry and/or technological areas and growth manufacturing or service operations.
All nominees for election at this Annual Meeting of Stockholders, except John F. Brinkley, were previously elected by stockholders. Mr. Brinkley, a nominee for election by stockholders at this Annual Meeting, joined the Board of Directors effective April 26, 2005 to fill the vacancy created by the 2005 death of long-time independent director Roger W. Johnson. Mr. Brinkley came to the attention of the Nominating and Governance Committee through a recommendation by management. Utilizing the independent director profile and selection process identified above, the Nominating and Governance Committee recommended that the Board of Directors elect Mr. Brinkley to the Board.
To date, the Nominating and Governance Committee has not engaged third parties to identify or evaluate potential director candidates. Currently, the Company does not seek or accept director nominations recommended by security holders (other than those directors who are also security holders, acting in their capacity as directors), and has not received any such nominations by any non-director security holders to date.
The Nominating and Governance Committee operates pursuant to a formal written charter that sets out the functions that this Committee is to perform. The Nominating and Governance Committee reviews and reassesses the adequacy of the Nominating and Governance Committee Charter on an annual basis. A current copy of the Nominating and Governance Committee Charter is available on the Companys website at www.sypris.com.
Compensation of Directors
Non-employee directors (John F. Brinkley, William G. Ferko, Henry F. Frigon, R. Scott Gill, William L. Healey, Sidney R. Petersen and Robert Sroka) receive an annual retainer of $24,000, a fee of $1,500 for attending each meeting of the Board of Directors ($300 if attendance was by phone), $1,500 for acting in the capacity of Chairman for each Committee meeting ($300 if attendance was by phone) and a fee of $1,000 for other non-employee directors attending each Committee meeting ($300 if attendance was by phone). Committee fees are earned regardless of whether Committee meetings are held on the same date as a Board of Directors meeting date. On March 1, 2005, the Board of Directors increased the annual retainer from $19,000 to $20,000 and increased the Committee Chair fee from $1,400 to $1,500. On March 2, 2006, the Board of Directors increased the annual retainer from $20,000 to $24,000 and increased the board meeting attendance fee from $1,450 to $1,500.
Non-employee directors may elect to receive their annual retainer and meeting fees in the form of stock options. The number of stock options is determined by dividing the annual retainer and fee amount, as applicable, by 33% of the fair market value of Common Stock on the date of grant. During 2005, John F. Brinkley, William G. Ferko, Sidney R. Petersen and Robert Sroka elected to receive their annual retainer and meeting fees in the form of stock options, and a total of 43,893 options were granted to these non-employee directors in payment of director fees. Non-employee directors receive grants of stock options in the amount of 10,000 shares upon their initial election as a director and receive annual grants in the amount of 6,000 shares for each year thereafter that they continue to serve as a director. On April 26, 2005, John F. Brinkley was granted an option to purchase 10,000 shares upon his initial election to the Board. On January 1, 2005, William G. Ferko was granted an option to purchase 10,000 shares upon his initial election to the Board of Directors, and he was granted a pro-rated amount of 2,362 shares following last years Annual Meeting on April 26, 2005. All other non-employee directors were granted an option to purchase 6,000 shares following last years Annual Meeting on April 26, 2005. Additionally, non-employee directors received their 2006 annual service grant of 6,000 shares on December 31, 2005. The Board of Directors approved the acceleration of the payment of the annual service grant primarily to avoid recognizing compensation expense in the Companys statements of operations upon the Companys adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006. Options are granted to non-employee directors at fair market value on the date of grant, are immediately exercisable and have a 10-year term. During 2005, Robert Sroka exercised 7,237 shares at a weighted average exercise price per share of $4.28 per share.
All directors are reimbursed for travel and related expenses for attending Board and Committee meetings. Directors who are employees of Sypris or its affiliates are not eligible to receive compensation for services as a director. We provide non-employee directors with travel accident insurance when on Company business.
Compensation Committee Interlocks And Insider Participation
Our Compensation Committee is composed of Henry F. Frigon (Chairman), John F. Brinkley, Sidney R. Petersen, and Robert Sroka. We are unaware of any relationships during 2005 among our officers and directors which would require disclosure under this caption.
Occasionally, we may have employees who are related to our executive officers. We compensate these individuals consistently with our policies that apply to all employees. During 2005, a named executive officers son was employed by a subsidiary of the Company at an annual compensation which exceeded $60,000.
Code of Business Conduct
We have a corporate responsibility and compliance program which includes a written code of business conduct. We require all employees, including all officers and senior level executives, to adhere to our code of business conduct in addressing the legal and ethical issues encountered in conducting their work. The code of business conduct requires each of our employees to avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest, fair and ethical manner and otherwise act with integrity. Our employees are required to certify that they have received a copy of the code of business conduct and have been provided with training on the code of business conduct and their related legal obligations. Employees are required to report any conduct they believe to be an actual or apparent violation of the code of business conduct or other Company policies and procedures. The code of business conduct details the procedures for confidential and anonymous reporting by employees and emphasizes our policy of non-retaliation. Our code of business conduct can be found on our corporate website at www.sypris.com. The information on our website is not part of this Proxy Statement and is not soliciting material.
Ernst & Young LLP has served as the Companys independent public accountants and auditors since and including the fiscal year ended December 31, 1989. Although the Audit and Finance Committee has not yet completed its process for selecting the independent public accountant and auditor for the Company with respect to its 2006 financial statements, the Audit and Finance Committee has approved the interim engagement of Ernst & Young LLP to perform audit and audit-related services with respect to 2006. The Audit and Finance Committees selection process includes consideration of the following factors: history of and reputation for thoroughness, accuracy, excellence and integrity; reasonableness of fees; continuity of experience with the Companys business, internal controls and accounting issues; and independence. The Audit and Finance Committee has approved the fees described below for non-audit services for 2005 and believes such fees are compatible with the independence of Ernst & Young LLP.
Representatives of Ernst & Young LLP will be present at the Annual Meeting. They will be given an opportunity to make a statement if they desire to do so, and they will be available to respond to appropriate questions after the meeting.
Fees Billed by Ernst & Young LLP
Audit and Non-Audit Fees
The following table presents fees billed for professional audit services rendered by Ernst & Young LLP for the audit of the Companys annual financial statements for the years ended December 31, 2005 and 2004 and fees billed for other services rendered by Ernst & Young LLP during those periods.
Policy on Audit and Finance Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor
The Audit and Finance Committees policy is to pre-approve all audit and non-audit services provided by the independent public accountants and auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent public accountants and auditors and management are required to periodically report to the full Audit and Finance
Committee regarding the extent of services provided by the independent public accountants and auditors in accordance with this pre-approval, and the fees for the services performed to date. None of the services provided by the independent public accountants and auditors under the categories Audit-Related, Tax and All Other Fees described above were approved by the Audit and Finance Committee pursuant to the waiver of pre-approval provisions set forth in Rule 2-01(c) of Regulation S-X.
AUDIT AND FINANCE COMMITTEE REPORT
The Audit and Finance Committee met with management periodically during the year to consider the adequacy of the Companys internal controls and the objectivity of its financial reporting. The Audit and Finance Committee discussed these matters with the Companys independent public accountants and auditors and with appropriate Company financial personnel. The Audit and Finance Committee also discussed with the Companys senior management and independent public accountants and auditors the processes used to support the certifications by the Companys chief executive officer and chief financial officer, which are required by the Securities and Exchange Commission and the Sarbanes-Oxley Act of 2002 for certain of the Companys filings with the Securities and Exchange Commission.
The Audit and Finance Committee met privately with both the independent public accountants and auditors and Company financial personnel, each of whom has unrestricted access to the Audit and Finance Committee.
The Audit and Finance Committee appointed Ernst & Young LLP as the independent public accountants and auditors for the Company in 2005 after reviewing the firms performance and independence from management, among other factors. The Audit and Finance Committee also concluded after a preliminary investigation that it was not advisable during 2005 to initiate a formal process for soliciting competitive proposals.
Management has primary responsibility for the Companys financial statements and the overall reporting process, including the Companys system of internal controls. Ernst & Young LLP, the Companys independent public accountants and auditors, are responsible for performing an independent audit of the Companys financial statements in accordance with generally accepted auditing standards and expressing an opinion on the conformity of those audited financial statements in accordance with U.S. generally accepted accounting principles. Ernst & Young LLP is also responsible for performing an audit of managements assessment in accordance with the standards of the United States Public Company Accounting Oversight Board and expressing an opinion on managements assessment that the Company maintained effective internal control over financial reporting based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Audit and Finance Committee is responsible for monitoring and overseeing these processes.
The Audit and Finance Committee reviewed with management and Ernst & Young LLP the Companys audited financial statements and met separately with both management and Ernst & Young LLP to discuss and review those financial statements and reports prior to issuance. Management has represented, and Ernst & Young LLP has confirmed, to the Audit and Finance Committee that the financial statements were prepared in accordance with U.S. generally accepted accounting principles.
The Audit and Finance Committee received from and discussed with Ernst & Young LLP the written disclosure and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees). These items relate to that firms independence from the Company. Ernst & Young LLP has confirmed by letter that, in its professional judgment, it is independent of the Company.
The Audit and Finance Committee also discussed with Ernst & Young LLP matters required to be discussed by the Statement on Auditing Standards No. 61 (Communication with Audit Committees) of the Auditing
Standards Board of the American Institute of Certified Public Accountants to the extent applicable. These items relate to the scope and results of their audit of the Companys financial statements.
The Audit and Finance Committee discussed with management and Ernst & Young LLP the quality and adequacy of the Companys internal controls and the overall quality of the Companys financial reporting. The Audit and Finance Committee specifically addressed with management and Ernst & Young LLP, managements annual report regarding the effectiveness of the Companys system of internal controls over financial reporting, managements ongoing responsibilities for establishing and maintaining an adequate system, managements evaluation of any significant deficiencies or material weaknesses in that system, managements process for evaluating the effectiveness of such internal controls and the framework that was used to evaluate the effectiveness of the system. Management has represented, and Ernst & Young LLP has confirmed, to the Audit and Finance Committee that the Company maintained, in all material respects, effective internal control over financial reporting based on the COSO criteria as of December 31, 2005.
The Audit and Finance Committee reviewed with Ernst & Young LLP and pre-approved their proposed audit plans, audit scope, identification of audit risks and fees. The Audit and Finance Committee also reviewed and pre-approved all non-audit services performed by Ernst & Young LLP and discussed with the independent public accountants and auditors their independence.
In reliance on the reviews and discussions referred to above, the Audit and Finance Committee recommended to the Board of Directors (and the Board of Directors has approved) that the Companys audited financial statements be included in the Companys Annual Report on Form 10-K for the year ended December 31, 2005.
Sidney R. Petersen (Chairman)
William G. Ferko
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes with terms that expire at successive annual meetings. Three Class I directors will be elected at the Annual Meeting to serve for a three-year term expiring at our annual meeting in 2009 or until their successors have been elected and qualified, or until the earliest of their death, resignation or retirement. After many years of service on our Board, long-time independent director Henry F. Frigon, a Class I director whose term expires at this Annual Meeting, has determined not to stand for re-election at this Annual Meeting. Mr. Frigon has not communicated to the Company or the Board of Directors that his decision not to stand for re-election is based on any form of dispute or disagreement with the Company on any matter relating to its operations, policies or practices. Nominee John F. Brinkley was elected to the Board of Directors on April 26, 2005 as a Class II director to fill the vacancy created by the death of Roger W. Johnson in 2005. On March 2, 2006, the Board voted to reclassify Mr. Brinkley as a Class I director to serve until this Annual Meeting and to stand for election by stockholders at this Annual Meeting.
Our Nominating and Governance Committee is evaluating whether to fill the vacancy on the Board of Directors resulting from Mr. Frigons decision not to stand for re-election. Although it will not be possible for any such replacement to be included in this Proxy Statement, it is possible that, before the 2007 Annual Meeting, another candidate could be appointed by the Board of Directors to fill the vacancy, to serve as a Class II director of the Company with a term expiring in 2007.
We expect each nominee for election as a director at the Annual Meeting to be able to serve if elected. If any nominee is unable to serve, proxies will be voted in favor of the remainder of those nominees and for such substitute nominee as may be selected by the Board of Directors. The persons named as proxies in the accompanying form of proxy have advised us that at the Annual Meeting, unless otherwise directed, they intend to vote the shares covered by the proxies for the election of the nominees named below. The persons named as proxies may not vote for a greater number of persons than the number of nominees named below.
The Board of Directors has nominated John F. Brinkley, Robert E. Gill and William L. Healey to be elected at the Annual Meeting as Class I directors whose terms will expire in 2009.
Set forth below are the principal occupation and certain other information regarding the nominees and the other directors whose terms of office will continue after the Annual Meeting.
Vote Required and Recommendation of the Board of Directors
Nominees receiving the greatest number of votes duly cast for the election of directors will be elected. Abstentions and broker non-votes are not counted as votes cast for purposes of, and therefore will have no impact as to, the election of directors. The Board of Directors recommends a vote FOR the election of the above-named nominees as Class I directors.
CLASS I DIRECTOR NOMINEES FOR TERMS EXPIRING IN 2009
CLASS II DIRECTORS WHOSE TERMS WILL EXPIRE IN 2007
CLASS III DIRECTORS WHOSE TERMS WILL EXPIRE IN 2008
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning the beneficial ownership of our Common Stock as of March 9, 2006 for (a) each director and nominee for director of the Company; (b) each person who is known by us to own 5% or more of our Common Stock; (c) the person who in 2005 was the President and Chief Executive Officer of the Company; (d) the four other most highly compensated executive officers named in the Summary Compensation Table; and (e) the directors and executive officers as a group. Except as otherwise noted, the persons named in the table have sole voting and investment power with respect to such securities.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons who beneficially own more than 10% of Sypris Common Stock to file reports of holdings and transactions in Sypris stock with the Securities and Exchange Commission. Based on our information, we believe that all Section 16(a) Securities and Exchange Commission filing requirements applicable to our directors, officers and other beneficial owners for 2005 were timely met, except for the reporting of one sale transaction by each of Henry F. Frigon and Robert Sroka that were omitted from otherwise timely filed Form 4 filings reflecting a series of sale transactions, in each case due to transaction information omissions from the brokers. The required transactions were subsequently reported on Form 4.
The graph below shows a comparison of cumulative total stockholder returns for Sypris, calculated on a dividend reinvestment basis, from December 31, 2000 through December 31, 2005. The Companys Common Stock is traded on the Nasdaq National Market under the symbol SYPR. In the performance graph, the cumulative total stockholder return of the Company is compared to the Russell 2000 Index and the S&P SmallCap 600 Index. The S&P SmallCap 600 Index has been selected as a basis of comparison since Sypris believes the S&P SmallCap 600 Index appropriately tracks the performance of multi-industry businesses at its level of market capitalization.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG SYPRIS SOLUTIONS, INC., THE S&P SMALLCAP 600 INDEX
AND THE RUSSELL 2000 INDEX
*$100 invested on 12/31/00 in stock or index-including reinvestment of dividends. Values are as of December 31.
Sypris Solutions, Inc.
Proxy Performance Graph
Year Ended 12/31/05
Executive officers of the Company are appointed by the Board of Directors and serve at the discretion of the Board of Directors. Set forth below are the ages, positions and certain other information regarding the executive officers of the Company.
The following table sets forth information concerning total compensation earned or paid to the President and Chief Executive Officer and the four other most highly compensated executive officers of the Company who served in such capacities as of December 31, 2005 (the named executive officers) for services rendered to the Company during each of the past three fiscal years.
SUMMARY COMPENSATION TABLE
* T. Scott Hatton, Vice President and Chief Financial Officer of the Company, and Robert B. Sanders, Group Vice President of the Company and President of Sypris Electronics, LLC, were not employed with the Company for the full year 2005 and would have been included in the Summary Compensation Table had they been employed for the full period. It is expected that both individuals will be included in the Summary Compensation Table for 2006.
The following table sets forth information with respect to option grants to the named executive officers during 2005.
OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information with respect to stock option exercises during 2005 by each of the named executive officers and the value of their unexercised options at December 31, 2005:
OPTION VALUES ON DECEMBER 31, 2005
Acceleration of Option Vesting
During 2005, the Board of Directors approved resolutions accelerating the vesting and exercisability of all outstanding, unvested stock options granted to employees with an exercise price equal to or greater than $9.83 per share. The accelerated vesting actions affected options for 697,923 shares of the Companys common stock. The decision to accelerate vesting of these underwater stock options was made primarily to avoid recognizing compensation expense in the Companys statements of operations upon the Companys adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.
DEFINED BENEFIT PENSION PLAN
The Companys subsidiary, Sypris Technologies, Inc., maintains the Sypris Technologies, Inc. Retirement Plan for Salaried and Non-Bargaining Unit Employees, a defined benefit pension plan that covers employees whose wages and conditions of employment are not determined by a collective bargaining agreement. Employees hired on or after June 18, 1995 are not eligible to participate in the plan. Effective January 1, 2003, accrued benefits for highly compensated employees were frozen under the plan. Benefits under the plan are based primarily on a participants years of service and average earnings. Average compensation is based on average monthly compensation during the 60 calendar months of employment, out of the last 120 consecutive months of employment prior to retirement or termination, during which the employee had the greatest aggregate amount of compensation. John M. Kramers plan benefit, frozen effective January 1, 2003, payable at the normal retirement age of 65, is $59,011.
COMPENSATION COMMITTEE REPORT
The Compensation Committee (the Committee) establishes the compensation principles that serve to guide the design of compensation plans and programs applicable to employees at all levels of the Company. The Compensation Committee also reviews the performance of the President and Chief Executive Officer and the other executive officers and determines appropriate compensation levels for each officer, having considered current survey data regarding the amounts and types of compensation offered for similar positions. The Committee also oversees the administration of the retirement savings and other benefit plans maintained by the Company. The Committee is composed entirely of independent members of the Board of Directors.
The Committees philosophy is to provide a compensation package that attracts, motivates and retains the highly talented individuals Sypris needs to provide outstanding products and services to its customers whose performance is critical to the long-term success of the Company. Specifically, the objectives of the Committees compensation practices are to:
The Committee compares the key elements of the Companys executive compensation programs with those of a comparison group of peer companies. The Committee also benchmarks the compensation of individual executives and other key employees where job descriptions are sufficiently similar.
During 2005, an independent consultant was engaged to assist the Committee in reviewing total compensation for the Companys executive officers and certain other key employees. Based upon the analysis and recommendations of the consultant, as well as a review of other survey material and compensation information and the potential impact of the Companys adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (the 2005 Study), the Committee made certain adjustments to executive base compensation, changed the target performance metrics for annual incentive awards, adjusted the life and vesting periods of stock option grants, implemented new long-term equity incentive programs and established executive officer and key employee stock ownership goals.
Elements of Executive Compensation
The Committee periodically reviews the base salaries of the Chairman, the President and Chief Executive Officer and the other members of executive management. In addition to reviewing survey data and considering the analyses and recommendations of consultants, salaries are reviewed in light of promotions or other significant changes in responsibilities. In each case, the Committee takes into account the results achieved by the executive officer or key employee, his or her future potential, scope of responsibilities and experience, and competitive salary practices. Salaries for the named executive officers and other key employees were reviewed in 2005 and adjusted where appropriate to reflect target levels between the 50th and 75th market percentiles of the relevant market survey data. The salary for the President and Chief Executive Officer was reviewed by the Committee and the Board and adjusted for the second half of 2005 to reflect target levels between the 50th and 75th market percentiles of the relevant market survey data.
Annual Incentive Awards
Annual performance incentives are tied to the Companys overall performance, as measured against objective criteria set by the Committee. The Compensation Committee believes that a significant proportion of total cash compensation for key employees should be subject to the attainment of specific Company objectives and specific individual objectives. The Committee believes this creates a direct incentive to achieve desired performance goals and appropriately places a significant percentage of total compensation at risk. For 2005, the Compensation Committee established potential cash bonuses for executive officers and other key employees from a bonus pool tied to the Companys achievement of certain financial goals combined with specific operational objectives. The Company did not achieve these financial goals in 2005 and no cash incentive bonuses were awarded.
Long-Term Stock-Based Incentives
The Committee believes equity ownership is essential to the compensation of key employees. A strong culture of ownership will foster the design and execution of annual operating plansbased on core strategies which enhance long-term shareholder value. After completing its 2005 Study, the Committee recommended that the Board approve an executive long-term incentive program (ELTIP), using a combination of restricted stock and stock option awards under the 2004 Sypris Equity Plan. The Board adopted the ELTIP for the Companys executive officers and the Committee approved a similar program for certain other key employees (KELTIP).
These long-term incentive programs will provide an opportunity for executive officers and key employees to receive restricted shares and stock options at least annually. During 2005, at the Committees recommendation, the Board granted executive officers between 12,500 and 20,000 stock options and between 6,000 and 20,000 restricted shares under the ELTIP. The Committee granted other key employees between 1,000 and 10,000 stock options and between 1,500 and 2,500 restricted shares under the KELTIP. Similar grants will be considered in 2006.
Equity Ownership Goals. The Committee believes that key employees should have both an opportunity and an incentive to acquire and retain a significant personal ownership stake in the Company to foster the long-term growth and success of the Company. In conjunction with the ELTIP and KELTIP, the Committee has adopted new equity ownership guidelines to be achieved during the next five years. Under these guidelines, the President and Chief Executive Officer is expected to maintain beneficial equity interests at least equal to ten times his annual base salary. Other executive officers are expected to maintain beneficial equity interests at least equal to two times their annual base salary, and certain other key employees are expected to maintain beneficial equity interests at least equal to their annual base salary. The participants achievement of these goals will be reviewed at least annually in advance of future grants.
Restricted Shares. The Committee believes that restricted stock awards provide an immediate sense of ownership and a long-term alignment of the interests of key employees with the Companys stockholders. The restricted shares awarded in 2005 under the ELTIP and KELTIP will vest in one-third increments over three, five and seven year periods. The award to Jeffrey T. Gill is also contingent upon the achievement of certain financial goals. All awards included voting and dividend rights.
Stock Options. The Committee believes that stock option awards provide a heightened incentive for management to create long-term stockholder value, as measured by appreciation in the price of the Companys stock over time. The stock options awarded in 2005 under the ELTIP and KELTIP will vest on the third, fourth and fifth anniversary dates and expire on the sixth anniversary of the grant date.
Compensation of the President and Chief Executive Officer
The Committee meets with the Board of Directors each year in executive session to evaluate the performance of Jeffrey T. Gill, the Companys President and Chief Executive Officer. The results of this evaluation are considered by the Committee and the Board in determining his compensation, consistent with the compensation policies described above.
In 2005, the Committee considered Mr. Gills overall compensation in light of several factors. These factors included the results of the 2005 Study, the significant organizational growth of the Company since Mr. Gills last salary increase in 2003, the changing scope of Mr. Gills role and responsibility as the Companys diverse businesses are increasingly integrated into a single unified operating culture, the evaluation of Mr. Gills performance and the substantial leadership challenges likely to emerge in the Companys core markets. The Committee, after collective consideration of these factors, recommended and the Board approved a salary increase for Mr. Gill from $435,000 to $525,000, however, Mr. Gill elected to receive the salary increase on a phased-in basis of $480,000 becoming effective on July 4, 2005 and $525,000 becoming effective September 26, 2005. The Committee also recommended an award of 20,000 stock options and 20,000 restricted shares for Mr. Gill under the ELTIP. The vesting of Mr. Gills restricted stock awards is contingent upon the achievement of certain financial goals as of the third, fifth and seventh anniversaries of the grant. For 2005, Mr. Gill elected not to participate in the cash bonus plan and did not receive an annual incentive award. Mr. Gill has expressed his intention not to participate in the annual incentive cash bonus plan for 2006.
Internal Revenue Code Section 162(m)
It is the intention of the Committee that, as long as it is consistent with overall compensation objectives of the Company, all executive compensation will be deductible for federal income tax purposes under Section 162(m) of the Internal Revenue Code, which limits corporate deductions for compensation paid to certain executive officers to $1 million.
Acceleration of Option Vesting
In light of the Companys plans to adopt Statement of Financial Accounting Standards No. 123(R), Share-Based Payment (SFAS No. 123(R)) effective January 1, 2006, the Committee and the Board of Directors
approved three resolutions accelerating the vesting and exercisability of employee stock options with exercise prices above the then current market values of the Companys stock. Approximately 697,923 option shares with exercise prices ranging from $21.54 to $9.83 per share were vested in this manner. The accelerated vesting of the underwater stock options will reduce compensation expenses in the Companys statements of operations in future years pursuant to the Companys adoption of SFAS No. 123(R), effective January 1, 2006. The Committee took no action to amend the exercise prices of these underwater options.
Henry F. Frigon, Chairman
John F. Brinkley
Sidney R. Petersen
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2005 with respect to shares of Sypris Common Stock that may be issued under our equity compensation plans.
AVAILABILITY OF REPORT ON FORM 10-K
A stockholders letter and a copy of our Annual Report on Form 10-K, which together constitute our Annual Report to Stockholders, has been mailed concurrently with this Proxy Statement to stockholders entitled to notice of and to vote at the Annual Meeting. Such Annual Report is not incorporated into this Proxy Statement and shall not be considered proxy solicitation material. Stockholders may also request a copy of the Companys Report on Form 10-K which may be obtained without charge by writing to John R. McGeeney, Secretary, Sypris Solutions, Inc., 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222.
The Board of Directors does not intend to bring any other matter before the Annual Meeting and has not been informed that any other matter is to be presented by others. If any other matter properly comes before the Annual Meeting, the proxies will be voted with the discretion of the person or persons voting the proxies.
You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please vote your shares over the Internet or by telephone or mark, sign, date and promptly return the proxy card sent to you in the envelope provided. No postage is required for mailing in the United States.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who intends to present a proposal at the Annual Meeting in the year 2007 must deliver the proposal to the Companys corporate Secretary at 101 Bullitt Lane, Suite 450, Louisville, Kentucky 40222:
John R. McGeeney
General Counsel and Secretary
March 24, 2006
SYPRIS SOLUTIONS, INC.
AUDIT AND FINANCE COMMITTEE
The Audit and Finance Committee of the Board of Directors (the Audit and Finance Committee) shall be composed of three or more Outside Directors and shall meet the test for Independence, financial literacy and financial expertise requirements of Section 10A of the Securities Exchange Act of 1934, the Nasdaq Stock Market and any other applicable regulatory requirements. The Audit and Finance Committee shall provide assistance to the Board of Directors in fulfilling its responsibility to stockholders, potential stockholders and the investment community with regard to accounting, reporting practices, and the quality and integrity of the Companys financial statements. The Audit and Finance Committee shall maintain free and open communications between the Board of Directors, the independent auditors, any internal auditors and the executive officers of the Company.
The Audit and Finance Committee shall be responsible for the appointment of independent auditors, discussing the scope of the auditors examination, reviewing financial statements and consulting with the independent auditors on the adequacy of internal controls. The ultimate accountability of the independent auditors is to the Audit and Finance Committee and to the Board of Directors as representatives of the Companys stockholders. The Audit and Finance Committee shall also be responsible for providing oversight with regard to the Companys debt and credit arrangements, acquisitions, divestitures and proposals for changes in the Companys capitalization and financing strategies. In fulfilling its duties, the Audit and Finance Committee shall have the authority, to the extent deemed necessary or appropriate, to retain outside legal, accounting or other advisors. The Company shall provide funding, as determined by the Audit and Finance Committee, for compensation payable to the independent auditors for the purpose of rendering or issuing an audit report, and to advisors employed by the Audit and Finance Committee.
The Chairman of the Audit and Finance Committee shall have demonstrated experience in accounting and/or financial management. The Audit and Finance Committee shall meet at least three times during the year for the purposes of performing its duties. The Audit and Finance Committee shall meet in separate executive sessions with management, the internal auditors and the independent auditors as needed. The purpose and duties of the Audit and Finance Committee shall include, but not be limited to, the following:
The Vice President and Chief Financial Officer will have a dotted line reporting relationship to the Audit and Finance Committee and will be responsible for providing the Audit and Finance Committee with data, analysis, special reports and other forms of assistance as may be requested by the Audit and Finance Committee from time-to-time. The Audit and Finance Committee shall report the results of its deliberations, actions and observations to the Board of Directors of the Company.
While the Audit and Finance Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit and Finance Committee to plan or conduct audits or to determine that the Companys financial statements are complete and accurate and are in accordance with generally accepted accounting principles. This is the responsibility of management and the independent accountants. Nor is it the duty of the Audit and Finance Committee to conduct investigations, to resolve disagreements, if any, between management and the independent accountants or to assure compliance with laws and regulations and the Companys corporate policies.
The following individuals currently serve as members of the Audit and Finance Committee of the Companys Board of Directors:
Sidney R. Petersen (Chairman)
William G. Ferko
Sypris Solutions, Inc.
101 Bullitt Lane
Louisville, Kentucky 40222
Revocable Proxy for Annual Meeting of Stockholders to be held on May 2, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF SYPRIS SOLUTIONS, INC.
The undersigned appoints Robert E. Gill and Jeffrey T. Gill, and each of them, as proxies for the undersigned, with full power of substitution to vote all shares the undersigned is entitled to vote at the Annual Meeting of Stockholders of Sypris Solutions, Inc. (the Company) to be held at 101 Bullitt Lane, Lower Level Seminar Room, Louisville, Kentucky on Tuesday, May 2, 2006, at 10:00 a.m. local time, or any adjournment thereof, as follows, hereby revoking any proxy previously given.
To vote by telephone or Internet, please see the reverse of this card. To vote by mail, please sign and date this card on the reverse, tear off at the perforation, and mail promptly in the enclosed postage-paid envelope.
(Continued and to be signed on reverse side)
Ù FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY BY MAIL Ù
SYPRIS SOLUTIONS, INC.
PROXY VOTING INSTRUCTION CARD
Your vote is important. Casting your vote in one of the three ways described on this instruction card authorizes the proxies named on the front of this proxy card to vote all shares of Common Stock of Sypris Solutions, Inc. that you are entitled to vote.
You can vote by phone or via the Internet at any time prior to 11:59 p.m. EDT on May 1, 2006. You will need the number printed in the box at the top of this instruction card to vote by phone or via the Internet. If you do so, you do not need to mail in your proxy card.
SYPRIS SOLUTIONS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. ¨
Use this number to vote by phone or Internet
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR ALL THE NOMINEES LISTED IN ITEM 1.