SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
GARDNER DENVER, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[GARDNER DENVER LOGO]
March 21, 2003
TO OUR STOCKHOLDERS:
You are cordially invited to attend the 2003 Annual Meeting of
Stockholders on Tuesday, May 6, 2003 at 1:30 p.m., at the Quincy
Country Club, 2410 State Street, Quincy, Illinois.
The attached Notice and Proxy Statement describe the business of
the meeting. After the transaction of formal business, a question
and answer period will follow.
We look forward to a significant vote of the Common Stock,
either in person or by proxy. This year, three convenient ways to
vote your proxy are offered by Gardner Denver. If you are a
stockholder of record, you may use the toll-free telephone number on
the proxy card to vote your shares. You may also vote your shares
via the Internet by following the simple instructions on the proxy
card. If you prefer, simply complete, date, sign and return your
proxy card in the enclosed stamped and addressed envelope.
Regardless of your method of voting, you may revoke your proxy and
vote in person if you decide to attend the Annual Meeting. Your
support is appreciated, and we hope that you will be able to join us
at the May 6 meeting.
Cordially,
/s/ Ross J. Centanni
Ross J. Centanni
Chairman, President and
Chief Executive Officer
GARDNER DENVER, INC.
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62305
NOTICE OF 2003 ANNUAL MEETING OF STOCKHOLDERS
The 2003 Annual Meeting of Stockholders of Gardner Denver, Inc.
(the "Company") will be held at the Quincy Country Club, 2410 State
Street, Quincy, Illinois on Tuesday, May 6, 2003 at 1:30 p.m., for
the following purposes:
1. To elect two directors to serve for a three-year term each;
and
2. To transact such other business as may properly come before
the meeting.
Stockholders of record at the close of business on March 7,
2003, are entitled to notice of and to vote at the meeting.
Stockholders of record may vote their proxy by completing the
enclosed proxy card, calling the toll-free number indicated on the
proxy card, or accessing the Internet website specified in the
instructions included on the proxy card. A stockholder may revoke a
proxy at any time before it is voted at the meeting by following the
procedures described in the attached Proxy Statement.
FOR THE BOARD OF DIRECTORS
Tracy D. Pagliara
Vice President, General Counsel and Secretary
Quincy, Illinois
March 21, 2003
RETURN OF PROXIES REQUESTED
--------------------------------------------------
TO ASSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE (1) SIGN, DATE AND PROMPTLY MAIL THE
ENCLOSED PROXY CARD, FOR WHICH A RETURN ENVELOPE
IS PROVIDED; (2) CALL THE TOLL-FREE NUMBER
INDICATED ON THE ENCLOSED PROXY CARD; OR
(3) ACCESS THE INTERNET WEBSITE SPECIFIED IN
THE INSTRUCTIONS ON THE PROXY CARD.
--------------------------------------------------
GARDNER DENVER, INC.
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62305
PROXY STATEMENT
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Directors of
Gardner Denver, Inc. (the "Company" or "Gardner Denver") and will be
voted in accordance with the instruction given (either in a signed
proxy card or voted through the toll-free telephone or Internet
procedures described below) and not revoked. A stockholder may
revoke a proxy at any time before it is voted by (1) giving notice
to the Company in writing, (2) submitting another proxy that is
properly signed and later dated, or (3) voting in person at the
meeting. Attendance at the meeting will not in and of itself revoke
a proxy.
This Proxy Statement and the enclosed proxy card were first
mailed to stockholders on or about March 21, 2003. The record date
for determining the stockholders entitled to vote at the meeting was
the close of business on March 7, 2003 (the "Record Date"). On that
date, the outstanding voting securities of the Company were
16,026,994 shares of Common Stock, par value $0.01 ("Common Stock").
Each share of Common Stock is entitled to one vote. A majority of
the outstanding shares of Common Stock is required to establish a
quorum. The enclosed proxy card indicates on its face the total
number of shares of Common Stock registered in your name on the
Record Date, whether held in book entry or certificate form.
The Company is not aware of any matter that will be presented to
the meeting for action on the part of the stockholders other than
that stated in the notice. If any other matter is properly brought
before the meeting, it is the intention of the persons named in the
accompanying proxy to vote the shares to which the proxy relates in
accordance with their best judgment. Abstentions will be considered
present at the meeting for purposes of determining a quorum with
respect to items brought before the meeting but will not be counted
as voting for or against the proposal to which it relates.
Brokers holding shares for beneficial owners must vote these
shares according to specific instructions received from the owner.
If specific instructions are not received, brokers may vote these
shares in their discretion on certain routine matters, such as the
election of directors. However, the New York Stock Exchange rules
preclude brokers from exercising their voting discretion on certain
proposals. In these cases, if they have not received specific
instructions from the beneficial owner, brokers may not vote on the
proposals, resulting in what is known as a "broker non-vote." Any
"broker non-vote" will be considered present for quorum purposes
with respect to items brought before the meeting but will not be
counted as voting for or against the proposal to which it relates.
Stockholders of record may vote using the toll-free number
listed on the proxy card, or via the Internet or they may complete,
sign, date and mail the enclosed proxy card in the postage paid
envelope provided. The telephone and Internet voting procedures are
designed to authenticate stockholders' identities. The procedures
allow stockholders to give their voting instructions and confirm
that their instructions have been properly recorded. Specific
instructions to be followed by any stockholder of record interested
in voting by telephone or the Internet are set forth on the enclosed
proxy card.
Stockholders may vote by telephone or through the Internet 24
hours a day, 7 days a week. Telephone or Internet votes must be
received by 11:59 p.m. Eastern Time on May 5, 2003 for all shares of
Common Stock, except shares held in the Gardner Denver, Inc.
Retirement Savings Plan (and the Gardner Denver, Inc. Supplemental
Excess Defined Contribution Plan) and/or the Gardner Denver, Inc.
Savings Plan (collectively, the "Savings Plans").
1
Shares of Common Stock held in the Savings Plans will be voted
by UMB Bank, N.A. ("UMB Bank"), as trustee of the Savings Plans.
The enclosed proxy card includes the number of equivalent shares
credited to your account. Voting instructions to UMB Bank regarding
your Savings Plans shares must be received by 11:59 p.m. Eastern
Time on May 2, 2003. Such voting instructions can be made in the
same manner as other shares of Common Stock are voted by proxy
(i.e., by returning the proxy card by mail or voting by telephone or
through the Internet as described above).
After May 2, 2003, all Savings Plans shares for which voting
instructions have not been received and shares not yet allocated to
participants' accounts will be voted by UMB Bank in the same
proportion (for or against) as the shares for which instructions are
received from participants. If you fail to return a proxy properly
signed or to cast your votes via the Internet or by phone by May 2,
2003, the equivalent shares of Common Stock credited to your Savings
Plans account will be voted by UMB Bank in the same proportion as
the shares for which instructions were received from other Savings
Plans participants.
A vote by telephone or through the Internet authorizes UMB Bank
and the proxies named on the above proxy card to vote your shares in
the same manner as if you marked, signed and returned your proxy
card. Therefore, if you vote by telephone or Internet, there is no
need to return the proxy card.
The cost of soliciting proxies will be paid by the Company. The
Company will, upon request, reimburse brokerage houses, custodians,
nominees and others for their out-of-pocket and reasonable clerical
expenses incurred in connection with such solicitation. For the
purpose of obtaining broad representation at the meeting, Georgeson
Shareholder Communications Inc. has been retained by the Company to
assist in the solicitation of proxies at an anticipated cost of
approximately $10,000 plus reimbursement of reasonable expenses.
Officers and employees of the Company, without being additionally
compensated, may also make requests for the return of proxies by
letter, telephone or other means or in person.
PROPOSAL I--ELECTION OF DIRECTORS
The authorized number of directors of the Company is presently
fixed at seven. The directors are divided into three classes, with
one class having three members and two classes having two members
each. Directors in each class are elected for three-year terms so
that the term of office of one class of directors expires at each
annual meeting.
For election as directors at the Annual Meeting of Stockholders
to be held on May 6, 2003, the Board of Directors has approved the
nominations of Ross J. Centanni and Richard L. Thompson, who are
currently directors, to serve for three-year terms expiring in 2006.
The affirmative vote of a majority of the outstanding shares of
Common Stock having voting power present at the meeting, in person
or by proxy, is required to elect each of the nominees to the
director position. If you vote your proxy through a signed proxy
card or by using the telephone or Internet procedures available, but
do not indicate your voting preference, the shares represented by
your proxy will be voted for the election of the nominees for
director named in this Proxy Statement.
If any one of the nominees becomes unavailable or unwilling for
good reason for election, the accompanying proxy will be voted for
the election of such person, if any, as shall be recommended by the
Board of Directors, or will be voted in favor of holding a vacancy
to be filled by the directors. The Company has no reason to believe
that any nominee will be unavailable or unwilling.
The following information is provided regarding the nominees for
election as a director and each of the other directors who will
continue in office after the meeting.
2
NOMINEES FOR ELECTION
[PHOTO] ROSS J. CENTANNI, age 57, has been President and Chief
Executive Officer and a director of Gardner Denver since its
incorporation in November 1993. He has been Chairman of
Gardner Denver's Board of Directors since November 1998.
Prior to Gardner Denver's spin-off from Cooper Industries,
Inc. ("Cooper") in April 1994, he was Vice President and
General Manager of Gardner Denver's predecessor, the
Gardner-Denver Industrial Machinery Division, where he also
served as Director of Marketing from August 1985 to June
1990. He has a B.S. degree in industrial technology and an
M.B.A. degree from Louisiana State University. Mr. Centanni
is a director of Esterline Technologies, a publicly held
manufacturer of components for avionics, propulsion and
guidance systems, and Denman Services, Inc., a privately
held supplier of medical products. He is also a member of
the Petroleum Equipment Suppliers Association Board of
Directors and a member of the Executive Committee of the
International Compressed Air and Allied Machinery Committee.
[PHOTO] RICHARD L. THOMPSON, age 63, was elected to the Gardner
Denver Board of Directors in November 1998. Since 1995,
Mr. Thompson has served as a Group President and Executive
Office Member of Caterpillar Inc. ("Caterpillar"), a
publicly held manufacturer of construction machinery and
equipment. He earned a B.S. in electrical engineering and an
M.B.A. from Stanford University and has completed the
Caterpillar Advanced Management Program. Mr. Thompson is a
Director of the National Association of Manufacturers in
Washington, D.C. and also presently serves on the Boards of
Directors of Lennox International, Inc. and Proctor
Community Hospital.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
TERMS EXPIRING AT THE 2004 ANNUAL MEETING OF STOCKHOLDERS
[PHOTO] FRANK J. HANSEN, age 61, has been a director of Gardner
Denver since June 1997. Mr. Hansen was the President and
Chief Executive Officer of IDEX Corporation ("IDEX"), a
publicly held manufacturer of proprietary fluid handling and
industrial products, from April 1999 until his retirement in
April 2000. He was President and Chief Operating Officer
from January 1998 to April 1999 and Senior Vice President
and Chief Operating Officer from July 1994 until January
1998. Mr. Hansen has a B.S. degree in Business
Administration from Portland State University.
[PHOTO] THOMAS M. MCKENNA, age 65, has been a director of Gardner
Denver since its spin-off from Cooper in April 1994. Mr.
McKenna served as the President of United Sugars
Corporation, a marketing cooperative which is one of the
nation's largest sugar marketers to both the industrial and
retail markets, from December 1998 until his retirement in
December 2002. He was President and Chief Executive Officer
of Moorman Manufacturing Company ("Moorman"), a privately
held manufacturer of agricultural supplies, from August 1993
until January 1998. Mr. McKenna has a B.A. degree from St.
Mary's College and an M.B.A. from Loyola University.
3
[PHOTO] DIANE K. SCHUMACHER, age 49, has been a director of Gardner
Denver since August 2000. Ms. Schumacher has served as
Senior Vice President, General Counsel and Secretary of
Cooper from 1995 to 2003 and presently serves as Senior Vice
President, General Counsel and Chief Compliance Officer.
Ms. Schumacher holds a B.A. degree in economics from Southern
Illinois University and a JD degree from DePaul University
College of Law. She has also completed the Harvard Advanced
Management Program and serves as a director of the American
Arbitration Association and is a member of the Executive
Committee. Ms. Schumacher is a member of the External
Advisory Board for Southern Illinois University College of
Business Administration.
TERMS EXPIRING AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS
[PHOTO] DONALD G. BARGER, JR., age 60, has been a director of
Gardner Denver since its spin-off from Cooper in April 1994.
Mr. Barger has been the Senior Vice President and Chief
Financial Officer of Yellow Corporation ("Yellow"), a
publicly held company specializing in the transportation of
goods and materials, since December 2000. Prior to joining
Yellow, he served as Vice President and Chief Financial
Officer of Hillenbrand Industries Inc. ("Hillenbrand"), a
publicly held company serving healthcare and funeral
services, from March 1998 until December 2000. Mr. Barger
was also Vice President, Chief Financial Officer of
Worthington Industries, Inc., a publicly held manufacturer
of metal and plastic products and processed steel products,
from September 1993 until joining Hillenbrand. Mr. Barger
has a B.S. degree from the United States Naval Academy and
an M.B.A. from the University of Pennsylvania, Wharton
School of Business. Mr. Barger is a director of the Quanex
Corporation.
[PHOTO] RAYMOND R. HIPP, age 60, has been a director of Gardner
Denver since November 1998. Since July 2002, Mr. Hipp has
served as a strategic alternative and merger and acquisition
consultant. Mr. Hipp served as Chairman, President and CEO
and a Director of Alternative Resources Corporation ("ARC"),
a provider of information technology staffing and component
outsourcing, a position he held from July 1998 until his
retirement in June 2002. From August 1996 until May 1998,
Mr. Hipp was the Chief Executive Officer of ITI Marketing
Services, a provider of telemarketing services. Mr. Hipp has
a B.S. degree from Southeast Missouri State University.
COMMITTEES, COMPENSATION AND GOVERNANCE OF
THE BOARD OF DIRECTORS
The Company's Board of Directors (the "Board") held four
meetings during 2002. The Board has a standing Audit and Finance
Committee, a standing Management Development and Compensation
Committee and a standing Nominating and Corporate Governance
Committee, each composed exclusively of nonemployee directors.
BOARD OF DIRECTORS COMMITTEES
The Audit and Finance Committee. The Audit and Finance
Committee, currently composed of Donald G. Barger, Jr., Chairperson,
Frank J. Hansen and Raymond R. Hipp, held three meetings during
2002. All members of the Audit and Finance Committee are
independent, in accordance with Section 303.01 of the New York Stock
Exchange listing standards. The Board adopted a new written charter
for the Audit Committee, effective February 25, 2003, a copy of
which is attached to this proxy as Annex A.
4
The purpose of the Audit and Finance Committee is to assist the
Board in fulfilling its oversight responsibilities with respect to:
1. The integrity of the Company's financial statements and
financial information provided to shareholders and others;
2. The adequacy and effectiveness of the Company's disclosure
controls and procedures and its internal controls and procedures for
financial reporting;
3. The adequacy and effectiveness of the Company's financial
reporting principles and policies;
4. The adequacy and effectiveness of the Company's internal and
external audit processes; and
5. The adherence to the Company's regulatory compliance policies
and procedures.
The specific functions of the Audit and Finance Committee
include:
* Appointment, discharge and oversight of the Company's
independent auditors;
* Review of the planned scope and results of the internal
auditors' and independent auditors' audit and examination of
the Company's financial results;
* Review of the Company's financial statements with management,
as well as with the Company's independent auditors;
* Review and assessment of the scope and results of the
Company's disclosure controls and procedures, internal controls
and critical accounting policies;
* Review of accounting changes having a material impact on the
financial statements of the Company and filings made with the
Securities and Exchange Commission as required;
* Participation in conferences and reviews with the independent
auditors as may be deemed desirable by either the Audit and Finance
Committee, the auditors or management, and reporting to the Board
the results of such reviews and conferences;
* Monitor compliance with the Company's Corporate Conflicts of
Interest and Ethical Conduct Policy; review information concerning
environmental, legal and other matters which may represent material
financial exposure; and
* Oversight of the Company's Benefits Committee in its
establishment of investment objectives, policies and performance
criteria for the management of the Company's retirement and benefit
plan assets.
The Audit and Finance Committee has authority to retain outside
financial and legal advisors to assist it in meeting any of the
above obligations, as necessary and appropriate, and to ensure that
the Company provides appropriate funding to pay the fees and
expenses of such advisors.
The Management Development and Compensation Committee. The
Management Development and Compensation Committee, currently
composed of Richard L. Thompson, Chairperson, Thomas M. McKenna and
Diane K. Schumacher, held three meetings during 2002. The purpose of
the Management Development and Compensation Committee is to assist
the Board in discharging its responsibilities relating to executive
selection, retention and compensation and succession planning. The
specific functions of the Management Development and Compensation
Committee include:
* Review and consider succession planning, executive performance
and organizational structure and assist the Chief Executive Officer
in developing recommendations in these areas for Board
consideration;
* Review and consult with the Chief Executive Officer concerning
selection of officers, management succession planning, executive
performance, organizational structure and matters related thereto
and assist the Chief Executive Officer in developing recommendations
concerning the same from time to time for Board consideration;
5
* Review and consult with the Chief Executive Officer concerning
the establishment of reasonable compensation for officers, including
incentive compensation and bonuses, deferred compensation, pensions,
and other benefits;
* Designate those employees who will receive grants of stock options
and other awards under the Company's Long-Term Incentive Plan (the
"Incentive Plan") and the Management Annual Incentive Plan (the
"Annual Incentive Plan") and the type and size of such grants;
* Administer the Employee Stock Purchase Plan, including
amendments and restatements as appropriate; and
* Recommend to the Board one or more candidates for Chief Executive
Officer in the event the position becomes unexpectedly vacant.
The Management Development and Compensation Committee has authority
to retain outside financial and legal advisors to assist it in
meeting any of the above obligations, as necessary and appropriate,
and to ensure that the Company provides appropriate funding to pay
the fees and expenses of such advisors.
The Nominating and Corporate Governance Committee. The
Nominating and Corporate Governance Committee, currently composed of
Diane K. Schumacher, Chairperson, Thomas M. McKenna and Richard L.
Thompson, was appointed by the Board on November 12, 2002 and did
not hold any meetings during 2002. The purpose of the Nominating and
Corporate Governance Committee is to make recommendations to the
Board on director nominees, Board practices and corporate governance
practices and principles. The specific functions of the Nominating
and Corporate Governance Committee include:
* Review with management and evaluate the overall effectiveness
of the organization of the Board, its incumbent members and the
conduct of its business, and make appropriate recommendations to
the Board with regard thereto;
* At least annually, review membership of the various Board
Committees;
* Develop and maintain criteria and procedures for the identification
and recruitment of candidates for election to serve as directors
of the Company;
* Review the appropriateness and adequacy of information
supplied to directors prior to and during Board meetings;
* Review from time to time compensation (including benefits) for
services to the Company by its directors, and make recommendations
with regard thereto to the Board.
The Nominating and Corporate Governance Committee has authority to
retain outside financial and legal advisors to assist it in meeting
any of the above obligations, as necessary and appropriate, and to
ensure that the Company provides appropriate funding to pay the fees
and expenses of such advisors.
COMPENSATION OF DIRECTORS
For 2002, the Company's nonemployee directors each received an
annual retainer of $28,000. At the beginning of 2002, the annual
retainer was $16,000. However, effective May 7, 2002, the Board
increased the annual retainer to $28,000. Additionally, nonemployee
directors received meeting attendance fees of $1,250 per meeting for
Board meetings and $1,000 per meeting for committee meetings.
Directors were also reimbursed for reasonable expenses incurred in
connection with attending Board and committee meetings.
The Gardner Denver, Inc. Phantom Stock Plan for Outside
Directors (the "Phantom Stock Plan") has been established to more
closely align the interests of the nonemployee directors and the
Company's stockholders by increasing each nonemployee director's
proprietary interest in the Company in the form of "phantom stock
units."
Under the Phantom Stock Plan, which is an unfunded plan, the
Company credits the equivalent of $7,000 annually, in equal monthly
amounts, to the phantom stock unit account of each nonemployee
director. Phantom stock units are credited based upon the previous
month's average closing price per share for the Company's
6
Common Stock. Each nonemployee director may also elect to defer all
or some portion of his annual director's fees under the Phantom
Stock Plan and have such amount credited on a monthly basis as
phantom stock units, based on the previous month's average closing
price per share for the Company's Common Stock. If the Company were
to pay dividends, dividend equivalents would be credited to each
nonemployee director's account on the dividend record date.
The fair market value of a director's account will be
distributed as a cash payment to the director (or his beneficiary)
on the first day of the month following the month in which the
director ceases to be a director of the Company for any reason.
Alternatively, a director may elect to have the fair market value of
his or her account distributed in twelve or fewer equal monthly
installments, or in a single payment on a predetermined date within
one year after he ceases to be a director, but without interest on
the deferred payments. The fair market value of a director's account
is determined by reference to the average closing price per share
for the Company's Common Stock during the thirty trading days
immediately preceding the date the director ceases to be a director.
The following table summarizes the number of phantom stock units
credited to each nonemployee director as of March 7, 2003.
PHANTOM STOCK
NAME UNITS
---- -------------
Donald G. Barger, Jr.................... 3,654
Frank J. Hansen......................... 1,669
Raymond R. Hipp......................... 2,610
Thomas M. McKenna....................... 10,899
Diane K. Schumacher..................... 831
Richard L. Thompson..................... 5,339
------
Total............................... 25,002
======
Pursuant to the Incentive Plan, for 2002, the Board granted each
nonemployee director an option to purchase 4,500 shares of the
Company's Common Stock, on the date following commencement of the
2002 Annual Stockholders Meeting. Nonemployee director stock options
become exercisable on the first anniversary of the date of grant and
terminate upon the expiration of five years from such date. If a
person ceases to be a nonemployee director by virtue of disability
or retirement (after having completed at least one three-year term),
outstanding options generally remain exercisable for a period of
five years (but not later than the expiration date of the options).
If a person ceases to be a nonemployee director by virtue of death
(or dies during the five-year exercise period after disability or
retirement described above), outstanding options generally remain
exercisable for a period of one year (but not later than the
expiration date of the options). If a nonemployee director's service
terminates for any other reason, options not then exercisable are
canceled and options that are exercisable may be exercised at any
time within ninety days after such termination (but not later than
the expiration date of the options). Additionally, upon the
occurrence of a change of control, as defined in the plan, these
options will be canceled in exchange for a cash payment equal to the
appreciation in value of the options over the exercise price as set
forth in the plan. The exercise price of these options is the fair
market value of the Common Stock on the date of grant.
CORPORATE GOVERNANCE
The Board has adopted a policy regarding Corporate Governance.
The objective of this policy is to ensure that the Board maintains
its independence, objectivity and effectiveness in fulfilling its
responsibilities to the Company's stockholders. Among other things,
the policy describes: the criteria for selection and retention of
outside directors; Board independence; administrative practices of
the Board; the composition and compensation of the Board; and the
principles under which management shall direct and operate the
business of the Company and its subsidiaries. The policy provides
that the majority of the Board should be nonemployee directors, with
varied and complementary backgrounds. Directors may serve on the
boards of directors of no more than four for-profit organizations,
including the Company, and interlocking directorships are
prohibited. The policy specifies that a nonemployee director will
retire at age 70 years and that, at any one time, no less than 50%
of the number of nonemployee directors shall be actively employed.
7
On November 12, 2002, the Board appointed Mr. Frank J. Hansen to
serve as its Lead Nonemployee Director. In this capacity, Mr. Hansen
will fulfill the duties of the Chairman of the Board at Board
meetings as president pro tem, when the Chairman is unavailable, and
will lead the discussion of nonemployee directors during executive
sessions of the nonemployee directors.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The Company maintains Stock Ownership Guidelines for its
nonemployee directors, executive officers and other key employees.
Under these guidelines, each nonemployee director is expected to
maintain an equity interest in the Company equal to three times his
or her annual cash compensation at the end of five years of service
on the Board. The guidelines also require that the CEO maintain an
equity interest equal to five times his annual base salary and each
executive officer maintain an equity interest in the Company equal
to three times his or her annual base salary. These equity interests
are to be achieved by the fifth anniversary of each individual's
appointment as an executive officer. Common Stock held directly by
the officer and indirectly for the benefit of the officer in the
Savings Plans and the related Supplemental Excess Defined
Contribution Plan ("Excess Defined Contribution Plan") are
considered in determining compliance with these guidelines.
The following table sets forth, as of March 7, 2003, information
with respect to the beneficial ownership of the Company's Common
Stock by (a) each director, (b) each of the Company's four most
highly compensated executive officers in 2002 who is not a director,
and (c) all directors and executive officers as a group. A separate
table is also included which sets forth each person known by the
Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock as of December 31, 2002 (except as
otherwise indicated).
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
----------------------------------------
DIRECT EMPLOYEE PERCENT
NAME OF BENEFICIAL OWNERS OWNERSHIP(1) 401(K) PLANS(2) OF CLASS
------------------------- ------------ --------------- --------
DIRECTORS
Donald G. Barger, Jr....................................... 24,760(3) *
Ross J. Centanni........................................... 514,774(3),(4),(5) 22,394 3.35%
Frank J. Hansen............................................ 16,047(3) *
Raymond R. Hipp............................................ 12,000(3) *
Thomas M. McKenna.......................................... 21,966(3) *
Diane K. Schumacher........................................ 5,438(3) *
Richard L. Thompson........................................ 10,200(3) *
NAMED EXECUTIVE OFFICERS (NOT DIRECTORS)
Michael S. Carney.......................................... 4,000(3) 713 *
Philip R. Roth............................................. 105,590(3) 5,519 *
J. Dennis Shull............................................ 130,920(3),(6) 8,712 *
Tracy D. Pagliara.......................................... 17,619(3) 1,305 *
All directors and executive officers as a group............ 863,314(3),(4),(5),(6) 38,643 5.63%
--------
* Less than 1%
(1) Each beneficial owner has sole voting and investment power with respect to all shares, except as indicated
below.
(2) Each beneficial owner has sole voting power, but limited investment power with respect to all shares held in
the Savings Plans, which are 401(k) plans, and the related Excess Defined Contribution Plan.
(3) Includes shares that could be acquired by the exercise of stock options granted under the Incentive Plan that
are currently exercisable or exercisable within 60 days after March 7, 2003, as follows: 12,000 shares for
Mr. Barger; 314,835 shares for Mr. Centanni; 7,500 shares for Mr. Hansen; 9,000 shares for Mr. Hipp; 12,000
shares for Mr. McKenna; 3,000 shares for Ms. Schumacher; 9,000 shares for Mr. Thompson; 4,000 shares for
8
Mr. Carney; 70,803 shares for Mr. Roth; 76,100 shares for Mr. Shull; 16,668 shares for Mr. Pagliara; and
534,906 shares for the group.
(4) Includes 4,050 shares owned by Mr. Centanni's wife, as to which Mr. Centanni shares voting and investment
power pursuant to a trust arrangement.
(5) Includes 18,000 restricted shares, as to which Mr. Centanni has the right to vote and to receive dividends.
Mr. Centanni must remain employed by the Company until February 23, 2006 as a condition to the vesting of
these shares and the removal of their restrictions on transferability.
(6) Includes 228 shares owned by Mr. Shull's daughter, as to which Mr. Shull shares voting and investment power
pursuant to a trust arrangement.
PERCENT
NAME AND ADDRESS AMOUNT AND NATURE OF OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
------------------- -------------------- -------
FMR Corporation........................... 1,575,305(1) 9.90%
82 Devonshire Street
Boston, Massachusetts 02109-3614
David L. Babson & Company, Inc............ 1,195,391(2) 7.51%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Capital Group Int'l., Inc. et. al......... 1,012,450(3) 6.40%
11100 Santa Monica Blvd.
Los Angeles, California 90025
AXA Financial, Inc., et. al............... 962,622(4) 6.10%
1290 Avenue of the Americas
New York, New York 10104
Van Den Berg Management................... 829,012(5) 5.21%
1301 Capital of Texas Highway, Suite B-228
Austin, Texas 78746
--------
(1) Based on Schedule 13G, dated as of February 14, 2003, made by FMR Corp., Edward C. Johnson 3rd, and Abigail
P. Johnson as supplemented by correspondence to the Company dated February 26, 2003. FMR Corp. disclosed that
Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is the
beneficial owner of 1,575,305 shares of the Common Stock as a result of acting as investment advisor to
various investment companies, one of which is Fidelity Low Priced Stock Fund, which owns 1,568,400 shares or
9.859% of the Common Stock. Edward C. Johnson 3rd, FMR Corp., through its control of Fidelity, and the funds
report sole investment power with respect to all shares beneficially owned. However, they report that voting
power resides with the trustees of the funds, and that Fidelity carries out the voting under written
guidelines from such trustees. Through their ownership of approximately 49% of the voting power of FMR Corp.
and the execution of a shareholders' voting agreement, members of the Johnson family, including Edward C.
Johnson 3rd and Abigail P. Johnson, may be deemed to control FMR Corporation.
(2) Based on Amendment No. 2 to Schedule 13G, dated as of January 30, 2003, made by David L. Babson & Company,
Inc. ("Babson"). Babson reported that it has sole voting power with respect to 1,153,716 shares of Common
Stock, shared voting power with respect to 41,675 shares of Common Stock and sole dispositive power with
respect to 1,195,391 shares of Common Stock, all of which are owned by investment advisory client(s).
(3) Based on Amendment No. 2 to Schedule 13G, dated as of February 10, 2003, made by Capital Group International,
Inc. ("CGI") and its subsidiary Capital Guardian Trust Company ("CGT"). CGI reported that it has sole voting
power with respect to 783,990 shares of Common Stock and sole investment power with respect to 1,012,450
shares of Common Stock through its subsidiaries, which are investment management companies, but has
disclaimed any voting or investment power itself. CGT is the beneficial owner of 900,250 of such shares of
Common Stock, of which it has sole voting power over 671,790 shares and sole investment power over all
900,250 shares.
9
(4) Based on Amendment No. 2 to Schedule 13G, dated as of February 12, 2003, made by AXA Financial, Inc. ("AXA
Financial") and certain affiliates, including AXA Conseil Vie Assurance Mutuelle, AXA Assurances I.A.R.D.
Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance Mutuelle, and AXA, (collectively "AXA"). AXA
reported that it has sole voting power with respect to 841,124 shares of Common Stock, shared voting power
with respect to 10,250 shares of Common Stock, and sole investment power as to all shares beneficially owned.
Alliance Capital Management L.P., a subsidiary of AXA Financial, is the beneficial owner of all such shares,
which were acquired for investment purposes on behalf of discretionary investment advisory accounts.
(5) Based on Amendment No. 1 to Schedule 13G, dated as of March 5, 2003, Van Den Berg Management ("Van Den Berg")
reported that it has sole voting and dispositive power with respect to 7,005 shares of Common Stock and
shared voting and dispositive power with respect to 822,007 shares of Common Stock.
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity
securities to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. These
insiders are required by Securities and Exchange Commission
regulations to furnish the Company with copies of all Section 16(a)
forms they file, including Forms 3, 4 and 5. During the fiscal year
ended December 31, 2002, all reports required by insiders were filed
in a timely manner.
EXECUTIVE MANAGEMENT COMPENSATION
The following tables present compensation earned by the Chief
Executive Officer and the next four most highly compensated
executive officers of the Company for the years indicated and
information regarding stock option transactions by each officer in
2002.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
-----------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES ALL OTHER
----------------------- STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) AWARD(S)($) OPTIONS(#) ($)(1)
--------------------------- ---- --------- -------- ----------- ---------- ------------
Ross J. Centanni................. 2002 $566,667 $322,000 $314,280(2) 34,500 $48,675
Chairman, President & CEO 2001 520,833 515,000 35,000 34,463
2000 493,333 245,000 70,000 30,075
Philip R. Roth................... 2002 $242,500 $200,000 9,700 $18,338
Vice President, Finance & CFO 2001 227,500 165,000 9,000 13,163
2000 215,000 65,000 17,000 11,925
J. Dennis Shull.................. 2002 $230,000 $110,000 9,300 $14,850
Vice President & General 2001 220,000 100,000 9,000 12,600
Manager, Compressor 2000 208,750 60,000 17,000 11,644
Division
Michael S. Carney(3)............. 2002 $226,667 $110,000 0 $11,100
Vice President & General 2001 35,913 20,000 12,000 1,316
Manager, Blower Division
Tracy D. Pagliara(4)............. 2002 $177,500 $135,000 7,000 $12,803
Vice President, General 2001 157,504 107,000 6,500 8,887
Counsel & Secretary 2000 48,336 40,000 15,000 2,276
--------
(1) Amounts under "All Other Compensation" reflect the Company's matching contributions on behalf of each of the
named executive officers to the Savings Plans and the related Excess Defined Contribution Plan, broken down
as follows: Mr. Centanni ($5,400--Savings Plans and $43,275--Excess Plan); Mr. Roth ($9,000--Savings Plans
and $9,338--Excess Plan); Mr. Shull ($3,600--Savings Plans and $11,250--Excess Plan); Mr. Carney
($8,250--Savings Plans and $2,850--Excess Plan); and Mr. Pagliara ($3,094--Savings Plan and $9,709--Excess
Plan).
10
(2) On February 24, 2003, the Management Development and Compensation Committee awarded Mr. Centanni a grant
of 18,000 shares of Company restricted common stock having a fair market value as of the close of business
on such date of $17.46 per share, or $314,280 in the aggregate. Mr. Centanni has the right to vote and to
receive dividends with respect to these shares, but must remain employed by the Company until February 23,
2006, as a condition to the vesting of these shares and the removal of their restrictions on transferability.
(3) Mr. Carney did not become employed by the Company until November 2001.
(4) Mr. Pagliara did not become employed by the Company until August 2000.
OPTION GRANTS IN 2002
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN 2002 ($/SH)(1) DATE(2) PRESENT VALUE(3)
---- ------------- ---------- --------- ---------- ----------------
Ross J. Centanni................... 34,500 17.74% $19.95 02/25/12 $241,859
Philip R. Roth..................... 9,700 4.99% $19.95 02/25/12 $ 68,001
J. Dennis Shull.................... 9,300 4.78% $19.95 02/25/12 $ 65,197
Michael S. Carney(4)............... 0
Tracy D. Pagliara.................. 7,000 3.60% $19.95 02/25/12 $ 49,073
--------
(1) The exercise price is equal to the average of the high and low sales price of the Company's Common Stock on
the date of grant and shall be payable in cash, shares of Common Stock, or stock appreciation rights or by a
combination of the foregoing.
(2) These options have a ten-year term from the date of grant and are exercisable in increments of one-third each
on the first, second and third anniversary dates following the date of grant. In the event of a change in
control, holders may receive a cash payment equal to the fair value, as determined in accordance with the
Plan, of that portion of any option that is not fully exercisable.
(3) The Black-Scholes option pricing model was used assuming a dividend yield of 0%, a risk-free interest rate of
3.90%, an expected stock price volatility based on historical experience of 35.38% and an expected option
life based on historical experience of 4.41 years. While the assumptions are believed to be reasonable, the
reader is cautioned not to infer a forecast of value either from the model's use or from the values adopted
for the model's assumptions. Any future values realized will ultimately depend upon the excess of the stock
price on the date the option is exercised over the exercise price.
(4) Mr. Carney received no options in 2002 since he received an initial grant of options in November 2001 upon
his employment with the Company.
11
AGGREGATED OPTION EXERCISES IN 2002
AND DECEMBER 31, 2002 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2002(#) AT DECEMBER 31, 2002($)(2)
SHARES ---------------------- --------------------------
ACQUIRED ON VALUE
NAME EXERCISE(#) RECEIVED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- --------------------------
Ross J. Centanni.......... -0- n/a 268,335 81,166 $1,586,865 $49,699
Philip R. Roth............ -0- n/a 58,903 21,366 276,252 12,079
J. Dennis Shull........... -0- n/a 64,334 20,966 342,892 12,079
Michael S. Carney......... -0- n/a 4,000 8,000 -0- -0-
Tracy D. Pagliara......... -0- n/a 12,167 16,333 47,627 23,911
--------
(1) The value received for shares acquired on exercise in 2002 is calculated using the difference between the
fair market value of the Company's Common Stock, as indicated by the average of the high and low sales price
of the Common Stock on the exercise date, and the option exercise prices.
(2) The value of the unexercised in-the-money options at December 31, 2002 is calculated using the difference
between the fair market value of the Company's Common Stock, as indicated by the average high and low sales
price of the Common Stock on December 31, 2002 ($19.725), and the option exercise prices.
LONG-TERM CASH BONUS AWARDS IN 2002
The following table shows the long-term cash bonus awards that
were granted under the Incentive Plan for 2002 to each of the named
executive officers.
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR OTHER PERIOD -------------------------------------
OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME & TITLE (#)(1) OR PAYOUT(2) ($ OR #)(2) ($ OR #)(2) ($ OR #)(2)
------------ ---------------- ---------------- ----------- ----------- -----------
Ross J. Centanni............... 85% 2002-2004 50% 100% 150%
Chairman, President & CEO
Philip R. Roth................. 50% 2002-2004 50% 100% 150%
Vice President, Finance
& CFO
J. Dennis Shull................ 50% 2002-2004 50% 100% 150%
Vice President & General
Manager, Compressor
Division
Michael S. Carney.............. 50% 2002-2004 50% 100% 150%
Vice President & General
Manager, Blower Division
Tracy D. Pagliara.............. 50% 2002-2004 50% 100% 150%
Vice President, General
Counsel & Secretary
--------
(1) Represents the percentage of the participants' base salary at the end of 2003 that shall be eligible for
calculation of the long-term cash bonus (the "Bonus Eligible Salary").
(2) The long-term cash bonus percentage will be tied to the compound growth rate of earnings before taxes for the
Company's industrial businesses (i.e., excluding petroleum products) ("EBT") during the period January 1, 2002
through December 31, 2004. The utilization of the threshold, target or maximum percentages will depend upon
the achievement of certain levels of compound growth rate of EBT during this
12
period, subject to adjustment as provided under the Incentive Plan. These percentages will be applied to
the Bonus Eligible Salary to determine the long-term cash bonus for the period.
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The goal of the Management Development and Compensation
Committee (the "Committee") is to compensate the executive officers
of Gardner Denver based on the scope of their responsibilities, the
achievement of specific annual objectives and the Company's annual
and longer term performance. Annually, the Committee reviews and
establishes the compensation and benefits of the executives,
including base salaries, annual bonus opportunities and awards under
the Incentive Plan. These elements are intended to provide
competitive pay, reward achievement of financial and strategic
objectives and align the interests of the Company's executives with
those of the Company's stockholders.
None of the members of the Committee is or has been an officer
or employee of the Company or any of its subsidiaries. In addition,
none of the members of the Committee had any relationships with the
Company or any other entity that require disclosure under the proxy
rules and regulations promulgated by the Securities and Exchange
Commission.
EXECUTIVE COMPENSATION REPORT
The Company maintains a compensation plan for executive officers
that consists of (i) base salary, (ii) annual incentive compensation
through cash bonus opportunities and (iii) long-term incentives in
the form of stock option grants and long-term cash bonuses. At the
Committee's direction, the Company hired William M. Mercer, now
known as Mercer Human Resource Consulting ("Mercer"), in late 2001
to perform a comprehensive review of the Company's executive officer
and board of director compensation and retention practices,
including annual compensation, long-term incentives and management
continuity arrangements for competitiveness with other publicly held
manufacturing companies with annual revenues of $350 million to $750
million, which are believed to be generally comparable to the
Company (the "Peer Companies"). Data from national surveys was used
to calculate competitive market data, to benchmark the compensation
practices of the Company and to develop compensation projections and
recommendations for each of the Company executive officers for 2002.
The Company's compensation strategy is that: (a) the target
annual cash compensation (base salary and annual bonus) of the
Company's executive officers be based on the 60th percentile of the
competitive market; and (b) the total compensation opportunity for
such officers be based on the 70th percentile of the competitive
market.
At the Committee's direction, the Company also retained Mercer
again in late 2002 to perform a review of the Company's executive
officer compensation, including annual compensation, and long-term
incentives and management continuity arrangements.
ANNUAL CASH COMPENSATION
The following is a summary of the components of executive annual
cash compensation.
Base Salary. In February 2002, the Committee established a base
salary target for each executive officer at approximately the 60th
percentile of market levels based on the competitive market data.
The goal in establishing the base salaries was to position the
Company for future growth, to make the compensation program more
competitive and to increase the Company's ability to attract and to
retain executives. The Committee took into account, market
competitiveness as reported in the Mercer study, the individual's
responsibilities, experience, actual performance and impact on the
business when setting each executive officer's actual base salary.
Annual Incentive Compensation. An annual cash bonus opportunity
is awarded by the Committee pursuant to the Annual Incentive Plan.
The Annual Incentive Plan furthers the Board's goal of linking
executive compensation to the Company's performance and
shareholders' interests as a whole.
13
Pursuant to the Annual Incentive Plan, the Committee is required
to establish, no later than ninety days after the beginning of each
year, performance goals for such year based upon one or more of the
following performance measures: return on equity, assets, capital or
investment; pre-tax or after-tax profit levels expressed in absolute
dollars or earnings per share; and cash flow or similar measures.
Performance goals may be identical for all participants or may be
different to reflect more appropriate measures of individual
performance. Performance goals must include a threshold level below
which no award will be payable and a maximum award opportunity for
each participant. The Committee is authorized to adjust the method
of calculating attainment of performance goals in recognition of (i)
extraordinary or nonrecurring items, (ii) changes in tax laws, (iii)
changes in generally accepted accounting principles or changes in
accounting policies, (iv) charges related to restructured or
discontinued operations, (v) restatement of prior period financial
results, and (vi) any other unusual, nonrecurring gain or loss that
is separately identified and quantified in the Company's financial
statements. In addition, notwithstanding the attainment of the
performance goals, annual incentive awards for participants may be
denied or adjusted by the Committee, in its sole judgment, based on
its assessment of the participant's performance. However, no upward
adjustment may be made to an award for a participant if Section
162(m) of the Code would limit the deduction the Company may claim
for that participant's compensation.
In February 2002, the Committee established the performance
goals and maximum bonus opportunities for the Annual Incentive Plan
participants for 2002. Except for the Division General Managers, the
performance goals were based on a weighted average of earnings per
share (weighted at 60%) and the level of cash flow (weighted at 40%)
generated by the Company in 2002. For Division General Managers, the
measures were based on a weighted average of unit earnings before
taxes (weighted at 60%) and earnings per share (weighted at 40%).
The target bonus percentage range was 45-70% of participant base
salaries for 2002, and was subject to increase to a maximum range of
90-140%, depending on the level of performance goal achievement.
Bonus payments increase as performance levels increase. The maximum
bonus payment is 200% of the target bonus opportunity.
As noted above, except for the Division General Managers, the
measures of corporate performance were based on earnings per share
and the level of cash flow generated by the Company in 2002. Diluted
earnings per share was included in the benchmark to reflect the
effect of management's performance on stockholder return. Free cash
flow was utilized in the benchmark due to the continued importance
of cash flow in providing funds to pursue the Company's growth
strategies. Free cash flow was defined as the sum of the Company's
net cash provided by operating activities and net cash used for
investing activities, excluding any cash related to capital spending
or acquisitions completed in 2002. Division performance for each
General Manager was assessed based on the respective division's
earnings before taxes.
Considering the performance goals for the 2002 Annual Incentive
Plan, the Company had to generate diluted earnings per share of
$1.45 and $42 million of operating cash flow in 2002 for the
resulting bonus payments to provide market median cash compensation
based on the competitive consensus data. In February 2003, the
Committee evaluated and determined the degree to which the 2002
Annual Incentive Plan criteria had been met, as well as the
performance of individual Plan participants. Based on this analysis,
the Committee awarded 2002 cash bonus payments at an average of 108%
of target levels. Other than for Mr. Centanni, these bonus payments
included a one-time additional incentive award based on each
executive's individual performance and 25% of their long-term
incentive target. See, Compensation of CEO. Among other things, this
one-time award was intended to compensate the participants for the
Company's positive financial performance (including strong cash
flow), and to aid in retention by providing participants with reward
value, while the business goes through a down cycle due to the
economy. The actual bonus payments for each of the named executive
officers are shown on the Summary Compensation Table.
LONG-TERM INCENTIVES
Under the Incentive Plan, designated employees are eligible from
time to time to receive awards in the form of stock options, stock
appreciation rights, restricted stock grants or performance shares
or long-term cash bonuses, as determined by the Committee. The
purpose of these awards is to promote the long-term financial
interests of the Company by encouraging employees to acquire an
ownership position in the Company and to
14
provide incentives for specific employee performance. In selecting
the recipients and size of the awards, the Committee considers each
recipient's opportunity for significant contribution to the Company's
future growth and profitability, without regard to their existing stock
ownership. In 2002, the Committee granted long-term incentive awards
between the median and the 75th percentile of the competitive market.
Stock Options. The Committee currently utilizes stock options to
provide the named executive officers and other key employees with
incentives that are related to the long-term performance of the
Company. The specific number of stock options granted to an
executive is determined by the Committee, with the advice and
counsel of Mr. Centanni and Mercer, based upon the individual's
level of responsibility and a subjective judgment by the Committee
of the executive's contribution to the financial performance of the
Company. In 2002, stock options made up 50% of the executive's
long-term incentive opportunity. Options are granted at the average
market price for the Common Stock on the date of grant and have
value only if the market price of the underlying Common Stock
appreciates. In 2002, the Committee granted options with ten-year
terms. Furthermore, since options are exercisable in cumulative
increments of one-third each year over a three-year period, the
Committee believes options provide an appropriate long-term
incentive for those receiving grants, as well as stability in the
work force.
Long-Term Bonuses. As noted above, under the Incentive Plan, the
Committee may also grant long-term cash bonus awards to the
Chairman, Chief Executive Officer, President, any Executive Vice
President, any Senior Vice President, any senior officer reporting
directly to the Chief Executive Officer and any other Vice President
or senior executive or officer designated by the Chief Executive
Officer. Eligibility to receive a long-term cash bonus is tied to
the achievement of certain Company performance targets over a
pre-determined performance period. In 2002, long-term bonuses made
up 50% of the executive's long-term incentive opportunity.
The Committee is responsible for (i) determining the duration of
each performance period, (ii) selecting which executive officers of
the Company will be eligible to receive a long-term cash bonus for
the performance period, (iii) selecting the business criteria to be
applicable to the performance period from among those authorized,
(iv) establishing Company performance targets relative to the
business criteria selected, (v) setting a base salary factor for
each executive officer eligible to receive a long-term cash bonus
for the performance period, and (vi) at the end of the performance
period, determining the extent to which the performance targets have
been achieved and the long-term cash bonuses payable to each
eligible executive officer. The Company performance targets may be
based on any one, or a combination, of the business criteria
available for performance share awards, as described above.
Concurrently with the selection of performance targets, the
Committee must establish an objective formula or standard for
calculating the maximum long-term cash bonus payable to each
participating executive officer. All long-term cash bonuses are to
be denominated in cash or restricted stock awards, as determined by
the Committee and subject to the remaining provisions of the
Incentive Plan. Except as otherwise determined by the Committee, in
its discretion, each executive selected by the Committee as eligible
to receive a long-term cash bonus with respect to a particular
performance period must continue to be employed by the Company on
the last day of such performance period to continue to be eligible
to receive the long-term cash bonus.
In February 2002, the Committee granted long-term cash bonus
awards to certain executives. The long-term cash bonus percentage
for the 2002 awards is tied to the compound growth rate of earnings
before taxes, or EBT, for the Company's industrial businesses during
the period January 1, 2002 through December 31, 2004. The
utilization of threshold, target or maximum percentages will depend
upon the achievement of certain compound growth rates of EBT during
this period, subject to adjustment as provided under the Plan. These
percentages will be applied to participants' base salaries at the
end of 2004 to determine the long-term cash bonus for the period.
COMPENSATION OF CEO
Mr. Centanni's base salary, annual bonus and long-term incentive
awards for 2002 were determined as described above. In addition, the
Committee also considered Mr. Centanni's individual performance for
purposes of the annual bonus. Individual goals agreed upon between
the Committee and Mr. Centanni included: acquisition of complementary
companies; integration of acquisitions; implementation of enhanced
15
MIS systems deployment plan; achievement of material cost reductions;
improvement of underperforming businesses and development of a new
corporate strategic plan. Among other things, the Committee concluded
that Mr. Centanni had strengthened the Company's executive management
team during 2002. The Committee did not assign weights or apply any
formula to these factors.
In recognition of his past service to the Company and as a
further long-term incentive opportunity, on February 24, 2003, the
Committee also awarded Mr. Centanni 18,000 shares of Company
restricted common stock. This award was made in lieu of the one-time
additional incentive award cash bonuses provided to other
executives. See, Annual Cash Compensation--Annual Incentive
Compensation. Mr. Centanni has the right to vote and to receive
dividends with respect to these shares. However, he must remain
employed by the Company until February 23, 2006, as a condition to
the vesting of the shares and the removal of their restrictions on
transferability. See, Executive Management Compensation--Summary
Compensation Table.
OTHER
Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), limits the deductibility by public corporations of
non-performance based compensation paid to specified executive
officers. The Company endeavors to maximize deductibility of
compensation by qualifying certain compensation as performance-based
under Section 162(m) to the extent practicable while maintaining
competitive compensation. All cash compensation for 2002 paid to the
Company's executive officers, and the compensation element of stock
option shares received under the Company's Incentive Plan, qualified
for deduction under the Code.
March 21, 2003
Richard L. Thompson, Chairperson
Thomas M. McKenna
Diane K. Schumacher
16
STOCK PERFORMANCE GRAPH
The following table compares the cumulative total stockholder
return for the Company's Common Stock on an annual basis from
January 1, 1998 through December 31, 2002 to the cumulative total
returns for the same periods of the: (a) Standard & Poor's 500 Stock
Index; (b) Standard and Poor's 600 Index for Industrial Machinery, a
pre-established industry index believed by the Company to have a
peer group relationship with the Company; and (c) Standard & Poor's
SmallCap 600, an industry index which includes the Company's Common
Stock as of August 26, 1998. The following table also compares the
cumulative total stockholder return for the Company's Common Stock
on an annual basis from January 1, 1998 through December 31, 2001 to
the cumulative return for the same period of the Standard and Poor's
MidCap Index for Manufacturing (Specialized Industries), a
pre-established industry index believed by the Company to have a
peer group relationship with the Company. In 2001, Standard & Poor's
reclassified all of its U.S. indices to reflect the Global Industry
Classification Standard. As a result, the MidCap Index for
Manufacturing (Specialized Industries) was discontinued for years
after 2001. All information presented assumes the reinvestment of
dividends. These indices are included for comparative purposes only
and do not necessarily reflect management's opinion that such
indices are an appropriate measure of the relative performance of
the stock involved, and are not intended to forecast or be
indicative of possible future performance of the Common Stock.
[GRAPH]
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
Gardner Denver 100 58 66 84 88 80
S&P 500 Index 100 129 156 141 125 97
S&P SmallCap 600 Index 100 99 111 124 132 113
S&P 600 Ind. Machy. 100 96 109 106 113 108
MidCap Specialized 100 87 97 96 136
17
EMPLOYEE AND EXECUTIVE BENEFIT PLANS
In addition to the Incentive Plan, the Savings Plans and group
health, hospitalization and life insurance plans generally available
to all employees, the Company also provides other benefit plans for
employees and executive officers, some of which are described below.
RETIREMENT PLANS
The Company maintains the Gardner Denver, Inc. Pension Plan (the
"Pension Plan") and the Gardner Denver, Inc. Supplemental Excess
Defined Benefit Plan (the "Excess Defined Benefit Plan") for the
benefit of certain employees as defined in the Pension Plan. The
Company also maintains certain other pension plans.
Under the Pension Plan, the Company credits 4% of total
compensation paid up to the Social Security wage base for the year,
plus 8% of total compensation paid in excess of the Social Security
wage base, annually to each individual's account. For purposes of
the Pension Plan, total compensation is cash remuneration paid
during the year by the Company to or for the benefit of a
participant, including base salary for the current year and annual
cash bonus earned during the prior year but paid in the current year
for the executives named in the Summary Compensation Table.
Benefits at retirement are payable, as the participant elects,
in the form of a level annuity with or without survivorship or a
lump-sum payment. The Company will maintain the status of the plans
as qualified defined benefit plans through sufficient contributions
to a trust fund to meet the minimum requirements under the Code.
The Company also maintains the Excess Defined Benefit Plan. The
Excess Defined Benefit Plan is a nonqualified plan providing certain
employees, including those named in the Summary Compensation Table,
Pension Plan benefits that cannot be paid from a qualified, defined
benefit plan due to provisions of the Code. Under the Excess Defined
Benefit Plan for 2002, the Company credited 4% of the amount of
annual compensation in excess of $170,000, up to the $200,000 IRS
annual compensation limit, and 12% of the amount of annual
compensation in excess of the $200,000 IRS annual compensation, to
the individual accounts of the participating employees, including
those named in the Summary Compensation Table. The Excess Defined
Benefit Plan is funded through contributions by the Company to a
Rabbi Trust.
For each of the individuals shown in the Summary Compensation
Table, the following table shows current credited years of service,
the year each attains age 65, and the projected annual pension
benefit (including amounts payable under the Excess Defined Benefit
Plan) at age 65. The projected annual pension benefit assumes that
benefits will be paid on a straight-life annuity basis, compensation
for each executive officer continues at December 31, 2002 base
salary levels plus an annual cash bonus equal to the average cash
bonus received by each officer in 2002 and 2001, and an interest
rate of 4.92% after December 31, 2002.
YEARS OF
CREDITED YEAR
SERVICE AS OF INDIVIDUAL ESTIMATED ANNUAL
MARCH 7, 2003 REACHES AGE 65 BENEFIT AT AGE 65
------------- -------------- -----------------
Ross J. Centanni............... 23 2010 $196,092
Philip R. Roth................. 6 2016 82,074
J. Dennis Shull................ 27 2014 80,475
Michael S. Carney.............. 1 2022 52,419
Tracy D. Pagliara.............. 2 2028 89,023
STOCK REPURCHASE PROGRAM FOR EXECUTIVE OFFICERS
The Company has granted stock options under the Incentive Plan
to promote the Company's long-term interests, and executive officers
have exercised a portion of such stock options in accordance with
the Incentive Plan and applicable stock option agreements. The
cumulative increase in the market price of the Company's Common
Stock since the grant of some of these stock options resulted in the
imposition of significant alternative minimum taxes on these
employees. Therefore, the Company has established a Stock Repurchase
Program for its executive officers, to provide a means for them to
sell Gardner Denver Common Stock and
18
obtain sufficient funds to meet alternative minimum tax obligations
which arise from the exercise of incentive stock options. The
program is intended to mitigate any potential disruption to an
orderly trading market in the Company's Common Stock, which could
result if the executives' trades were effected through securities
brokers, in the context of the Company's relatively small average
trading volume. The sales price under this program is the average of
the high and low sales prices of the Company's Common Stock on the
composite tape of the New York Stock Exchange on the date of the
repurchase. The determination to sell shares under this program is
final and must be submitted either on the day of the sale or no
later than prior to the initiation of trading the following day.
There were no share repurchases under the Plan from January 1, 2002
through March 7, 2003.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into Change of Control Agreements ("COC
Agreements") with each of the individuals named in the Summary
Compensation Table. The purpose of the COC Agreements is to
encourage each of the executive officers to continue to carry out
the officer's duties in the event of a possible change in control of
the Company. The COC Agreements address adverse changes that may
occur with respect to the executive's terms and conditions of
employment, including position, location, compensation and benefits,
following a change of control. If, during the 24-month period
following a change in control, the Company terminates the executive
officer's employment other than for cause or the executive officer
terminates for good reason, the executive officer is generally
entitled to receive: (i) accrued but unpaid compensation; (ii) cash
equal to the amount of the highest annual bonus during the three
preceding years; (iii) a lump sum payment of two times (a) the
executive officer's annual base salary and (b) the highest annual
bonus during the three preceding years; (iv) continued welfare
benefits for two years; and (v) the vesting and continued accrual of
benefits under any defined benefit retirement plans. The COC
Agreements also prohibit the executive officer from disclosing
confidential information and from soliciting the Company's
employees, customers or clients.
The Chief Executive Officer also has a COC Agreement. His
benefits are the same as those described above, except that his lump
sum payment is equal to three times his annual base salary and
highest annual bonus during the three preceding years and his
welfare benefits continue for a period of three years.
For purposes of the COC Agreements, a "change in control" means
the occurrence of any of the following events: (i) any person or
group acquires beneficial ownership of 20% of the voting power of
the Company; (ii) there is a change in the composition of a majority
of the Board of Directors within any two-year period which change is
not approved by certain of the directors who were directors at the
beginning of such two-year period; (iii) the stockholders of the
Company approve and the Company consummates a merger that results in
a change in a majority of the combined voting power of the Company
or the surviving entity; or (iv) the stockholders of the Company
approve and the Company consummates a plan of complete liquidation
or dissolution of the Company, or a sale of all or substantially all
of the assets of the Company.
The foregoing summary is qualified in its entirety by reference
to the complete copy of the form of COC Agreements included as
Exhibits 10.13 and 10.14 to the Company's Form 10-Q for the quarter
ended June 30, 2002, which was filed with the Securities and
Exchange Commission.
19
AUDIT COMMITTEE MATTERS
REPORT OF THE AUDIT AND FINANCE COMMITTEE
Management is responsible for the Company's internal controls
and the financial reporting process. KPMG LLP, the Company's
independent public accountants, is responsible for performing an
independent audit of the Company's consolidated financial statements
in accordance with generally accepted auditing standards and issuing
a report thereon. The Audit and Finance Committee's responsibility
is to monitor and oversee these processes.
In this context, the Audit and Finance Committee has met and
held discussions with management and KPMG. Management represented to
the Audit and Finance Committee that the Company's consolidated
financial statements were prepared in accordance with generally
accepted accounting principles. The Audit and Finance Committee has
reviewed and discussed the consolidated financial statements with
management and KPMG. The Audit and Finance Committee specifically
addressed with KPMG matters required to be discussed by Statement on
Auditing Standards No. 61.
KPMG also provided to the Committee the written disclosures and
letter required by Independence Standards Board Standard No. 1, as
modified or supplemented. As part of its review of the financial
statements and the auditors' disclosures and report, the members of
the Audit and Finance Committee also discussed with KPMG its
independence. In this connection, the Audit and Finance Committee
considered whether the types of services for which KPMG billed the
Company fees during 2002 were compatible with maintaining such
independence. See, Audit Committee Matters--Accounting Fees.
The members of the Audit and Finance Committee are not
professionally engaged in the practice of auditing or accounting and
are not experts with respect to auditor independence. Members of the
Audit and Finance Committee rely on the information provided to them
and on the representations made by management and the independent
accountants. Accordingly, the Audit and Finance Committee's
considerations and discussions referred to above do not assure that
the audit of the Company's financial statements has been carried out
in accordance with generally accepted auditing standards, that the
financial statements are presented in accordance with generally
accepted accounting principles or that the Company's auditors are in
fact "independent".
Based on its discussions with management and the Company's
independent auditors, and subject to the limitations on the role and
responsibilities of the Audit and Finance Committee referred to
above and in its charter, the Committee recommended to the Board
that the financial statements be included in the Annual Report on
Form 10-K for the period ended December 31, 2002, for filing with
the Securities and Exchange Commission.
March 21, 2003
Donald G. Barger, Jr., Chairperson
Frank J. Hansen
Raymond R. Hipp
20
ACCOUNTING FEES
The following summarizes the aggregate fees KPMG billed the
Company for services relating to the year ended December 31, 2002.
Audit Fees. The aggregate fees of KPMG billed, or expected to be
billed, to the Company for professional services rendered for the
audit of the Company's annual financial statements for the year
ended December 31, 2002 and the reviews of the financial statements
included in the Company's Forms 10-Q for 2002 were $302,500. The
Company was also billed $7,865 from Arthur Andersen, LLP for
professional services rendered for reviews of financial statements
included in the Company's Forms 10-Q for 2002. See, Relationship
with Independent Public Accountants.
Financial Information Systems Design and Implementation Fees. No
fees were billed, or are expected to be billed, by KPMG to the
Company for financial information systems design and implementation
(the professional services described in Paragraph (c)(4)(ii) of Rule
2-01 of Regulation S-X) for 2002.
All Other Fees. The aggregate fees KPMG billed or expected to
bill the Company for all other services for 2002 was $234,200,
comprised of $187,500 for tax related services and $46,700 for
benefit plan audits.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
On June 26, 2002, based on the recommendation of the Audit and
Finance Committee, the Board appointed KPMG to serve as the
Company's independent public accountants for the fiscal year 2002.
KPMG succeeded Andersen in that capacity.
Andersen's audit reports on the Company's consolidated financial
statements for each of the fiscal years ended December 31, 2001 and
2000 did not contain an adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope
or accounting principles.
During the fiscal years ended December 31, 2001 and 2000, and
through June 26, 2002, there were no disagreements with Andersen on
any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not
resolved to Andersen's satisfaction, would have caused reference to
the subject matter in connection with their report on the Company's
consolidated financial statements for such years. Further, there
were no reportable events as defined in Item 304(a)(1)(v) of
Regulation S-K.
During the years ended December 31, 2001 and 2000, and through
June 26, 2002, the Company did not consult KPMG with respect to the
application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that
might be rendered on the Company's consolidated financial
statements, or any other matters or reportable events as set forth
in Items 304(a)(2)(i) and (ii) of Regulation S-K.
The Company provided Andersen and KPMG with a copy of the
foregoing disclosures as required by SEC rules, and did not receive
any statement from either Andersen or KPMG regarding the
disclosures. Representatives of KPMG will be present at the 2003
Annual Stockholders Meeting. They will be available to answer
appropriate questions and will have the opportunity to make a
statement, if they desire to do so.
21
STOCKHOLDERS' PROPOSALS FOR 2004 ANNUAL MEETING
Stockholders' proposals intended to be presented at the 2004
Annual Meeting must be received by the Company at its principal
executive offices (Attention: Corporate Secretary) on or before
November 24, 2003 for inclusion in the Company's proxy materials for
that meeting. Upon receipt of any proposal, the Company will
determine whether or not to include such proposal in the proxy
statement in accordance with the regulations governing the
solicitation of proxies.
Any stockholder proposal or nomination for director submitted
other than for inclusion in the Company's proxy materials for that
meeting must ordinarily be received by the Company at its principal
executive offices (Attention: Corporate Secretary) no later than 90
days or more than 120 days prior to the meeting (i.e., which is
currently anticipated to be January 7, 2004 and February 6, 2004,
respectively, for the 2004 Annual Meeting), or such proposal will be
considered untimely. However, if the Company changes the date of the
meeting by more than 30 days from the date of the previous year's
meeting, then such notice must be received within 10 days after
notice of the meeting is mailed or other public disclosure of the
meeting is made. The stockholder filing the notice of proposal or
nomination must describe various matters regarding the proposal or
nominee, including, but not limited to, name, address, shares held,
a description of the proposal or information regarding the nominee
and other specified matters. These requirements are separate from
and in addition to the requirements a stockholder must meet to have
a proposal included in the Company's proxy statement. The foregoing
time limits also apply in determining whether notice is timely for
purposes of rules adopted by the Securities and Exchange Commission
relating to the exercise of discretionary voting authority.
Any stockholder desiring a copy of the Company's Bylaws will be
furnished one without charge upon written request to the Corporate
Secretary at 1800 Gardner Expressway, Quincy, Illinois 62305.
GARDNER DENVER, INC.
Tracy D. Pagliara
Vice President, General Counsel and Secretary
March 21, 2003
22
ANNEX A
GARDNER DENVER, INC.
AUDIT AND FINANCE COMMITTEE CHARTER
Pursuant to Section 4.1 of the Bylaws of Gardner Denver, Inc.
(the "Company"), the Board of Directors (the "Board") is required to
designate an Audit and Finance Committee (the "Committee") and to
adopt a charter, which may be amended from time to time, setting
forth the powers and duties of the Committee. The Board and the
Committee have approved and adopted this Charter.
PURPOSE OF THE COMMITTEE
The purpose of the Committee shall be to assist the Board in
fulfilling its oversight responsibilities with respect to:
1. The integrity of the Company's financial statements and
financial information provided to shareholders and others;
2. The adequacy and effectiveness of the Company's disclosure
controls and procedures and its internal controls and procedures for
financial reporting;
3. The adequacy and effectiveness of the Company's financial
reporting principles and policies;
4. The adequacy and effectiveness of the Company's internal and
external audit processes; and
5. The adherence to the Company's regulatory compliance policies
and procedures.
COMPOSITION OF THE COMMITTEE
The following requirements shall govern the composition of the
Committee.
1. Number. The Committee shall consist of not less than three
(3) independent directors appointed to serve at the pleasure of the
Board.
2. Independence. Each member of the Committee shall meet the
independence requirements of the New York Stock Exchange, including,
without limitation, that: (a) the member has no material
relationship with the Company; and (b) the member's sole
remuneration from the Company is his or her compensation as a
director.
3. Financial Literacy. Each member shall be financially literate
or must become financially literate within a reasonable period of
time after his/her appointment to the Committee. The "financially
literate" qualification shall be interpreted by the Board in its
business judgment. In exercising its business judgement, the Board
shall consider determinations or definitions of such qualification
by the New York Stock Exchange and/or the Securities and Exchange
Commission, if available.
4. Accounting or Financial Expertise. At least one member of the
Committee, including the Chairman of the Committee, must have
accounting or related financial management expertise, as the Board
interprets such qualification in its business judgment. An expert
for this purpose is a person who has:
a. an understanding of generally accepted accounting principles
and financial statements;
b. an ability to assess the general application of such
principles in connection with the accounting for estimates, accruals
and reserves;
c. some experience preparing, auditing, analyzing and evaluating
financial statements that present a breadth and level of complexity
of accounting issues that are generally comparable to the breadth
and complexity of issues that can reasonably be expected to be
raised by the Company's financial statements, or experience actively
supervising one or more persons engaged in such activities;
d. an understanding of internal controls and procedures for
financial reporting; and
e. an understanding of audit committee functions.
A-1
The expert must have acquired such attributes through any one or
more of the following:
i. Education and experience as a principal financial officer,
principal accounting officer, controller, public accountant or
auditor or experience in one or more positions that involve the
performance of similar functions;
ii. Experience actively supervising a principal financial
officer, principal accounting officer, controller, public
accountant, auditor or person performing similar functions;
iii. Experience overseeing or assessing the performance of
companies or public accountants with respect to the preparation,
auditing or evaluation of financial statements; or
iv. Other relevant experience.
POWERS AND DUTIES
The powers and duties of the Committee shall be as follows:
1. To have sole authority with respect to the following matters
relating to the Company's independent public accounting firm (the
"Accounting Firm")--appointment, discharge, oversight, compensation,
approval of non-audit services and determination of independence;
2. To review with the Accounting Firm and management the
planned scope of the annual audit of the Company's consolidated
financial statements and the results thereof;
3. To review with management the planned scope of the Company's
annual internal audit plan and the findings and conclusions of such
internal audit;
4. To receive and review reports at least annually from the
Accounting Firm with respect to the following matters:
a. all critical accounting policies and practices used by the
Company in the preparation of its financial statements,
b. all alternative treatments of financial information within
GAAP discussed with management, including the ramifications of the
use of any alternative treatments and the treatment preferred by the
Accounting Firm,
c. any other material, written communications between the
Accounting Firm and management, including management letters or
schedules of unadjusted differences,
d. any problems with the audit, including disagreements with
management, adjustments and communication, budget and staff issues,
and
e. the Accounting Firm's independence and internal quality
control procedures, including material issues raised by
quality-control review, peer review or governmental inquiries of the
firm;
5. To receive and review the annual report from the Accounting
Firm regarding the Company's internal controls and procedures for
financial reporting required pursuant to Section 404 of the Sarbanes
Oxley law and to review such report with management;
6. To review with the CEO, CFO and representatives of the
management disclosure committee, the internal audit department and
the Accounting Firm the effectiveness of the Company's internal
controls and procedures for financial reporting and its disclosure
controls and procedures, and any other material issues in connection
with (i) earnings press releases, (ii) filings made with the
Securities and Exchange Commission ("SEC"), as required and/or (iii)
significant changes in accounting principles;
7. To receive on at least an annual basis from the CEO, CFO,
Controller and such other financial executives of the Company as the
Committee shall determine, the Code of Ethics Certification attached
as Exhibit 1;
---------
8. To hold such other conferences and conduct such other
reviews with the Accounting Firm or with management as deemed
necessary or appropriate;
A-2
9. To establish procedures for the receipt, retention,
treatment and handling of complaints regarding accounting, internal
accounting controls or auditing matters, including procedures for
the confidential, anonymous submission by employees of concerns and
complaints regarding accounting, internal controls and procedures
for financial reporting or auditing matters;
10. To address any attempt by an officer, employee or other
person acting under the direction of management to fraudulently
influence, coerce, manipulate or mislead the Accounting Firm for the
purpose of creating materially misleading financial statements;
11. To oversee Company management (the benefits committee), in
its establishment of investment objectives, policies and performance
criteria for the management of the Company's retirement and benefit
plan assets;
12. To review the performance of the Committee on an annual
basis;
13. To review and reassess the adequacy of the Committee's
charter on an annual basis and to report such results to the Board;
14. To monitor compliance with the Company's Conflicts of
Interest and Ethical Conduct Policy and other policies and
procedures, and related information, concerning environmental, legal
and other matters which may represent material financial exposure or
risk to the Company;
15. To meet at least four (4) times per year on a quarterly
basis;
16. To adopt rules and make provisions as deemed appropriate for
the conduct of such meetings, acting upon and recording matters
within its authority and for making such reports to the Board as it
may deem appropriate;
17. To report to the Board on the results of reviews and
conferences and submit to the Board any recommendations the
Committee may have from time to time;
18. To report on the Committee's activities and the quality of
the Company's financial reports in the Company's annual proxy
statement;
19. To retain outside financial and legal advisors to assist it
in meeting any of the above obligations, as necessary and
appropriate; and
20. To ensure that the Company provides for appropriate funding
for payment of compensation to the Accounting Firm and any other
outside advisors retained by the Committee.
PRINCIPLES AND REQUIREMENTS
In meeting its duties and exercising its powers, the Committee
shall be guided by the following principles and requirements.
1. Management Responsibility. While the Committee has the
responsibilities and powers set forth in this Charter, it is not the
duty of the Committee to plan or conduct audits or to determine that
the Company's financial statements are complete and accurate and are
in accordance with generally accepted accounting principles. This is
the responsibility of management and the Accounting Firm. It is also
not the duty of the Committee to ensure compliance with laws and
regulations and the Company's policies and procedures, including the
Conflicts of Interest and Ethical Conduct Policy.
2. Oversight Role. Effective audit committees should:
a. understand the Company's risk profile and oversee risk
assessment and management practices;
b. approach their responsibilities with a degree of constructive
skepticism, especially in reviewing the Company's financial
reporting and financial controls with management and the internal
and external auditors;
c. focus on the important responsibility of overseeing the
company's financial integrity, including reviewing and assessing the
quality of senior management;
A-3
d. confirm the quality of systems involved in the financial
management of the Company;
e. encourage and provide open lines of communication between the
committee and both internal and external auditors as well as
management;
f. meet in executive sessions separately with the Accounting
Firm and internal auditor to review and assess financial reporting
and financial controls and quality of financial reports;
g. review the qualifications, quality, independence and
reputation of the Accounting Firm and lead partner on an annual
basis;
h. require rotation of the lead partners and review partners of
the audit engagement team at least every five (5) years; and
i. review and discuss with management and the Accounting Firm
the Company's critical accounting policies and the application and
disclosure of these policies, prior to finalizing and filing annual
reports.
3. Internal Controls and Procedures for Financial Reporting.
Internal controls and procedures for financial reporting are defined
to encompass traditional financial controls, as well as the controls
used by management over items that could have a financial impact. In
addition to the commitment and articulated expectations of the
Company's senior management, the foundation of the Company's
internal controls and procedures for financial reporting should be
rooted in the following five (5) components:
a. Control Environment, including the integrity, ethical values
and competence of the Company's people; management's philosophy and
operating style; the way management assigns authority and
responsibility and organizes and develops its people; and the
attention and direction provided by the Board of Directors.
b. Risk Assessment, including the identification and analysis of
relevant risks to achievement of objectives, forming a basis for
determining how the risks should be managed.
c. Control Activities, which ensure that necessary actions are
taken to address risks to achievement of the objectives.
d. Information and Communication, including steps that ensure
information is delivered and communication is provided down, across
and up the organization.
e. Monitoring, to assess the quality of the system over time
through ongoing monitoring and separate evaluations, including
thorough regular management supervision, with reports of
deficiencies upstream.
4. Fiduciaries and Investment Management Organizations.
Fiduciaries and investment management organizations employed to
assist in investing and managing the assets of the Company's
retirement plans should comply with the Company's investment
policies and objectives.
5. Non-Audit Services. The Accounting Firm shall be prohibited
from performing the following non-audit services for the Company:
a. Bookkeeping or other services relating to the accounting
records or financial statements of the Company;
b. Financial information systems design and implementation;
c. Appraisal or valuation services, fairness opinions, or
contributions-in-kind reports;
d. Actuarial services;
e. Internal audit outsourcing services;
f. Management functions or human resources;
g. Broker, dealer, investment advisor or investment banking
services;
h. Legal services; and
i. Any other services deemed by the Committee to be
impermissible.
A-4
, 200
--------- -
EXHIBIT 1
Audit and Finance Committee of the
Board of Directors
Gardner Denver, Inc.
1800 Gardner Expressway
Quincy, IL 62305
Gentlemen:
In my role as of Gardner Denver, Inc. (the "Company"), I
---------
certify to you that I adhere to and advocate the following principles
and responsibilities governing my professional and ethical conduct.
To the best of my knowledge and ability:
1. I act with honesty and integrity, avoiding actual or apparent
conflicts of interest in personal and professional relationships.
2. I provide constituents with information that is accurate,
complete, objective, relevant, timely and understandable. I also
take all necessary and reasonable steps to ensure that the Company
provides full, fair, accurate, timely and understandable disclosure
in reports and documents filed with, or submitted to, the Securities
and Exchange Commission and in other public communications made by
the Company.
3. I comply with rules and regulations of federal, state,
provincial and local governments, and other appropriate private and
public regulatory agencies. I share knowledge and maintain skills
important and relevant to my constituents' needs.
4. I act in good faith, responsibly, with due care, competence
and diligence, without misrepresenting material facts or allowing my
independent judgment to be subordinated.
5. I respect the confidentiality of information acquired in the
course of my work except when authorized or otherwise legally
obligated to disclose. Confidential information acquired in the
course of my work is not used for personal advantage.
6. I proactively promote ethical behavior as a responsible
partner among peers in my work environment. I comply in all material
respects with the Company's Conflicts of Interest and Ethical
Conduct Policy (Number CP-10-002). I also take all necessary and
reasonable steps to ensure that (a) no Company employee uses his or
her authority or influence for the purpose of interfering with, or
retaliating against, another employee in connection with the
disclosure of improper conduct, or the authorized implementation of
related corrective action and (b) any employee found to have engaged
in such interference or retaliation is subject to disciplinary
measures, up to and including termination.
7. I achieve responsible use of and control over all assets and
resources employed or entrusted to me.
------------------------------------
Signature
[Gardner Denver logo] -----------------------------------------------
c/o National City Bank V O T E B Y T E L E P H O N E
Corporate Trust Operations -----------------------------------------------
Locator 5352 Have your proxy/voting instruction card
P. O. Box 92301 available when you call the TOLL-FREE NUMBER
Cleveland, OH 44193-0900 1-800-542-1160 using a touch-tone telephone.
You will be prompted to enter your Control
Number and then you can follow the simple
prompts that will be presented to you to record
your vote.
------------------------------------------------
V O T E B Y I N T E R N E T
------------------------------------------------
Have your proxy/voting instruction card
available when you access the website
http://www.votefast.com. You will be
prompted to enter your Control Number and
then you can follow the simple prompts that will
be presented to you to record your vote.
------------------------------------------------
V O T E B Y M A I L
------------------------------------------------
Please mark, sign and date your proxy/voting
instruction card and return it in the POSTAGE-
PAID ENVELOPE provided or return it to: Stock
Transfer Dept (GDI) National City Bank, P.O.
Box 94509, Cleveland, OH 44101-4500.
---------------------- ----------------------- -----------------------------
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call TOLL-FREE using a Access the Website and Return your proxy/instruction
touch-tone telephone: cast your vote: card in the postage-paid
1-800-542-1160 http://www.votefast.com envelope provided.
---------------------- ----------------------- -----------------------------
VOTE 24 HOURS A DAY, 7 DAYS A WEEK!
YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN TIME
ON MONDAY, MAY 5, 2003 TO BE COUNTED IN THE FINAL TABULATION.
===================================
YOUR CONTROL NUMBER IS:
===================================
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
--------------------------------------------------------------------------------
[Gardner Denver logo] PROXY/VOTING INSTRUCTIONS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 2003.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED "FOR" ALL NOMINEES IN PROPOSAL 1.
Proposal 1. Election of Directors
Nominees:
(01) Ross J. Centanni
(02) Richard L. Thompson
/ / FOR ALL To Withhold an individual nominee, mark
/ / WITHHOLD ALL "FOR All Except" and write the nominee's
/ / FOR ALL EXCEPT name on the line below.
------------------------------------------------------------
/ / I plan to attend the Annual Meeting.
--------------------------------------------------------------------------------
Signature(s) Date
Please sign exactly as name(s) appear hereon. When shares are held by joint
tenants, both should sign. When signing as attorney-in-fact, executor,
administrator, personal representative, 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.
G A R D N E R D E N V E R , I N C .
ANNUAL MEETING OF STOCKHOLDERS
MAY 6, 2003, 1:30 P.M.
QUINCY COUNTRY CLUB
2410 STATE STREET
QUINCY, ILLINOIS 62301
THIS IS YOUR PROXY. YOUR VOTE IS IMPORTANT. IT IS IMPORTANT THAT YOUR SHARES ARE
REPRESENTED AT THIS MEETING, WHETHER OR NOT YOU ATTEND THE MEETING IN PERSON. TO
MAKE SURE YOUR SHARES ARE REPRESENTED, WE URGE YOU TO COMPLETE AND MAIL YOUR
PROXY CARD OR VOTE BY TELEPHONE OR VIA THE INTERNET.
STOCKHOLDER INFORMATION
CORPORATE OFFICES TRANSFER AGENT AND REGISTRAR
Gardner Denver, Inc. National City Bank, Dept. 5352
1800 Gardner Expressway Corporate Trust Operations
Quincy, IL 62305-9364 P.O. Box 92301
Telephone: (217) 222-5400 Cleveland, OH 44193-0900
E-mail address: Toll-free Telephone: (800) 622-6757
mktg@gardnerdenver.com E-mail address:
shareholder.inquiries@nationalcity.com
NEWS RELEASES
News releases, including quarterly earnings releases, are available by visiting
our website at http://www.gardnerdenver.com.
PLEASE FOLD AND DETACH CARD AT PERFORATION BEFORE MAILING.
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The undersigned, having received the Notice and Proxy Statement for the Annual
Meeting of Stockholders, hereby appoints each of Philip R. Roth and Tracy D.
Pagliara as the true and lawful attorneys-in-fact, agents and proxies (with full
power of substitution) to represent the undersigned and to vote at the Annual
Meeting of Stockholders of the Company, to be held at the Quincy Country Club,
2410 State Street, Quincy, Illinois on Tuesday, May 6, 2003 at 1:30 p.m., local
time, and any and all adjournments of the Meeting, in the manner specified, with
respect to all shares of Common Stock of Gardner Denver, Inc. which the
undersigned is entitled to vote. The undersigned also hereby directs UMB Bank,
N.A., as trustee ("UMB Bank"), to represent the undersigned and to vote at such
Meeting, and any and all adjournments of the Meeting, in the manner specified,
with respect to all shares of Common Stock to which the undersigned, as a
participant in the Gardner Denver, Inc. Retirement Savings Plan (and the Gardner
Denver Supplemental Excess Defined Contribution Plan) and/or the Gardner Denver,
Inc. Savings Plan (the "Savings Plans"), is entitled to direct the voting. Such
representation and voting shall be according to the number of votes which the
undersigned would possess if personally present, for the purposes of considering
and taking action upon the matters set forth on the front page of this proxy/
voting instruction card, as more fully described in the Notice and Proxy
Statement.
Should any other matter requiring a vote of the stockholders arise, the proxies
named above are authorized to vote in accordance with their discretion. The
Board of Directors is not aware of any matter which is to be presented for
action at the meeting, other than as set forth on this card.
THIS PROXY/VOTING INSTRUCTION CARD, WHEN PROPERLY EXECUTED, WILL BE VOTED AND
DEEMED AN INSTRUCTION TO UMB BANK TO VOTE IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO INSTRUCTION IS MADE, THIS PROXY/VOTING INSTRUCTION CARD WILL
BE VOTED, IN THE SAME PROPORTION (FOR OR AGAINST) AS THE SHARES FOR WHICH
INSTRUCTIONS ARE RECEIVED.
Shares of Common Stock held in the Savings Plans will be voted by UMB Bank as
trustee of the Savings Plan. Voting instructions to UMB Bank regarding your
Savings Plans shares must be received by 11:59 p.m. Eastern Time on May 2, 2003.
Such voting instructions can be made in the same manner as other shares of
Common Stock are voted by proxy (i.e., by returning the proxy card by mail or
voting by telephone or via the Internet). After May 2, 2003, all Savings Plans
shares for which voting instructions have not been received will be voted by UMB
Bank in the same proportion (for or against) as the shares for which
instructions are received.
APPENDIX
Page 17 of the printed proxy statement contains a Stock Performance
Graph. The information contained within the graph is presented in a tabular
format immediately following the graph.