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:
........................................................................
2) Aggregate number of securities to which transaction applies:
........................................................................
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):
........................................................................
4) Proposed maximum aggregate value of transaction:
........................................................................
5) Total fee paid:
........................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:
........................................................................
2) Form, Schedule or Registration Statement No.:
........................................................................
3) Filing Party:
........................................................................
4) Date Filed:
........................................................................
GARDNER DENVER, INC.
1800 GARDNER EXPRESSWAY
QUINCY, ILLINOIS 62305
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS
The 2004 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 4, 2004 at 1:30 p.m., for the
following purposes:
1. To elect three directors to serve for a three-year term each;
2. To amend and restate the Company's Long-Term Incentive Plan;
3. To amend and restate the Company's Employee Stock Purchase
Plan; and
4. To transact such other business as may properly come before
the meeting.
Stockholders of record at the close of business on March 5,
2004, 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, Administration,
General Counsel and Secretary
Quincy, Illinois
March 10, 2004
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 instructions 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 26, 2004. The record date
for determining the stockholders entitled to vote at the meeting was
the close of business on March 5, 2004 (the "Record Date"). On that
date, the outstanding voting securities of the Company were
16,251,601 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. Abstentions and "broker non-votes" (as described below) will
be considered present at the meeting for purposes of determining a
quorum with respect to items brought before the meeting.
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."
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 and voting thereon, is required to elect each of the
nominees to the director position (Item 1 on the proxy card). For
these purposes, abstentions and "broker non-votes" will not be
counted as voting for or against the proposal to which it relates.
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 and voting thereon, is required to approve the amended
and restated Long-Term Incentive Plan and Employee Stock Purchase
Plan (Items 2 and 3 on the proxy card, respectively). In addition,
pursuant to New York Stock Exchange rules, the total votes cast on
each such proposal must equal or exceed 50% of all shares entitled
to vote on the proposals. Shares represented by proxies that are
marked "abstain" with respect to these matters will be treated as
votes and will have the same effect as a vote "against" the matters.
Broker non-votes will not be considered as votes cast with respect
to these matters and so will have no effect on the outcome, unless
they result in a failure to obtain total votes cast of more than 50%
of the shares entitled to vote.
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.
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
1
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 3, 2004 for all shares of
Common Stock, except shares held in the Gardner Denver, Inc. Savings
Plan and the Gardner Denver, Inc. Retirement Savings Plan, including
the Gardner Denver, Inc. Supplemental Excess Defined Contribution
Plan (together, the "Savings Plans").
Shares of Common Stock held in the Savings Plans will be voted
by Wachovia Bank, N.A. ("Wachovia"), as trustee of the Savings
Plans. The enclosed proxy card includes the number of equivalent
shares credited to your account. Voting instructions to Wachovia
regarding your Savings Plans shares must be received by 11:59 p.m.
Eastern Time on April 30, 2004. 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). A vote by
telephone or through the Internet authorizes Wachovia 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.
After April 30, 2004, all Savings Plans shares for which voting
instructions have not been received and shares not yet allocated to
participants' accounts will be voted by Wachovia 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 April
30, 2004, the equivalent shares of Common Stock credited to your
Savings Plans account will be voted by Wachovia in the same
proportion as the shares for which instructions were received from
other Savings Plans participants.
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 4, 2004, the Board of Directors has approved the
nominations of Frank J. Hansen, Thomas M. McKenna, and Diane K.
Schumacher, who are currently directors, to serve for three-year
terms expiring in 2007. THE BOARD OF DIRECTORS BELIEVES THAT THE
ELECTION OF THESE NOMINEES WILL BE IN THE BEST INTERESTS OF THE
STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS A VOTE FOR ELECTION OF
---
THESE NOMINEES, WHICH IS ITEM 1 ON THE PROXY CARD. Proxies received
in response to the Board's solicitation will be voted FOR election
of these nominees for director if no specific instructions are
included for Item 1.
If any one of the nominees becomes unavailable or unwilling for
good reason to stand 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
to stand for election.
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] FRANK J. HANSEN, age 62, has been a director of Gardner
Denver since June 1997. Mr. Hansen was the President and
Chief Executive Officer of IDEX Corporation, 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 66, has been a director of Gardner
Denver since its spin-off from Cooper Industries, Inc.
("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, 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.
[PHOTO] DIANE K. SCHUMACHER, age 50, 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 J.D. 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.
DIRECTORS WHOSE TERMS OF OFFICE WILL CONTINUE AFTER THE MEETING
TERMS EXPIRING AT THE 2005 ANNUAL MEETING OF STOCKHOLDERS
[PHOTO] DONALD G. BARGER, JR., age 61, has been a director of
Gardner Denver since its spin-off from Cooper in April 1994.
Mr. Barger is the Senior Vice President and Chief Financial
Officer of Yellow Roadway Corporation, a publicly held
company specializing in the transportation of goods and
materials. He joined the predecessor company, Yellow
Corporation ("Yellow") in December 2002 in the same
capacity. 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.
3
[PHOTO] RAYMOND R. HIPP, age 61, 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, 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.
TERMS EXPIRING AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS
[PHOTO] ROSS J. CENTANNI, age 58, 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 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 a 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 64, 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.
BOARD OF DIRECTOR RESPONSIBILITIES, COMPENSATION AND RELATIONSHIPS
The Company's Board of Directors (the "Board") held four regular
meetings and three special meetings during 2003. Each director
attended all of the Board meetings and meetings of Committees of
which he or she was a member.
The Board has adopted categorical standards of independence for
its members, a copy of which is attached hereto as Appendix A. In
accordance with New York Stock Exchange and SEC rules and
guidelines, the Board assesses the independence of its members from
time to time. As part of this assessment, the following steps are
taken:
* The Board reviews the standards of independence in relation to
each director's response to a detailed questionnaire which
addressed the director's background, activities and relationships.
* The Board also determines whether or not any director has a
material relationship with the Company, either directly or
indirectly as a partner, shareholder or officer of an organization
that has a relationship with the Company. In making this
determination, the Board broadly considers all relevant facts and
circumstances, including (a) the nature of the relationship, (b)
the significance of the relationship to the Company, the other
organization and the individual director, (c) whether or not the
relationship is solely
4
a business relationship in the ordinary course of the Company's and
the other organization's businesses and does not afford the
director any special benefits, (d) any commercial, banking,
consulting, legal, accounting, charitable and familial
relationships, and (e) whether a director's affiliated company and
the Company engaged in transactions which involved an aggregate
amount of payments for products or services greater than two
percent of the annual consolidated gross revenues of the
affiliated company.
* The Board reviewed the commercial and other relationships
between the Company and the directors.
After taking into account all relevant facts and circumstances, the
Board determined that there were no material relationships, whether
industrial, banking, consulting, legal, accounting, charitable or
familial, which would impair the independence of any of the
directors or nominees.
On the basis of this assessment and the standards for
independence adopted by the New York Stock Exchange and SEC, the
Board determined that all of its members (including all of the
nominees presently standing for election) other than Mr. Centanni,
its Chairman and Chief Executive Officer, are independent. Mr.
Centanni is not independent because he is an employee of the
Company.
BOARD OF DIRECTORS COMMITTEES
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 independent nonemployee directors.
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 four meetings during 2003.
The Board has determined that all members of the Audit and Finance
Committee are independent, pursuant to New York Stock Exchange
listing standards and SEC guidelines. The Board has also determined
that Donald G. Barger, Jr. is an Audit Committee Financial Expert,
as that term is defined in Item 401(h)(2) of Regulation S-K. The
Board adopted an amended written charter for the Audit and Finance
Committee, effective February 24, 2004, a copy of which is attached
to this Proxy Statement as Appendix B and is available on the
Company's website at www.gardnerdenver.com.
The purpose of the Audit and Finance Committee is to assist the
Board in fulfilling its oversight responsibilities with respect to:
* The integrity of the Company's financial statements and
financial information provided to shareholders and others;
* The adequacy and effectiveness of the Company's disclosure
controls and procedures and its internal control over financial
reporting;
* The adequacy and effectiveness of the Company's financial
reporting principles and policies;
* The adequacy and effectiveness of the Company's internal and
external audit processes;
* The adherence to the Company's regulatory compliance policies
and procedures;
* The Company's compliance with legal and regulatory
requirements; and
* The Company's independent auditor's qualifications and
independence.
The specific functions of the Audit and Finance Committee
include:
* Appointment, retention, discharge and oversight of the
Company's independent auditors, including resolution of any
disagreements between management and the Accounting Firm regarding
financial reporting;
* Review of the planned scope and results of the internal
auditors' and independent auditors' audit and examination of the
Company's financial results;
* Approve in advance all non-audit services to be provided by
and estimated fees of the Accounting Firm, subject to certain
exceptions;
5
* Receive and review reports at least annually from the
Company's independent auditors with respect to: (a) critical
accounting policies and practices used by the Company in the
preparation of its financial statements, (b) alternative treatments
of financial information within GAAP, and (c) any other material,
written communications between the Accounting Firm and management;
* Review with the independent auditors any problems or
difficulties with the audit, responsibilities, budget and staff
issues and management's response;
* At least annually, to obtain and review reports by the
independent auditors describing the firm's independence and internal
quality control procedures and the Company's internal control over
financial reporting and to review such report with management;
* Review and discuss with management, the internal audit
department and the independent auditors the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles, and major issues
as to the adequacy of the Company's internal controls any special
audit steps adopted in light of material control deficiencies, and
the effect of regulatory and accounting initiatives on the financial
statements;
* 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 questionable accounting, internal controls and
procedures for financial reporting or auditing matters;
* 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;
* 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
* Establish clear hiring policies for employees or former
employees of the Company's independent auditor.
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 2003. The Board has
determined that all members of the Management Development and
Compensation Committee are independent, pursuant to New York Stock
Exchange listing standards and SEC guidelines. The Board has also
adopted an amended written charter for the Management Development
and Compensation Committee, effective February 24, 2004, a copy of
which is available on the Company's website at
www.gardnerdenver.com.
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 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;
* Recommend to the Board one or more candidates for Chief
Executive Officer in the event the position becomes vacant;
* Establish from time to time reasonable short-term and
long-term compensation for services to the Company by executive
officers (the Chief Executive Officer, President, all corporate Vice
Presidents, and the Secretary), which shall include the following
tasks: (a) to establish compensation, incentive
6
compensation and bonuses, deferred compensation, pensions, insurance,
death benefits and other benefits; (b) to administer stock and
compensation plans of the Company as adopted by the Board, and to amend
or restate any such plan to the extent deemed appropriate for
incorporating therein non-substantive points or substantive matters
expressly mandated by law; and (c) to review and approve corporate goals
relevant to executive officer, including Chief Executive Officer,
compensation;
* Evaluate executive officer, including Chief Executive Officer,
performance and set their compensation in light of the achievement
of such goals and such other factors and requirements as the
Committee shall deem relevant or appropriate; and
* Review and assess the Company's employee benefit plans and
programs from time to time.
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, held two meetings during 2003. The Board has determined that
all members of the Nominating and Corporate Governance Committee are
independent, pursuant to New York Stock Exchange listing standards
and SEC guidelines. The Board has also adopted an amended written
charter for the Nominating and Corporate Governance Committee,
effective February 24, 2004, a copy of which is available on the
Company's website at www.gardnerdenver.com.
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, including its incumbent members,
lead independent nonemployee director, independence, size and
composition, and the conduct of its business, and make appropriate
recommendations to the Board with regard thereto;
* At least annually, review the Chairpersons and membership of
the various Board Committees and make recommendations with regard
thereto;
* Develop and maintain criteria and procedures for the
identification and recruitment of candidates for election to serve
as directors of the Company;
* Identify individuals qualified to become Board members,
consistent with the criteria approved by the Board;
* Recommend to the Board new candidates for election to the
Board and the director nominees for the next annual meeting of
shareholders;
* Review the appropriateness and adequacy of information
supplied to directors prior to and during Board meetings;
* Consider from time to time the overall relationship of, and
oversee the evaluation of, directors and management;
* 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; and
* Develop and recommend to the Board a set of corporate
governance principles applicable to the Company.
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.
7
Pursuant to its charter, the Nominating and Corporate Governance
Committee must review with the Board, on at least an annual basis,
the requisite qualifications, independence, skills and
characteristics of Board candidates, members and the Board as a
whole. When assessing potential new directors, the Nominating and
Corporate Governance Committee considers individuals from various
and diverse backgrounds. While the selection of qualified directors
is a complex and subjective process that requires consideration of
many intangible factors, the Nominating and Corporate Governance
Committee believes that candidates generally should, at a minimum,
meet the following criteria:
* Candidates should possess broad training, experience and a
successful track record at senior policy-making levels in business,
government, education, technology, accounting, law and/or
administration;
* Candidates should also possess the highest personal and
professional ethics, integrity and values, and be committed to
representing the long-term interests of all stockholders;
* Candidates should have an inquisitive and objective
perspective, strength of character and the mature judgment essential
to effective decision-making;
* Candidates should possess expertise that is useful to the
Company and complementary to the background and experience of other
Board members; and
* Each Board member must be willing and free to commit necessary
time to serve effectively as a Board member, including attendance at
committee meetings.
The Nominating and Corporate Governance Committee will consider
such candidates if a vacancy arises or if the Board decides to
expand its membership, and at such other times as the Nominating and
Corporate Governance Committee deems necessary or appropriate. Any
stockholder wishing to submit a candidate for consideration should
send the following information to the Corporate Secretary, Gardner
Denver, Inc., 1800 Gardner Expressway, Quincy, Illinois 62305:
* Stockholder's name, number of shares owned, length of period
held, and proof of ownership;
* Name, age and address of candidate;
* A detailed resume describing among other things the
candidate's educational background, occupation, employment history,
and material outside commitments (e.g., memberships on other boards
and committees, charitable foundations, etc.);
* A supporting statement which describes the candidate's reasons
for seeking election to the Board, and documents his/her ability to
satisfy the director qualifications described above;
* Any information relating to the candidate that is required to
be disclosed in the solicitation of proxies for election of
directors;
* A description of any arrangements or understandings between
the stockholder and the director; and
* A signed statement from the candidate, confirming his/her
willingness to serve on the Board.
The Corporate Secretary will promptly forward such materials to
the Committee Chair and the Chairman of the Board. The Corporate
Secretary will also maintain copies of such materials for future
reference by the Committee when filling Board positions. The same
criteria applies with respect to the Nominating and Corporate
Governance Committee's evaluation of all candidates for membership
to the Board. However, separate procedures will apply, as provided
in the Bylaws, if a shareholder wishes to submit at an annual
meeting a director candidate who is not approved by the Committee or
Board.
COMPENSATION OF DIRECTORS
For 2003, the Company's nonemployee directors each received an
annual retainer of $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.
8
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 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 5, 2004.
PHANTOM STOCK
NAME UNITS
---- -------------
Donald G. Barger, Jr.................... 4,377
Frank J. Hansen......................... 2,002
Raymond R. Hipp......................... 3,180
Thomas M. McKenna....................... 13,100
Diane K. Schumacher..................... 1,164
Richard L. Thompson..................... 6,051
------
Total............................... 29,874
======
Pursuant to the Gardner Denver, Inc. Long-Term Incentive Plan,
for 2003, 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 2003 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.
9
STOCKHOLDER COMMUNICATION WITH DIRECTORS
The Board has adopted the following procedures for stockholders
to send communications to the Board, individual directors and/or
Committee chairs:
Stockholders and other interested persons seeking to communicate
with the Board or any individual director should submit their
written comments to the Corporate Secretary, Gardner Denver, Inc.,
1800 Gardner Expressway, Quincy, Illinois 62305. Such persons who
prefer to communicate by e-mail should send their comments to
CorporateSecretary@gardnerdenver.com. The Corporate Secretary will
then forward all such communications (excluding routine
advertisements and business solicitations) to each member of the
Board, or the applicable individual director(s) and/or Committee
Chair(s). Subject to the following paragraph, the Chairman of the
Board will receive copies of all stockholder communications,
including those addressed to individual directors and/or Committee
Chairs, unless such communications address allegations of misconduct
or mismanagement on the part of the Chairman. In such event, the
Corporate Secretary will first consult with and receive the approval
of the Audit and Finance Committee Chair before disclosing or
otherwise discussing the communication with the Chairman of the
Board.
If a stockholder communication is addressed exclusively to the
Company's non-management directors, the Corporate Secretary will
first consult with and receive the approval of the Chair of the
Nominating and Corporate Governance Committee before disclosing or
otherwise discussing the communication with directors who are
members of management.
The Company reserves the right to screen materials sent to its
directors for potential security risks and/or harassment purposes.
Stockholders also have an opportunity to communicate with the
Board of Directors at the Company's Annual Meeting of Stockholders.
Pursuant to Board policy, each director is expected to attend the
Annual Meeting in person and be available to address questions or
concerns raised by stockholders, subject to occasional excused
absences due to illness or unavoidable conflicts. All members of the
Board of Directors attended the 2003 Annual Meeting of Stockholders.
CORPORATE GOVERNANCE
The Board has adopted a policy regarding Corporate Governance,
which is available on the Company's website at
www.gardnerdenver.com. 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. 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, and
interlocking directorships are prohibited. Directors may serve on
the boards of directors of no more than four for-profit
organizations, including the Company, and members of the Audit and
Finance Committee may serve on the audit committees of no more than
three for-profit organizations, including the Company. 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.
On November 12, 2002, the Board appointed Mr. Frank 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 independent nonemployee directors during
executive sessions of the independent nonemployee directors.
The Company has adopted a Code of Ethics that applies to the Company's
Chief Executive Officer and Chief Financial Officer and has posted such Code
of Ethics, and intends to satisfy the disclosure requirement regarding
amendments or waivers under Item 10 of Form 8-K by posting such information,
on its website www.gardnerdenver.com. The Company has adopted a Code of
Ethics and Business Conduct for directors, executive officers and employees,
which is also available on the Company's website at www.gardnerdenver.com.
10
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 (the "Excess Contribution Plan") are considered in
determining compliance with these guidelines.
The following table sets forth, as of March 5, 2004, 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 2003 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, 2003 (except as
otherwise indicated).
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
------------------------------------------
DIRECT EMPLOYEE PERCENT
NAME OF BENEFICIAL OWNERS OWNERSHIP(1)(2) 401(K) PLANS(3) OF CLASS
------------------------- --------------- --------------- --------
DIRECTORS
Donald G. Barger, Jr....................................... 26,260(2) *
Ross J. Centanni........................................... 554,174(2),(4),(5) 24,303 3.6%
Frank J. Hansen............................................ 17,457(2) *
Raymond R. Hipp............................................ 16,500(2) *
Thomas M. McKenna.......................................... 23,466(2) *
Diane K. Schumacher........................................ 11,438(2) *
Richard L. Thompson........................................ 19,700(2) *
NAMED EXECUTIVE OFFICERS (NOT DIRECTORS)
Michael S. Carney.......................................... 13,052(2) 1,413 *
Philip R. Roth............................................. 117,240(2) 6,492 *
J. Dennis Shull............................................ 137,187(2),(6) 9,419 *
Tracy D. Pagliara.......................................... 31,346(2) 1,996 *
All directors and executive officers as a group............ 967,820(3),(4),(5),(6) 43,623 6.3%
--------
* Less than 1%
(1) Each beneficial owner has sole voting and investment power with respect to all shares, except as indicated
below.
(2) 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 5, 2004, as follows: 13,500 shares for
Mr. Barger; 354,235 shares for Mr. Centanni; 9,000 shares for Mr. Hansen; 13,500 shares for Mr. Hipp; 13,500
shares for Mr. McKenna; 7,500 shares for Ms. Schumacher; 13,500 shares for Mr. Thompson; 12,167 shares for
Mr. Carney; 81,470 shares for Mr. Roth; 86,367 shares for Mr. Shull; 29,667 shares for Mr. Pagliara; and
634,406 shares for the group.
(3) 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 Contribution Plan.
(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.
11
(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.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
FMR Corporation........................... 1,477,600(1) 9.2%
82 Devonshire Street
Boston, MA 02109-3614
AXA Financial, Inc., et. al............... 1,030,625(2) 6.4%
1290 Avenue of the Americas
New York, New York 10104
--------
(1) Based on Schedule 13G, dated as of February 16, 2004, made by FMR Corp., Edward C. Johnson 3rd, and Abigail
P. Johnson, as supplemented by correspondence to the Company, dated February 25, 2004. FMR Corp. disclosed
that Fidelity Management & Research Company ("Fidelity"), a wholly-owned subsidiary of FMR Corp., is the
beneficial owner of 1,477,600 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 1,477,600 shares or
9.2% 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. 3 to Schedule 13G, dated as of February 13, 2004, made by AXA Financial, Inc. ("AXA
Financial") and certain affiliates, including AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle,
Alpha Assurances Vie Mutuelle and AXA Courtage Assurance Mutuelle (collectively "AXA"), as supplemented by
correspondence to the Company, dated February 24, 2004. AXA reported that it has sole voting power with
respect to 922,327 shares of Common Stock, shared voting power with respect to 12,750 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's directors and executive officers, and persons who own
more than 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, 2003, all reports required by insiders were filed
in a timely manner.
12
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
2003.
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................. 2003 $604,167 $625,000 48,700 $41,677
Chairman, President & CEO 2002 566,667 322,000 $314,280(2) 34,500 48,675
2001 520,833 515,000 35,000 34,463
Philip R. Roth................... 2003 $258,333 $200,000 13,300 $20,625
Vice President, Finance & CFO 2002 242,500 200,000 9,700 18,338
2001 227,500 165,000 9,000 13,163
J. Dennis Shull.................. 2003 $239,167 $148,000 12,500 $15,713
Vice President & General 2002 230,000 110,000 9,300 14,850
Manager, Compressor Division 2001 220,000 100,000 9,000 12,600
Michael S. Carney................ 2003 $235,833 $100,000 12,500 $15,563
Vice President & General 2002 226,667 $110,000 0 11,100
Manager, Blower Division 2001 35,913 20,000 12,000 1,316
Tracy D. Pagliara................ 2003 $193,333 $140,000 10,500 $14,775
Vice President, Administration, 2002 177,500 135,000 7,000 12,803
General Counsel & Secretary 2001 157,504 107,000 6,500 8,887
--------
(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 Contribution Plan, broken down as
follows: Mr. Centanni ($6,300--Savings Plans and $35,377--Excess Contribution Plan); Mr. Roth
($9,000--Savings Plans and $11,625--Excess Contribution Plan); Mr. Shull ($3,316--Savings Plans and
$12,397--Excess Contribution Plan); Mr. Carney ($9,000--Savings Plans and $6,563--Excess Contribution Plan);
and Mr. Pagliara ($5,400--Savings Plans and $9,375--Excess Contribution Plan).
(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 on such date of $17.46 per share,
or $314,280 in the aggregate. Mr. Centanni has the right to vote and to receive dividends with respect to
these shares, but must remain employed by the Company until February 23, 2006 as a condition to the vesting
of these shares and the removal of their restrictions on transferability.
13
OPTION GRANTS IN 2003
INDIVIDUAL GRANTS
------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME GRANTED(#)(1) IN 2003 ($/SH)(1) DATE(2) PRESENT VALUE(3)
---- ------------- ---------- --------- ---------- ----------------
Ross J. Centanni................. 48,700 19.1% $17.6850 2/24/2013 $280,385
Philip R. Roth................... 13,300 5.2% $17.6850 2/24/2013 $ 76,573
J. Dennis Shull.................. 12,500 4.9% $17.6850 2/24/2013 $ 71,968
Michael S. Carney................ 12,500 4.9% $17.6850 2/24/2013 $ 71,968
Tracy D. Pagliara................ 10,500 4.1% $17.6850 2/24/2013 $ 60,453
--------
(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
Incentive 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
3.9%, an expected stock price volatility based on historical experience of 35.38% and an expected option life
based on historical experience of 4.4 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.
AGGREGATED OPTION EXERCISES IN 2003
AND DECEMBER 31, 2003 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2003(#) AT DECEMBER 31, 2003($)(2)
SHARES ------------------------- --------------------------
ACQUIRED ON VALUE
NAME EXERCISE(#) RECEIVED($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- --------------------------
Ross J. Centanni......... 0 n/a 314,835 83,366 $2,866,433 $482,592
Philip R. Roth........... 0 n/a 70,803 22,766 547,276 131,743
J. Dennis Shull.......... 0 n/a 76,100 21,700 638,604 125,208
Michael S. Carney........ 0 n/a 8,000 16,500 26,840 97,108
Tracy D. Pagliara........ 0 n/a 21,668 17,332 171,812 101,116
--------
(1) The value received for shares acquired on exercise in 2003 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, 2003 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, 2003 ($24.38), and the option exercise prices.
14
LONG-TERM CASH BONUS AWARDS IN 2003
The following table shows the long-term cash bonus awards that
were granted under the Incentive Plan for 2003 to each of the named
executive officers.
ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR OTHER PERIOD -------------------------------------
OTHER RIGHTS UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME & TITLE (#)(1) OR PAYOUT(2) ($ OR #)(2) ($ OR #)(2) ($ OR #)(2)
------------ ---------------- ---------------- ----------- ----------- -----------
Ross J. Centanni................. 87.5% 2003-2005 50% 100% 150%
Chairman, President & CEO
Philip R. Roth................... 55% 2003-2005 50% 100% 150%
Vice President, Finance & CFO
J. Dennis Shull.................. 55% 2003-2005 50% 100% 150%
Vice President & General
Manager, Compressor Division
Michael S. Carney................ 55% 2003-2005 50% 100% 150%
Vice President & General
Manager, Blower Division
Tracy D. Pagliara................ 55% 2003-2005 50% 100% 150%
Vice President, Administration,
General Counsel & Secretary
--------
(1) Represents the percentage of the participants' base salary at the end of 2005 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 ("EBT")
for the Company's industrial businesses (i.e., excluding petroleum products) during the period January 1,
2003 through December 31, 2005. 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 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 2002 to
perform a comprehensive review of the Company's executive officer
and board of director compensation and retention practices,
15
including annual compensation, long-term incentives and management
continuity arrangements for competitiveness with other publicly held
manufacturing companies with annual revenues of $560 million to $1.7
billion, which are believed to be generally comparable to the Company (the
"Peer Companies"). Information from proxy data and 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 2003.
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 2003 to perform a review of the Company's board of director
and executive officer compensation, including annual compensation
and long-term incentives.
ANNUAL CASH COMPENSATION
The following is a summary of the components of executive annual
cash compensation.
Base Salary. In February 2003, 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 Gardner Denver, Inc.
Management Annual Incentive Plan (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.
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 2003, the Committee established the performance
goals and maximum bonus opportunities for the Annual Incentive Plan
participants for 2003. 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 2003. For Division General Managers, the
measures were based on a weighted average of unit earnings before
taxes (weighted at 60%) and earnings per share and operating cash flow
(weighted at 24% and 16%, respectively). The target bonus percentage range
was 45-70% of participant base salaries for 2003, and was subject to
increase to a maximum range of 90-140%, depending on
16
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 2003. Diluted
earnings per share was included in the benchmark to reflect the
effect of management's performance on stockholder return. Operating
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. Operating cash flow was defined as the sum of the
Company's net cash flow provided by operating activities, excluding
any cash activity related to acquisitions completed in 2003.
Division performance for each General Manager was assessed based on
the respective Division's earnings before taxes.
Considering the 2003 performance goals under the Annual
Incentive Plan, the Company had to generate diluted earnings per
share of $1.20 and $37.0 million of operating cash flow in 2003 for
the resulting bonus payments to provide target cash compensation
based on the competitive consensus data. In February 2004, the
Committee evaluated and determined the degree to which the Annual
Incentive Plan criteria for 2003 had been met, as well as the
performance of individual Annual Incentive Plan participants. Based
on this analysis, the Committee awarded cash bonus payments at an
average of 129% of target levels. The actual bonus payments for each
of the named executive officers are shown on the Summary
Compensation Table.
LONG-TERM INCENTIVES
Under the Gardner Denver, Inc. Long-Term Incentive Plan (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 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
2003, 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 2003, 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 2003, 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 2003, 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
17
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 2003, the Committee granted a long-term cash bonus
award opportunity to certain executives. The long-term cash bonus
percentage for the 2003 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, 2003 through December 31,
2005. 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 2005 to determine the long-term cash bonus
for the period, if any.
COMPENSATION OF CEO
Mr. Centanni's base salary, annual bonus and long-term incentive
awards for 2003 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: achieving annual budget
targets; acquisition of complementary companies; integration of
acquisitions; implementation of enhanced MIS systems deployment
plan; achievement of material and other cost reductions; and
improvement of underperforming businesses. The Committee did not
assign weights or apply any formula to these factors.
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 compensation for 2003 paid to the
Company's executive officers, including the compensation element of
shares received under the Company's Incentive Plan, qualified for
deduction under the Code.
March 10, 2004
Richard L. Thompson, Chairperson
Thomas M. McKenna
Diane K. Schumacher
The information above in the Report of the Management
Development and Compensation Committee of the Board of Directors on
Executive Compensation, the Performance Graph and the Report of the
Audit and Finance Committee shall not be deemed to be "soliciting
material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulation 14A or 14C or to the liabilities
of Section 18 of the Securities Exchange Act of 1934 (the "Exchange
Act"), nor shall it be deemed to be incorporated by reference into
any filing under the Securities Act of 1933 or the Exchange Act, except
to the extent that the Company specifically incorporates this
information by reference.
18
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, 1999 through December 31, 2003 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. 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]
----------------------------------------------------------------------
12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
---------------------------------------------------------------------------------------------------
Gardner Denver 100 113 144 151 138 162
S&P 500 Index 100 121 110 97 76 97
S&P SmallCap 600 Index 100 112 126 134 114 159
S&P 600 Ind. Machy. 100 114 110 118 113 154
---------------------------------------------------------------------------------------------------
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 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.
19
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 plan
as a qualified defined benefit plan 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 2003, the Company credited 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 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, 2003 base salary levels
plus an annual cash bonus equal to the average cash bonus received
by each officer in 2003 and 2002, and an interest rate of 5.1% after
December 31, 2003.
YEARS OF
CREDITED YEAR
SERVICE AS OF INDIVIDUAL ESTIMATED ANNUAL
MARCH 5, 2004 REACHES AGE 65 BENEFIT AT AGE 65
------------- -------------- -----------------
Ross J. Centanni............... 24 2010 $254,352
Philip R. Roth................. 7 2016 112,900
J. Dennis Shull................ 28 2014 99,727
Michael S. Carney.............. 2 2022 100,238
Tracy D. Pagliara.............. 3 2028 137,486
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 obtain sufficient funds to meet
tax obligations which arise from the exercise or vesting of
incentive stock options, restricted stock or performance shares. 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, 2003
through March 5, 2004.
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
20
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.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of December 31,
2003, with respect to compensation plans which equity securities of
the Registrant are authorized for issuance:
(c)
NUMBER OF SECURITIES
(a) (b) REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO BE WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
ISSUED UPON EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (a))
------------- -------------------------- -------------------- -------------------------
Equity compensation plans approved by
security holders.................... 1,551,744 $17.24 898,100
Equity compensation plans not approved
by security holders................. -- -- --
--------- ------ -------
Total............................. 1,551,744 $17.24 898,100
The number of securities remaining available for future issuance
under the Company's Long-Term Incentive Plan and Employee Stock
Purchase Plan were 538,532 and 359,568, respectively, at December
31, 2003.
PROPOSAL II--AMENDMENT AND RESTATEMENT OF THE
LONG-TERM INCENTIVE PLAN
The Incentive Plan (a copy of which, as proposed to be amended
and restated, is included in this proxy statement as Appendix C) was
adopted by the Board of Directors and sole stockholder of the
Company in December 1993. The Incentive Plan was amended by the
stockholders of the Company in May 1996, May 1999 and May 2001.
Subject to the approval of the stockholders, the Board has adopted
the amendments to the Incentive Plan described below, and authorized
their submission as this Proposal II. Shareholder approval of this
amendment and restatement is necessary in accordance with the terms
of the Incentive Plan.
DESCRIPTION OF THE AMENDMENTS
It is proposed that the Incentive Plan be amended:
* To increase the number of shares of Common Stock as to which
awards may be granted; and
21
* To extend the termination date of the Incentive Plan from
December 31, 2005 to December 31, 2008.
The Incentive Plan currently provides for the issuance of
3,500,000 shares. As of March 5, 2004, 1,607,681 shares had been
issued upon the exercise of options granted under the Incentive
Plan, there were outstanding options to purchase 1,535,387 shares of
Common Stock and only 338,932 shares remained available for grants.
The proposed amendments would increase the number of shares
available for grant by 750,000, which number would be added to the
number of shares remaining available for grant on the date
immediately prior to the 2004 Annual Meeting of Stockholders. The
closing price of the Company's Common Stock as quoted on the New
York Stock Exchange on March 5, 2004 was $28.70.
The Board believes stock awards and cash bonuses are a useful
form of incentive compensation and increasing the number of shares
issuable under the Incentive Plan would permit the Company to
continue to provide such incentives in the future.
Additionally, in approving the amended and restated Incentive
Plan, stockholders will be reapproving the performance goals in the
plan for purposes of Section 162(m) of the Code, as described below.
MATERIAL TERMS OF THE INCENTIVE PLAN
PURPOSE AND ADMINISTRATION
The Incentive Plan was established to promote the long-term
financial interests of the Company, including its growth and
performance, by encouraging its employees to acquire an ownership
interest in the Company, enhancing the Company's ability to attract
and retain employees of outstanding ability and aligning employees'
interests with those of the Company's stockholders.
The Incentive Plan is administered by the Committee. Except with
respect to nonemployee director stock options, and subject to
limitations concerning the number of restricted stock awards which
may be granted, the Committee is authorized to determine who may
participate in the Incentive Plan, the number and types of awards to
be made to each participant and the terms, conditions and
limitations applicable to each award, as set forth in an award
agreement. The Committee designates participants from those
employees who have demonstrated significant management potential or
who have the capacity for a substantial contribution to the
successful performance of the Company. The Company is unable to
determine the number of individuals who are likely to participate in
the Incentive Plan. As of March 5, 2004, a total of 684 stock option
awards had been granted under, and there were 96 participants in,
the Incentive Plan.
EMPLOYEE AWARDS
Awards granted to employees under the Incentive Plan may consist
of stock options, stock appreciation rights, restricted stock
grants, performance shares, and long-term cash bonuses. No
participant may be granted awards during any calendar year with
respect thereto in excess of 180,000 shares of Common Stock, subject
to adjustment for changes in capitalization. Additionally, the
maximum aggregate number of shares of Common Stock that may be
granted under the Plan in the form of restricted stock grants may
not exceed 50% of the aggregate shares of Common Stock available
under the Plan, subject to adjustments for capitalization.
Stock options may be in the form of incentive stock options or
nonstatutory stock options. Awards of stock options made to
participants subject to Section 162(m) of the Code are intended to
qualify as "qualified performance-based compensation" under Section
162(m). Options are exercisable at such times, whether during or
following termination of service, and in such installments as are
determined by the Committee, provided that no stock option is
exercisable more than ten years after the date of grant. The option
exercise price is established by the Committee, but it cannot be
less than the fair market value on the date of grant, which, as
defined, generally means the average of the high and low prices of a
share of Common Stock as reported on the composite tape for
securities listed on the New York Stock Exchange for the applicable
date. Payment of the option exercise price is made at the time of
exercise and may be in cash, shares of Common Stock, stock
appreciation rights, or a combination thereof, or such other
consideration as the Committee deems appropriate. The Committee may
condition the vesting of stock options on the achievement of
financial performance criteria established by the Committee at the
time of grant.
22
Stock options issued in the form of incentive stock options are
required to comply with Section 422 of the Code. Incentive stock
options may be granted only to full time employees of the Company
and its subsidiaries within the meaning of Section 424 of the Code.
The aggregate fair market value (determined as of the date the
option is granted) of shares with respect to which incentive stock
options are exercisable for the first time by an individual during
any calendar year (under any plan of the Company which provides for
the granting of incentive stock options) may not exceed $100,000 or
any other number applicable under the Code from time to time.
Stock appreciation rights ("SAR") granted under the Incentive
Plan entitle the participant to receive a payment equal to the increase, as
of the date of exercise or surrender, in the fair market value of a stated
number of shares of Common Stock over the option or base price stated in an
award agreement. Awards of stock options made to participants subject to
Section 162(m) of the Code are intended to qualify as "qualified
performance-based compensation" under Section 162(m). SARs may be granted in
tandem with stock options or alone. A tandem SAR is exercisable only to the
extent that the related stock option is exercisable. Upon the exercise of a
tandem SAR, the related stock option is automatically canceled to the extent
of the number of stock appreciation rights exercised. The base price of a
freestanding SAR will be determined by the Committee, provided, however,
that such price may not be less than the fair market value on the date of
the award of the freestanding SAR. The Committee may establish such other
terms, conditions or restrictions, if any, on any stock option award or SAR
award, provided they are consistent with the Incentive Plan.
Restricted stock awards granted under the Incentive Plan are
subject to forfeiture under such conditions and for such period of
time as the Committee may establish at the time of grant. Such
conditions may include restrictions on transferability, requirements
of continued employment and the individual or Company performance.
To the extent restricted stock awards are subject to Company
performance criteria, it is intended that all such restricted stock
awards granted to participants subject to Section 162(m) of the Code
will qualify as "qualified performance-based compensation" under
Section 162(m) of the Code. During the period in which any shares of
Common Stock are subject to forfeiture restrictions, the Committee
may grant to the participant all or any of the rights of a
stockholder with respect to such shares. The number of shares of
restricted stock awarded and/or issued under the Incentive Plan, as
amended and restated, must not exceed 50% of the total number of
shares available for issuance under the Incentive Plan.
Performance share awards may be granted in the form of shares of
Common Stock that are earned only after the attainment of
predetermined performance targets during a performance period
established by the Committee. At the end of the performance period,
any performance shares earned are converted into Common Stock, cash
or a combination of both. A performance target shall be established
by the Committee at the beginning of each performance period and
based upon one or any combination of the following goals or business
criteria: (i) revenues of the Company; (ii) operating income of the
Company; (iii) net income of the Company; (iv) earnings per share of
the Company's Common Stock; (v) the Company's return on equity; (vi)
cash flow of the Company; (vii) Company stockholder total return; or
(viii) earnings before taxes of the Company. Awards of performance
shares (and restricted stock awards based on performance) made to
participants subject to Section 162(m) of the Code are intended to
qualify under Section 162(m) and provisions of such awards shall be
interpreted in a manner consistent with that intent to the extent
appropriate. The foregoing provisions and goals or business criteria
shall also be applicable to grants of restricted stock awards to the
extent such restricted stock awards are subject to the financial
performance of the Company.
If an award is granted in the form of restricted stock or
performance shares, the Committee may choose, at the time of the
grant, to include an entitlement to receive dividends or dividend
equivalents, payable as determined by the Committee. The Committee
may permit participants to elect to defer the issuance of shares or
the settlement of awards in cash under administrative policies
established by the Committee. It may also provide that deferred
settlements include the payment or crediting of interest on the
deferral amounts or the payment or crediting of dividend equivalents
on deferred settlements denominated in shares. The Committee may
also determine the manner of payment of awards of performance shares
and other terms, conditions or restrictions, if any, on any award of
performance shares, provided they are consistent with the Incentive
Plan.
23
Shares of Common Stock subject to an award that expires
unexercised or that is forfeited, terminated or canceled, in whole
or in part, or is paid in cash in lieu of Common Stock, will
thereafter again be available for grant under the Incentive Plan.
LONG-TERM CASH BONUS
Under the Incentive Plan, as amended and restated, 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.
Long-term cash bonus awards paid to the Company's executive officers
are intended to qualify as "performance-based compensation" under
Section 162(m) of the Code.
Under the Plan, executive officers are eligible to receive a
long-term cash bonus based on the achievement of certain Company performance
targets over a pre-determined performance period. 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. The Committee must establish the
performance targets with respect to the business criteria selected
for a given performance period while the performance relative to the
target remains substantially uncertain within the meaning of Section
162(m) of the Code.
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. The maximum payment opportunity for
any performance period may not exceed $3,000,000 or, if less, three
times the executive officer's base salary as of the last day of the
applicable performance period. 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 Plan.
Notwithstanding the attainment of the performance targets,
long-term cash bonuses for participating executive officers may be
denied or adjusted by the Committee, in its sole judgment, based on
its assessment of the executive officer's performance. However, no
upward adjustment may be made to a long-term cash bonus for an
executive officer if Section 162(m) of the Code would limit the
deduction the Company may claim for that executive officer's
compensation. Except as otherwise determined by the Committee, in
its discretion, each executive officer 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.
NONEMPLOYEE DIRECTOR STOCK OPTIONS
Under the Incentive Plan each nonemployee director automatically
receives a grant of stock options to purchase up to 9,000 shares of
Common Stock on the date following each Annual Meeting of
Stockholders. The number of shares subject to the option is
determined in the Committee's discretion. 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, 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
24
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). The option exercise price of a nonemployee director
stock option is the fair market value on the date of grant, which generally
means 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 such date.
Options granted to nonemployee directors are not transferable by the
director except by will or the laws of descent and distribution.
EFFECT OF CHANGE OF CONTROL
The Incentive Plan provides for the acceleration of certain
benefits in the event of a "Change of Control" (as defined in
Section 2.5 of the Incentive Plan) of the Company. Upon the
occurrence of a Change of Control, options not otherwise exercisable
at the time of a Change of Control will become fully exercisable
upon such Change of Control. In the case of a Change of Control:
(i) The Company will make payment to directors with respect to
director stock options in cash, immediately upon the
occurrence of such Change of Control, in an amount equal to
the appreciation in the value of the director stock option
from the option exercise price specified in the award
agreement to the price payable upon a Change of Control;
(ii) all SARs which have not been granted in tandem with stock
options will become exercisable in full;
(iii) the restrictions applicable to all shares of restricted
stock shall lapse and such shares will be deemed fully
vested and all restricted stock granted in the form of
share units will be paid in cash;
(iv) all performance shares and long-term cash bonuses will be
deemed to be earned in full and all performance shares
granted in the form of share units shall be paid in cash;
and
(v) any participant who has been granted a stock option which is
not exercisable in full will be entitled, in lieu of the
exercise of the portion of the stock option which is not
exercisable, to obtain a cash payment in an amount equal to
the difference between the option price of such stock option
and (A) in the event the Change of Control is the result of
a tender offer or exchange offer for the Common Stock, the
final offer price per share paid for the Common Stock, or
such lower price as the Committee may determine with respect
to any incentive stock option to preserve its incentive
stock option status, multiplied by the number of shares of
Common Stock covered by such portion of the stock option, or
(B) in the event the Change of Control is the result of any
other occurrence, the aggregate value of the Common Stock
covered by such portion of the stock option, as determined
by the Committee at such time.
The Committee may, in its discretion, include such further
provisions and limitations in any agreement documenting such awards
as it may deem equitable and in the best interests of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options. In general, the grant of a stock option will not
be a taxable event to a recipient and it will not result in a
deduction to the Company. The tax consequences associated with the
exercise of a stock option, and the subsequent disposition of Common
Stock acquired on exercise of such an option, depend in part on
whether the option is an incentive stock option or a nonstatutory
stock option.
Upon the exercise of a nonstatutory stock option, the
participant will recognize ordinary compensation income equal to the
excess of the fair market value of the Common Stock received upon
exercise over the exercise price. The Company will be able to claim
a deduction in an equivalent amount, provided it satisfies federal
income tax withholding requirements and is not otherwise precluded
from taking a deduction because of the Section 162(m) deduction
limitations described below. Any gain or loss upon a subsequent sale
or exchange of the Common Stock will be capital gain or loss,
long-term or short-term, depending on the holding period for the
Common Stock.
Generally, a participant will not recognize ordinary income at
the time of exercise of an incentive stock option and no deduction
will be available to the Company, provided the option is exercised
while the participant is an employee or, in certain circumstances,
for a limited period of time thereafter. However, the difference
between the option price and the fair market value of the stock on
the date of exercise is treated as an item of
25
adjustment for purposes of the alternative minimum tax. If the sale of
shares acquired under an incentive stock option does not occur within two
years after the date of grant and within one year after the date of
exercise, any gain or loss realized will be treated as a long-term capital
gain or loss. If a disposition occurs prior to the expiration of these
one-year or two-year holding periods, the participant recognizes ordinary
income at the time of disposition, and the Company is entitled to a
deduction in an amount equal to the excess of the fair market value of the
Common stock at the date of exercise (or the fair market value of the Common
Stock on the disposition date, if lower) over the exercise price.
Stock Appreciation Rights. Generally, when a participant
receives payment with respect to a stock appreciation right granted
to him under the Incentive Plan, the amount of cash and the fair
market value of the Common Stock received will be ordinary
compensation income to such participant and the Company will be
entitled to a corresponding deduction, subject to the Section 162(m)
deduction limitations described below.
Restricted Stock. A participant who receives shares of restricted stock
generally will recognize ordinary compensation income at the time the
forfeiture or transferability restrictions lapse, based on the fair market
value of the Common Stock at that time. Subject to the Section 162(m)
deduction limitations described below, this amount is deductible for federal
income tax purposes by the Company. Dividends paid with respect to Common
Stock that is subject to forfeiture and nontransferable will be ordinary
compensation income to the participant and generally deductible by the
Company. Alternatively, a participant may elect immediate recognition of
income at the time of receipt of restricted stock. In such event, the
participant will recognize the fair market value of the restricted stock at
the time of grant as income, and the Company will be entitled to a
corresponding deduction. Dividends paid with respect to these shares will
not be deductible by the Company. If this tax treatment is elected, and the
restricted stock is subsequently forfeited, the participant will not be
entitled to any offsetting tax deduction.
Performance Shares. When performance shares are earned and stock
is issued, a participant will realize ordinary income equal to the
fair market value of the performance shares. If a participant is
subject to the provisions of Section 16(b) of the Exchange Act
regarding short-swing purchases and sales, the participant may not
be required to recognize income upon receipt of performance shares,
but generally may recognize ordinary income six months thereafter in
an amount equal to the fair market value of the performance shares
at that time. Subject to the Section 162(m) deduction limitations
described below, the Company generally will be entitled to a
deduction equal to the ordinary income recognized by the participant
in the same taxable year in which the participant recognizes
ordinary income with respect to the performance shares.
Long-Term Cash Bonuses. Generally, a participant will recognize
ordinary income upon the receipt of a long-term cash bonus equal to
the aggregate amount of cash received. Subject to the Section 162(m)
deduction limitations described below, the Company generally will be
entitled to a corresponding tax deduction equal to the amount of
cash bonus includible in the participant's income.
Potential Limitation on Company Deductions. Section 162(m) of
the Code denies a deduction to any publicly-held corporation for
compensation paid to certain "covered employees" in a taxable year
to the extent that compensation to such covered employee exceeds $1
million. It is possible that compensation attributable to awards,
when combined with all other types of compensation received by a
"covered employee" from the Company, may cause this limitation to be
exceeded in any particular year. However, certain kinds of
compensation, including "qualified performance-based compensation,"
are disregarded for purposes of the Code Section 162(m) deduction
limitation. The Plan is structured so that awards (e.g., stock
options, performance-based restricted stock, stock appreciation
rights, performance shares and long-term incentive bonuses) granted
to covered employees under the Plan should qualify as "qualified
performance-based compensation" under Section 162(m). Stockholder
approval of the material terms of the performance goals with respect
to such awards is required, however, in order for the awards to
constitute "qualified performance-based compensation." The material
terms include (i) the class of employees eligible for such award,
(ii) the business criteria on which the performance goal is based,
and (iii) the maximum amount, or the formula used to calculate the
amount payable, upon attainment of the performance goal. Such terms
are disclosed above in the section entitled "Material Terms of the
Incentive Plan."
26
OTHER PROVISIONS
The rights and interests of a participant under the Incentive
Plan may not be assigned, encumbered or transferred except, in the
event of the death of a participant, by will or the laws of descent
and distribution. However, the Committee may, in its discretion,
grant stock options to one or more executive officers of the Company
on terms that permit the stock options to be transferred by any such
executive officer, for estate planning purposes, to (a) the
executive officer's spouse, children, grandchildren, parents,
siblings, stepchildren, stepgrandchildren or in-laws ("Family
Members"), (b) entities that are exclusively family-related,
including trusts for the exclusive benefit of Family Members and
limited partnerships or limited liability companies in which Family
Members are the only partners or members, or (c) such other persons
or entities specifically approved by the Committee.
In the event of any change in the outstanding shares of Common
Stock by reason of a reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger,
consolidation or any change in the corporate structure or shares of
the Company, the maximum aggregate number and class of shares as to
which awards may be granted under the Incentive Plan, including any
limitations upon individual participants or regarding director stock
options, as well as the number and class of shares issuable,
pursuant to then outstanding awards, shall be appropriately adjusted
by the Committee, whose determination shall be final.
Notwithstanding the foregoing, the Committee shall not permit the
repricing of stock options by any method, including by cancellation
and reissuance.
The Company may withhold, or require a participant to remit to
the Company, an amount sufficient to satisfy any federal, state or
local withholding tax requirements associated with awards under the
Incentive Plan. The Committee may permit a participant to elect to
satisfy such withholding obligation by having the Company retain the
number of shares of Common Stock whose fair market value equals the
amount required to be withheld.
The Committee may permit participants to elect to defer the
issuance of shares or the settlement of awards in cash in accordance
with its policies. It may also provide that deferred settlements
include interest on the deferral amounts or dividend equivalents on
deferred settlements denominated in shares. Notwithstanding the
foregoing, if a participant subject to Section 162(m) of the Code
elects to defer an award, the Committee will ensure that any
increase in the award is based on actual returns, including any
decrease or increase in the value of the investment(s).
The Board may amend, suspend or terminate the Incentive Plan or
any portion thereof at any time, provided that no amendment may be
made that would impair the rights of a participant under an
outstanding award without the participant's consent, and no
amendment may be made without stockholder approval if such approval
is necessary in order to preserve the applicability of any exemption
under Rule 16b-3 under the Exchange Act or the qualification of any
awards as "performance-based compensation" under Section 162(m) of
the Code. If not terminated earlier by the Company, the Incentive
Plan, as amended, will expire on December 31, 2005.
In order to enable participants who are foreign nationals or
employed outside the United States, or both, to receive awards under
the Incentive Plan, the Committee may adopt such amendments,
administrative policies, subplans and the like as are necessary or
advisable, in the opinion of the Committee, to effectuate the
purposes of the Incentive Plan.
27
AWARDS UNDER THE INCENTIVE PLAN
LONG-TERM CASH BONUS AWARDS IN 2003 AND 2004
Although it is uncertain the amount of benefits or amounts that
will be received by the following individuals or specified groups in
future years, we submit as a point of reference the following table,
which shows the long-term cash bonus awards that were granted under
the Incentive Plan for 2003 and 2004 to each of the named executive
officers and certain specified groups.
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................. 87.5% 2003-2005 50% 100% 150%
Chairman, President & CEO 2004-2006
Philip R. Roth................... 55% 2003-2005 50% 100% 150%
Vice President, Finance & CFO 2004-2006
J. Dennis Shull.................. 55% 2003-2005 50% 100% 150%
Vice President & General 2004-2006
Manager, Compressor Division
Michael S. Carney................ 55% 2003-2005 50% 100% 150%
Vice President & General 2004-2006
Manager, Blower Division
Tracy D. Pagliara................ 55% 2003-2005 50% 100% 150%
Vice President, Administration, 2004-2006
General Counsel & Secretary
Executive Group (3).............. 55% for all executives 2003-2005 50% 100% 150%
other than 2004-2006
Mr. Centanni
(as described above)
Non-Executive Director Group..... N/A N/A N/A N/A N/A
Non-Executive Officer
Employee Group................... N/A N/A N/A N/A N/A
--------
(1) Represents the percentage of the participants' base salary at the end of 2005 and 2006 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 periods January 1,
2003 through December 31, 2005 (2003 Award) and January 1, 2004 through December 31, 2006 (2004 Award). 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 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.
(3) Comprised of 7 persons.
28
STOCK OPTION AWARDS
The following table shows options that were granted under the
Incentive Plan for 2003 and 2004 (as of February 23, 2004) to each
of the named executive officers and certain specified groups. These
awards are not conditioned upon stockholder approval of the proposed
amendment and restatement of the Incentive Plan described above.
2004 2004 EXERCISE 2003 2003 EXERCISE
NUMBER OF PRICE PER NUMBER OF PRICE PER
NAME & TITLE SHARES SHARE(1) SHARES SHARE(1)
------------ --------- ------------- --------- -------------
Ross J. Centanni............................ 50,000 $29.02 48,700 $17.6850
Chairman, President & CEO
Philip R. Roth.............................. 12,000 $29.02 13,300 $17.6850
Vice President, Finance & CFO
J. Dennis Shull............................. 10,300 $29.02 12,500 $17.6850
Vice President & General Manager,
Compressor Division
Michael S. Carney........................... 10,300 $29.02 12,500 $17.6850
Vice President & General Manager,
Blower Division
Tracy D. Pagliara........................... 8,600 $29.02 10,500 $17.6850
Vice President, Administration,
General Counsel & Secretary
Executive Group (2)......................... 114,100 $29.02 127,600 $17.6850
Non-Executive Director Group (3)............ N/A N/A 27,000 $19.72
Non-Executive Officer Employee Group (4).... 85,500 $29.02 108,900 $17.6850
--------
(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. The closing price of the Company's Common Stock as reported on the composite
tape of the New York Stock Exchange on March 5, 2004 was $28.70.
(2) Comprised of 8 persons. Exercise prices shown are weighted averages of the actual exercise prices for stock
options granted to members of the group.
(3) Comprised of 6 persons. Exercise prices shown are weighted averages of the actual exercise prices for stock
options granted to members of the group. Non-Executive Director options will not be granted until May 2004.
(4) Comprised of 66 persons. Exercise prices shown are weighted averages of the actual exercise prices for stock
options granted to members of the group.
BOARD OF DIRECTORS RECOMMENDATION
THE BOARD OF DIRECTORS BELIEVES THAT THE ADOPTION OF THE AMENDED
AND RESTATED INCENTIVE PLAN WILL BE IN THE BEST INTERESTS OF THE
STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS A VOTE FOR THIS PROPOSAL,
---
WHICH IS ITEM 2 ON THE PROXY CARD. Proxies received in response to
the Board's solicitation will be voted FOR approval of the Amendment
if no specific instructions are included for Item 2.
PROPOSAL III--AMENDMENT AND RESTATEMENT OF
THE EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "ESP Plan") (a copy of
which, as proposed to be amended and restated, is included in this
proxy statement as Appendix D) was adopted by the Company's Board
and approved by Cooper, the Company's sole stockholder, on February
17, 1994. The ESP Plan was amended by the
29
stockholders of the Company in May 2001. Subject to the approval of
the stockholders, the Board has adopted the amendments to the ESP
Plan described below and authorized their submission as this
Proposal III.
DESCRIPTION OF AMENDMENT
It is proposed that the ESP Plan be amended and restated: (a) to
extend the termination date of the ESP Plan from December 31, 2005
to December 31, 2008; and (b) to increase the number of shares of
Common Stock as to which options may be granted. The ESP Plan
currently provides for the issuance of 900,000 shares. As of March
5, 2004, 635,397 shares had been issued upon the exercise of options
granted under the ESP Plan; there were outstanding options to
purchase 78,113 shares of Common Stock and only 186,490 shares
remained available for grants. The proposed amendment would increase
the number of shares available for issuance by 250,000, for a total
of 436,490. The closing price of the Company's Common Stock as
quoted on the New York Stock Exchange on March 5, 2004 was $28.70.
The Board believes stock options are a useful form of incentive
compensation and increasing the number of shares issuable under the
ESP Plan would permit the Company to continue to provide such
incentives in the future.
MATERIAL TERMS OF ESP PLAN
PURPOSE
The purpose of the ESP Plan is to provide eligible employees a
means of purchasing shares of Company Common Stock through regular
payroll deductions at a price fixed pursuant to a formula described
below. The Company's management has considered it to be in the best
interest of its employees and the employees of its designated
subsidiaries to offer such employees participation in the ESP Plan.
Participation is entirely voluntary, and the Company has made no
recommendations to the employees as to whether or not they should
participate or purchase shares.
PARTICIPANTS
The Company is unable to determine the number of individuals who
are likely to participate in the ESP Plan. As of March 5, 2004, a
total of 78,113 awards had been granted under, and there were 637
participants in, the ESP Plan. Under the ESP Plan, all persons, who
on the dates on which the Board grants options (each, an "Offering
Date") are employees of the Company or its designated subsidiaries,
are eligible to participate, except: (i) employees whose customary
employment was less than 20 hours per week or for not more than five
months in any calendar year; (ii) any employee who, if granted an option
under the ESP Plan, would immediately, after the option is granted,
own five percent or more of the total combined voting power or value
of all classes of stock of the Company (within the meanings of
Sections 423(b)(3) and 424(d) of the Code); (iii) employees that
have been continuously employed by the Company, its participating
subsidiaries or predecessors of such subsidiaries for less than two
months prior to the Offering Date; and (iv) directors of the Company
who are not employees.
NUMBER OF SHARES AND PURCHASE PRICE
The number of shares an employee may purchase pursuant to any
option granted under the ESP Plan is based on the employee's base
compensation or in the case of commissioned salespersons, the
greater of their prior year W-2 pay as their base compensation in
effect on October 31 of the year in which an offering is made. The
maximum number of shares an employee may purchase is an amount
(increased by any fractional share amount required to make a whole
share) that, at the option price of a share of Company Common Stock
on the Offering Date, would approximately equal the percentage of
annual compensation (in effect as of October 31 of the calendar year
in which the Offering Date occurs) as is fixed by the Board, up to a
maximum of 5%. An employee may elect to purchase a lesser number of
shares.
The purchase price for shares covered by options granted under
the ESP Plan is the lesser of: (i) 85% of the mean of the high and
low quoted selling prices of the Company's Common Stock on the
composite tape of the New York Stock Exchange on the applicable
Offering Date; or (ii) 85% of such mean on the applicable date of
exercise established in accordance with the ESP Plan (each, an
"Exercise Date").
30
ELECTIONS TO PURCHASE AND PAYROLL DEDUCTIONS
Under the ESP Plan, each participant may elect to purchase
shares not later than a specified number of days after the Offering
Date by the execution of an approved form authorizing uniform
payroll deductions over a 12-month period. Payroll deductions begin
on January 1 following the Offering Date, in such amounts as will in
the aggregate be equal to the total purchase price of all shares
that the participant has elected to purchase. The minimum payroll
deduction under the ESP Plan is $10 per month. Any election to
purchase may be changed or terminated as described below.
SHARES OFFERED
If the total number of shares specified in all employees'
initial elections to purchase with respect to any Offering Date
exceed the aggregate number of shares for which options were granted
on that Offering Date, the Company will, on the Exercise Date, make
a pro rata allocation to all employees who remain enrolled in such
offering through the Exercise Date, of the aggregate number of
shares for which options were granted on such Offering Date. Each
employee's initial election to purchase will be canceled with
respect to any shares in excess of the number of shares allocated to
each such employee, and written notice will be given to the employee
that his election has become effective for a reduced number of
shares and any excess funds in the employee's account will be
refunded to him.
In the event that the number of outstanding shares of the Common
Stock of the Company are increased, the number of shares of stock
subject to an option will be proportionately increased, and the
option price per share will be proportionately reduced. In the event
of a reduction in the number of outstanding shares, the number of
shares of stock subject to an option will be proportionately
reduced, and the option price per share will be proportionately
increased. If (i) the Company is to be merged or consolidated and is
not to be the surviving corporation, (ii) the Company is dissolved
and liquidated, (iii) substantially all of the Company's assets and
business are sold, or (iv) there is a change of control, the Board
may, in its sole discretion, cause the Exercise Date to be
accelerated and permit an employee to make a lump-sum deposit in his
or her account in lieu of any remaining payroll deductions or
periodic payments, or cancel any option in whole or in part by
payment to the employee of an amount equal to the excess of the fair
market value of the Company's Common Stock on the cancellation date,
over the option price per share, times the number of shares covered
by the option so canceled.
APPLICATION OF FUNDS
Under the ESP Plan, the Company establishes accounts on its
books to which all payroll deductions or cash payments are credited.
Interest will not be credited or accrue on such accounts. Amounts
credited to the accounts are under the control of the Company and
may be used for any corporate purpose. The amounts credited to the
ESP Plan accounts as of the close of business on the applicable
Exercise Date, will be applied by the Company to payment for the
shares purchased by such employees. Any amount not used for this
purpose will be repaid to the employee. The Company reserves the
right to make adjustments in the described manner of handling funds
under the ESP Plan, if required to comply with any applicable law or
regulations.
CHANGES IN ELECTION TO PURCHASE
A participant will be allowed at any time on or prior to the
applicable Exercise Date, upon written notice, (i) to reduce the
amount of his subsequent payroll deductions (or periodic cash
payments as hereinafter described) by such amounts as, in the
aggregate equals 25%, 50% or 75% of the amount of his initial
payroll deduction, in which event his election to purchase is
reduced to the number of shares that may be purchased, at the
Offering Date option price, with the aggregate amount of the payroll
deductions (or periodic cash payments) made or to be made, (ii) to
terminate further payroll deductions (or periodic cash payments) and
continue his election to purchase the number of shares that may be
purchased with the amount (exclusive of interest) then credited to
his account, or (iii) to withdraw the entire amount, including
interest, in his account and terminate his election to purchase. Any
reduction made in the number of shares subject to an election to
purchase is permanent.
31
TERMINATION OF PARTICIPATION AND DISTRIBUTION OF SHARES OR ACCOUNTS
In the event that, prior to the applicable Exercise Date, an
employee leaves the employ of the Company or a participating
subsidiary, other than by retirement under a plan of the Company or
such participating subsidiary, or is discharged for cause, any
election to purchase made by him pursuant to the ESP Plan shall
terminate and any amount then credited to his stock purchase account
to the date of termination, shall be paid to him. If, on or prior to
the Exercise Date, an employee leaves the employ of the Company in
connection with the sale of a subsidiary, division or line of
business of the Company, the Company may, in the discretion of the
Management Development and Compensation Committee (the "Committee"),
as the persons responsible for the administration of the ESP Plan,
terminate the election of such employee to purchase shares
(refunding any amount credited to the employee's account) or
continue said election on any basis deemed appropriate by the
Committee, including the making of arrangements for continued
payroll deductions by any successor employer willing to provide that
service.
If an employee leaves the employment of the Company or a
participating subsidiary because of retirement after an Offering
Date but before payroll deductions have commenced, he shall not have
the right to elect to purchase shares of Stock under the option
granted to him on the Offering Date. An employee, who has made an
election to purchase shares and retires prior to the Exercise Date
but after payroll deductions have commenced, may continue this
election to purchase shares by undertaking to make periodic cash
payments in amounts equal to the payroll deductions previously
authorized by him. In lieu of making periodic payments, this
employee may continue his election to purchase shares by making a
single lump-sum payment in cash in an amount equal to the total of
his future periodic payments either (i) within 30 days after the
employee retires, or (ii) in the case of an employee that has
undertaken to make periodic cash payments, at any time when he is
not in default in such payments.
The ESP Plan provides that payroll deductions will be suspended
during any period of layoff, strike or authorized leave of absence
without pay and that during such period an employee may elect to
make periodic cash payments in lieu of such payroll deductions. If
such employee returns to active service prior to the last payroll
deduction period preceding the applicable Offering Termination Date,
which is defined as December 31st of the year following the
respective Offering Date, his payroll deductions shall be resumed
and if cash payments were not made during the period when payroll
deductions were suspended, he shall, by written notice within 10
days after his return, (i) elect to make up the deficiency by a cash
payment, or (ii) have his election to purchase reduced to the number
of shares which can be purchased with the aggregate amount then
credited to his account plus any future payroll deductions. An
employee on layoff, strike, or authorized leave of absence without
pay as of 15 days preceding the applicable Offering Termination Date
shall give written notice prior to the applicable Exercise Date,
specifying his choice of one of the options described in (i) or (ii)
above. If such an employee fails to give notice, he shall be deemed
to have elected the option to purchase a reduced number of shares.
If the period of an employee's layoff, strike or authorized leave of
absence without pay shall terminate prior to the applicable Offering
Termination Date, and the employee shall not promptly resume active
employment, his election to purchase shares under the ESP Plan shall
be canceled and the amount then credited to his account shall be
paid to him.
In the event of the death of a participating employee, the legal
representative of such employee may, within 90 days after his death,
but not later than the applicable Offering Termination Date, by
written notice, elect to either (i) make up any deficiency in such
employee's account and thereafter either make periodic payments in
cash or an immediate lump-sum payment in the requisite amount, (ii)
continue the employee's election to purchase the number of shares
that may be purchased with the amount then credited to the
employee's account and to make no further payments, or (iii)
withdraw the entire amount in the employee's account and terminate
his election to purchase shares. In the event the legal
representative of such employee shall fail to give such notice
within the prescribed period, the employee's election to purchase
shares shall terminate and the amount then credited to the
employee's account shall be paid to such legal representative.
Under any of the circumstances contemplated by the ESP Plan in
which the purchase of shares is to be made through periodic or other
cash payments in lieu of payroll deductions, the failure to make any
such payment shall reduce, to the extent of the amount unpaid, the
number of shares purchasable by the employee under the offering.
32
ADMINISTRATION, MODIFICATION AND TERMINATION OF THE ESP PLAN
The ESP Plan is administered at the Company's principal office
by the Committee. The ESP Plan requires that uniform policies be
implemented in the administration of the ESP Plan and that there be
no discrimination between particular employees or groups of
employees. The Committee has authority to make exceptions (available
on a uniform basis to all employees) to provisions of the ESP Plan
under unusual circumstances where strict adherence to such
provisions would work undue hardship. The expenses of administration
of the ESP Plan are borne by the Company.
The Board of Directors of the Company has the right to amend,
modify or terminate the ESP Plan at any time without notice,
provided that no employee's rights under the ESP Plan are adversely
affected. However, no amendment may change the group from among
which participating subsidiaries may be designated or effect an
increase in the number of shares that may be issued under the ESP
Plan (other than changes referred to under "Shares Offered").
The period for payroll deductions under the ESP Plan cannot be
extended beyond the Offering Termination Date with respect to an
Offering Date. The ESP Plan will terminate following the delivery to
participating employees, as soon as practicable after its last
Exercise Date, of certificates for shares of Common Stock purchased
and the repayment of all funds not used for the purchase of the
stock.
OTHER PROVISIONS OF THE ESP PLAN
No assignment or transfer of any option, election to purchase
stock or other interest under the ESP Plan is permitted. Any
purported assignment or transfer, whether voluntary or by operation
of law (except by will or the laws of descent and distribution), has
the effect of terminating such option, election to purchase or other
interest. An employee's option and election to purchase is
exercisable, during his lifetime, only by him. There is no provision
in the ESP Plan, nor in any contract in connection therewith,
whereby any person has or may create a lien on any funds, securities
or other property held under the ESP Plan.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
The U.S. Department of Labor has not yet issued definitive
regulations or other authority regarding the applicability of the
Employee Retirement Income Security Act of 1974 to employee stock
purchase plans. Subject to the issuance of regulations or other
authority to the contrary, the Company believes that none of the
provisions of such Act are applicable to the ESP Plan.
UNITED STATES FEDERAL INCOME TAX ASPECTS
In the opinion of the Company, the ESP Plan qualifies as an
"employee stock purchase plan" within the meaning of Section 423 of
the Code. As such, neither the grant of the option to the employee
to purchase stock under the ESP Plan nor his subsequent purchase of
stock will result in the recognition of income to him provided that
(i) he remains an employee of the Company or of a subsidiary
corporation at all times during the period beginning with the
Offering Date and ending on the day three months before the Exercise
Date (the "employment requirement"), and (ii) no disposition of the
stock is made by him within two years after the grant of the option
to him nor within one year after the date the shares of stock
transferred to him (the "holding period requirement"). The ESP Plan
is not qualified under Section 401(a) of the Code.
Upon a sale or other disposition by the employee of a share
after satisfying the holding period requirement, or upon his death
while owning such share (whether before or after satisfying the
holding period requirement), there will be included in his gross
income, as compensation for the taxable year of such disposition or
death, an amount equal to the lesser of (a) the excess of the fair
market value of the share at the time of such disposition or death
over the amount paid for the share, or (b) the excess of the fair
market value of the share at the Offering Date over the Offering
Date option price. Any amount the employee realizes in excess of the
sum of the option price paid for the share, plus the amount treated
as compensation, if any, would be eligible for long-term capital
gain treatment. If the amount realized is less than the option price
paid for the share, no amount is included in gross income as
compensation, and the employee realizes a long-term capital loss to
the extent that the option price exceeds the amount realized. If the
employee satisfies the holding period and employment
33
requirements, no amount is deductible by the employer corporation by
reason of the grant or exercise of the option or the disposition of
the shares.
An employee who satisfies the employment requirement, but who
disposes of a share purchased under the ESP Plan before satisfying
the holding period requirement, will be treated as receiving
compensation income in the year of disposition in an amount equal to
the excess of the fair market value of the share on the Exercise
Date over the option price paid for the share. In such event, the
employer corporation may claim a deduction for compensation paid in
the same amount and at the same time as compensation income is
taxable to the employee. Any difference between the amount realized
on such disposition and the fair market value of such share on the
Exercise Date would be treated as a short-term capital gain or loss.
If an employee does not satisfy the employment requirement, upon
his purchase of shares on the Exercise Date, the employee will be
treated as receiving compensation income for the taxable year in
which the Exercise Date occurs in an amount equal to the excess of
the fair market value of the shares on the Exercise Date over the
option price paid for the shares. In such event, the employer
corporation may claim a deduction for compensation paid in the same
amount and at the same time as compensation income is taxable to the
employee. Upon a subsequent sale of the shares, any difference
between the amount realized on such sale and the fair market value
of the shares on the Exercise Date would be subject to long-term or
short-term capital gain or loss treatment, depending on whether the
shares were held for more than one year.
Except as noted above when the Company is the employer
corporation, no gain or loss is recognized to the Company upon the
issuance of shares purchased under the ESP Plan. Each employee is
encouraged to consult his own tax advisor as to any applicable city,
state or foreign income tax consequences as to his participation in
the ESP Plan.
SHARE PURCHASES UNDER THE ESP PLAN
The following table sets forth the share purchases under the ESP
Plan in 2003 and in 2004 as of March 5, 2004 by each of the named
executive officers and certain specified groups.
2004 2003
NUMBER OF EXERCISE PRICE NUMBER OF EXERCISE PRICE
NAME & POSITION SHARES PER SHARE (1) SHARES PER SHARE (1)
--------------- --------- -------------- --------- --------------
Ross J. Centanni........................... 0 N/A 0 N/A
Chairman, President & CEO
Philip R. Roth............................. 983 $18.19 660 $12.72
Vice President, Finance & CFO
J. Dennis Shull............................ 0 N/A 0 N/A
Vice President & General Manager,
Compressor Division
Michael S. Carney.......................... 885 $18.19 0 N/A
Vice President & General Manager,
Blower Division
Tracy D. Pagliara.......................... 728 $18.19 478 $12.72
Vice President, Administration,
General Counsel & Secretary
Executive Group (2)........................ 4,092 $18.19 1,616 $12.72
Non-Executive Director Group (3)........... N/A N/A N/A N/A
Non-Executive Officer Employee Group (4)... 74,021 $18.19 93,349 $12.72
--------
(1) The closing price of the Company's Common Stock as reported on the composite tape of the New York Stock
Exchange on March 5, 2004, was $28.70.
(2) Consists of 8 persons.
(3) Consists of 6 persons.
(4) Consists of 633 persons.
34
BOARD OF DIRECTORS RECOMMENDATION
THE BOARD OF DIRECTORS BELIEVES THAT THE ADOPTION OF THE AMENDED
AND RESTATED ESP PLAN WILL BE IN THE BEST INTERESTS OF THE
STOCKHOLDERS AND, ACCORDINGLY, RECOMMENDS A VOTE FOR THIS PROPOSAL,
---
WHICH IS ITEM 3 ON THE PROXY CARD. Proxies received in response to
the Board's solicitation will be voted FOR approval of the Amendment
if no specific instructions are included for Item 3.
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, as modified or supplemented.
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.
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, 2003 for filing with the
Securities and Exchange Commission.
March 10, 2004
Donald G. Barger, Jr., Chairperson
Frank J. Hansen
Raymond R. Hipp
35
ACCOUNTING FEES
The following summarizes the aggregate fees KPMG billed the
Company for services relating to the years ended December 31, 2002
and December 31, 2003.
Audit Fees. $391,500 (for the fiscal year ended December 31,
2003) and $302,500 (for the fiscal year ended December 31, 2002) for
professional services rendered for the audit of the Company's annual
financial statements and review of financial statements included in
the Company Forms 10-Q or services that are normally provided in
connection with statutory and regulatory filings or engagements for
those fiscal years. 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.
Audit-Related Fees. $86,500 (for the fiscal year ended December
31, 2003) and $46,700 (for the fiscal year ended December 31, 2002)
for acquisition due diligence, employee benefit plan reviews,
assurance and related services that are reasonably related to the
performance of the audit or review of the Company's financial
statements, but which are not included under "Audit Fees" above.
Tax Fees. $410,000 (for the fiscal year ended December 31, 2003)
and $187,500 (for the fiscal year ended December 31, 2002) for tax
compliance, tax advice and tax planning services.
All Other Fees. $52,500 (for the fiscal year ended December 31,
2003) and $-0- (for the fiscal year ended December 31, 2002) for all
other products and services provided, including Sarbanes-Oxley
Section 404 compliance assistance.
The Audit and Finance Committee has developed pre-approval
policies and procedures for audit and non-audit services, which are
attached as Appendix E.
In accordance with its charter, the Audit and Finance Committee
selected KPMG, independent auditors, to audit the Company's
consolidated financial statements for fiscal 2003. KPMG has
continued to serve as the Company's independent auditors for fiscal
2004.
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.
A member of KPMG will be present at the meeting with the
opportunity to make a statement and/or respond to appropriate
questions from stockholders.
36
STOCKHOLDERS' PROPOSALS FOR 2005 ANNUAL MEETING
Stockholders' proposals intended to be presented at the 2005
Annual Meeting must be received by the Company at its principal
executive offices (Attention: Corporate Secretary) on or before
November 21, 2004 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 3, 2005 and February 2, 2005,
respectively, for the 2005 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.
HOUSEHOLDING OF PROXIES
The Securities and Exchange Commission has adopted rules that
permit companies and intermediaries such as brokers to satisfy
delivery requirements for annual reports and proxy statements with
respect to two or more stockholders sharing the same address by
delivering a single annual report and/or proxy statement addressed
to those stockholders. This process, which is commonly referred to
as "householding," potentially provides extra convenience for
stockholders and cost savings for companies. The Company and some
brokers household annual reports and proxy materials, delivering a
single annual report and/or proxy statement to multiple stockholders
sharing an address unless contrary instructions have been received
from the affected stockholders.
Once you have received notice from your broker or the Company
that your broker or the Company will be householding materials to
your address, householding will continue until you are notified
otherwise or until you revoke your consent. If, at any time, you no
longer wish to participate in householding and would prefer to
receive a separate annual report and/or proxy statement in the
future, please notify your broker if your shares are held in a
brokerage account or the Company if you hold registered shares. If,
at any time, you and another stockholder sharing the same address
wish to participate in householding and prefer to receive a single
copy of the Company's annual report and/or proxy statement, please
notify your broker if your shares are held in a brokerage account or
the Company if you hold registered shares.
You may request to receive at any time a separate copy of our
annual report or proxy statement, or notify the Company that you do
or do not wish to participate in householding by sending a written
request to the Corporate Secretary at 1800 Gardner Expressway,
Quincy, Illinois 62305 or by telephoning 217-222-5400.
37
ADDITIONAL FILINGS
The Company's Forms 10-K, 10-Q, 8-K and all amendments to those
reports are available without charge through the Company's website
on the Internet as soon as reasonably practicable after they are
electronically filed with, or furnished to, the Securities and
Exchange Commission. They may be accessed as follows:
www.gardnerdenver.com.
GARDNER DENVER, INC.
Tracy D. Pagliara
Vice President, Administration,
General Counsel and Secretary
March 10, 2004
38
APPENDIX A
GARDNER DENVER, INC.
DIRECTOR INDEPENDENCE STANDARDS
In order to be considered independent under the rules of the New
York Stock Exchange ("NYSE"), the Board must determine that a
director does not have any direct or indirect material relationship
with Gardner Denver. The Board has established the following
guidelines to assist it in determining director independence under
the NYSE rules. Any director who meets the following standards will
be deemed independent by the Board:
1. The director was not employed by Gardner Denver, and no immediate
family member of the director was employed by Gardner Denver as
an executive officer, within the preceding three years.
2. The director was not affiliated with or employed by, and no
immediate family member of the director was affiliated with or
employed in a professional capacity by, Gardner Denver's present
or former independent auditor, within the preceding three years.
3. The director was not employed as an executive officer by, and no
immediate family member of the director was employed as an
executive officer by, any company for which any present Gardner
Denver executive officer served as a member of such company's
compensation committee within the preceding three years.
4. The director did not receive, and no member of the director's
immediate family received, direct compensation in excess of
$100,000 per year from Gardner Denver during any of the last
three years (other than director and committee fees, pension or
other deferred payments that are not in any way contingent on
continued service to Gardner Denver, and compensation received by
any immediate family member for service as a non-executive
officer of Gardner Denver).
5. If the director is an executive officer or an employee of, or if
any immediate family member is an executive officer of, another
company that does or has done business with Gardner Denver, the
annual payments to, or payments received from, Gardner Denver for
property or services by such company in each of the last three
fiscal years were less than the greater of $1 million or two
percent of the annual consolidated gross revenues of such
company.
6. If the director is a member of Gardner Denver's Audit Committee,
the director has not, other than in his or her capacity as a
director, accepted directly or indirectly any consulting,
advisory, or other compensatory fee from Gardner Denver or any of
its subsidiaries. "Compensatory fees" do not include the receipt
of fixed amounts of compensation under a retirement plan
(including deferred compensation) for prior service with Gardner
Denver, provided that such compensation is not contingent on
future service.
7. If the director serves as an executive officer, director or
trustee of a charitable organization to which Gardner Denver
makes contributions, other than the United Way, Gardner Denver's
discretionary annual contributions to such organization are less
than the greater of $1 million or two percent of such
organization's total annual charitable receipts.
8. The director's ownership, direct or indirect, of Gardner Denver
common shares is less than 5% of the total outstanding Gardner
Denver common shares.
If any relationship exists between Gardner Denver and any
director that is not addressed by the standards set forth above, the
directors meeting these standards shall determine whether such
relationship impairs the independence of such director.
A-1
APPENDIX B
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 control over 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;
5. The adherence to the Company's regulatory compliance policies and
procedures;
6. The Company's compliance with legal and regulatory requirements;
and
7. The Company's independent auditor's qualifications and
independence.
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 (the
"NYSE") and the Securities and Exchange Commission (the "SEC"),
including, without limitation, that: (a) the member has no
material relationship with the Company; (b) the member's sole
remuneration from the Company, whether direct or indirect, is his
or her compensation as a director; and (c) the member not be an
affiliated person of the Company or any subsidiary, as defined by
Rule 10A-3 of the Securities Exchange Act of 1934 (the "Exchange Act").
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 judgment, the Board
shall consider determinations or definitions of such
qualification by the NYSE and/or the SEC, 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. In
exercising its business judgment, the Board shall consider
determinations or definitions of such qualification by the SEC,
including Item 401(h) of Regulation S-K.
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, retention, discharge, oversight,
compensation, approval of non-audit services and determination of
independence, including resolution of any disagreements between
management and the Accounting Firm regarding financial reporting;
B-1
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 and the internal auditor the
planned scope of the Company's annual internal audit plan and the
findings and conclusions of such internal audit;
4. To approve in advance all audit and non-audit services (and
estimated fees) to be provided by the Accounting Firm in accordance
with a pre-approval policy to be adopted by the Committee;
5. To receive and review reports at least annually, within the
legally required timeframe, prior to the filing of audited financial
statements with the SEC, 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 for policies and practices related to material items
that have been discussed with management, including the
ramifications of the use of any alternative disclosures and
treatments and the treatment preferred by the Accounting
Firm; and
c. any other material, written communications between the
Accounting Firm and management, including management
representation letters, reports or observations and
recommendations on internal controls, schedules of unadjusted
differences and a listing of adjustments and
reclassifications not recorded, if any, the engagement letter
and the independence letter.
6. To review with the Accounting Firm any problems or
difficulties with the audit, including any restrictions on the scope
of the Accounting Firm's activities or on access to requested
information, significant disagreements with management, any
accounting adjustments that were noted or proposed by the auditor
but were "passed" (as immaterial or otherwise), any communications
between the audit team and the Accounting Firm's national office
respecting auditing or accounting issues presented by the
engagement, any "management" or "internal control" letter issued, or
proposed to be issued, by the Accounting Firm to the Company,
responsibilities, budget and staff issues and management's response;
7. At least annually, to obtain and review a report by the
Accounting Firm describing the Accounting Firm's independence and
internal quality control procedures, including material issues
raised by the most recent internal quality-control review, or peer
review, of the Accounting Firm, or by any inquiry or investigation
by governmental or professional authorities within the preceding
five (5) years respecting one or more independent audits carried out
by the Accounting Firm and any steps taken to address such issues;
8. To receive and review the annual report from the Accounting
Firm regarding the Company's internal control over financial
reporting required pursuant to Section 404 of the Sarbanes-Oxley
Act, and to review such report with management;
9. To review and discuss with the CEO, CFO and representatives
of the management disclosure committee, the internal audit
department and the Accounting Firm the Company's annual audited
financial statements and quarterly financial statements, including
the Company's disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations"; major
issues regarding accounting principles and financial statement
presentations, including any significant changes in the Company's
selection or application of accounting principles, and major issues
as to the adequacy of the Company's internal controls and any
special audit steps adopted in light of material control
deficiencies; analyses prepared by management and/or the Accounting
Firm setting forth significant financial reporting issues and
judgments made in connection with the preparation of the financial
statements; and the effect of regulatory and accounting initiatives
on the financial statements of the Company;
10. 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;
---------
11. To hold such other conferences and conduct such other
reviews with the Accounting Firm or with management as deemed
necessary or appropriate;
B-2
12. 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 questionable accounting or auditing matters;
13. 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;
14. 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;
15. To review the performance of the Committee on an annual
basis;
16. To review and reassess the adequacy of the Committee's
charter on an annual basis and to report such results to the Board;
17. To monitor compliance with the Company's Code of Ethics and
Business Conduct 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;
18. To meet at least four (4) times per year on a quarterly
basis;
19. To set clear hiring policies for employees or former
employees of the Accounting Firm;
20. 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;
21. To report regularly to the Board and review with the Board
any issues that arise with respect to the quality or integrity of
the Company's financial statements, the Company's compliance with
legal or regulatory requirements, the performance and independence
of the Accounting Firm, or the performance of the internal audit
function;
22. To furnish the report required by the SEC in the Company's
annual proxy statement;
23. To retain outside financial and legal advisors to assist it
in meeting any of the above obligations, as necessary or
appropriate; and
24. 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 and administrative
expenses of the Committee as necessary or appropriate.
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 or 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, including the Company's
major financial risk exposures and the steps management has
taken to monitor and control such exposures;
B-3
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;
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. periodically 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, management, and lead
partner on an annual basis and present the Committee's
conclusions to the Board;
h. require rotation of the lead, review and concurring partners
of the audit engagement team at least every five (5) years
and of all other partners at least every seven (7) 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.
B-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 code of conduct, conflicts of
interest and ethical conduct policies, and I promptly report any
violations of such policies to the appropriate person(s)
identified in such policies. 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
B-5
APPENDIX C
GARDNER DENVER, INC.
LONG-TERM INCENTIVE PLAN
1. PURPOSE
The purpose of the Gardner Denver, Inc. Long-Term Incentive Plan
(the "Plan") is to promote the long-term financial interests of
Gardner Denver, Inc. (the "Company"), including its growth and
performance, by encouraging employees of the Company and its
subsidiaries to acquire an ownership position in the Company,
enhancing the ability of the Company to attract and retain employees
of outstanding ability, and providing employees with an interest in
the Company parallel to that of the Company's stockholders.
2. DEFINITIONS
2.1 "Administrative Policies" means the administrative policies
and procedures adopted and amended from time to time by the
Committee to administer the Plan.
2.2 "Award" means any form of stock option, stock appreciation
right, restricted stock award, performance share or long-term cash
bonus granted under the Plan, whether singly, in combination, or in
tandem, to a Participant by the Committee pursuant to such terms,
conditions, restrictions and limitations, if any, as the Committee
may establish by the Award Agreement or otherwise.
2.3 "Award Agreement" means a written agreement with respect to
an Award between the Company and a Participant establishing the
terms, conditions, restrictions and limitations applicable to an
Award. To the extent an Award Agreement is inconsistent with the
terms of the Plan, the Plan shall govern the rights of the
Participant thereunder.
2.4 "Base Salary" means the base salary paid by the Company to
the Participant, exclusive of any bonuses, commissions or other
actual or imputed income from any Company-provided benefits or
perquisites, but prior to any reductions for salary deferred
pursuant to any deferred compensation plan or for contributions to a
plan qualifying under Section 401(k) of the Code or contributions
pursuant to a cafeteria plan under Section 125 of the Code.
2.5 "Base Salary Factor" means a multiplier expressed as a
percentage of the Executive Officer's Base Salary, as determined by
the Committee pursuant to Section 12.3 of the Plan for purposes of
calculating an Executive Officer's Long-Term Cash Bonus.
2.6 "Board" shall mean the Board of Directors of the Company.
2.7 "Business Criteria" means any one, or a combination, of the
following: (i) revenues of the Company; (ii) operating income of the
Company; (iii) net income of the Company; (iv) earnings per share of
the Company's Common Stock; (v) earnings before taxes of the
Company; (vi) the Company's return on equity; (vii) cash flow of the
Company; or (viii) Company stockholder total return.
2.8 "Change of Control" means the occurrence of any one of the
following events:
(i) any "person" (as defined in Sections 13(d) and 14(d) of
U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the company in
substantially the same proportions as their ownership of stock
of the Company, acquires "beneficial ownership" (as defined in
Rule 13d-3 under the Exchange Act) of securities representing
20% of the combined voting power of the Company; or
(ii) during any period of not more than two consecutive
years, individuals who, at the beginning of such period,
constitute the Board and any new directors (other than any
director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
subsections 2.8(i), 2.8(iii), or 2.8(iv) of this Plan) whose
election by the Board or nomination for election by the
C-1
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the
Board; or
(iii) the stockholders of the Company approve and the
Company consummates a merger other than (A) a merger that would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company and any
Subsidiary, at least 50% of the combined voting power of all
classes of stock of the Company or such surviving entity
outstanding immediately after such merger or (B) a merger
effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than 50%
of the combined voting power of the Company's then outstanding
securities; 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.
2.9 "Change of Control Price" means the higher of (i) the Fair
Market Value on the date of determination of the Change of Control
or (ii) the highest price per share actually paid for the Common
Stock in connection with the Change of Control of the Company.
2.10 "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
2.11 "Committee" means the Management Development and
Compensation Committee of the Board, or such other committee
designated by the Board to administer the Plan, provided that the
Committee shall be constituted so as to satisfy any applicable legal
requirements, including the requirements of Rule 16b-3 promulgated
under the Exchange Act and Section 162(m) of the Code, or any
respective successor rule or statute.
2.12 "Common Stock" means the Common Stock, par value $0.01 per
share, of the Company.
2.13 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
2.14 "Executive Officer" means 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.
2.15 "Fair Market Value" means the average of the high and low
price of a share of Common Stock as reported on the composite tape
for securities listed on the Stock Exchange for the applicable date,
provided that if no sales of Common Stock were made on the Stock
Exchange on that date, the average of the high and low prices as
reported on the composite tape for the preceding day on which sales
of Common Stock were made.
2.16 "Long-Term Cash Bonus" means a payment in cash of an
Executive Officer's Payment Opportunity.
2.17 "Payment Opportunity" means the amount determined pursuant
to any bonus formula established by the Committee for an Executive
Officer for a given Performance Period pursuant to Section 12.3 of
the Plan, taking into account the actual achievement of the relevant
Performance Targets and the Executive Officer's Base Salary Factor.
2.18 "Performance Period" means a stated period over which the
Company's performance is measured for purposes of Awards under the
Plan. The duration of Performance Periods may vary with respect to
different types of Awards under the Plan, as determined by the
Committee.
2.19 "Performance Shares" means Awards in the form of shares of
Common Stock that may be earned pursuant to the terms set forth in
Section 10 of the Plan.
2.20 "Performance Targets" means the predetermined goal or goals
established by the Committee in writing (which may be cumulative or
alternative) based upon one, or any combination, of the Business
Criteria.
C-2
2.21 "Participant" means an officer or employee of the Company
or its subsidiaries who is selected by the Committee to participate
in the Plan, and nonemployee directors of the Company to the extent
provided in Section 11 hereof.
2.22 "Stock Exchange" means the composite tape of the New York
Stock Exchange ("NYSE") or, if the Common Stock is no longer
included on the NYSE, then such other market price reporting system
on which the Common Stock is traded or quoted designated by the
Committee after it determines that such other exchange is both
reliable and reasonably accessible.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Committee. A majority
of the Committee shall constitute a quorum, and the acts of a
majority of a quorum shall be the acts of the Committee.
3.2 Subject to the provisions of the Plan, the Committee (i)
shall select the Participants, determine the type of Awards to be
made to Participants, determine the shares or share units subject to
Awards, and (ii) shall have the authority to interpret the Plan, to
establish, amend, and rescind any Administrative Policies, to
determine the terms and provisions of any agreements entered into
hereunder, and to make all other determinations necessary or
advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award in the manner and to the
extent it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan,
as described herein, shall be final and conclusive, provided,
however, that no action shall be taken which will prevent the
options granted under Section 11 or any Award granted under the Plan
from meeting the requirements for exemption from Section 16(b) of
the Exchange Act, or subsequent comparable statute, as set forth in
Rule 16b-3 of the Exchange Act or any subsequent comparable rule;
and, provided further, that no action shall be taken which will
prevent Awards that are intended to constitute "qualified
performance-based compensation," within the meaning of Section
162(m) of the Code, from doing so.
3.3 Notwithstanding the powers and authorities of the Committee
under the Plan, the Committee shall not permit the repricing of
stock options by any method, including by cancellation and
reissuance.
3.4 In order to enable Participants who are foreign nationals or
employed outside the United States, or both, to receive Awards under
the Plan, the Committee may adopt such amendments, Administrative
Policies, subplans and the like as are necessary or advisable, in
the opinion of the Committee, to effectuate the purposes of the
Plan.
4. ELIGIBILITY
All employees of the Company and its subsidiaries who have
demonstrated significant management potential or who have the
capacity for contributing in a substantial measure to the successful
performance of the Company, as determined by the Committee, are
eligible to be Participants in the Plan. Participants may receive
one or more Awards under the Plan. Directors of the Corporation
other than directors who are employees of the Corporation shall be
eligible only to receive stock options pursuant to Section 11
hereof.
5. SHARES SUBJECT TO THE PLAN
5.1 The aggregate number of shares of Common Stock available for
grant of Awards under the Plan shall be that number of shares
remaining available for grant under the Plan on the close of
business on the date immediately prior to the 2004 Annual Meeting of
Stockholders plus 750,000, subject to the adjustments provided for
in Section 16 hereof. Shares of Common Stock available for issuance
under the Plan may be authorized and unissued shares or treasury
shares, as the Company may from time to time determine.
5.2 Subject to adjustment as set forth in Section 16 hereof, the
maximum aggregate number of shares of Common Stock that may be
granted under the Plan in the form of restricted stock grants shall
not exceed 50% of the aggregate shares of Common Stock available
under the Plan.
5.3 Shares of Common Stock subject to an Award that expires
unexercised or that is forfeited, terminated or canceled, in whole
or in part, or is paid in cash in lieu of Common Stock, shall
thereafter again be available
C-3
for grant under the Plan, except that any such shares attributable
to a Restricted Stock Award (as defined in Section 9) shall be
counted against the restricted stock limit set forth in Section 5.2
hereof.
6. AWARDS
Awards under the Plan may consist of: stock options (either
incentive stock options within the meaning of Section 422 of the
Code or nonstatutory stock options), stock appreciation rights,
restricted stock grants, performance shares and long-term cash
bonuses; provided that no Participant may be granted Awards during
any calendar year with respect thereto in excess of 180,000 shares
of Common Stock, subject to the provisions of Section 16. Awards of
performance shares and restricted stock may provide the Participant
with dividends or dividend equivalents and voting rights prior to
vesting (whether based on a period of time or based on attainment of
specified performance conditions). The terms, conditions and
restrictions of each Award shall be set forth in an Award Agreement.
7. STOCK OPTIONS
7.1 Grants. Awards may be granted in the form of stock options.
Stock options may be incentive stock options within the meaning of
Section 422 of the Code or nonstatutory stock options (i.e., stock
options which are not incentive stock options), or a combination of
both, or any particular type of tax advantage option authorized by
the Code from time to time. Awards of stock options made to
Participants subject to Section 162(m) of the Code are intended to
qualify as "qualified performance-based compensation" under Section
162(m) and the provisions of such Awards shall be interpreted in a
manner consistent with that intent, to the extent appropriate.
7.2 Terms and Conditions of Options. An option shall be
exercisable in whole or in such installments and at such times and
upon such terms as may be determined by the Committee; provided,
however, that no stock option shall be exercisable more than ten
years after the date of grant thereof. The option exercise price
shall be established by the Committee, but such price shall not be
less than the Fair Market Value on the date of the stock option's
grant, subject to adjustment as provided in Section 16 hereof.
7.3 Restrictions Relating to Incentive Stock Options. Stock
options issued in the form of incentive stock options shall, in
addition to being subject to all applicable terms, conditions,
restrictions and limitations established by the Committee, comply
with Section 422 of the Code. Incentive stock options shall be
granted only to full time employees of the Company and its
subsidiaries within the meaning of Section 424 of the Code. The
aggregate Fair Market Value (determined as of the date the option is
granted) of shares with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar
year (under this Plan or any other plan of the Company which
provides for the granting of incentive stock options) may not exceed
$100,000 or such other number as may be applicable under the Code
from time to time.
7.4 Payment. Upon exercise, a Participant may pay the option
exercise price of a stock option in cash, shares of Common Stock,
stock appreciation rights or a combination of the foregoing, or such
other consideration as the Committee may deem appropriate. The
Committee shall establish appropriate methods for accepting Common
Stock and may impose such conditions as it deems appropriate on the
use of such Common Stock to exercise a stock option.
7.5 Additional Terms and Conditions. The Committee may, by way
of the Award Agreement or Administrative Policies (or amendments
thereto), establish such other terms, conditions or restrictions, if
any, on any stock option award, provided they are consistent with
the Plan. The Committee may condition the vesting of stock options
on the achievement of financial performance criteria established by
the Committee at the time of grant.
8. STOCK APPRECIATION RIGHTS
8.1 Grants. Awards may be granted in the form of stock
appreciation rights ("SAR"). Awards of SARs made to Participants
subject to 162(m) of the Code are intended to qualify as "qualified
performance-based compensation" under Section 162(m) and the
provisions of such Awards shall be interpreted in a manner
consistent with that intent, to the extent appropriate. SARs shall
entitle the recipient to receive a payment equal
C-4
to the appreciation in market value of a stated number of shares of
Common Stock from the price stated in the Award Agreement to the
Fair Market Value on the date of exercise or surrender. An SAR may
be granted in tandem with all or a portion of a related stock option
under the Plan ("Tandem SAR"), or may be granted separately
("Freestanding SAR"); provided, however, that Freestanding SARs
shall be granted only to Participants who are foreign nationals or
are employed outside of the United States, or both, and as to whom
the Committee determines the interests of the Company could not as
conveniently be served by the grant of other forms of Awards under
the Plan. A Tandem SAR may be granted either at the time of the
grant of the related stock option or at any time thereafter during
the term of the stock option. In the case of SARs granted in tandem
with stock options granted prior to the grant of such SARs, the
appreciation in value shall be appreciation from the option exercise
price of such related stock option to the Fair Market Value on the
date of exercise.
8.2 Terms and Conditions of Tandem SARs. A Tandem SAR shall be
exercisable to the extent, and only to the extent, that the related
stock option is exercisable. Upon exercise of a Tandem SAR as to
some or all of the shares covered in an Award, the related stock
option shall be canceled automatically to the extent of the number
of SARs exercised, and such shares shall not thereafter be eligible
for grant under Section 5 hereof.
8.3 Terms and Conditions of Freestanding SARs. Freestanding SARs
shall be exercisable in whole or in such installments and at such
times as may be determined by the Committee. The base price of a
Freestanding SAR shall be determined by the Committee; provided,
however, that such price shall not be less than the Fair Market
Value on the date of the award of the Freestanding SAR.
8.4 Deemed Exercise. The Committee may provide that a SAR shall
be deemed to be exercised at the close of business on the scheduled
expiration date of such SAR, if at such time the SAR by its terms is
otherwise exercisable and, if so exercised, would result in a
payment to the Participant.
8.5 Additional Terms and Conditions. The Committee may, by way
of the Award Agreement or Administrative Policies, determine such
other terms, conditions and restrictions, if any, on any SAR Award,
provided they are consistent with the Plan.
9. RESTRICTED STOCK AWARDS
9.1 Grants. Awards may be granted in the form of restricted
stock ("Restricted Stock Awards"). Restricted Stock Awards shall be
awarded in such numbers and at such times as the Committee shall
determine.
9.2 Award Restrictions. Restricted Stock Awards shall be subject
to such terms, conditions or restrictions as the Committee deems
appropriate including, but not limited to, restrictions on
transferability, requirements of continued employment, achievement
of individual performance goals or Performance Targets. The period
of vesting and the forfeiture restrictions shall be established by
the Committee at the time of grant, except that each restriction
period shall not be less than 12 months. To the extent Restricted
Awards are subject to Performance Targets, it is intended that all
such Restricted Stock Awards granted to Participants subject to
Section 162(m) of the Code will qualify as "qualified
performance-based compensation" under Section 162(m) and such Awards
shall be interpreted in a manner consistent with that intent, to the
extent appropriate.
9.3 Rights as Shareholders. During the period in which any
restricted shares of Common Stock are subject to forfeiture
restrictions imposed under the preceding paragraph, the Committee
may, in its discretion, grant to the Participant to whom such
restricted shares have been awarded, all or any of the rights of a
shareholder with respect to such shares, including, but not limited
to, the right to vote such shares and to receive dividends.
9.4 Evidence of Award. Any Restricted Stock Award granted under
the Plan may be evidenced in such manner as the Committee deems
appropriate, including, without limitation, book entry registration
or issuance of a stock certificate or certificates.
10. PERFORMANCE SHARES
10.1 Grants. Awards may be granted in the form of shares of
Common Stock that are earned only after the attainment of
predetermined performance targets during a performance period as
established by the Committee ("Performance Shares").
C-5
10.2 Performance Criteria. The Committee may grant an Award of
Performance Shares to Participants as of the first day of each
Performance Period established for Performance Shares. Performance
Targets will be established at the beginning of each Performance
Period. The Committee shall be permitted to make adjustments when
determining the attainment of the applicable Performance Targets to
reflect extraordinary or nonrecurring items or events, or unusual
nonrecurring gains or losses identified in the Company's financial
statements, as long as any such adjustments are made in a manner
consistent with Section 162(m) to the extent applicable. Awards of
Performance Shares made to Participants subject to Section 162(m) of
the Code are intended to qualify under Section 162(m) and provisions
of such Awards shall be interpreted in a manner consistent with that
intent, to the extent appropriate. At the end of the Performance
Period, Performance Shares shall be converted into Common Stock (or
cash or a combination of Common Stock and cash, as determined by the
Award Agreement) and distributed to Participants based upon such
entitlement. Award payments made in cash rather than the issuance of
Common Stock shall not, by reason of such payment in cash, result in
additional shares being available for reissuance pursuant to Section
5 hereof.
10.3 Additional Terms and Conditions. The Committee may, by way
of the Award Agreement or Administrative Policies, determine the
manner of payment of Awards of Performance Shares and other terms,
conditions or restrictions, if any, on any Award of Performance
Shares, provided they are consistent with the Plan and to the extent
applicable, Section 162(m) of the Code.
11. DIRECTORS' STOCK OPTIONS
11.1 Grants. Awards may be granted to nonemployee directors only
in the form of stock options satisfying the requirements of this
Section 11 ("Director Stock Options"). Subject to Section 16 hereof,
on the date following the commencement of the Company's annual
meeting of stockholders each year, there shall be granted to each
nonemployee director an option to purchase up to a maximum of 9,000
shares of Common Stock. The amount of shares subject to the option
shall be determined in the Committee's discretion. All such options
shall be nonstatutory stock options.
11.2 Option Exercise Price. The option exercise price of
Director Stock Options shall be 100 percent of the Fair Market Value
on the date such options are granted. The Committee shall be
authorized to compute the price per share on the date of grant.
Payment of the option exercise price may be made in cash or in
shares of Common Stock or a combination of cash and Common Stock.
11.3 Award Agreement. Director Stock Options shall be evidenced
by an Award Agreement in the form of a stock option agreement, dated
as of the date of the grant, which agreement shall be in such form,
consistent with the terms and requirements of this Section 11, as
shall be approved by the Committee from time to time and executed on
behalf of the Company by its Chief Executive Officer.
11.4 Terms and Conditions of Director Stock Options. Director
Stock Options shall become fully exercisable on the first
anniversary of the date of grant and shall terminate upon the
expiration of five years from the date of grant. To the extent an
option is not otherwise exercisable at the date of the nonemployee
director's retirement under a retirement plan or policy of the
Company or at the time a nonemployee director ceases to be a
director on account of disability, it shall become fully exercisable
upon such retirement or cessation of service as a director due to
disability. Upon such retirement or cessation of service due to
disability, such options shall be exercisable for a period of five
years, subject to the original term thereof. Options not otherwise
exercisable at the time of the death of a nonemployee director
during service with the Company shall become fully exercisable upon
his death. Upon the death of a nonemployee director while in service
as a director or within the five-year period during which the
options are exercisable following the retirement or disability of a
nonemployee director, such options shall remain exercisable (subject
to the original term of the option) for a period of one year after
the date of death. To the extent an option is exercisable on the
date a director ceases to be a director (other than by reason of
disability, death or retirement), the option shall continue to be
exercisable (subject to the original term of the option) for a
period of 90 days thereafter.
11.5 Transferability. Except as provided in Section 15 hereof,
no option shall be transferable by a nonemployee director except by
will or the laws of descent and distribution, and during the
director's lifetime options may be exercised only by him or his
legal representative.
C-6
11.6 Change of Control. Director Stock Options not otherwise
exercisable at the time of a Change of Control shall become fully
exercisable upon such Change of Control. In the case of a Change of
Control:
(i) The Company shall make payment to directors with respect to
Director Stock Options in cash in an amount equal to the
appreciation in the value of the Director Stock Option from the
option exercise price specified in the Award Agreement to the Change
of Control Price;
(ii) The cash payments to directors shall be due and payable,
and shall be paid by the Company, immediately upon the occurrence of
such Change of Control; and
(iii) After the payment provided for in (i) above, nonemployee
directors shall have no further rights under Director Stock Options
outstanding at the time of such Change in Control.
12. LONG-TERM CASH BONUS
12.1 Eligibility. Only Executive Officers shall be eligible to
receive a Long-Term Cash Bonus. Not later than ninety (90) days
after the commencement of a Performance Period, the Committee shall
select the Executive Officers eligible to receive a Long-Term Cash
Bonus for the Performance Period. Each Executive Officer
participating in a Performance Period shall be eligible to receive a
Long-Term Cash Bonus upon completion of a Performance Period only if
Executive Officer is still employed by the Company upon the last day
of such Performance Period, provided, however, that the Committee
shall have the discretion to grant eligibility to the Executive
Officer in its discretion, notwithstanding the fact that the
Executive Officer is not still employed by the Company at such
point.
12.2 Performance Target(s); Business Criteria; Base Salary
Factors. The applicable Business Criteria and Performance Targets
for a given Performance Period shall be established by the Committee
in advance of the deadlines set forth in the regulations under
Section 162(m) of the Code and while the performance relating to the
Performance Targets remains substantially uncertain within the
meaning of Section 162(m) of the Code. The Committee shall be
permitted to make adjustments when determining the attainment of
Performance Targets to reflect extraordinary or nonrecurring items
or events, or unusual nonrecurring gains or losses identified in the
Company's financial statements, as long as any such adjustments are
made in a manner consistent with Section 162(m) of the Code, to the
extent applicable.
12.3 Calculation of Long-Term Cash Bonus. At the beginning of
each Performance Period, the Committee shall provide in terms of an
objective formula or standard for each Executive Officer: (a) the
method of computing the specific amount that will represent the
Executive Officer's Long-Term Cash Bonus; and (b) the Base Salary
Factor to be used in calculating any Executive Officer's Long-Term
Cash Bonus. Subject to Section 12.4, at the first meeting of the
Committee after the expiration of the Performance Period, the
Committee shall determine the extent to which the Performance
Targets have been achieved, and shall determine each Executive
Officer's Payment Opportunity based on his or her Base Salary
Factor. Notwithstanding the attainment of the Performance Targets,
Long-Term Cash Bonuses for individual Executive Officers may be
denied or adjusted by the Committee, in its sole judgment, based on
its assessment of the Executive Officer's performance. However, no
upward adjustment may be made to a Long-Term Cash Bonus for an
Executive Officer if Section 162(m) of the Code would limit the
deduction the Company may claim for that Executive Officer's
compensation.
12.4 Maximum Long-Term Cash Bonus. Notwithstanding any other
provision in the Plan, no Executive Officer shall receive for any
Performance Period any Long-Term Cash Bonus under the Plan in excess
of $3,000,000 or, if less, three times his or her Base Salary as of
the last day of the applicable Performance Cycle. Any Payment
Opportunity in excess of the foregoing limits shall be reduced
automatically to the extent of the excess.
12.5 Payment. Long-Term Cash Bonuses shall be paid in cash or
Restricted Stock Awards, as determined by the Committee and subject
to the remaining terms of this Plan. Payment of Long-Term Cash
Bonuses shall occur within a reasonable time after the Committee has
certified in writing the extent to which the Performance Targets
have been achieved and determined the amount of each Executive
Officer's Long-Term Cash Bonus for the given Performance Period
pursuant to Sections 12.3 and 12.4 hereof.
C-7
13. DIVIDENDS AND DIVIDEND EQUIVALENTS; DEFERRALS
13.1 If an Award is granted in the form of a Restricted Stock
Award or Performance Shares, the Committee may choose, at the time
of the grant of the Award, to include as part of such Award an
entitlement to receive dividends or dividend equivalents, subject to
such terms, conditions, restrictions or limitations, if any, as the
Committee may establish. Dividends and dividend equivalents shall be
paid in such form and manner and at such time as the Committee shall
determine.
13.2 The Committee may permit Participants to elect to defer the
issuance of shares or the settlement of Awards in cash under
Administrative Policies established by the Committee. It may also
provide that deferred settlements include the payment or crediting
of interest on the deferral amounts or the payment or crediting of
dividend equivalents on deferred settlements denominated in shares.
Notwithstanding the foregoing, to the extent the Award being
deferred is that of a Participant subject to Section 162(m) of the
Code, the Committee will ensure that any increase in the Award will
be based upon a reasonable rate of interest or on one or more
predetermined actual investments such that the amount payable at the
later date will be based upon actual returns, including any decrease
or increase in the value of the investment(s).
14. TERMINATION OF EMPLOYMENT
Consistent with the requirements of Section 162(m) regarding
"qualified performance-based compensation," the Committee shall
adopt Administrative Policies determining the entitlement of
Participants who cease to be employed by either the Company or its
subsidiaries due to death, disability, resignation, termination or
retirement pursuant to an established retirement plan or policy of
the Company or its subsidiaries.
15. ASSIGNMENT AND TRANSFER
The rights and interests of a Participant under the Plan may not
be assigned, encumbered or transferred except, in the event of the
death of a Participant, by will or the laws of descent and
distribution. Notwithstanding the foregoing, the Committee may, in
its discretion, grant stock options to one or more executive
officers or nonemployee directors of the Company (or amend existing
stock options) on terms that permit the stock options to be
transferred by any such executive officer or nonemployee director,
for estate planning purposes, to (a) the executive officer's or
nonemployee director's spouse, children, grandchildren, parents,
siblings, stepchildren, stepgrandchildren or in-laws ("Family
Members"), (b) entities that are exclusively family-related,
including trusts for the exclusive benefit of Family Members and
limited partnerships or limited liability companies in which Family
Members are the only partners or members, or (c) such other persons
or entities specifically approved by the Committee. The terms and
conditions applicable to the transfer of any such stock options
shall be established by the Committee, in its discretion but
consistent with this Section 15, and shall be contained in the
applicable stock option agreement (or an amendment thereto) between
the Company and the executive officer.
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event of any change in the outstanding shares of Common
Stock by reason of a reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, merger,
consolidation or any change in the corporate structure or shares of
the Company, the maximum aggregate number and class of shares as to
which Awards may be granted under the Plan, including any
limitations upon individual Participants or regarding Director Stock
Options, as well as the number and class of shares issuable, and the
related option exercise price, pursuant to then outstanding Awards,
shall be appropriately adjusted by the Committee, whose
determination shall be final.
17. WITHHOLDING TAXES
The Company shall have the right to deduct from any payment to
be made pursuant to the Plan the amount of any taxes required by law
to be withheld therefrom, or to require a Participant to pay to the
Company such amount required to be withheld prior to the issuance or
delivery of any shares of Stock or the payment of cash under the
Plan. The Committee may, in its discretion, permit a Participant to
elect to satisfy such withholding
C-8
obligation by having the Company retain the number of shares of
Common Stock whose Fair Market Value equals the amount required to
be withheld. Any fraction of a share of Common Stock required to
satisfy such obligation shall be disregarded and the amount due
shall instead be paid in cash to the Participant.
18. REGULATORY APPROVALS AND LISTINGS
Notwithstanding anything contained in this Plan to the contrary,
the Company shall have no obligation to issue or deliver
certificates of Common Stock evidencing Restricted Stock Awards or
any other Award payable in Common Stock prior to (i) the obtaining
of any approval from any governmental agency which the Company
shall, in its sole discretion, determine to be necessary or
advisable, (ii) the admission of such shares to listing on the Stock
Exchange, and (iii) the completion of any registration or other
qualification of said shares under any state or federal law or
ruling of any governmental body which the Company shall, in its sole
discretion, determine to be necessary or advisable.
19. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
No person shall have any claim or right to be granted an Award,
and the grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or
its subsidiaries. Further, the Company and its subsidiaries
expressly reserve the right at any time to dismiss a Participant
free from any liability, or any claim under the Plan, except as
provided herein or in any Award Agreement entered into hereunder.
20. CHANGE OF CONTROL
In the event of a Change of Control, (i) all SARs which have not
been granted in tandem with stock options shall become exercisable
in full, (ii) the restrictions applicable to all shares of
restricted stock shall lapse and such shares shall be deemed fully
vested and all restricted stock granted in the form of share units
shall be paid in cash, (iii) all Performance Shares and Long-Term
Cash Bonuses shall be deemed to be earned in full at the Payment
Opportunity associated with the achievement of 100% of the
Performance Targets assigned to such Awards, and all Performance
Shares granted in the form of share units shall be paid in cash, and
(iv) any Participant who has been granted a stock option which is
not exercisable in full shall be entitled, in lieu of the exercise
of the portion of the stock option which is not exercisable, to
obtain a cash payment in an amount equal to the difference between
the option price of such stock option and (A) in the event the
Change of Control is the result of a tender offer or exchange offer
for the Common Stock, the final offer price per share paid for the
Common Stock, or such lower price as the Committee may determine
with respect to any incentive stock option to preserve its incentive
stock option status, multiplied by the number of shares of Common
Stock covered by such portion of the stock option, or (B) in the
event the Change of Control is the result of any other occurrence,
the aggregate value of the Common Stock covered by such portion of
the stock option, as determined by the Committee at such time. The
Committee may, in its discretion, include such further provisions
and limitations in, any agreement documenting such Awards as it may
deem equitable and in the best interests of the Company.
21. AMENDMENT
The Board may amend, suspend or terminate the Plan or any
portion thereof at any time, provided that no amendment shall be
made that would impair the rights of a Participant under an
outstanding Award without the Participant's consent, and no
amendment shall be made without stockholder approval if such
approval is necessary in order to preserve the applicability of any
exemption under Rule 16b-3 under the Exchange Act or qualification
of any Award under Section 162(m), or is otherwise required as a
matter of law. Further, no amendment to the Plan shall be effective
that would: (a) increase the maximum amount that can be paid to a
Participant under the Plan; (b) change the Business Criteria for
payment of performance-based Awards; or (c) modify the eligibility
requirements for Participants in the Plan, unless first approved by
the Company's stockholders. An Award Agreement may be amended by
action of the Board or the Committee, provided that no such
amendment shall be made that would impair the rights of a
Participant under such Award Agreement without the Participant's
consent.
C-9
22. GOVERNING LAW
The validity, construction and effect of the Plan and any
actions taken or relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable
Federal law.
23. RIGHTS AS SHAREHOLDER
Except as otherwise provided in the Award Agreement, a
Participant shall have no rights as a shareholder until he or she
becomes the holder of record. To the extent any person acquires a
right to receive payments from the Company under this Plan, such
rights shall be no greater than the rights of an unsecured creditor
of the Company.
24. EFFECTIVE DATE
The Plan became effective on December 23, 1993. Subject to
earlier termination pursuant to Section 20, the Plan shall terminate
effective December 31, 2008. After termination of the Plan, no
future Awards may be granted but previously made Awards shall remain
outstanding in accordance with their applicable terms and conditions
and the terms and conditions of the Plan.
C-10
APPENDIX D
GARDNER DENVER, INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The Gardner Denver, Inc. Employee Stock Purchase Plan (the
"Plan") is designed to provide employees of Gardner Denver, Inc.
(the "Company") and its subsidiaries with the opportunity to acquire
shares of common stock of the Company ("Stock"), by granting options
to such employees on such dates not later than December 31, 2008 as
the Board of Directors of the Company (the "Board") may from time to
time determine (each such date is herein referred to as an "Offering
Date"), which options shall be exercised on such dates, in each case
not later than 15 months after the related Offering Date, as are
established in accordance with the provisions of this Plan (each
such date of exercise is herein referred to as an "Exercise Date").
This Plan is intended to constitute an "employee stock purchase
plan" within the meaning of section 423 of the Internal Revenue Code
of 1986, as amended (the "Code").
SECTION 2. ELIGIBLE EMPLOYEES
All persons who on an Offering Date are employees of the Company
or of such of its subsidiary corporations (within the meaning of
Section 424(f) of the Code) as may be designated prior to such
Offering Date by the Board ("Participating Subsidiaries") will be
eligible to participate in the Plan except for:
(a) directors of the Company or a Participating Subsidiary that
are not employees;
(b) employees that have been continuously employed by the
Company, its Participating Subsidiaries or predecessors of
such subsidiaries for less than two months prior to such
Offering Date;
(c) employees whose customary employment is less than 20 hours
per week or for not more than five months in any calendar
year; and
(d) any employee who, if granted an option under the Plan, would
immediately after the option is granted own stock equal to
five percent or more of the total combined voting power or
value of all classes of stock of the Company or of its
parent or subsidiary corporations (within the meaning of
sections 423(b)(3) and 424(d) of the Code).
SECTION 3. GRANT OF OPTIONS
3.01. As of each Offering Date, each eligible employee shall be
granted an option to purchase a maximum number of shares of Stock
(increased by any fractional amount required to make a whole share),
which number of shares, when multiplied by the option price
described in Section 3.02(a), will most closely approximate a
percentage fixed by the Board prior to such Offering Date (which
percentage shall not exceed 5%) of the annual compensation of that
eligible employee as in effect as of October 31 of that calendar
year, determined as follows:
(a) the straight-time hourly base wage rate of the employee in
effect on October 31 of that calendar year multiplied by
2,080, or by such number as the Board deems to constitute
the number of straight-time hours in a normal work year for
such employee;
(b) the monthly base salary of the employee in effect on October
31 of that calendar year multiplied by 12; or
(c) if the Management Development and Compensation Committee
(the "Committee") believes that neither of the amounts
determined pursuant to the methods described in (a) and (b)
above would properly reflect the employee's normal
compensation for one year, such compensation determined in a
manner the Committee considers to be equitable.
The number of shares so determined is subject to possible adjustment
as provided in Sections 3.03 and 5 below.
D-1
3.02. The option price for all shares for which options are
granted on an Offering Date will be the lesser of:
(a) an amount equal to 85% of the mean between the high and low
quoted selling prices of Stock on the composite tape of the
New York Stock Exchange on the Offering Date, or if there is
no such sale on the Offering Date, on the then most recent
preceding day on which any such sale occurred; or
(b) an amount equal to 85% of the mean between the high and low
quoted selling prices of Stock on the composite tape of the
New York Stock Exchange on the Exercise Date (as defined in
Section 1 above), or if there is no such sale on the
Exercise Date, on the then most recent preceding day on
which any such sale occurred.
3.03. No employee may be granted an option that permits his
rights to purchase stock under the Plan and under all other employee
stock purchase plans of the Company and its parent and subsidiary
corporations to exceed the amount provided by Section 423(b)(8) of
the Code from time to time for each calendar year in which such
option is outstanding at anytime. If an employee would become
entitled to purchase a number of shares exceeding such maximum
amount, the number of shares available for purchase by the employee
shall be reduced by such excess.
SECTION 4. ELECTIONS TO PURCHASE SHARES AND PAYROLL DEDUCTIONS
Subject to Section 9, not later than 45 days after the Offering
Date, an employee may elect to purchase all or part of the shares
that he is entitled to purchase with respect to that Offering Date.
Such election shall be made by the execution by the employee of an
approved form authorizing uniform payroll deductions over a 12-
month period beginning on the January 1 next following the Offering
Date and ending on December 31 of that same year (the "Offering
Termination Date"). Such payroll deductions shall be in such amounts
as will in the aggregate equal the total option price described in
Section 3.02(a) of all shares that he has elected to purchase. The
minimum payroll deduction shall be $10 per month. Any election to
purchase may be changed or terminated as hereinafter set forth. With
respect to shares as to which no election to purchase is made by the
employee on or before 45 days after the Offering Date, the option
granted to the employee on that Offering Date shall expire.
SECTION 5. NUMBER OF SHARES OFFERED
5.01. The aggregate number of shares which may be issued under
the Plan is 1,150,000 shares of Stock, which shares may be
authorized but unissued shares or treasury shares, or both. The
aggregate number of shares for which options are to be granted on
each Offering Date shall be determined by the Board prior to such
Offering Date. Should the total number of shares specified in all
employees' initial elections to purchase as provided in Section 4
with respect to any Offering Date exceed the aggregate number of
shares for which options are granted on that Offering Date, the
Company will, on the Offering Termination Date, make a pro rata
allocation of the aggregate number of shares for which options were
granted on such Offering Date in a uniform manner to all employees
who have remained enrolled in the Plan through the Offering
Termination Date. In such event, the initial election to purchase of
each such employee will be canceled with respect to any shares in
excess of the number of shares allocated to each such employee,
written notice will be given to the employee that his election has
become effective for a reduced number of shares and any excess funds
in the employee's Account (as defined in Section 6 below) will be
refunded to him.
5.02. The aggregate number of shares that may be issued under
the Plan may be increased to reflect a change in capitalization of
the Company, such as a stock dividend or stock split.
5.03. If, prior to the expiration of an option theretofore
granted, the Company shall effect a subdivision or consolidation of
shares of Stock or the payment of a stock dividend on Stock without
receipt of consideration by the Company, the number of shares of
Stock thereafter subject to such option (i) in the event of an
increase in the number of outstanding shares shall be
proportionately increased, and the option price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares shall be proportionately reduced, and
the option price per share shall be proportionately increased.
D-2
5.04. If (i) the Company is to be merged into or consolidated
with one or more corporations and the Company is not to be the
surviving corporation, (ii) the Company is to be dissolved and
liquidated, (iii) substantially all of the assets and business of
the Company are to be sold, or (iv) there occurs a "change in
control of the Company," then the Board may, in its sole discretion,
with respect to any or all options then outstanding under this Plan
(a) at any time on or prior to the effective date of such merger,
consolidation, dissolution and liquidation, or sale, and, at any
time on or after a change in control cause the Offering Termination
Date and Exercise Date to be accelerated to a date or dates fixed by
the Board ("Acceleration Date") and permit an employee (or his legal
representative) to make a lump-sum deposit prior to the Acceleration
Date in lieu of the remaining payroll deductions or periodic
payments which otherwise would have been made, and upon such
Acceleration Date, exercise his option to the extent of moneys
deposited by the employee and cancel any unexercised options; or (b)
at any time during the 20-day period ending on the effective date of
such merger, consolidation, dissolution and liquidation or sale or
during the 20-day period beginning on the date of a change in
control or, if later, the date the Company has notice thereof,
cancel any option in whole or in part by payment in cash to the
employee of an amount equal to the excess, but only if the amount is
positive, of the fair market value of the Company's Common Stock on
the date of said cancellation over the option price per share times
the number of shares covered by the option or portion thereof so
canceled. For purposes hereof, a "change in control of the Company"
shall be deemed to have occurred if (i) any "person," as such term
is used in Sections 13(d)(3) and 14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act") is or becomes the "beneficial
owner," as such term is used in Rule 13d-3 issued under the Exchange
Act, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities
or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof unless the
election, or the nomination for election by the Company's
shareholders, of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of the period.
5.05. Any adjustment provided for in this Section 5 shall be
subject to any required shareholder action. No adjustment shall be
made if such adjustment would result in a modification of an option
(within the meaning of Section 424 of the Code), or cause such
option to fail to continue to qualify as an option granted under an
employee stock purchase plan (within the meaning of Section 423 of
the Code).
SECTION 6. APPLICATION OF FUNDS; EXERCISE OF OPTIONS
6.01. The Company will establish a stock purchase account for
each employee who elects to purchase shares with respect to an
Offering Date (an "Account"), to which all payroll deductions or
cash payments of that employee with respect to the Offering Date
will be credited. Interest will not be accrued or credited in the
Account.
6.02. Amounts credited to all Accounts will be under the control
of the Company, may be maintained or controlled as a single fund or
account, and may be used for any corporate purpose. Amounts credited
to Accounts for employees of Participating Subsidiaries will be
remitted to the Company from time to time. The amount credited to
each Account as of the close of business on the respective Exercise
Date for that Offering Date will be applied by the Company to the
payment for the shares to be purchased by such employee on that
Exercise Date, any amount not used for this purpose shall be paid in
cash to the employee, and the option granted the employee on that
Offering Date shall thereupon terminate.
6.03. In the event that any law or regulation, in the opinion of
counsel for the Company, may prohibit the handling or use of all or
any part of the funds in the manner contemplated by the Plan, the
Company may deal with such funds in any lawful manner it may deem
advisable, including the deposit of any such funds in individual
bank accounts opened for employees.
6.04. Promptly following an Exercise Date, the Company shall
provide all employees who remained enrolled in the Plan on the
Offering Termination Date with written notice as to the applicable
option price and the date by which such employees must notify the
Company in writing with respect to the number of shares, if any,
that the employee desires to purchase pursuant to his option. The
amount credited to an employee's Account as of the close of business
on the applicable Offering Termination Date shall be applied by the
D-3
Company to the payment for the shares to be purchased by such
employee on the day next following the notification deadline set
forth in the Company's notice described immediately above. Any
amount not used for this purpose shall be paid in cash to the
employee, and the option granted the employee on that Offering Date
shall thereupon terminate. If an employee does not notify the
Company by the deadline so established by the Company, then such
amount shall be applied for the purchase of the total number of
shares of Stock purchasable under the option, and any amount not
used for such purpose shall be paid in cash to the employee and the
related option shall thereupon terminate.
6.05. An employee shall have no interest or voting rights in
shares covered by his option, and no right to receive any dividends
with respect to such shares, until such option has been exercised.
SECTION 7. CHANGES IN ELECTION TO PURCHASE
At any time on or before the Offering Termination Date with
respect to an Offering Date, an employee may give written notice
that his payroll deductions with respect to such Offering Date shall
thereafter be reduced or shall terminate (or, if periodic cash
payments for shares are being made as permitted in Sections 9, 10
and 11, that such payments thereafter will be reduced or will
terminate) and, as the case may be:
(a) reduce the amount of his subsequent payroll deductions (or
periodic cash payments) by such amounts as will, in the
aggregate, be equal to a reduction of 25%, 50%, or 75% of
the amount of his initial payroll deduction, in which event
his election to purchase shall be reduced to the number of
shares that may be purchased, at the option price described
in Section 3.02(a), with the aggregate amount of the payroll
deductions (or periodic cash payments) theretofore made and
to be made thereafter;
(b) terminate further payroll deductions (or periodic cash
payments) and continue his election to purchase with respect
to the number of shares that may be purchased, at the option
price described in Section 3.02(a), with the amount then
credited to his Account; or
(c) withdraw the entire amount in his Account and terminate his
election to purchase shares.
Any such reduction, termination or withdrawal shall be irrevocable.
SECTION 8. TERMINATION OF EMPLOYMENT
In the event that on or prior to the Exercise Date with respect
to an Offering Date, an employee leaves the employ of the Company or
of a Participating Subsidiary otherwise than by retirement under a
plan of the Company or such Participating Subsidiary, or is
discharged for cause, any election to purchase shares made by him
with respect to that Offering Date shall terminate and any amount
then credited to his Account shall be paid in cash to him. In the
event that on or prior to the Exercise Date, an employee leaves the
employ of the Company in connection with the sale of a subsidiary,
division or line of business of the Company, the Company may, in the
discretion of the officer referred to in Section 14.01 hereof,
terminate the election of such employee to purchase shares
(refunding any amount credited to the employee's Account) or
continue said election on any basis deemed appropriate by said
officer, including the making of arrangements for continued payroll
deductions by a successor employer willing to provide that service.
SECTION 9. RETIREMENT
In the event an employee leaves the employ of the Company or of
a Participating Subsidiary by retirement under a plan of the Company
or the participating Subsidiary:
(a) at a time after an Offering Date but before payroll
deductions have commenced with respect to that Offering
Date, he shall not have the right to elect to purchase
shares of Stock under the option granted to him on that
Offering Date and such option shall be of no effect, or
(b) at a time after he has made an election to purchase shares
under an option granted to him and payroll deductions have
commenced with respect to that election, he may continue his
election
D-4
to purchase shares by undertaking to make periodic cash
payments in amounts equal to the payroll deductions
previously authorized by him.
An employee, in lieu of making periodic payments under the
circumstances described in this Section 9, may elect to purchase (or
continue his election to purchase) shares by making a single
lump-sum payment in cash in an amount equal to the total of his
future periodic payments. Such lump-sum payment may be made either
(i) within 30 days after the employee's employment terminates, or
(ii) in the case of an employee who has undertaken to make periodic
cash payments, at any time when he is not in default in such
payments.
SECTION 10. LAYOFF, STRIKE OR AUTHORIZED LEAVE OF ABSENCE
Payroll deductions for shares for which an election to purchase
with respect to an Offering Date has been made will be suspended
during any period of layoff, strike, or authorized leave of absence
without pay of an employee and, in such case, if the employee so
elects, periodic payments for such shares may be made by him in lieu
thereof. If such an employee returns to active service prior to the
last payroll deduction period preceding the Offering Termination
Date with respect to that Offering Date, his payroll deductions will
be resumed and, if the employee did not make periodic cash payments
during his period of absence, he shall, by written notice within ten
days after his return to active service, elect to either:
(a) make up any deficiency in his Account resulting from
suspension of his payroll deductions by an immediate cash
payment; or
(b) not make up such deficiency, in which event the number of
shares to be purchased by him with respect to that Offering
Date shall be reduced to the number of whole shares that may
be purchased, at the option price described in Section
3.02(a), with the amount then credited to his Account plus
the aggregate amount, if any, of all payroll deductions with
respect to that Offering Date to be made thereafter.
An employee on layoff, strike, or authorized leave of absence
without pay as of 15 days preceding such Offering Termination Date
shall give written notice prior to such Offering Termination Date
specifying his choice of one of the options described in (a) or (b)
above. If such an employee fails to give such notice, he shall be
deemed to have elected the option provided in (b). If the period of
an employee's layoff, strike or authorized leave of absence without
pay shall terminate prior to such Offering Termination Date and the
employee shall not promptly resume active employment, his election
to purchase shares with respect to such Offering Date shall
terminate and the amount then credited to his Account shall be paid
in cash to him.
SECTION 11. DEATH
An employee may file a written designation of a beneficiary who
is to receive any shares and cash from the employee's Account under
the Plan in the event of such employee's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery
to such employee of such shares and cash. In addition, an employee
may file a written designation of a beneficiary who is to receive
any cash from the employee's Account under the Plan in the event of
such employee's death prior to exercise of the option. If an
employee is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be
effective. Such designation of beneficiary may be changed by the
employee at any time by written notice. In the event of the death of
an employee while an election by him to purchase shares with respect
to an Offering Date is in effect, the legal representative or
beneficiary of such employee may, within 90 days after his death but
not later than the Offering Termination Date with respect to such
Offering Date, by written notice elect to either:
(a) make up any deficiency in such employee's Account and (i)
make periodic payments in cash for the remainder of the
period ending on such Offering Termination Date in the
amounts theretofore elected by the employee, or (ii) in lieu
of such future periodic payments, make an immediate lump-sum
payment in an amount equal to the total of such periodic
payments; or
D-5
(b) continue the employee's election to purchase with respect to
such number of shares as may be purchased, at the option
price described in Section 3.02(a), with the amount then
credited to the employee's Account, and make no further
payments; or
(c) withdraw the entire amount in the employee's Account and
terminate his election to purchase shares.
In the event the legal representative or beneficiary of such an
employee shall fail to give notice within the prescribed period, the
employee's election to purchase shares shall terminate and the
amount then credited to the employee's Account shall be paid in cash
to such legal representative or beneficiary.
SECTION 12. FAILURE TO MAKE PAYMENTS
Under any of the circumstances contemplated by the Plan, where
the purchase of shares with respect to an Offering Date is to be
made through periodic or other cash payments in lieu of payroll
deductions, the failure to make any such payment shall reduce, to
the extent of the amount unpaid, the number of shares purchasable
with respect to that Offering Date, determined by the option price
described in Section 3.02(a).
SECTION 13. NONASSIGNABILITY
No option granted under the Plan shall be transferable by the
employee otherwise than by will or the laws of descent and
distribution. Each option shall be exercisable, during his lifetime,
only by the employee to whom granted. Any purported assignment or
transfer, whether voluntary or by operation of law (other than by
will or the laws of descent and distribution) shall have the effect
of terminating such option and the related election to purchase
shares thereunder.
SECTION 14. ADMINISTRATION
14.01. The Plan shall be administered by the Committee. The
Committee is authorized to interpret the Plan and from time to time
to adopt such rules and regulations, consistent with the provisions
of the Plan, as may be deemed advisable to carry out the Plan. The
decision of the Committee shall be final and binding for all
purposes with respect to any question arising under the Plan.
14.02. Uniform policies shall be pursued in the administration
of the Plan, and there shall be no discrimination among employees or
groups of employees. The administration of the Plan shall include
the authority, which shall be exercised without discrimination, to
make exceptions (available on a uniform basis to all employees) to
provisions of the Plan in the case of unusual circumstances where
strict adherence to such provisions would work undue hardship. All
eligible employees under the Plan shall have the same rights and
privileges under the Plan with respect to the number of shares for
which options may be granted as provided in Section 3.
14.03. The Board shall have the right to amend, modify or
terminate the Plan at any time without notice; provided, that no
amendment, modification or termination may be made which would
impair the rights of the employee in any option theretofore granted
without the consent of such employee; and provided, further, that
the Board may not make any alteration or amendment to the Plan which
would increase the aggregate number of shares that may be issued
under the Plan (other than an increase pursuant to Section 5.02 of
the Plan) or change the group from among which Participating
Subsidiaries may be designated. Without limitation on the Board's or
the Committee's authority, the Board (or the Committee) shall be
entitled to change the length of the period between the Offering
Date and the Offering Termination Date, limit the frequency and/or
number of changes in the amount withheld by an employee, permit
payroll withholding in excess of the amount designated by an
employee in order to adjust for delays or mistakes in the Company's
processing of withholding elections, establish reasonable waiting
and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of shares of Stock
for each employee properly correspond with amounts withheld from the
employee's compensation, and establish such other limitations or
procedures as the Board (or Committee) determines in its sole
discretion are advisable.
D-6
SECTION 15. TERMINATION OF PLAN
The period for payroll deductions or cash payments with respect
to any Offering Date may not be extended beyond the Offering
Termination Date for such Offering Date. If not sooner terminated by
the Board, the Plan will terminate following the delivery to
employees, as soon as practicable after the Exercise Date with
respect to the last Offering Date, of stock certificates for all
shares purchased and the repayment to them of all funds not used for
the purchase of shares on that Exercise Date.
SECTION 16. HOLIDAYS
In the event any date specified in the Plan falls on other than
a business day of the Company at its principal office in Quincy,
Illinois, such date shall be deemed to refer to the next succeeding
business day.
SECTION 17. LIENS NOT AUTHORIZED
There is no provision in the Plan, or in any contract in
connection therewith, whereby any person has or may create a lien on
any funds, securities or other property held under the Plan.
SECTION 18. GOVERNING LAW
The validity, construction and effect of the Plan and any
actions taken or relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable
Federal law.
D-7
APPENDIX E
AUDIT AND FINANCE COMMITTEE
SERVICES APPROVAL POLICY
STATEMENT OF PRINCIPLES
The Audit and Finance Committee (the "Audit Committee") of the Board
of Directors of Gardner Denver, Inc. (the "Company") is required to
approve the audit and non-audit services performed by the Company's
independent auditor in order to assure that the provision of such
services do not impair the auditor's independence. Unless a type of
service to be provided by the independent auditor has received
pre-approval, it will require specific approval by the Audit
Committee. Any proposed services exceeding pre-approved cost levels
will require specific approval by the Audit Committee.
The appendices to this Policy describe the Audit, Audit-related, Tax
and All Other services that have the pre-approval of the Audit
Committee. The term of any pre-approval is twelve (12) months from
the date of pre-approval, unless the Audit Committee specifically
provides for a different period. The Audit Committee will
periodically revise the list of pre-approved services, based on
subsequent determinations. Pre-approval fee levels for all services
to be performed by the Company's independent auditor will be
established periodically by the Audit Committee.
The Company's independent auditor has reviewed this Policy and
believes that implementation of the Policy will not adversely affect
the auditor's independence.
DELEGATION
The Audit Committee does not delegate its responsibilities to
approve services performed by the independent auditor to management.
However, it may delegate pre-approval authority to one or more of
its members. The member or members to whom such authority is
delegated shall report any pre-approval decisions to the Audit
Committee at its next scheduled meeting.
The Audit Committee does not need to pre-approve non-audit services
under the following conditions: (i) the aggregate amount of all such
non-audit services provided to the Company constitutes not more than
five percent (5%) of the total amount of revenues paid by the
Company to the accounting firm during the fiscal year in which the
non-audit services are provided, (ii) such services were not
recognized by the Company at the time of the engagement to be
non-audit services, and (iii) such services are promptly brought to
the Committee's attention and approved prior to the completion of
the audit by the Audit Committee or by one or more members of the
Committee who are members of the Board to whom authority to grant
such approvals has been delegated by the Committee.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject
to the specific approval of the Audit Committee. The Audit Committee
will approve, if necessary, any changes in terms, conditions and
fees resulting from changes in audit scope, Company structure or
other matters.
In addition to the annual Audit services engagement approved by the
Audit Committee, the Audit Committee may grant pre-approval for
other Audit services, which are those services that only the
independent auditor reasonably can provide. The Audit Committee may
pre-approve the Audit services listed in Appendix E-A periodically.
------------
All Audit services not listed in Appendix E-A must be separately
------------
approved by the Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the
Company's financial statements and that are traditionally performed
by the independent auditor. The Audit Committee believes that the
provision of Audit-related services does not impair the
E-1
independence of the auditor, and may pre-approve the Audit-related
services listed in Appendix E-B periodically. All Audit-related
------------
services not listed in Appendix E-B must be separately approved by
------------
the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can
provide Tax services to the Company such as tax compliance, tax
planning and tax advice without impairing the auditor's
independence. However, the Audit Committee will not permit the
retention of the independent auditor in connection with a
transaction initially recommended by the independent auditor, the
purpose of which may be tax avoidance and the tax treatment of which
may not be supported in the Internal Revenue Code and related
regulations. The Audit Committee may pre-approve the Tax services
listed in Appendix E-C periodically. All Tax services not listed in
------------
Appendix E-C must be separately approved by the Audit Committee.
------------
ALL OTHER SERVICES
The Audit Committee may grant pre-approval to those permissible
non-audit services classified as All Other services that it believes
are routine and recurring services, and would not impair the
independence of the auditor. The Audit Committee may pre-approve the
All Other services listed in Appendix E-D periodically. Permissible
------------
All Other services not listed in Appendix E-D must be separately
------------
approved by the Audit Committee.
A list of the SEC's prohibited non-audit services is attached to
this policy as Exhibit E-1. The SEC's rules and relevant guidance
------------
should be consulted to determine the precise definitions of these
services and the applicability of exceptions to certain of the
prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the
independent auditor will be established periodically by the Audit
Committee. Any proposed services exceeding these levels will require
separate approval by the Audit Committee.
APPROVAL PROCEDURES
All requests or applications to provide services that do not require
separate pre-approval by the Audit Committee will be submitted to
the Chief Financial Officer and must include a detailed description
of the services to be rendered. The Chief Financial Officer will
determine whether such services are included within the list of
services that have received the prior pre-approval of the Audit
Committee and whether the fees for such services fall within the
range of fees approved by the Audit Committee for such services. The
Audit Committee will be informed on a timely basis of any such
services rendered by the independent auditor.
If, subsequent to the pre-approval of scheduled services by the
Audit Committee, the Company would like to engage the independent
auditor to perform a service not included on the existing
pre-approval schedule, a request should be submitted to the General
Counsel and Chief Financial Officer. If they determine that the
service can be performed without impairing the independence of the
auditor, then a discussion and approval of the service will be
included on the agenda for the next regularly scheduled Audit
Committee meeting. If the timing for the service needs to commence
before the next Audit Committee meeting, the Audit Committee Chair,
or any other member of the Audit Committee designated by the Audit
Committee, can provide separate pre-approval.
Requests or applications to provide services that require separate
approval by the Audit Committee will be submitted to the Audit
Committee, or the designated member(s), by both the independent
auditor and the Chief Financial Officer, and must include a joint
statement as to whether, in their view, the request or application
is consistent with the SEC's rules on auditor independence. With
respect to each such request or application, the independent auditor
will also provide back-up documentation, which will be provided to
the Audit Committee, or the designated member(s), regarding the
specific services to be performed.
E-2
MONITORING RESPONSIBILITY
The Committee hereby designates the head of the Company's internal
audit function to monitor the performance of all services provided
by the independent auditor and to determine whether such services
are in compliance with this policy. The head of the Company's
internal audit function will report to the Committee on a periodic
basis, but not less frequently than quarterly, on the results of its
monitoring. Both the head of the Company's internal audit function
and the Company's Chief Financial Officer will immediately report to
the Chairman of the Committee any breach of this policy that comes
to their attention or the attention of any member of the Company's
management.
E-3
APPENDIX E-A
PRE-APPROVED AUDIT SERVICES
Dated:
--------------
------------------------------------------------------------------------------
SERVICE RANGE OF FEES
------------------------------------------------------------------------------
Statutory audits or financial audits for subsidiaries or
affiliates of the Company
------------------------------------------------------------------------------
Services associated with SEC registration statements,
periodic reports and other documents filed with the SEC or
other documents issued in connection with securities
offerings (e.g., comfort letters, consents), and assistance
in responding to SEC comment letters
------------------------------------------------------------------------------
Attestation of management reports on internal control over
financial reporting
------------------------------------------------------------------------------
Consultations by the Company's management as to the
accounting or disclosure treatment of transactions or
events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC,
FASB, or other regulatory or standard setting bodies (Note:
Under SEC rules, some consultations may be "audit-related"
services rather than "audit" services)
------------------------------------------------------------------------------
E-4
APPENDIX E-B
PRE-APPROVED AUDIT-RELATED SERVICES
Dated:
--------------
------------------------------------------------------------------------------
SERVICE RANGE OF FEES
------------------------------------------------------------------------------
Due diligence services pertaining to potential business
acquisitions/dispositions
------------------------------------------------------------------------------
Financial statement audits of employee benefit plans
------------------------------------------------------------------------------
Agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or
comply with financial, accounting or regulatory reporting
matters
------------------------------------------------------------------------------
Internal control reviews and assistance with internal
control reporting requirements
------------------------------------------------------------------------------
Consultations by the Company's management as to the
accounting or disclosure treatment of transactions or
events and/or the actual or potential impact of final or
proposed rules, standards or interpretations by the SEC,
FASB, or other regulatory or standard-setting bodies (Note:
Under SEC rules, some consultations may be "audit" services
rather than "audit-related" services)
------------------------------------------------------------------------------
Attest services not required by statute or regulation
------------------------------------------------------------------------------
General assistance with implementation of the requirements
of SEC rules or listing standards promulgated pursuant to
the Sarbanes-Oxley Act of 2002
------------------------------------------------------------------------------
Audits of opening balance sheets of acquired companies and
accounting consultations as to the accounting or disclosure
treatment of transactions and proposed transactions
------------------------------------------------------------------------------
Services related to procedures used to support the
calculation of the gain or loss from dispositions and
discontinued operations
------------------------------------------------------------------------------
Compliance letters, agreed upon procedures, reviews and
similar reports related to audited financial statements
and/or internal controls
------------------------------------------------------------------------------
Audits of financial statements and transactions included in
consolidated financial statements that are used by lenders,
filed with government and regulatory bodies and similar
reports
------------------------------------------------------------------------------
Services that result from the role of independent auditor
such as reviews of SEC filings, consents, letters to
underwriters and other services related to financings that
include audited financial statements
------------------------------------------------------------------------------
Assist the Company with the review of the design of its
internal control over financial reporting in connection
with the Company's preparedness for Section 404 of
Sarbanes-Oxley
------------------------------------------------------------------------------
Financial statement audits of employee benefit plans
------------------------------------------------------------------------------
Assist the Company with tax accounting related issues,
including tax accounting for transactions and proposed
transactions
------------------------------------------------------------------------------
Assist the Company with accounting issues and audits of
carve-out financial statements
------------------------------------------------------------------------------
Assist the Company with responding to SEC comment letters
or other inquiries by regulators related to financial
accounting and disclosure matters
------------------------------------------------------------------------------
Preparation of accounting preferability letters for changes
in accounting
------------------------------------------------------------------------------
E-5
APPENDIX E-C
PRE-APPROVED TAX SERVICES
Dated:
--------------
------------------------------------------------------------------------------
SERVICE RANGE OF FEES
------------------------------------------------------------------------------
U.S. federal, state and local tax planning and advice
------------------------------------------------------------------------------
U.S. federal, state and local tax compliance
------------------------------------------------------------------------------
International tax planning and advice
------------------------------------------------------------------------------
International tax compliance
------------------------------------------------------------------------------
Tax controversy services in connection with the examination
of U.S. federal, state, local and non-U.S. tax returns
through the administrative appellate level.
------------------------------------------------------------------------------
The above tax services do not include tax services relating to
transactions initially recommended by the independent auditor, the
purpose of which may be tax avoidance and the tax treatment of which
may not be supported in the Internal Revenue Code and related
regulations.
E-6
APPENDIX E-D
PRE-APPROVED ALL OTHER SERVICES
Dated:
--------------
------------------------------------------------------------------------------
SERVICE RANGE OF FEES
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
E-7
EXHIBIT E-1
PROHIBITED NON-AUDIT SERVICES
1. Bookkeeping or other services related to the accounting records
or financial statements of the audit client*
2. Financial information systems design and implementation*
3. Appraisal or valuation services, fairness opinions or
contribution-in-kind reports*
4. Actuarial services*
5. Internal audit outsourcing services*
6. Management functions
7. Human resources
8. Broker-dealer, investment adviser or investment banking services
9. Legal services
10. Expert services unrelated to the audit
In addition to the non-audit services specifically listed above, the
SEC has articulated three general principles in connection with
services provided by the independent auditor which, if violated,
could impair the independence of the auditor. The independent
auditor cannot: (1) function in the role of management; (2) audit
its own work; or (3) serve in an advocacy role for the Company.
* Provision of these non-audit services is permitted if it is
reasonable to conclude that the results of these services will not
be subject to audit procedures. Materiality is not an appropriate
basis upon which to overcome the rebuttable presumption that
prohibited services will be subject to audit procedures because
determining materiality is itself a matter of audit judgment.
E-8
-----------------------------------------
V O T E B Y T E L E P H O N E
-----------------------------------------
[Gardner Denver logo] Have your proxy/voting instruction card
c/o National City Bank available when you call the TOLL-FREE
Locator 5352 NUMBER 1-800-542-1160 using a touch-tone
P.O. Box 92301 telephone and follow the simple
Cleveland, OH 44101-4301 instructions presented 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 and follow the
simple instructions presented 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/
touch-tone telephone: cast your vote: instruction card in the
1-800-542-1160 http://www.votefast.com postage-paid 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 3, 2004 TO BE COUNTED IN THE FINAL TABULATION.
IF YOU HOLD SHARES IN THE SAVINGS PLANS, YOUR TELEPHONE OR INTERNET VOTE
MUST BE RECEIVED BY 11:59 P.M. EASTERN TIME ON APRIL 30, 2004.
===================================
CONTROL NUMBER:
===================================
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 4, 2004.
THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED "FOR" ALL NOMINEES IN PROPOSAL 1 AND "FOR" PROPOSALS 2 AND 3.
Proposal 1.
Election of Directors
Nominees:
(01) Frank J. Hansen / / FOR ALL
(02) Thomas M. McKenna / / WITHHOLD ALL
(03) Diane K. Schumacher / / FOR ALL EXCEPT
Proposal 2. Approval of amendment and restatement of Long-Term Incentive Plan
/ / FOR / / AGAINST / / ABSTAIN
Proposal 3. Approval of amendment and restatement of Employee Stock
Purchase Plan
/ / FOR / / AGAINST / / ABSTAIN
TO WITHHOLD AN INDIVIDUAL NOMINEE, / / I plan to attend the Annual Meeting.
MARK "FOR ALL EXCEPT" AND WRITE
THE NOMINEE'S NAME ON THE LINE
BELOW.
---------------------------------- ----------------------------------------
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.
GARDNER DENVER, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 4, 2004, 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
CorporateSecretary@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.
------------------------------------------------------------------------------
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
4, 2004 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 Wachovia Bank, N.A., as trustee
("Wachovia"), 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 WACHOVIA 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
HELD IN THE SAVINGS PLANS FOR WHICH INSTRUCTIONS ARE RECEIVED.
Shares of Common Stock held in the Savings Plans will be voted by Wachovia
as trustee of the Savings Plan. Voting instructions to Wachovia regarding
your Savings Plans shares must be received by 11:59 p.m. Eastern Time on
April 30, 2004. 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 April
30, 2004, all Savings Plans shares for which voting instructions have not
been received will be voted by Wachovia in the same proportion (for or
against) as the shares held in the Savings Plans for which instructions are
received.
APPENDIX
Page 19 of the proxy statement contains a Stock Performance Graph.
The information contained in the graph is presented in a tabular format
immediately following the graph.