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0000950134-04-015232.txt : 20041019
0000950134-04-015232.hdr.sgml : 20041019
20041019154944
ACCESSION NUMBER: 0000950134-04-015232
CONFORMED SUBMISSION TYPE: DEF 14A
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 20041118
FILED AS OF DATE: 20041019
DATE AS OF CHANGE: 20041019
EFFECTIVENESS DATE: 20041019
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PEERLESS MANUFACTURING CO
CENTRAL INDEX KEY: 0000076954
STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569]
IRS NUMBER: 750724417
STATE OF INCORPORATION: TX
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: DEF 14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-05214
FILM NUMBER: 041085263
BUSINESS ADDRESS:
STREET 1: 2819 WALNUT HILL LN
CITY: DALLAS
STATE: TX
ZIP: 75229
BUSINESS PHONE: 2143576181
MAIL ADDRESS:
STREET 1: P.O. BOX 540667
CITY: DALLAS
STATE: TX
ZIP: 75354
DEF 14A
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d19152ddef14a.htm
DEFINITIVE PROXY STATEMENT
def14a
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant x
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to Rule 14a-12 |
PEERLESS MFG. CO.
(Name of Registrant as Specified In Its Charter)
(Names of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fees (Check the appropriate box):
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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
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PEERLESS MFG. CO.
2819 Walnut Hill Lane
Dallas, Texas 75229
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held Thursday, November 18, 2004
We will hold the Annual Meeting of Shareholders of Peerless Mfg. Co. on
Thursday, November 18, 2004 at 10:00 a.m. at our corporate offices, located at
2819 Walnut Hill Lane, Dallas, Texas 75229 (the Annual Meeting). At the
Annual Meeting we will ask you to vote on the following proposals:
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The election of one Director to serve as a Class I
Director for a three-year term or until his successor is elected
and qualified; |
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The ratification of the selection of Grant Thornton LLP
as our independent accountants for fiscal year 2005; and |
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To transact such other business as may properly come
before the Annual Meeting and any adjournment or postponement
thereof. |
The foregoing items of business, including the nominee for director are
more fully described in the Proxy Statement, which is attached to and made part
of this Notice. If you were a shareholder at the close of business on October
15, 2004, you are entitled to notice of and to vote on the proposals to be
considered at this years Annual Meeting. It is important that your Common
Stock be represented at the Annual Meeting regardless of the number of shares
you hold.
You are cordially invited to attend the Annual Meeting in person.
However, if you are unable to attend in person, please know that we desire to
have maximum representation of our shareholders at the meeting and respectfully
request that you complete, date, sign and return the enclosed proxy as promptly
as possible in the enclosed postage-paid self-addressed envelope. No
additional postage is required if mailed in the United States. You may revoke
your proxy at any time prior to the Annual Meeting as specified in the enclosed Proxy
Statement. We look forward to hearing from you.
By Order of the Board of Directors,
/s/ Katherine S. Frazier
Corporate Controller
Secretary / Treasurer
Dallas, Texas
October 25, 2004
YOUR VOTE IS IMPORTANT.
Please vote early, even if you plan to attend the Annual Meeting.
PEERLESS MFG. CO.
2819 Walnut Hill Lane
Dallas, Texas 75229
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
November 18, 2004
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS
Why did I receive this proxy statement?
Peerless Mfg. Co. is furnishing you with this proxy statement on behalf of
its Board of Directors to solicit proxies for its 2004 Annual Meeting of
Shareholders and any adjournment or postponement of the Annual Meeting. On or
about October 25, 2004, we will begin mailing this proxy statement and
accompanying proxy card to everyone who was a shareholder of our company at the
close of business on October 15, 2004. We prepare a proxy statement each year
to let our shareholders know when and where we will hold our annual
shareholders meeting. This proxy statement:
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includes information about the matters that will be discussed
and voted on at the meeting, and |
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provides you with updated information about our company. |
I may have received more than one proxy statement. Why?
If you received more than one proxy statement, your shares are probably
registered differently or are in more than one account. Please vote each proxy
card that you received.
What will occur at the Annual Meeting?
We will determine whether enough shareholders are present at the meeting
to conduct business. A shareholder will be deemed to be present at the
meeting if the shareholder:
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is present in person, or |
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is not present in person but has voted by proxy card prior to the meeting. |
All shareholders of record at the close of business on October 15, 2004
will be entitled to vote on matters presented at the meeting or any adjournment
thereof. On October 15, 2004, there were 3,024,184 shares of our Common Stock
issued and outstanding. The holders of a majority, or 1,512,093 of the shares
of our Common Stock entitled to vote at the meeting, must be represented at the
meeting in person or by proxy to have a quorum for the transaction of business
at the meeting and to act on the matters specified in the Notice. If holders
of fewer than 1,512,093 shares are present at the meeting, we will adjourn and
reschedule the meeting until a quorum is present. Under our Articles of
Incorporation, for each share of Common Stock that you owned at the close of
business on October 15, 2004, you are entitled to one vote on all matters
brought before the meeting or any adjournment thereof.
After each proposal has been voted on at the meeting, we will discuss and
take action on any other matter that is properly brought before the meeting.
Our transfer agent, Mellon Investor Services, will count the votes and act as
inspector of election.
We know of no other matters that will be presented for consideration at
the Annual Meeting. If, however, other matters or proposals are presented and
properly come before the meeting, the proxy holders intend to vote all proxies
in accordance with their best judgment in the interest of Peerless Mfg. Co. and
our shareholders.
A representative of Grant Thornton LLP, our independent accountants, is
expected to be present at the Annual Meeting and will be afforded an
opportunity to make a statement, if such representative so desires, and to
respond to appropriate questions.
1
How many votes are necessary to elect the nominee for director?
The nominee receiving the highest number of yes votes will be elected as
director. A majority of the votes cast is not required. This number is called
a plurality.
Votes that are withheld from the director nominee will be counted in
determining whether a quorum has been reached, but will not affect the outcome
of the vote. Assuming a quorum is present, the election of director will be
determined by a plurality of votes cast. Votes may be cast in favor of, or
withheld from, the director nominee.
In the election of directors, shareholders are not entitled to cumulate
their votes or to vote for a greater number of persons than the number of
nominees named in this proxy statement.
What if a nominee is unwilling or unable to stand for election?
The person nominated for re-election to our Board of Directors has agreed
to stand for election. However, should the nominee become unable or unwilling
to accept nomination or election, the proxies will vote for the election of
such other person as the Board may recommend. Our Board of Directors has no
reason to believe that the nominee will be unable or unwilling to serve if
elected, and to the knowledge of the Board, the nominee intends to serve the
entire term for which election is sought.
How do I vote if I am not planning to attend the Annual Meeting?
In addition to voting in person at the meeting, you may mark your
selections on the enclosed proxy card, date and sign the card and return the
card in the enclosed postage-paid envelope.
We encourage you to vote now even if you plan to attend the Annual Meeting
in person. If your shares are in a brokerage account, you may receive
different voting instructions from your broker.
Where a shareholder has appropriately specified how a proxy is to be
voted, it will be voted accordingly, and where no specific direction is given
on a properly executed proxy card, it will be voted FOR adoption of the
proposals set forth in this proxy statement.
What if I want to change my vote?
You may revoke your vote on a proposal at any time before the Annual
Meeting for any reason. To revoke your proxy before the meeting, write to our
Secretary, Katherine S. Frazier, at 2819 Walnut Hill Lane, Dallas, Texas 75229.
You may also come to the meeting and change your vote in writing.
How do I raise an issue for discussion or vote at the Annual Meeting?
There are two different deadlines for the submission of shareholder
proposals. If you would like to include a proposal in our next annual proxy
statement you must submit the proposal in writing no later than June 30, 2005.
The proposal will be included in our next annual proxy statement if it is a
proposal that we are required to include in our proxy statement pursuant to the
rules of the Securities and Exchange Commission. Under Rule 14a-8 of the
Securities Exchange Act of 1934, as amended, proposals of shareholders must
conform to certain requirements as to form and may be omitted from the proxy
materials under certain circumstances. To avoid unnecessary expenditures of
time and money, you are urged to review this rule and, if questions arise,
consult legal counsel prior to submitting a proposal to us.
2
If you would like to present a proposal at our next Annual Meeting, other
than for inclusion in our proxy statement, you must submit the proposal in
writing no earlier than May 31, 2005 and no later than June 30, 2005. Any such
proposal when submitted must be in compliance with applicable law and our
bylaws.
Proposals should be directed to our Secretary, Katherine S. Frazier, at
2819 Walnut Hill Lane, Dallas, Texas 75229.
What if my shares are in a brokerage account and I do not vote?
If your shares are in a brokerage account and you do not vote, your
brokerage firm could:
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vote your shares, if it is permitted by the Nasdaq rules, or |
Brokers who hold shares in street name have the authority to vote in favor
of all proposals specified in this proxy statement, if they do not receive
contrary voting instructions from beneficial owners. If a broker has not
received voting instructions with respect to certain shares and gives a proxy
for those shares, but does not vote the shares on a particular matter, those
shares will not affect the outcome of the vote with respect to that matter.
Such broker non-votes will be counted for purposes of determining the presence
or absence of a quorum for the transaction of business, but will not be counted
for purposes of determining the number of votes cast with respect to a
proposal. A broker non-vote will not affect the outcome of the voting on any
proposals in this proxy statement.
How are abstentions treated?
Any shareholder that is present at the meeting, either in person or by
proxy, but who abstains from voting, will still be counted for purposes of
determining whether a quorum exists. An abstention will not be counted as an
affirmative or negative vote in the election of the directors or the
ratification of our independent accountants. Our shareholders have no
appraisal rights under Texas law with respect to the proposals specified in
this proxy statement.
Who will pay for the cost of this solicitation?
We will bear the cost of solicitation of proxies, including the cost of
preparing, printing and mailing proxy materials, and the cost of reimbursing
brokers for forwarding proxies and proxy statements to their principals.
Proxies may also be solicited without extra compensation by our officers and
employees by telephone or otherwise. Arrangements may also be made with
brokerage houses and other custodians, nominees and fiduciaries for forwarding
the proxy materials to the beneficial owners of our Common Stock, and we may
reimburse them for reasonable out-of-pocket expenses incurred by them.
Where can I find the voting results of the Annual Meeting?
We will announce the voting results at the meeting and will publish the
results in our quarterly report on Form 10-Q for the second quarter of fiscal
2005 ending on December 31, 2004. We will file that report with the Securities
and Exchange Commission by mid-February 2005, and you can get a copy by
contacting either our Investor Relations office at (214) 353-5589 or the
Securities and Exchange Commission at (800) SEC-0330 or by visiting the
Securities and Exchange Commission website at www.sec.gov or the SEC Filings
page of the Investor Relations section of our website at www.peerlessmfg.com.
3
MORE ABOUT THE PROPOSALS
PROPOSAL NO. 1
ELECTION OF CLASS I DIRECTOR
The Companys Bylaws provide that the number of directors will be five.
The Companys Board of Directors consists of three classes, with one director
serving in Class I, and two directors serving in each of Classes II and III.
Each class of director serves three-year terms or until successors have been
elected and qualified. The term of the Class I director, R. Clayton Mulford,
expires at the Annual Meeting.
Our Board of Directors proposes the re-election of Mr. Mulford as Class I
director, to hold office for a term of three years, expiring at the close of
our Annual Meeting of Shareholders to be held in 2007 or until his successor is
elected and qualified. It is the Boards opinion that because of Mr. Mulfords
tenure as director, he is sufficiently familiar with the Company and its
business to be able to competently direct and manage the Companys business
affairs. Biographical information on Mr. Mulford is set forth below in Other
Information You Need To Make An Informed Decision Directors, Nominees,
Executive Officers and Significant Employees of the Company.
If Mr. Mulford becomes unavailable for election, which is not anticipated,
the directors proxies will vote for the election of such other person as the
Board may recommend.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE NOMINEE FOR DIRECTOR SET FORTH ABOVE.
4
PROPOSAL NO. 2
RATIFICATION OF INDEPENDENT ACCOUNTANTS
Grant Thornton LLP, independent certified public accountants, served as
independent accountants for the Company for the fiscal year ended June 30, 2004
and has reported on the Companys financial statements. The Audit Committee of
the Board of Directors has selected Grant Thornton LLP as the Companys
independent accountants for fiscal year 2005 and the Board recommends that the
shareholders ratify this selection.
A representative of Grant Thornton is expected to be present at the Annual
Meeting and will have an opportunity to make a statement if he/she desires to
do so, and is expected to be available to respond to appropriate questions.
See Report of the Audit Committee for a discussion of auditor independence.
Shareholder ratification is not required for the selection of Grant
Thornton LLP as the Companys independent accountants for fiscal year 2005,
because the Audit Committee has the responsibility of selecting the Companys
independent accountants. The selection is being submitted for ratification
with a view toward soliciting the opinion of the shareholders, which opinion
will be taken into consideration in future deliberations.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
THE RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP
AS THE COMPANYS INDEPENDENT ACCOUNTANTS FOR THE 2005 FISCAL YEAR.
5
OTHER INFORMATION YOU NEED TO MAKE AN INFORMED DECISION
Directors, Nominees, Executive Officers and Significant Employees of the Company
The Companys Bylaws divide the Board into three classes, with the terms
of each class expiring in consecutive years so that only one class is elected
in any given year. The shareholders of the Company elect successors to
directors whose terms have expired. The Board fills vacancies in unexpired
terms.
There is no family relationship among any of our directors and senior
officers. The following table sets forth, as of October 1, 2004, the names of
our directors and senior officers and their respective ages and positions:
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Position
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Peter J. Burlage
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Vice President of Environmental Systems |
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G. Darwyn Cornwell
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60 |
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Vice President of Manufacturing |
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Bernard S. Lee
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69 |
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Class II Director |
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Joseph V. Mariner, Jr.
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84 |
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Class II Director |
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R. Clayton Mulford
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48 |
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Class I Director |
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Donald A. Sillers, Jr.
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78 |
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Class III Director |
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Sherrill Stone
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67 |
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Class III Director, Chairman, President, and
Chief Executive Officer |
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William T. Strohecker
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Executive Vice President and Chief Operating Officer |
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David Taylor
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Vice President of Separation Filtration Systems |
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Richard L. Travis, Jr.
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48 |
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Chief Financial Officer and Vice President of
Administration |
Set forth below is a description of the backgrounds of the executive
officers and directors, including the nominees for director.
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Peter J. Burlage joined the Company in 1992. Mr. Burlage has
served as Vice President of the Environmental Systems business segment
since January 2001. Prior to this position, Mr. Burlage was the
Companys SCR Division Manager from 1997 to 2000 and Vice President of
Engineering from 2000 to 2001. Mr. Burlage earned his B.S. in
Mechanical Engineering from the University of Texas. |
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G. Darwyn Cornwell rejoined the Company in 2003 as Vice President
of Manufacturing. Mr. Cornwell had previously served as Senior Vice
President of Operations for the Company from 1997 through 2000 and has
held various other management positions with Peerless from 1982 to
2000. Prior to rejoining the Company in 2003, Mr. Cornwell served as
President of Ace World Companies, a designer and manufacturer of custom
engineered heavy material handling equipment. Mr. Cornwell earned a
B.S. in Business Management from LeTourneau University. |
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Bernard S. Lee, retired, was the former President of Institute of
Gas Technology. Mr. Lee is also a director of NUI Corporation and
National Fuel Gas Company. Mr. Lee has been a director of our Company
since 1982. |
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Joseph V. Mariner, Jr., retired, has been a director of the Company
since 1980. |
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R. Clayton Mulford has been a director of the Company since January
2002. An attorney, Mr. Mulford, has been a partner in the Dallas
office of Jones Day since January 2004. Previously, Mr. Mulford was a
partner and member of the Executive Committee of Hughes & Luce, LLP.
Mr. Mulford served as lead corporate legal counsel to the Company for a
number of years. |
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Donald A. Sillers, Jr. is the Companys former Chairman of the
Board and Chief Executive Officer, and has served as a director of the
Company since 1970. |
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Sherrill Stone has served as Chairman of the Board and Chief
Executive Officer since 1993, and President of the Company from 1986
through 2002 and from 2003 to present. Mr. Stone has also served as a
director of the Company since 1986. |
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William T. Strohecker joined the Company in July 2003 as Executive
Vice President and Chief Operating Officer. Prior to joining Peerless,
Mr. Strohecker served from 2000 to 2003 as President of HF Controls
Corporation, a manufacturer of engineered control systems for the
electric utility industry and a subsidiary of Koreas Doosan Heavy
Industries & Construction Co., Ltd. Mr. Strohecker served from 1994 to
2000 as Vice President at Forney Corporation, a manufacturer of
mechanical products and integrated combustion systems to power plants,
pulp and paper manufacturers, and chemical processing facilities. Mr.
Strohecker earned a B.A. in Physics from Mansfield University of
Pennsylvania and a B.S. in Electrical Engineering from The Pennsylvania
State University. |
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David Taylor joined the Company in 1988 as a Research Engineer.
Since joining Peerless, Mr. Taylor has served the Company in a variety
of Engineering, Sales and Management positions. In 2000, Mr. Taylor
was appointed Vice President for Separation Filtration Systems and
retains this responsibility on a global basis today. In July 2004, Mr.
Taylor resumed responsibility for Peerless Asia Pacific operations.
Mr. Taylor earned a B.S. in Mechanical Engineering from Southern
Methodist University. |
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Richard L. Travis, Jr. joined the Company in February 2002 as the
Companys Chief Financial Officer and Vice President of Administration.
Prior to joining the Company, Mr. Travis served from 2000 to 2002, as
the Senior Vice President and Chief Financial Officer of Trintel
Communications, Inc., a telecommunications company, from 1996 through
1999, as President, Chief Operating Officer and Chief Financial Officer
of CT Holdings, Inc., a software development and incubation company,
and from 1986 to 1996, as Executive Vice President and Chief Financial
Officer of Texwood Industries, Inc., an international manufacturer and
distributor. Mr. Travis earned a B.S. in Accounting and Finance from
Florida Atlantic University and is a Certified Public Accountant. |
7
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of October 15, 2004 (unless otherwise noted)
for:
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Each person who is known by us to own beneficially more
than 5% of the outstanding shares of our Common Stock; |
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Each of our directors and director nominee; |
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Each of our senior officers named in the Summary
Compensation Table, except Mr. Fuller who retired from his employment
with the Company in July 2004; and |
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All of our directors and senior officers as a group. |
The percentages of shares outstanding provided in the table is based on
3,024,184 voting shares outstanding as of October 15, 2004. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. Unless otherwise indicated, each person or entity named
in the table has sole voting and investment power, or shares voting and
investment power with his or her spouse, with respect to all shares of stock
listed as owned by that person. The number of shares shown does not include
the interest of certain persons in shares held by family members in their own
right. Shares issuable upon the exercise of options that are exercisable
within 60 days of October 15, 2004 are considered outstanding for the purpose
of calculating the percentage of outstanding shares of our Common Stock held by
the individual, but not for the purpose of calculating the percentage of
outstanding shares held by any other individual. The address of our directors,
director nominee and senior officers listed below is c/o Peerless Mfg. Co.,
2819 Walnut Hill Lane, Dallas, Texas 75229.
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Peter J. Burlage (1) |
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6,500 |
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G. Darwyn Cornwell (2) |
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2,000 |
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Bernard S. Lee (3) |
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14,000 |
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Joseph V. Mariner, Jr. (4) |
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4,700 |
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R. Clayton Mulford (5) |
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2,000 |
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Donald A. Sillers, Jr. (6) |
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68,121 |
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Sherrill Stone (7) |
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124,716 |
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William T. Strohecker (8) |
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3,000 |
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David Taylor (9) |
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4,000 |
|
|
|
* |
|
Richard L. Travis, Jr. (10) |
|
|
8,000 |
|
|
|
* |
|
Royce & Associates (11) |
|
|
420,400 |
|
|
|
13.9 |
% |
1414 Avenue of the Americas |
|
|
|
|
|
|
|
|
New York, NY 10019 |
|
|
|
|
|
|
|
|
All directors and senior officers
as a group (10 persons) (12) |
|
|
237,037 |
|
|
|
7.6 |
% |
* |
|
Denotes ownership of less than 1% |
(1) |
|
Includes 6,500 shares issuable pursuant to options to purchase
Common Stock. |
|
(2) |
|
Includes 1,000 shares issuable pursuant to options to purchase
Common Stock. Does not include 1,000 shares owned of record by Linda
Cornwell, Mr. Cornwells wife, as to which shares Mr. Cornwell
disclaims any beneficial interest. |
8
(3) |
|
Includes 3,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(4) |
|
Includes 2,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(5) |
|
Includes 2,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(6) |
|
Includes 10,400 shares issuable pursuant to options to
purchase Common Stock. Does not include 1,878 shares owned of record
by Virginia Sillers, Mr. Sillers wife, as to which shares Mr. Sillers
disclaims any beneficial interest. |
|
(7) |
|
Includes 78,000 shares issuable pursuant to options to purchase
Common Stock. Does not include 300 shares owned of record by Jo Ann
Stone, Mr. Stones wife, as to which shares Mr. Stone disclaims any
beneficial interest. |
|
(8) |
|
Includes 3,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(9) |
|
Includes 4,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(10) |
|
Includes 7,000 shares issuable pursuant to options to purchase
Common Stock. |
|
(11) |
|
The information is based on a Schedule 13G filed with the
Securities and Exchange Commission on February 5, 2004. |
|
(12) |
|
Includes 116,900 shares issuable pursuant to options to purchase
Common Stock. |
Certain Relationships and Related Transactions
Prior to January 2004, R. Clayton Mulford, a director of the Company, was
a partner at the law firm of Hughes & Luce, LLP, Dallas, Texas. Hughes & Luce,
LLP provided legal services to the Company during the 2004 fiscal year. The
dollar amount of fees that the Company paid to Hughes & Luce, LLP during the
2004 fiscal year did not exceed five percent of Hughes & Luce, LLPs gross
revenue for its latest full fiscal year.
Corporate Governance
General
We believe that good corporate governance helps ensure that the Company is
managed for the long-term benefit of its shareholders. During the past year,
we continued to review our corporate governance policies and practices, the
recently adopted and proposed corporate governance rules and regulations of the
Securities and Exchange Commission (the SEC), and the listing standards of
the Nasdaq National Market (the Nasdaq), the stock exchange on which our
Common Stock is traded.
Based on this review, we amended and restated our Audit Committee charter,
adopted charters for our Compensation Committee and our Nominating Committee,
and adopted a Corporate Code of Conduct, and other policies and procedures
required by applicable law or regulation. You can access and print these
documents from the Corporate Governance page of the Investor Relations
section of our website at www.peerlessmfg.com or you can request a copy by
writing us at the following address:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Investor Relations
9
Director Independence
The Board has determined that except for Sherrill Stone, our Chief
Executive Officer, President and Chairman, no other director has a material relationship
with the Company (either directly or indirectly as a partner, stockholder, or
officer of an organization that has a relationship with the Company) and that
all, with the exception of Mr. Stone, meet the criteria for independence under
Nasdaq listing standards. The Board has also determined that no member of the
Audit Committee, Compensation Committee, or Nominating Committee has any
material relationship with the Company (either directly or indirectly as a
partner, stockholder, or officer of an organization that has a relationship
with the Company) and that all members of these committees meet the criteria
for independence under the Nasdaq listing standards.
Board Composition and Director Qualifications
The Nominating Committee periodically assesses the appropriate size and
composition of the Board, and whether any vacancies on the Board are expected
due to retirement or otherwise. In the event vacancies are anticipated or
otherwise arise, the Nominating Committee will review and assess potential
candidates. The Nominating Committee utilizes various methods for identifying
candidates for director. Candidates may come from recommendations of Board
members, management, shareholders, or professional search firms. Generally
director candidates should, at a minimum:
|
|
|
Have exemplary character and integrity and be
willing to work constructively with others; |
|
|
|
Have sufficient time to devote to Board
meetings and consultation on Board matters; |
|
|
|
Be free of conflicts of interest that violate
applicable law or interfere with director performance; |
|
|
|
Have the capacity and desire to represent the
interest of the Companys shareholders as a whole; |
|
|
|
Have the ability to contribute to the mix of
skills, core competencies and qualifications of the Board
through expertise in one or more of the following areas:
accounting and finance, mergers and acquisitions, marketing,
management, law, academia, strategic planning, technology,
investor relations, executive leadership development or
executive compensation; |
|
|
|
Be accomplished in their respective field with
superior credentials and recognition; |
|
|
|
Have had prior experience in service as a
senior officer or director, or a trusted advisor to senior
management, of a publicly held company or a company similarly
situated as the Company; and |
|
|
|
Have knowledge of the critical aspects of the
Companys business and operations. |
The director qualifications set forth above are general in nature and are
intended to provide a flexible guideline for the effective functioning of the
Companys director nomination process. These qualifications may be modified or
amended from time to time, as the Board deems appropriate.
10
For additional information, see Board Nominations Policy located on the
Corporate Governance page of the Investor Relations section of our website
at www.peerlessmfg.com.
Director Recommendations by Shareholders
In addition to recommendations from Board members, management, or
professional search firms, the Nominating Committee will consider director
candidates properly submitted by shareholders. Shareholders must submit their
director recommendations to the Nominating Committee in care of the Companys
Chairman of the Board in writing not less than 120 days prior to the one-year
anniversary date of the date the Company mailed its proxy materials to
shareholders for its previous annual meeting. Shareholder nominations must be
addressed as follows:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Chairman of the Board
Director of Candidate Submission
Director candidate nominations submitted by shareholders must contain at
least the following information:
|
|
|
The name and address of the recommending
shareholder; |
|
|
|
The number of shares of the Companys Common
Stock beneficially owned by the recommending shareholder and
the dates such shares were purchased; |
|
|
|
The name, age, business address, and residence of the candidate; |
|
|
|
The principal occupation or employment of the candidate for the past five years; |
|
|
|
A description of the candidates qualification to
serve as a director, including financial expertise and why the
candidate does or does not qualify as independent under the
Marketplace Rules of Nasdaq; |
|
|
|
The number of shares of the Companys Common
Stock beneficially owned by the candidate, if any; and |
|
|
|
A description of any arrangements or
understandings between the recommending shareholder and the
candidate, if any, or any other person pursuant to which the
recommending shareholder is making the recommendation. |
In addition, the recommending shareholder and the candidate should submit
a signed statement agreeing and acknowledging that:
|
|
|
The candidate consents to being a director, and
if nominated and elected, will serve as a director
representing the Company and its shareholders in accordance
with the Companys Article of Incorporation, Bylaws, and
corporate governance codes and policies and other applicable
laws; |
11
|
|
|
The candidate, if elected, will comply with the
Companys policies and procedures and all rules and
regulations applicable to the Board or individual directors;
and |
|
|
|
The recommending shareholder and the candidate
will promptly provide any additional information requested by
the Nominating Committee and/or the Board of Directors to
assist in the consideration of the candidate including,
without limitation, a completed and signed Questionnaire for
Directors and Officers on the Companys standard form and an
interview with the Nominating Committee, or its
representative, upon request. |
For a complete list of the information that must be included in director
recommendations submitted by shareholders, please see the Policy on Director
Recommendations by Shareholders on the Corporate Governance page of the
Investor Relations section of our website at
www.peerlessmfg.com. The
Nominating Committee will consider all director candidates identified through
its established processes and will evaluate each of them, including incumbents,
based on the same criteria. However, the Nominating Committee may prefer
incumbent directors and director candidates who they know personally or that
have relevant industry experience and in-depth knowledge of the Companys
business and operations.
The policies and procedures set forth above are intended to provide
flexible guidelines for the effective functioning of the Companys nomination
process. The Board intends to review these policies and procedures at least
annually and anticipates that modifications may be necessary from time to time
as the Companys needs and circumstances change.
Communications with the Board
Shareholders may communicate with the Board, any committee of the Board,
the independent or non-management directors, each as a group, or to any
individual director by their communications in writing to the Companys
Chairman of the Board. All communications must identify the author and state
that the author is a shareholder of the Company, and be mailed to the following
address:
Peerless Mfg. Co.
2819 Walnut Hill Lane
Dallas, Texas 75229
Attn: Chairman of the Board
Shareholder Communication
Shareholder communications should be sent in an envelope that clearly
indicates the intended recipients, those being the Board of Directors, a
committee of the Board, the independent or non-management directors, each as a
group, or any individual director.
The Chairman of the Board will act as agent for the directors in
facilitating the receipt of shareholder communications and may review, sort and
summarize the communications. The Board, including independent and
non-management directors, has directed the Chairman of the Board not to forward
to the intended recipients any shareholder communications that the Chairman of
the Board reasonably determines in good faith, exercising reasonable judgment,
to relate to improper or irrelevant subjects or that are substantially
incomplete. For additional information on shareholder communications, please
see our Shareholder Communications Policy located on the Corporate
Governance page of the Investor Relations section on our website at
www.peerlessmfg.com.
12
Corporate Code of Conduct
The Companys new Corporate Code of Conduct for Directors and Employees
applies to all of the Companys directors, officers, and employees. The
purpose of this code is to focus our directors and employees on areas of
ethical risk, provide guidance to help them recognize and deal with ethical
issues, provide mechanisms to report unethical or unlawful conduct, and to help
to enhance and formalize our culture of integrity, honesty, and accountability.
The Company will post on the Corporate Governance page of the Investor
Relations section of its website at www.peerlessmfg.com, and file with the SEC
a periodic report on Form 8-K, any amendments or waivers of any provisions of
this code for the benefit of the Companys senior executive officers or
directors.
Whistleblower Policy
The Audit Committee has established procedures for the treatment of
complaints regarding accounting, internal accounting controls, or auditing
matters, including procedures for confidential and anonymous submission by the
Companys employees of concerns regarding questionable accounting, internal
accounting controls, or auditing matters. The Companys Whistleblower Policy
can be found on the Corporate Governance page of the Investor Relations
section of our website at www.peerlessmfg.com.
Disclosure Committee
The Company has established a Disclosure Committee of members of
management to assist the Company in fulfilling its obligations to maintain
disclosure controls and procedures and to coordinate and oversee the process of
preparing the Companys periodic filings with the SEC.
Board Meetings and Committees of the Board of Directors
Board Meetings
Our business is managed under the direction of our Board of Directors.
Our Board meets during the year to review significant developments and to act
on matters requiring Board approval. Our Board met on six occasions during the
year ended June 30, 2004, with all members in attendance. The Company has not
adopted a formal policy on director attendance at Board or shareholder
meetings, because the Board believes that high standards of director
attendance, preparedness, and active participation have been encouraged and
adhered to by the current Board. The Board will continue to monitor director
attendance and will formally adopt a policy if it deems appropriate. All of
the directors attended the 2003 Annual Meeting of Shareholders and the 2003
Annual Meeting of Directors.
Board Committees
Standing committees of the Board of Directors include the Audit Committee,
the Compensation Committee, and the Nominating Committee. The independent
members of the Board, as a whole, perform the function customarily attributed
to a Corporate Governance Committee. Committee members are appointed annually
by the Board and serve until their successors are appointed and qualified or
until their earlier resignation or removal. The Companys Board has adopted a
Corporate Code of Conduct covering all directors, executive officers, and
employees of the Company. You can access and print a copy of this document
from the Corporate Governance page of the Investor Relations section of our
website at www.peerlessmfg.com.
13
In September 2002, the Board appointed the following independent Board
members to serve on these committees.
|
|
|
Audit Committee, comprised of Joseph V. Mariner,
Jr., Donald A. Sillers, Jr., and Bernard S. Lee. Mr. Lee
serves as the Chairman of the Audit Committee. |
|
|
|
Compensation Committee, comprised of Joseph V.
Mariner, Jr., Donald A Sillers, Jr., Bernard S. Lee and R.
Clayton Mulford. Mr. Mariner serves as the Chairman of the
Compensation Committee. |
|
|
|
Nominating Committee, comprised of Joseph V.
Mariner, Jr., Donald A Sillers, Jr., Bernard S. Lee and R.
Clayton Mulford. Mr. Mulford serves as the Chairman of the
Nominating Committee. |
Audit Committee
The Audit Committee (1) appoints, terminates, compensates, and oversees
the work of the independent auditors, (2) pre-approves all audit, review, and
permitted non-audit services provided by the independent auditors, (3)
evaluates the independence of the independent auditors, (4) reviews external
and internal audit reports and managements responses thereto, (5) oversees the
integrity of the financial reporting process, system of internal accounting
controls, and financial statements and reports of the Company, (6) reviews
annual and quarterly financial statements, including disclosures made in
Managements Discussion and Analysis of Financial Condition and Results of
Operations set forth in periodic reports filed with the SEC, (7) reviews and
discusses with management earnings releases, (8) meets with management, the
independent auditors, and the Board, (9) provides the Board with information
and materials as it deems necessary to make the Board aware of significant
financial, accounting, and internal control matters of the Company, (10)
oversees the receipt, investigation, resolution, and retention of all
complaints submitted under the Companys Whistleblower Policy, and (11)
otherwise complies with its responsibilities and duties as set forth in the
Companys Audit Committee Charter. The Audit Committee Charter and the
Companys Whistleblower Policy can be found on the Corporate Governance
page of the Investor Relations section of our website at
www.peerlessmfg.com.
The Audit Committee Charter is attached as Appendix 1 to this Proxy Statement.
The Board has determined that all three members of the Audit Committee
satisfy the independence and other requirements for audit committee membership
required by the Marketplace Rules of Nasdaq and the SEC and has also made the
determination that all three members have the attributes of a financial expert
as defined by the regulations of the SEC.
The
Audit Committee met five times in person and held two telephonic meetings in
fiscal 2004. For additional information on the Companys Audit Committee see
Audit Committee Matters of this Proxy Statement.
Compensation Committee
The Compensation Committee (1) determines the compensation of the senior
executive officers and other key employees of the Company, including the
Companys Chief Executive Officer, (2) assists in developing and reviewing the annual performance goals and objectives of
the
14
senior executive officers and other key employees of the Company, including
the Companys Chief Executive Officer, (3) reviews and recommends compensation
for the Companys outside directors, (4) assesses the adequacy and
competitiveness of the Companys executive compensation program, and (5)
administers the Companys incentive compensation program and other equity-based
compensation plans. The Companys Compensation Committee Charter can be found
on the Corporate Governance page of the Investor Relations section of our
website at www.peerlessmfg.com.
The Compensation Committee met four times in fiscal 2004 with all members
in attendance. For additional information concerning the Compensation
Committee, see Report of Compensation Committee.
Nominating Committee
The Nominating Committee (1) assists the Board in developing
qualifications for Board membership, (2) identifies candidates for Board
membership, (3) assesses the size and composition of the Board and its
committees and identify qualities, skills and areas of expertise, (4) assists
the Board in establishing policies and procedures for submission of director
candidates by shareholders, (5) assists the Board in determining membership on
Board Committees, and (6) assists the Board with the performance evaluations of
the Board and its committees and, upon request of the Board, the executive
officers of the Company. The Companys Nominating Committee Charter can be
found on the Corporate Governance page of the Investor Relations section of
our website at www.peerlessmfg.com.
The Nominating Committee met one time during fiscal 2004 with all members
in attendance.
Compensation of Directors
Non-employee directors are paid $1,575 per quarter, plus $950 for each
scheduled and special Board meeting and each separately called committee
meeting they attend. The Company also grants stock options for 1,000 shares of
our Common Stock to each of the non-employee directors on the date of the
annual shareholders meeting for such directors prior years service. During
fiscal 2004, an aggregate of 4,000 options were granted to non-employee
directors to purchase shares of the Companys Common Stock, all of which were
immediately exercisable. Mr. Stone, the only officer serving on the Board,
does not receive compensation for serving on our Board.
Section 16(a) Beneficial Reporting Compliance
Section 16(a) of the Exchange Act of 1934, as amended (the Exchange
Act), requires each director, officer, and any individual beneficially owning
more than 10% of the Companys Common Stock to file with the Securities and
Exchange Commission report of security ownership and reports on subsequent
changes in ownership within specified time frames.
To the Companys knowledge, all required Section 16(a) filings were timely
and correctly made by reporting persons during fiscal year 2004.
15
Compensation of Senior Officers
Summary Compensation Table
The following table sets forth information regarding compensation we paid
to our Chief Executive Officer and our most highly compensated senior officers
during fiscal years ended June 30, 2004, 2003 and 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Compensation
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
|
|
|
|
Annual Compensation |
|
Restricted |
|
Underlying |
|
|
|
|
|
|
|
|
|
Stock |
|
Options/ |
|
LTIP |
|
All Other |
Name and |
|
Fiscal |
|
Salary |
|
Bonus |
|
Other |
|
Awards(s) |
|
SARs |
|
Payouts |
|
Compensation |
Principal Position
|
|
Year
|
|
($)
|
|
($) (1)
|
|
($)
|
|
($)
|
|
(#)
|
|
($)
|
|
($) (2)
|
Peter J. Burlage |
|
|
2004 |
|
|
$ |
123,891 |
|
|
$ |
8,280 |
|
|
$ |
|
|
|
$ |
|
|
|
|
4,000 |
|
|
$ |
|
|
|
$ |
2,636 |
|
Vice President - |
|
|
2003 |
|
|
|
112,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378 |
|
Environmental Systems |
|
|
2002 |
|
|
|
109,750 |
|
|
|
83,257 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
2,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
G. Darwyn Cornwell |
|
|
2004 |
|
|
|
99,725 |
|
|
|
5,733 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
2,867 |
|
Vice President - |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank Fuller (3) |
|
|
2004 |
|
|
|
118,797 |
|
|
|
2,548 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
5,563 |
|
Vice President - |
|
|
2003 |
|
|
|
115,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,855 |
|
International Operations |
|
|
2002 |
|
|
|
112,927 |
|
|
|
62,443 |
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
|
|
5,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sherrill Stone |
|
|
2004 |
|
|
|
262,656 |
|
|
|
11,465 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
11,247 |
|
Chairman, CEO, |
|
|
2003 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,280 |
|
President |
|
|
2002 |
|
|
|
226,500 |
|
|
|
197,735 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
14,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William T. Strohecker |
|
|
2004 |
|
|
|
184,132 |
|
|
|
10,191 |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
9,891 |
|
Chief Operating Officer |
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Vice President |
|
|
2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Taylor |
|
|
2004 |
|
|
|
123,891 |
|
|
|
8,280 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
2,626 |
|
Vice President - |
|
|
2003 |
|
|
|
112,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,378 |
|
Separation Filtration |
|
|
2002 |
|
|
|
109,750 |
|
|
|
83,257 |
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard L. Travis, Jr. |
|
|
2004 |
|
|
|
187,527 |
|
|
|
10,191 |
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
10,549 |
|
Chief Finance Officer |
|
|
2003 |
|
|
|
179,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,783 |
|
Vice President of Adm. |
|
|
2002 |
|
|
|
65,385 |
|
|
|
49,968 |
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
|
|
|
|
1,450 |
|
(1) |
|
Bonuses are paid in the fiscal year following the year in which
they are earned. |
(2) |
|
Amounts reported for 2004 consist of: (1) personal use of Company
vehicles of $2,184, $6,690 and $6,380 for Messrs. Stone, Strohecker and
Travis, respectively; (2) employer matching contributions under the
Companys 401(k) plan of $2,478, $1,995, $2,376, $5,253, $2,783,
$2,478, and $3,751 for Messrs. Burlage, Cornwell, Fuller, Stone,
Strohecker, Taylor and Travis, respectively; and (3) cost of premiums
for group life insurance in excess of $50,000 of $158, $872, $3,187
$3,810, $418, $148, and
$418 for Messrs. Burlage, Cornwell, Fuller, Stone, Strohecker, Taylor
and Travis, respectively. |
(3) |
|
Retired from his employment with the Company in July 2004. |
16
Option Grants in 2004 to Senior Officers
In fiscal 2004, stock options for an aggregate of 63,300 shares of our
Common Stock were issued to 24 employees, 12,000 of which were immediately
exercisable and 51,300 of which will vest 25% ratably over the first four years
of the 10-year exercise period.
The following table sets forth certain information concerning Common Stock
options granted to the named executive officers during the fiscal year ending
June 30, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants
|
|
|
|
|
Number of |
|
% of Total |
|
|
|
|
|
|
|
|
|
Potential Realizable Value |
|
|
Securities |
|
Options |
|
|
|
|
|
|
|
|
|
at Assumed Annual Rates of |
|
|
Underlying |
|
Granted to |
|
Exercise |
|
|
|
|
|
Stock Appreciation |
|
|
Options |
|
Employees in |
|
or Base |
|
|
|
|
|
for Option Term (1) |
|
|
Granted |
|
Fiscal Year |
|
Price |
|
Expiration |
|
|
Name
|
|
(2) (#)
|
|
2004
|
|
($ per share)
|
|
Date (2)
|
|
5% ($)
|
|
10%($)
|
Peter J. Burlage |
|
|
4,000 |
|
|
|
6.32 |
% |
|
$ |
12.64 |
|
|
|
11/20/2013 |
|
|
$ |
31,797 |
|
|
$ |
80,580 |
|
G. Darwyn Cornwell |
|
|
4,000 |
|
|
|
6.32 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
31,797 |
|
|
|
80,580 |
|
Frank J. Fuller (3) |
|
|
2,000 |
|
|
|
3.16 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
15,898 |
|
|
|
40,290 |
|
Sherrill Stone |
|
|
10,000 |
|
|
|
15.80 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
79,492 |
|
|
|
201,449 |
|
William T. Strohecker |
|
|
6,000 |
|
|
|
9.48 |
% |
|
|
10.75 |
|
|
|
7/16/2013 |
|
|
|
40,564 |
|
|
|
102,796 |
|
William T. Strohecker |
|
|
6,000 |
|
|
|
9.48 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
47,695 |
|
|
|
120,869 |
|
David Taylor |
|
|
4,000 |
|
|
|
6.32 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
31,797 |
|
|
|
80,580 |
|
Richard L. Travis, Jr. |
|
|
6,000 |
|
|
|
9.48 |
% |
|
|
10.75 |
|
|
|
7/16/2013 |
|
|
|
40,564 |
|
|
|
102,796 |
|
Richard L. Travis, Jr. |
|
|
6,000 |
|
|
|
9.48 |
% |
|
|
12.64 |
|
|
|
11/20/2013 |
|
|
|
47,695 |
|
|
|
120,869 |
|
(1) |
|
Caution is recommended in interpreting the financial significance
of these figures. Potential values are based on the assumption that
the Companys Common Stock will appreciate 5% or 10% each year,
compounded annually, from the grant date of the option to the end of
the option term, and therefore, the figures are not intended to
forecast possible future appreciation, if any, of the price of the
Common Stock or establish a present value of the options. |
(2) |
|
All options granted are exercisable for Common Stock pursuant to
Peerless Mfg. Co. 2001 Stock Option and Restricted Stock Plan. |
(3) |
|
Mr. Fullers options will expire in March 2005, nine months after
his retirement from the Company. |
Aggregated Option Exercises in 2004 and Fiscal Year-end Option Values Table
The following table sets forth information concerning Common Stock
acquired on exercise of stock options during fiscal 2004, any value realized
therein, the number of options at the end of fiscal 2004 (exercisable and
unexercisable) and the value of stock options held at the end of 2004 by the
executive officers. The Value Realized column reflects the difference
between the market price on the date of exercise and the market price on the
date of grant (which establishes the exercise price for the
option) for all options exercised, even though the executive may have
actually received fewer shares as a result of the surrender of shares to pay
the exercise price, or the withholding of shares to cover the tax liability
associated with the option exercise. Accordingly, the Value Realized numbers
do not necessarily reflect what the executive might receive, should the
optionee choose to sell the shares required by the option exercise, since the
market price of the shares so acquired may at any time be higher or lower than
the price on the exercise date of the option.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number (#) of Securities |
|
|
|
|
|
|
|
|
|
|
Underlying Unexercised Options |
|
Value ($) of Unexercised |
|
|
Shares |
|
|
|
at Fiscal Year Ended |
|
In-the Money Options |
|
|
Acquired on Exercise |
|
Value Realized |
|
June 30, 2004
|
|
at June 30, 2004 (1)
|
Name
|
|
(#)
|
|
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Peter J. Burlage |
|
|
|
|
|
|
|
|
|
|
8,500 |
|
|
|
7,500 |
|
|
$ |
36,744 |
|
|
$ |
8,306 |
|
G. Darwyn Cornwell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
Frank J. Fuller (2) |
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
69,500 |
|
|
|
|
|
Sherrill Stone |
|
|
|
|
|
|
|
|
|
|
78,000 |
|
|
|
|
|
|
|
371,175 |
|
|
|
|
|
William T. Strohecker |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
6,600 |
|
David Taylor |
|
|
|
|
|
|
|
|
|
|
7,000 |
|
|
|
7,500 |
|
|
|
28,188 |
|
|
|
8,306 |
|
Richard L. Travis, Jr. |
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
16,000 |
|
|
|
|
|
|
|
6,600 |
|
(1) |
|
The closing price for the Companys Common Stock as reported
on Nasdaq Stock Market on June 30, 2004 was $11.85. Value is
calculated on the basis of the difference between $11.85 and the
option exercise price of in the money options, multiplied by the
number of shares of our Common Stock underlying the option. |
|
(2) |
|
Retired from his employment with the Company in July 2004. |
Equity Compensation Plan Information
The following table sets forth aggregate information regarding the
Companys compensation plans in effect as of June 30, 2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
available for |
|
|
|
|
|
|
|
|
|
|
future issuances |
|
|
Number of |
|
|
|
|
|
under equity |
|
|
securities to be |
|
Weighted- |
|
compensation |
|
|
issued upon |
|
average |
|
plans (excluding |
|
|
exercise of |
|
exercise price |
|
securities |
|
|
outstanding |
|
of outstanding |
|
reflected in |
|
|
options |
|
options |
|
column (a)) |
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation
plans approved by
security
holders (1) |
|
|
222,600 |
|
|
$ |
10.20 |
|
|
|
159,200 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
222,600 |
|
|
$ |
10.20 |
|
|
|
159,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the 1995 Stock Option and Restricted Stock Plan and the 2001 Stock
Option and Restricted Stock Plan. |
18
Employment, Severance and Change in Control Agreements with Certain Executive Officers
The Company has entered into an employment agreement and a change of
control agreement with Mr. Stone, the Companys Chief Executive Officer, Mr.
Travis, the Companys Chief Financial Officer and Mr. Strohecker, the Companys
Chief Operating Officer.
Stone Agreements. Mr. Stones employment agreement with the Company as
Chairman of the Board, Chief Executive Officer and President was initially for
a one year term, commencing July 20, 2001 and renews for successive 12 month
periods thereafter unless the agreement is terminated by either party prior to
the anniversary date of the agreement. Pursuant to the terms of the employment
agreement, Mr. Stone has agreed not to compete with the Company during his
employment and for one year following the termination of his employment. Mr.
Stone is also bound by confidentiality, nondisparagement and conflict of
interest provisions. The Company may terminate Mr. Stone for cause or
without cause at any time. If Mr. Stone is terminated without cause, the
Company must pay Mr. Stone a severance payment equal to 150% of his current
base salary plus provide insurance benefits to Mr. Stone and his spouse for 12
months after the date of termination. Mr. Stone may terminate his employment
at any time and the Company will have no severance obligations in the event of
his voluntary resignation, unless Mr. Stone resigns to retire from active
working life. In the event Mr. Stone retires from active working life, the
Company will pay Mr. Stone a payment equal to 150% of his current base salary.
In Mr. Stones and Mr. Travis employment and change of control agreements,
cause is defined as (1) the conviction of a crime involving moral turpitude,
(2) the employees intentional material act of fraud to his pecuniary benefit,
or (3) the employees intentional and continued failure to substantially
perform his duties to the Company or intentional wrong doing resulting in
material injury to the Company.
Mr. Stones change of control agreement provides that if after a change
of control occurs, Mr. Stone is terminated by the Company (or its successor)
without cause or Mr. Stone resigns and (1) an adverse change in his position,
duties or authority has occurred, (2) he has been hindered in his ability to
perform his job, (3) his principal location of work is relocated outside of the
Dallas metropolitan area, or (4) the Company (or its successor) breaches the
change of control agreement (each, a good reason), Mr. Stone will receive
severance compensation equal to 299% of his average annual compensation for the
prior five years plus customary employee benefits for three years thereafter.
The change of control agreement has a term of three years following a change of
control, which renews for successive one-year periods unless either party gives
notice prior to the annual renewal date. As used in each executives change of
control agreement, change of control means (1) the Company is merged,
consolidated or reorganized with another company and as a result, the Companys
shareholders own less than 50.1% of the voting power of the combined company,
(2) the Company sells all or substantially all its assets, (3) more than 50% of
the Companys issued and outstanding Common Stock is sold, (4) the current
Board of Directors, or successor directors approved by the Board, cease to
constitute a majority of the Companys Board of Directors, or (5) such other
events that cause a change of control of the Company as determined by the
Board.
Travis Agreements. Mr. Travis employment agreement with the Company as
Chief Financial Officer and Vice President of Administration is for a three
year term, commencing February 4, 2002. Pursuant to the terms of the
employment agreement, Mr. Travis has agreed not to compete with the Company
during his employment and for one year following the termination of his
employment. Mr. Travis is also bound by confidentiality, nondisparagement and
conflict of interest provisions. The Company may terminate Mr. Travis for
cause or without cause at any time. If Mr. Travis is terminated without cause, the Company must give Mr. Travis no less than
60 days written notice and pay Mr. Travis a severance payment equal to 150% of
his then current base salary.
19
Mr. Travis
may terminate his employment at any
time, after 60 days notice, and the Company will have no severance obligations
in the event of his voluntary termination.
Mr. Travis change of control agreement provides that if after a change
of control occurs, Mr. Travis is terminated by the Company (or its successor)
without cause or Mr. Travis resigns and a good reason has occurred, Mr.
Travis will receive severance compensation equal to 299% of his average annual
compensation for the prior five years plus customary employee benefits for
three years thereafter. The change of control agreement has a term of three
years following a change of control, which renews for successive one-year
periods unless either party gives notice prior to the annual renewal date.
Strohecker Agreements. Mr. Stroheckers employment agreement with the
Company as Executive Vice President and Chief Operating Officer is for a three
year term, commencing July 16, 2003. Pursuant to the terms of the employment
agreement, Mr. Strohecker has agreed not to compete with the Company during his
employment and for one year following the termination of his employment. Mr.
Strohecker is also bound by confidentiality, nondisparagement and conflict of
interest provisions. The Company may terminate Mr. Strohecker for cause or
without cause at any time. If Mr. Strohecker is terminated without cause,
the Company, after 30 days notice, must pay Mr. Strohecker a severance payment
equal the sum of (i) his current monthly salary times the number of complete
months of employment, up to a total of 12 months, less (ii) the amount of
notice payment made. Mr. Strohecker may terminate his employment at any time,
after 30 days notice, and the Company will have no severance obligations in the
event of his voluntary termination.
In Mr. Stroheckers employment and change in control agreement, cause is
defined as (1) the conviction of a crime involving moral turpitude, (2) the
employees intentional material act of fraud to his pecuniary benefit, or (3)
the employees intentional and continued failure to substantially perform his
duties to the Company or intentional wrong doing resulting in material injury
to the Company, (4) the failure by the employee to follow a reasonable
directive of the Board of Directors or the Chief Executive Officer, or (5)
violation of any policies or procedures of the Company, including without
limitation, any human relations policy, resulting in material injury to the
Company, in each case as reasonably determined by the Companys Board of
Directors.
Mr. Stroheckers change of control agreement provides that if a change of
control occurs after Mr. Stroheckers sixth month of employment and Mr.
Strohecker is terminated by the Company (or its successor) without cause or
Mr. Strohecker resigns and a good reason has occurred, Mr. Strohecker will
receive severance compensation equal to 150% of his average annual compensation
for the prior five years plus customary employee benefits for 12 months
thereafter. The change of control agreement has a term of three years
following a change of control, which renews for successive one-year periods
unless either party gives notice prior to the annual renewal date.
Other
Officer Agreements.
The Company has also entered into employment agreements with Mr. Burlage
and Mr. Taylor on October 31, 2003 and Mr. Cornwell on July 1, 2004. These
employment agreements have an initial term of three years. Pursuant to the
terms of the employment agreement, Messrs. Burlage, Cornwell, and Taylor have
agreed not to compete with the Company during their employment and for one year
following the termination of their employment. Confidentiality,
nondisparagement and conflict of interest provisions also bind Messrs. Burlage,
Cornwell, and Taylor. The Company may terminate Messrs. Burlage, Cornwell, or
Taylor for cause or without cause at any time. If any of Messrs. Burlage,
Cornwell or Taylor are terminated without cause, the Company, after 30 days
notice, must pay the terminated officer a severance payment equal to the sum of
(i) 75% of his current base salary annualized, less (ii) the amount of notice
payment made. Messrs. Burlage, Cornwell, or Taylor may terminate their employment at any time, after 30 days notice, and the Company will have no
severance obligations to the terminated officer in the event of voluntary
termination. In the event voluntary termination is due to (a) a
20
material adverse change in position, (b) a material adverse change in the method of
calculating annual bonus, but not the amount, or a significant reduction in the
scope or value in the aggregate of monetary or non-monetary benefits, (c) a
determination, in good faith, by the employee that due to, changes in
circumstances affecting his position or changes in the composition or policies
of the Board, or other material events, that he is substantially unable to
carry-out, or has been substantially hindered in his ability to perform his
job, or (d) relocation outside the current metropolitan area, then the Company
would be required to pay the terminated officer a lump sum payment equal to the
sum of (1) 25% of his current base salary annualized, less (2) amount of notice
payment paid, plus (3) pro-rata portion of his annual incentive bonus.
Compensation Committee Interlocks and Insider Participation
During the 2004 fiscal year, none of the Companys executive officers
served on the board of directors of any entities, whose directors or officers
serve on the Companys Compensation Committee. Except for Mr. Sillers prior
service as Chairman of the Board and Chief Executive Officer of the Company
from which he retired in 1993, no other member of the Compensation Committee is
currently or has been an officer or employee of the Company.
Report of the Compensation Committee
The Compensation Committee is comprised of four directors, all of which
have been determined by the Board of Directors of the Company (the Board) to
be independent pursuant to the listing standards of the Nasdaq Stock Market,
the exchange on which the Companys Common Stock is traded. The Compensation
Committee operates under a written charter adopted by the Board, a copy of
which is available on the Corporate Governance page of the Investor
Relations section of the Companys website at www.peerlessmfg.com.
General Compensation Policy
The Board and the Compensation Committee believe that the Companys
success requires an experienced and highly motivated professional staff.
Therefore, the Companys compensation program is primarily designed to attract
and retain highly capable executive officers and key employees, motivate such
individuals to achieve the Companys strategic financial and operational
objectives and reward performance that meets such objectives.
The Companys executive compensation program combines base salary, annual
bonus and the equity compensation program to attract and retain
executives. The Compensation Committee is responsible for setting the annual
base compensation and bonus levels and administering the equity compensation
programs for our employees, including our executive officers. Its
recommendations are subject to final approval by the Board of Directors. The
Compensation Committee believes that the key to a successful executive
compensation program is in setting aggressive business goals by integrating the
program with annual and strategic planning and evaluation processes and by
comparing results against industry performance levels. The Compensation
Committee takes into account achievements of the Company during the past fiscal
year, as well as the individual achievements of various business units and
divisions, in making executive compensation determinations. In addition, the
Compensation Committee recognizes that the Company competes in a competitive
environment, and executive compensation therefore must also take into account
the Companys performance as compared to that of other companies in its
industry or in similar industries. The Compensation Committee also evaluates
on an annual basis the Companys corporate performance, revenues and stock performance
compared to a broader group of companies, such as the Standard & Poors 500.
21
Annual Base Compensation
Annual base compensation awarded in any particular fiscal year to each
senior officer is based upon the following factors: corporate performance
during the prior year, performance of the division for which the officer is
responsible, and a more subjective evaluation of each of the officers
individual performance. The evaluation of corporate performance is directly
linked to profitability during the period, and therefore is based upon the
value of the Companys Common Stock. In making this evaluation, the
Compensation Committee reviews the Companys percentage growth in earnings per
share over the prior year and its overall return on equity for that period.
The Compensation Committee believes that these two factors are the primary
determinants of stock price over time. The Compensation Committee also reviews
the profit performance of the individual divisions for which the officer is
responsible. In addition, the Compensation Committee determines the individual
rating for each officer, which is based upon such qualitative factors as the
achievement of certain financial objectives and specific organizational and
management goals for that officer. Annual base compensation for the Companys
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer is
determined in the same manner as for other officers, except that the
Compensation Committee does not review or evaluate any particular divisions
performance, but rather, looks to the Company as a whole in determining
corporate performance relevant to these officers compensation.
Annual Bonus Plan
The Company has an incentive bonus plan pursuant to which certain key
employees, including the named senior officers, are selected annually by the
Compensation Committee to earn a cash bonus based upon our after-tax
profitability. This plan requires that a specific after-tax return on
beginning-of-year equity be achieved, after which bonuses may be paid out. The
available bonus pool is calculated on earnings in excess of the base level.
Once the total bonus pool is calculated, the Compensation Committee distributes
bonuses to participants in the plan in accordance with pre-determined
percentages as set annually. The determination of the bonus level awarded to
our Chief Executive Officer is made in the same manner as that of other
officers.
The Compensation Committee also recommended that an additional
discretionary bonus pool of $50,000 be established, to be used by the Chief
Executive Officer for the purpose of recognizing certain outstanding
contributions made by any employee, including the named senior officers, but
excluding the Chief Executive Officer. Awards under this plan may be made in
order to recognize new product inventions or improvements, ideas for major
manufacturing cost reductions, originations of large and profitable orders or
for other purposes.
Equity Compensation Program
The Companys stock option program is intended to motivate executive
officers and other key employees of the Company by providing long-term
incentives to these individuals, all in a manner that is consistent with
shareholder interests. Stock options are generally granted annually, with an
exercise price equal to the fair market value of the Companys Common Stock on
the grant date. The number of options granted to a recipient is determined
using various factors such as long-term incentives granted to executive
officers in companies of comparable size and the individual recipients
contribution to the Company. To encourage long-term performance, options
generally vest over a four-year period.
22
The Compensation Committee also recognizes that, in order to attract and
retain the highest quality officers, their compensation programs must be
competitive in relation to compensation programs of other companies in similar
industries and in comparable geographic areas. Accordingly, the Compensation
Committee periodically reviews the executive compensation paid by such
companies and local and national survey data. In addition the Company may use
the services of independent compensation and benefits consulting firms to
provide analysis and recommendations for competitive pay levels and programs.
In fiscal year 2004, the Compensation Committee increased the base salary
levels of its six senior officers, excluding its Chief Executive Officer, by an
average of 12.3%. In addition, based on the Companys performance during
fiscal 2004, the Compensation Committee granted cash bonuses to these
individuals in the aggregate of $45,223.
Compensation of Chief Executive Officer
During fiscal 2004, the base salary of Mr. Stone, the Chief Executive
Officer of the Company, was increased by 10% to $275,000. The Compensation
Committee also granted Mr. Stone a cash bonus of $11,465 relating to the fiscal
2004 performance of the Company. In fiscal 2004, Mr. Stone was also granted
options to purchase 10,000 shares of the Companys Common Stock at an exercise
price of $12.64, the fair market value of the Common Stock on the date of
grant. These options were fully vested on the date of grant.
Mr. Stones base salary is not solely related to specific measures of
corporate performance. His tenure of service and his current job
responsibilities, as well as the relative salaries of his peers in the
industries in which the Company competes are also used to determine his base
salary. Any stock options awarded to Mr. Stone are not necessarily directly
tied to specific measures of corporate performance. Such awards are generally
based on his current compensation and the Companys overall relative
performance.
Deductibility of Compensation
Compensation in excess of $1 million per year by any of our five most
highly compensated executive officers is not deductible by the Company for
federal income tax purposes unless the compensation arrangement complies with
the requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended. Our stock incentive plans used to compensate executive officers have
complied, and are intended to continue to comply, with the requirements of
Section 162(m).
1995 and 2001 Stock Option and Restricted Stock Plan
Our Board of Directors adopted the 1995 and the 2001 Stock Option and
Restricted Stock Plans (the Plans) to attract, motivate and retain qualified
employees. The Plans were approved by our shareholders on November 21, 1996
and November 20, 2001, respectively and became effective immediately
thereafter. Our Board of Directors, which administers the Plans, delegated to
the Compensation Committee its power to determine which employees should be
awarded stock options or restricted stock pursuant to the Plans. From time to
time, our Chief Executive Officer will recommend to the Compensation Committee
individuals he believes should receive an option or grant, and, with respect to
any recommended option, whether the option should be a qualified or
nonqualified. The Compensation Committee will consider, but need not accept,
the Chief Executive Officers recommendations.
23
Under the terms of the Plans, options or grants up to an aggregate of
490,000 shares of Common Stock may be granted to employees and non-employee
directors. The Compensation Committee will determine the number and the
exercise price of the options, and the time or times that the options become
exercisable, provided that an option exercise price may not be less than the
fair market value of our Common Stock on the date of grant. The Compensation
Committee will also determine the term of an option, provided that the term of
a qualified option may not exceed 10 years. The Compensation Committee may
grant shares of restricted stock without requiring the payment of cash
consideration for the shares. As of June 30, 2004, there were 159,200 shares
of Common Stock still available for grant under the Plans.
The members of the Compensation Committee for the fiscal year ending June
30, 2004 submit this report:
Joseph V. Mariner, Jr., Chairman,
Bernard S. Lee,
R. Clayton Mulford
Donald A. Sillers, Jr.
Notwithstanding anything to the contrary set forth in any of Peerless Mfg.
Co.s (the Company) filings under the Securities Act of 1933, as amended (the
Securities Act) or the Securities Exchange Act of 1934, as amended (the
Exchange Act) that might incorporate future filings, including this Proxy
Statement, in whole or in part, the preceding Report of the Compensation
Committee shall not be incorporated by reference into any such filings, and
shall not be deemed soliciting material or to be filed under the
Securities Act or the Exchange Act.
24
Stock Price Performance Graph
The following graph compares the cumulative total shareholder return over
a five-year period, assuming $100 invested at June 30, 1999 in each of (1) our
Common Stock, (2) the Dow Jones Industrial Average and (3) a peer group
consisting of manufacturers in the industrial sector providing industrial and
commercial services to other commercial enterprises. Total shareholder return
is based on the increase in the price of the Common Stock with dividends
reinvested. The stock price performance depicted in the Corporate Performance
Graph is not necessarily indicative of future price performance.
The Corporate Performance Graph does not constitute soliciting material
and shall not be deemed incorporated by reference in any filing by the Company
under the Securities Act of 1933, as amended, or the Exchange Act of 1934, as
amended.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PEERLESS MFG. CO., THE DOW JONES US INDUSTRIAL AVERAGE INDEX
AND THE DOW JONES US INDUSTRIAL DIVERSIFIED INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Return Analysis
|
|
6/30/99
|
|
6/30/00
|
|
6/30/01
|
|
6/30/02
|
|
6/30/03
|
|
6/30/04
|
Peerless Mfg. Co. |
|
$ |
100.00 |
|
|
$ |
163.40 |
|
|
$ |
350.48 |
|
|
$ |
334.71 |
|
|
$ |
217.57 |
|
|
$ |
233.33 |
|
Dow Jones Industrial Average |
|
|
100.00 |
|
|
|
96.65 |
|
|
|
98.62 |
|
|
|
88.45 |
|
|
|
88.03 |
|
|
|
104.43 |
|
Dow Jones US Industrial
Diversified |
|
|
100.00 |
|
|
|
117.21 |
|
|
|
118.03 |
|
|
|
77.78 |
|
|
|
79.03 |
|
|
|
102.17 |
|
Source: Research Data Group, Inc. www.researchdatagroup.com (415-241-6506)
25
Report of the Audit Committee
To our shareholders:
The Audit Committee operates under a written charter adopted by the Board
of Directors. A copy of the Audit Committee Charter is available on the
Corporate Governance page of the Investor Relations section of the
Companys website at www.peerlessmfg.com. In carrying out its
responsibilities, the Audit Committee, among other things:
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Monitors the integrity of the financial reporting process,
systems of internal controls, and financial statements and reports
of the Company; |
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Appoints, compensates and oversees the Companys independent
auditors, including reviewing the independence of the independent
auditors; |
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Reviews and approves all audit and non-audit services; |
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Oversees the Companys compliance with legal and regulatory requirements. |
The
Audit Committee met on five occasions in person and held two telephonic meetings
during fiscal 2004, with all members, with the exception of Mr. Lee, in
attendance at all meetings. Mr. Lee was absent from one telephonic meeting
during fiscal 2004, with Mr. Mariner acting as Chairman in his absence. The
Audit Committee schedules its meetings with a view to ensuring that it devotes
appropriate attention to all its responsibilities and duties. The Audit
Committees meetings include, whenever appropriate, executive sessions with the
Companys independent auditors, which are held outside the presence of the
Companys management.
In performing its oversight role, the Audit Committee reviewed the audited
consolidated financial statements of the Company for the 2004 fiscal year and
met and held discussions with management, Grant Thornton LLP, the Companys
independent auditors, to discuss those financial statements and the audit
related thereto. Management has represented to the Audit Committee that the
Companys consolidated financial statements were prepared in accordance with
generally accepted accounting principles. The Companys independent auditors
have represented to the Audit Committee that the audit of the Companys
consolidated financial statements has been performed in accordance with
generally accepted auditing standards.
The Audit Committee discussed with the independent auditors matters
required to be discussed by Statement on Auditing Standards No. 61, as may be
modified, supplemented or amended, which includes among other items, matters
related to the conduct of the audit of the Companys consolidated financial
statements. The independent auditors also provided the Audit Committee with
written disclosures and the letter required by the Independence Standards Board
Standard No. 1, as may be modified, supplemented or amended, which relates to
the auditors independence from the Company and its related entities, and the
Audit Committee discussed with the independent auditors their independence.
26
Based on the Audit Committees discussions with management and the
independent auditors as described above, and upon its review of the
representations of management and the independent auditors and the report of
the independent auditors, the Audit Committee recommended to the Board that the
Companys audited consolidated financial statements be included in the
Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2004,
as filed with the Securities and Exchange Commission.
The
members of the Audit Committee for the fiscal year ending June 30, 2004 submit this report.
Bernard S. Lee Chairman
Joseph V. Mariner, Jr.
Donald A. Sillers, Jr.
Notwithstanding anything to the contrary set forth in any of Peerless Mfg.
Co.s (the Company) filings under the Securities Act of 1933, as amended (the
Securities Act) or the Securities Exchange Act of 1934, as amended (the
Exchange Act) that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Report of the Audit Committee
shall not be incorporated by reference into any such filings, and shall not be
deemed soliciting material or to be filed under the Securities Act or the
Exchange Act.
27
Independent Auditors Services and Fees
Grant Thornton LLP has served as the Companys independent auditors since
its appointment in 1967. Representatives of Grant Thornton LLP are expected to
be present at the annual meeting to respond to appropriate questions and will
have the opportunity to make a statement if the representatives desire to do
so. Our Board has ratified the selection by the Audit Committee of the firm
Grant Thornton LLP as our independent accountants for fiscal 2005.
The Audit Committee pre-approves the audit and non-audit services to be
rendered to the Company, as well as the fees associated with such services.
Generally, management will submit to the Audit Committee a detailed list of
services that it recommends the Audit Committee engage the independent auditors
to provide during the fiscal year. The Audit Committee pre-approves certain
audit and non-audit services and establishes a dollar limit on the amount of
fees the Company will pay for each category of services. The Audit Committee
is informed from time to time as to the non-audit services actually provided
pursuant to the pre-approval process. During the year, the Audit Committee
periodically reviews the types of services and dollar amounts approved, and
adjusts such amounts, as it deems appropriate. Services that are not
pre-approved in such a manner require specific pre-approval by the Audit
Committee. The Audit Committee also periodically reviews all non-audit
services to ensure such services do not impair the independence of the
Companys independent auditors. The Audit Committee approved all services
provided by Grant Thornton LLP for the 2004 fiscal year. These services
included the audit of the Companys consolidated annual financial statements, a
statutory audit of the Companys UK subsidiary, review of the Companys
consolidated interim financial statements and related filings, tax
consultations services, and preparation of state and federal corporate tax
returns. See Report of Audit Committee for discussion on auditor
independence.
Following is a summary of Grant Thornton LLP fees for the year ended June
30, 2004 and 2003.
Audit Fees. Aggregate fees billed by Grant Thornton LLP for the audit of
the Companys consolidated financial statements, statutory audit of the
Companys UK subsidiary, review of the Companys consolidated interim
financial statements fees, and assistance with and review of documents filed with the SEC were $130,338 for fiscal year 2004 and $98,250 for
fiscal year 2003.
Audit Related Fees. Grant Thornton LLP did not bill the Company for any
Audit Related Fees during fiscal year 2003 and 2004.
Tax Fees. The aggregate fees for income tax consultation, including tax
compliance, tax advice and tax planning for fiscal years 2004 and 2003 were
$30,325 and $25,140, respectively. These fees related primarily to preparation
and review of corporate tax returns and other general tax consultation.
All Other Fees. Grant Thornton LLP did not bill the Company for any other
services during fiscal year 2003 and 2004.
The Audit Committee has considered whether the non-audit services provided
by Grant Thornton LLP, including the services rendered in connection tax
consultation, were compatible with maintaining Grant Thornton LLPs
independence and has determined that the nature and substance of the limited
non-audit services did not impair the status on Grant Thornton LLP as the
Companys independent auditors.
28
Other Matters
Other Business Presented at Annual Meeting
As of the date of this Proxy Statement, the Board is not aware of any
matter to be presented for action at the annual meeting other than the matters
set forth herein. If any other matters should arise at the Annual Meeting,
shares represented by proxies will be voted at the discretion of the proxy
holders.
Where You Can Find More Information
The Company files reports, proxy statements and other information with the
Securities and Exchange Commission. You can read and copy these reports, proxy
statements and other information concerning the Company at the Securities and
Exchange Commission public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference room. The
Securities and Exchange Commission maintains an Internet site at
www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission, including the Company. The Companys Common Stock is quoted on the
NASDAQ Stock Market National Market under the symbol PMFG.
A copy of the Companys 2004 annual report containing audited financial
statements accompanies this proxy statement. The annual report does not
constitute a part of the proxy solicitation materials.
If you send your request in writing to Katherine S. Frazier, c/o Peerless
Mfg. Co., 2819 Walnut Hill Lane, Dallas, Texas 75229, we will provide you,
without charge, a copy of our Annual Report on Form 10-K filed with the
Securities and Exchange Commission, or you can download a copy of our Annual
Report on Form 10-K from the SEC Filings page of the Investor Relations
section of our website www.peerlessmfg.com.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement to vote on the proposals contained herein.
The Company has not authorized anyone else to provide you with different
information. You should not assume that the information in this Proxy
Statement is accurate as of any date other than October 25, 2004.
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By Order of the Board of Directors,
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/s/ Katherine S. Frazier
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Corporate Controller
Secretary / Treasurer |
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Dallas, Texas
October 25, 2004
29
Appendix 1
PEERLESS MFG. CO.
AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors (the Board)
to assist the Board in fulfilling its duties and responsibilities and is
directly responsible for the appointment, compensation and oversight of
Peerless Mfg. Co.s (the Company) independent auditors (the Outside
Auditors) in preparing or issuing an audit report and performing other audit,
review, attest or related services for the Company (Audit Services). The
Audit Committee also assists the Board in monitoring (a) the integrity of the
financial reporting process, systems of internal controls over financial
reporting and financial statements and reports of the Company, and (b) the
Companys compliance with legal and regulatory requirements.
The requirements in this Audit Committee Charter (Charter) are qualified
by the understanding that the role of the Audit Committee is to act in an
oversight capacity and is not to imply or require a detailed review of the work
performed by the Outside Auditors unless specific circumstances are brought to
its attention warranting such a review. The Audit Committee should expect that
(a) management of the Company and the Outside Auditors have the responsibility
to plan and conduct financial audits and to determine that the Companys
financial statements and disclosures are complete and accurate and are in
accordance with GAAP and applicable rules and regulations, and (b) management
of the Company has the responsibility to ensure the Companys compliance with
applicable legal and regulatory requirements.
The Audit Committee has the power and authority to conduct any
investigation it deems appropriate in fulfilling its responsibilities, and has
direct access to the Outside Auditors and the persons overseeing the financial
reporting process for the Company, as applicable, as well as anyone else in the
Company. The Audit Committee may retain, at the Companys expense and without
separate Board approval, outside legal, accounting or other advisors it deems
necessary in the performance of its duties. The Company shall provide for
appropriate funding, as determined by the Audit Committee, for payment of
compensation to the Outside Auditors for the purposes of performing Audit
Services for the Company and also to any other advisors employed by the Audit
Committee.
II. COMMITTEE MEMBERSHIP
The number of directors constituting the Audit Committee shall be fixed
from time to time by the Board, but in no event may the number be less than
three (3) directors. The members of the Audit Committee shall serve until
their successors are duly elected and qualified or until their earlier
resignation or removal.
All of the Audit Committee members shall meet the independence
requirements of the Nasdaq National Market (Nasdaq), any other exchange on
which the Companys securities are traded, the Securities and Exchange Act of
1934 (the Exchange Act) and the rules and regulations of the Securities and
Exchange Commission (the Commission). Each member of the Audit Committee
shall be financially literate. In addition, at least one member of the Audit
Committee should be an audit committee financial expert, as defined by the
Commission. As required by Nasdaq and the rules and
30
regulations of the Commission, the Company shall include appropriate
disclosures in its periodic reports filed pursuant to the Exchange Act
regarding the independence and expertise of its Audit Committee members. Audit
Committee members shall not simultaneously serve on the audit committees of
more than two (2) other public companies without the approval of the full
Board.
III. MEETINGS
If required, or in their judgment advisable, the Audit Committee shall
meet quarterly, or more frequently as circumstances dictate. The Audit
Committee may request any officer, employee, advisor or auditor of the Company
to attend a meeting of the Audit Committee. The Audit Committee may also, to
the extent it deems necessary or appropriate, meet with any investment bankers
or financial analysts who follow the Company. The Audit Committee should make
regular reports to the Board in connection with its reviews and investigations.
If required, or in their judgment advisable, the Audit Committee shall
meet with management and the Outside Auditors in separate executive sessions in
advance of the filing of each Form 10-K and Form 10-Q to discuss matters for
which the Audit Committee has responsibility.
The Board may designate a chairman of the Audit Committee. If a chairman
is not designated by the Board or is not present at a particular meeting, the
members of the Audit Committee may designate a chairman by majority vote of the
Audit Committee membership in attendance. The chairman (or acting chair) shall
preside at each Audit Committee meeting. The chairman (or acting chair) may
direct appropriate members of management and staff to prepare draft agendas and
related background information for each Audit Committee meeting. Any
background materials, together with the agenda, should be distributed to the
Audit Committee members in advance of the meeting. All meetings of the Audit
Committee shall be held pursuant to the Bylaws of the Company with regard to
notice and waiver thereof, and written minutes of each meeting shall be duly
filed in the Company records.
IV. RESPONSIBILITIES AND DUTIES
In performing its functions, the Audit Committee may undertake those tasks
and responsibilities that, in its judgment, would most effectively contribute
and implement the purposes of the Audit Committee. The following functions
should be undertaken by the Audit Committee.
A. Financial Statements and Disclosure Matters
1. Review and discuss with management and the Outside Auditors the
annual and quarterly financial statements, including disclosures made in
Managements Discussion and Analysis of Financial Condition and Results
of Operations, prior to the annual and, if required, or in the judgment
of the Audit Committee, advisable, quarterly financial statements being
filed in the Companys Form 10-K and Form 10-Q, as applicable. In
connection with these reviews, the Audit Committee shall:
a) Review and discuss with the Outside Auditors (i) all critical
accounting policies and practices to be used, (ii) all alternative
treatments of financial information within GAAP that have been
discussed with management, ramifications of the use of such
alternative disclosures and treatments, and the treatment preferred
by the Outside Auditors, (iii) the internal controls adhered to by
the Company, management and the financial and accounting personnel
of the Company, and the impact of each on the quality and
reliability of the Companys financial reporting and (iv) other
material written communications between the Outside Auditors and
management, such as any management letter or schedule of unadjusted
differences.
31
b) If required, or in their judgment advisable, review and discuss
with management and the Outside Auditors (i) significant accounting
principles and financial statement presentations, including any
significant changes in the Companys selection or application of
accounting principles, (ii) significant financial reporting issues
and judgments made in connection with the preparation of the
Companys financial statements, including the effect of alternative
GAAP methods on the financial statements, (iii) the development,
selection and disclosure of critical accounting estimates and the
analyses of alternative assumptions or estimates, and the effect of
such estimates on the Companys financial statements, (iv) the
effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company, (v) any pro forma or adjusted non-GAAP information
contained in the Companys periodic reports, (vi) the effect of
significant litigation, contingencies and claims against the
Company on the Companys financial statements and (vii) audit
problems or difficulties and managements response to such problems
and difficulties.
2. Discuss with management earnings press releases, including the
use, if any, of pro forma or adjusted non-GAAP information, as well
as financial information and earnings guidance provided to the investment
community. Such discussion may be general (consisting of discussing the
types of information to be disclosed and the types of presentations to be
made).
3. Discuss with management the Companys major financial risk
exposures and the steps management has taken to monitor and control such
exposures, including the Companys risk assessment and risk management
policies.
4. Discuss with the Outside Auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 including (a) the
Outside Auditors responsibility under Generally Accepted Auditing
Standards (GAAS) (b) the Companys significant accounting policies, (c)
accounting estimates, assumptions and judgments used in preparing the
Companys financial statements, (d) significant audit adjustments
discovered and (e) disagreements, if any, with management encountered in
the course of the audit.
5. If required, or in their judgment advisable, receive and review
the Section 302 certifications of the Chief Executive Officer and Chief
Financial Officer included in the Companys Form 10-K and Form 10-Q, and
certifications of other persons performing similar and support functions,
including, but not limited to, anyone involved in the financial reporting
and disclosure process.
B. Oversight of the Companys Internal Controls and Legal Compliance
1. Review the budget, plan, activities and organizational structure
of the internal controls over financial reporting.
2. Review the appointment, performance and replacement of the
persons overseeing the internal controls over financial reporting.
3. Communicate with management and the Outside Auditors to obtain
information concerning (a) internal controls over financial reporting,
(b) the Companys significant accounting principles and financial
reporting policies and any changes therein, (c) any deficiencies in the
Companys internal controls and any special steps adopted in light of
material
32
control deficiencies, and (d) the competency of the Companys
financial, accounting and personnel responsible for internal controls
over financial reporting.
4. At least annually, review with legal counsel any (a) legal
matters that could have a material impact on the Companys financial
statements or compliance with applicable laws or internal governance
policies, and (b) correspondence between the Company and regulators or
governmental agencies and any employee complaints raising material issues
with respect to the Companys financial reporting process, internal
controls or financial statements.
5. Obtain reports from management, the primary person responsible
for the Companys internal controls over financial reporting and the
Outside Auditors concerning the Companys compliance with the Companys
Whistleblower Policy. Obtain and review reports and disclosures of
insider and affiliated party transactions.
6. Obtain from the Outside Auditors the reports required to be
furnished to the Audit Committee under the Exchange Act and obtain from
the Outside Auditors any information with respect to illegal acts in
accordance with the Exchange Act.
C. Oversight of the Outside Auditors
1. Appoint (subject, if applicable, to shareholder ratification),
terminate and compensate the Outside Auditors. The Audit Committee is
responsible for approving, evaluating and overseeing the work of the
Outside Auditors (including the audit plan) and resolving any
disagreements between management and the Outside Auditors regarding the
Companys financial reporting process, internal controls and financial
statements. The Outside Auditors shall report directly to the Audit
Committee.
2. Establish policies and procedures for pre-approving all Audit
Services and permitted non-audit services (including the terms and fees
thereof) to be performed for the Company or its subsidiaries by the
Outside Auditors as required under the rules and regulations of the
Commission.
3. Pre-approve all Audit Services and permitted non-audit services
(including the terms and fees thereof) to be performed for the Company or
its subsidiaries by the Outside Auditors, subject to de minimis
exceptions for permitted non-audit services such as those described in
the Exchange Act.
4. Review the experience and qualifications of the senior members of
the Outside Auditors team.
5. If required, or in their judgment advisable, obtain and review a
report from the Outside Auditors at least annually regarding (a) the
auditors internal quality-control procedures, (b) any material issues
raised by the most recent internal quality-control review, or peer
review, of the firm, or by any inquiry or investigation by governmental
or professional authorities, within the preceding five (5) years
respecting one or more independent audits carried out by the firm, and
any steps taken to deal with any such issues and (c) all relationships
between the Outside Auditors and the Company, including the written
disclosures and the letter required by Independence Standards Board
Standard 1, as it may be amended from time to time, and any successor to
such standard. The Audit Committee shall evaluate the qualifications,
performance and independence of the Outside Auditors, including
considering whether the auditors quality
33
controls are adequate and the provision of permitted non-audit
services is compatible with maintaining the auditors independence. In
making this evaluation, the Audit Committee should take into account the
opinions of management. The Audit Committee should present its
conclusions to the Board.
6. Oversee the rotation of the lead audit partner and other partners
directly involved in the performance of the Audit Services of the Company
as required by applicable law. The Audit Committee may require the
Outside Auditors to stagger the rotation of these partners to ensure that
the engagement team continues to have appropriate expertise to allow the
audit engagement to be conducted in accordance with GAAS.
7. Recommend and oversee the Companys policies for hiring employees
or former employees of the Outside Auditors who have participated in any
capacity in an audit of the Company.
8. If necessary, or in their judgment advisable, discuss with the
national office of the Outside Auditors issues on which the Companys
audit team consulted them and matters of audit quality and consistency.
9. If necessary, or in their judgment advisable, discuss with
management and the Outside Auditors any accounting adjustments that were
noted or proposed by the Outside Auditors, but were passed (as immaterial
or otherwise).
10. If necessary, or in their judgment advisable, discuss with the
Outside Auditors the difficulties the Outside Auditors encountered in the
course of the audit work, including any restrictions on the scope of the
Outside Auditors activities or on access to requested information, and
any significant disagreements with management.
11. Obtain from the Outside Auditors the information required to be
disclosed to the Company by GAAS in connection with the conduct of an
audit.
12. Require the Outside Auditors to review the financial information
included in the Companys Form 10-Q prior to the Company filing such
reports with the Commission.
D. Other Audit Committee Responsibilities and Clarification of Role
1. Oversee the integrity of the audit process, financial reporting
process, internal accounting controls and financial statements of the
Company, and the work of management and the Outside Auditors in these
areas, as applicable. The Audit Committee shall facilitate
communications with and between management, the Outside Auditors and the
Board. The Audit Committee may form and delegate authority to
subcommittees consisting of one or more members when appropriate,
including the authority to grant pre-approvals of audit and permitted
non-audit services, provided that the decision of such subcommittee to
grant pre-approvals shall be communicated to the full Audit Committee at
its next scheduled meeting.
2. Annually prepare, and include in the Companys annual proxy
statement, the Audit Committee report to shareholders as required by the
Exchange Act.
3. Establish procedures for (a) the receipt, retention and treatment
of complaints received by the Company regarding accounting, internal
accounting controls or auditing matters,
34
and (b) the confidential, anonymous submission by employees of the
Company of concerns regarding questionable accounting or auditing
matters.
4. Review managements report regarding the internal controls over
financial reporting of the Company as required by the rules and
regulations of the Commission.
5. Perform any other activities consistent with this Charter, the
Companys Bylaws, and governing laws and regulations as the Audit
Committee or the Board deems necessary or appropriate.
6. If required, or in their judgment advisable, the Audit Committee
shall conduct a self-evaluation of its performance annually and evaluate
whether the Charter appropriately addresses the matters that are or
should be within its scope. In conducting its self-evaluation, the Audit
Committee may address all matters that it considers relevant to its
performance, including (a) the adequacy, appropriateness and quality of
the information and recommendations presented by the Audit Committee to
the Board, (b) the manner in which they were discussed or debated, and
(c) whether the number and length of meetings of the Audit Committee were
adequate for the Audit Committee to complete its work in a thorough and
thoughtful manner. The Audit Committee shall deliver to the Board a
written report setting forth the results of any self-evaluation,
including any recommended amendments to this Charter. This Charter shall
be included as an appendix to the Companys proxy statement for its
annual meeting of shareholders as and to the extent required by the rules
and regulations of the Commission.
7. Nothing in this Charter will, or will be deemed to, decrease or
modify in any manner adverse to any member of the Audit Committee, such
members right to rely on statements and certifications made by the
Companys officers, employees, agents, counsel, experts and auditors.
8. Nothing in this Charter will, or will be deemed to, adversely
affect in any manner the rights of members of the Audit Committee to
indemnification and advancement of expenses under the Articles of
Incorporation or Bylaws of the Company or under any contract, agreement,
arrangement or understanding benefiting such member.
9. Notwithstanding any other provision of this Charter, no provision
of this Charter will, except to the extent required by applicable law,
rule or regulation, be construed to create any duty, liability or
obligation on the part of the Audit Committee or any of its members.
35
Appendix 2
PEERLESS MFG. CO.
PROXY
ANNUAL MEETING OF SHAREHOLDERS
November 18, 2004
The undersigned shareholder of Peerless Mfg. Co. (the Company) does hereby
constitute and appoint Sherrill Stone, Chairman of the Board, and Katherine S.
Frazier, Secretary, Treasury and Controller, as his or her proxy, with full
power of substitution, to attend the Annual Meeting of Shareholders of the
Company to be held at 10:00 a.m. on Thursday, November 18, 2004, at 2819 Walnut
Hill Lane, Dallas, Texas 75229, or any continuation or adjournment thereof,
with full power to vote and act for the undersigned, in his or her name, and to
vote all Common Stock of the Company held by him or her, to the same extent and
with the same effect as the undersigned, in the manner specified below. The
undersigned here revokes any other proxy previously given by him or her.
IF YOU PLAN TO ATTEND THE MEETING AND YOUR SHARES ARE HELD IN THE NAME OF A
BROKER OR OTHER NOMINEE, PLEASE BRING A STATEMENT OR LETTER FROM THE BROKER OR
NOMINEE CONFIRMING YOUR OWNERSHIP OF SHARES.
PLEASE MARK YOUR VOTE LIKE THIS. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
1. ELECTION OF DIRECTOR:
R. CLAYTON MULFORD
[ ] FOR Nominee.
[ ] WITHHOLD Nominee.
[ ] WITHHOLD Authority To Vote For Individual Nominee Listed Below.
To withhold authority to vote for any individual nominee, write the nominees
name below:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NO. 2.
2. RATIFICATION OF APPOINTMENT OF GRANT THORNTON LLP
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY IS SOLICITED ON BEHALF ON THE BOARD OF DIRECTORS AND WILL BE VOTED
AS DIRECTED THEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR
PROPOSALS NOS. 1 AND 2.
Signature: Dated: , 2004
Signature: Dated: , 2004
This proxy should be signed EXACTLY as your name(s) appear on this proxy card.
Joint owners must EACH sign personally. When signing as attorney, trustee,
executor, administrator, guardian or corporate officer, please give your FULL
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If partnership, please sign in
partnership name by authorized person.
36
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