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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
Federal Screw Works
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(Name of Registrant as Specified in Its Charter)
Federal Screw Works
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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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 of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FEDERAL SCREW WORKS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
Notice is Hereby Given, that the Annual Meeting of Shareholders of FEDERAL
SCREW WORKS, a Michigan corporation, will be held at the offices of the Company,
20229 Nine Mile Road, St. Clair Shores, Michigan 48080, on THURSDAY, OCTOBER 25,
2001 at 10:00 a.m. (Detroit time), for the following purposes:
1. To elect three directors for a term of three years and until their
successors shall be duly elected and qualified.
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business September 4, 2001 are
entitled to notice of and to vote with respect to this solicitation.
By Order of the Board of Directors,
FEDERAL SCREW WORKS
W. T. ZurSchmiede, Jr., Secretary
Principal executive office:
20229 Nine Mile Road
St. Clair Shores, Michigan 48080-1775
September 27, 2001
PLEASE FILL IN, SIGN AND MAIL PROMPTLY THE
ACCOMPANYING PROXY, WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING.
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PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
This statement is furnished in connection with the solicitation of Proxies
being made by the Board of Directors of Federal Screw Works (hereinafter
designated the "Company"), to be used at the Annual Meeting of Shareholders of
the Company to be held on THURSDAY, OCTOBER 25, 2001 and at any adjournment or
adjournments of the meeting, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. The meeting will be held at the
principal executive offices of the Company, 20229 Nine Mile Road, St. Clair
Shores, Michigan 48080-1775.
The Company has only one class of securities, consisting at the close of
business on September 4, 2001 of 1,284,087 issued and outstanding shares of
common stock of the par value of $1.00 per share. Each of the 1,284,087 shares
is entitled to one vote at the Shareholders' meeting. Although the common stock
transfer books will not be closed, only Shareholders of record as of the close
of business on September 4, 2001 are entitled to receive notice of and to vote
with respect to this solicitation. The approximate date on which the proxy
statement and form of proxy are to be first sent or given to security holders is
September 27, 2001.
Execution and return of a Proxy will not in any way affect a Shareholder's
right to attend the meeting and to vote in person, and a Shareholder giving a
Proxy has the power to revoke it at any time before it is exercised. Properly
executed Proxies in the accompanying form, received in due time, and not
previously revoked, will be voted at the meeting, or any adjournment of the
meeting, as specified in the meeting.
ELECTION OF DIRECTORS
The Company's Articles of Incorporation and Bylaws provide that the number
of Directors, as determined from time to time by the Board of Directors, may be
increased or decreased, but may not be less than three. The Board of Directors
has fixed the number of Directors at seven. The Board of Directors is divided
into three classes, two classes of two directors each and one class of three
directors. At the 2001 Annual Meeting three Directors will be elected for a
three-year term, and in each case until their successors are elected and
qualified. The nominees are three present Directors of the Company whose terms
expire at the meeting. Other Directors whose terms have not expired will
continue in office in accordance with their previous elections. The favorable
vote of at least two-thirds ( 2/3) of the issued and outstanding shares of
common stock will be required to elect Directors. An abstention by a Shareholder
or a Broker non-vote has the effect of a negative vote. Votes cast are counted
by two Inspectors of Election, one of which is the State Street Bank & Trust
Co., the Company's Stock Transfer Agent. Management has nominated for election
the persons named in the following table, which sets forth certain information
about each of the nominees and each Director whose term will continue after the
Annual Meeting. The persons named in the enclosed form of Proxy will vote such
Proxy for the election of the nominees described in the following table.
Although management does not contemplate that any of the nominees will be unable
to serve, in the event that any nominee is unable to serve as Director at the
date of the Annual Meeting, the Proxy will be voted for any other nominee who
may be designated by the present Board of Directors, or the Board of Directors
may appropriately reduce the number of Directors to be elected and to comprise
the Board. The names of such
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nominees, and of the Directors who will continue as such for their respective
terms, their principal occupations and the year in which each first became a
member of the Board of Directors of the Company are as follows:
<Table>
<Caption>
TERM DIRECTOR
NAME AND PRINCIPAL OCCUPATION EXPIRES SINCE
----------------------------- ------- --------
Nominees standing for election to term expiring in 2004:
Frank S. Galgan+
President, Beier Howlett, P.C., Bloomfield Hills, MI;
member of the law firm since 1992; member, Freud,
Markus, Slavin & Galgan, P.C., general counsel to the
Company, 1973-1992. Age 60............................. 2001 2001
F. D. Tennent+
Business Consultant. Senior Vice President--Finance &
Secretary of the Company, 1976 to 1986. Treasurer, 1983
to 1986; Vice President--Finance & Secretary-Treasurer
of the Company, 1969 to 1976. Age 75................... 2001 1978
W. T. ZurSchmiede, Jr.*
Chairman of the Board & Chief Executive Officer of the
Company since 1978; Chief Financial Officer, Secretary
and Treasurer, since 1988. President and Chief
Executive Officer of the Company, 1970 to 1978. Age
75..................................................... 2001 1959
Directors continuing in office for their respective terms:
Dr. Thomas W. Butler, Jr.+
President, Thomas W. Butler & Associates, Inc.,
business consultants. Vice President, The Genlyte
Group, 1985 to 1987, manufacturer of lighting systems.
Dean, School of Engineering and Computer Science,
Oakland University, Rochester, Michigan, 1984 to 1985.
Vice President, Engineering and Research, AMF Inc.,
manufacturers of leisure and industrial products, 1974
to 1984. Age 78........................................ 2002 1978
Hugh G. Harness*
Business Consultant. President of the Company, 1985
through Jan. 1994. Executive Vice President, 1982 to
1985; Senior Vice President--Corporate Development,
1976 to 1982; Vice President--Corporate Development,
1975 to 1976, all of the Company. Member of Harness,
Dickey and Pierce law firm, Patent Counsel to the
Company, 1954 to 1975. Age 70.......................... 2003 1965
Thomas ZurSchmiede*
President of the Company since Feb. 1994. Vice
President--Big Rapids Division, 1988-1994; Vice
President--Corporate Development, 1984-1988; Director
of Corporate Development, 1983 to 1984, all of the
Company. Age 50........................................ 2003 1984
Robert F. ZurSchmiede*
Vice President--Traverse City Division in 1999 and
Romulus Division of the Company since 1986. Vice
President and General Manager of the Romulus Division,
1984 to 1986; Assistant General Manager of the Romulus
Division, 1983 to 1984; Assistant Manufacturing
Manager, Romulus Division, 1982 to 1983, all of the
Company. Age 48........................................ 2002 1984
</Table>
* Member of Executive Committee of the Company's Board of Directors.
+ Member of Audit Committee of the Company's Board of Directors.
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DIRECTOR'S REMUNERATION AND COMMITTEES OF THE BOARD
Directors who are also employees of the Company receive no compensation in
addition to their salaries and benefits received as employees. Directors who are
not employees of the Company are paid a retainer fee of $6,000 quarterly for all
services as a Director. In addition, the Chairman of the Audit Committee
receives $1,000 quarterly and the Chairman of the Salary Compensation Committee
receives $1,000 quarterly, and members of the Audit and Compensation Committees
receive $500 quarterly. Mr. Harness as a member of the Finance Committee
receives $500 quarterly. The Company has entered into an agreement with each
Director under which the Company confirms to the Director the indemnification
provided for Directors under the Michigan Business Corporation Act. These
agreements also require the Company to secure its indemnification obligations by
bank letters of credit, trusts or other arrangements.
To attract, retain and motivate service on the Company's Board of
Directors, the Company has a retirement plan for Directors who are not also
employees of the Company. A Director who has served at least five years on the
Board of Directors is entitled to a retirement benefit beginning as of the first
day of the fiscal quarter following the date of termination of his or her
directorship. The benefit will be paid quarterly for a period of time equal to
the years of Board service of the Director, but not to exceed fifteen years (ten
years if the recipient is not the Director or his spouse). Each payment will be
in the amount of the quarterly base retainer fee being paid to the Director at
the time of his or her termination as a Director or $4,500, whichever is
greater. Directors who are former employees of the Company but who have at least
one year of service on the Board as a non-employee of the Company will be
entitled to the same benefits as if all of their Board service had been as a
non-employee. The plan is funded pursuant to the terms of a so-called Rabbi
trust created September 13, 1995. The trust is irrevocable, but in the event all
benefits payable under the plan have been paid, all amounts remaining in the
trust would be returned to the Company. In the event of the insolvency (as
defined in the trust agreement) of the Company, all amounts held in trust would
be subject to the claims of the Company's creditors.
During the fiscal year ended June 30, 2001, the Board of Directors held six
meetings. The Company has standing Audit, Salary Compensation, Finance and
Restricted Stock Bonus Committees, but does not have a standing Nominating
Committee or any Committee performing similar functions.
The Audit Committee, composed of independent directors, comprising Messrs.
Tennent (Chairman), Butler (Vice Chairman), and Galgan, held four meetings
during the year. Generally, the Audit Committee recommends to the full Board the
engagement or discharge of the independent public accountants to be appointed
for the Company; reviews the proposed scope of the annual audit and the findings
of the independent public accountants upon completion of the annual audit;
reviews the independence of the public accountants and considers the range of
their audit and non-audit fees; reviews with the independent public accountants
and with appropriate corporate personnel the adequacy of internal procedures,
and controls and monitors the Company's published policies on management
integrity.
The Finance Committee, comprising Messrs. ZurSchmiede, Jr. (Chairman),
Thomas ZurSchmiede, Harness and Tennent, held two meetings during the year. The
Finance Committee studies and makes recommendations to the Board concerning
fundamental financial policies of the Company with particular attention to the
incurrence of material corporate debt and material capital expenditures.
The Salary Compensation Committee comprising Messrs. Tennent (Chairman),
Butler (Vice Chairman), Galgan and ZurSchmiede, Jr., held two meetings during
the year. The Committee recommends the salaries of all elected officers,
including bonuses, and is responsible for the continuing study of executive
compensation, so that the Company may remain competitive in that regard.
The Restricted Stock Bonus Committee, comprising Board members who are not
employees of the Company and who are not eligible for any stock award pursuant
to the Company's Restricted Stock Bonus Plan (Messrs. Tennent, Chairman of the
Committee and Butler) administers the Company's Restricted Stock Bonus Plan. The
Committee recommends the persons who are to receive such awards, the form and
amount of awards to be made to each person and the conditions under which awards
are restricted. The Restricted Stock Bonus Committee did not meet during the
year.
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COMPENSATION COMMITTEE REPORT
The Salary Compensation Committee of the Board of Directors ("the
Committee") is composed of four senior members of the Board. The primary
responsibility of the Committee is to monitor the Company's executive
compensation policies and programs. The Committee recommends to the full Board
the salaries of all elected officers, the allocation of any cash bonus fund
among elected officers and the criteria applicable to the accrual of the cash
bonus fund. The Committee is responsible for the continuing study of executive
compensation generally, so that the Company may remain competitive in that
regard, and in doing so engages and consults outside compensation specialists.
Two of the non-officer members of the Committee also comprise the Restricted
Stock Bonus Committee which recommends persons to receive restricted stock
awards, the form and amount of awards to be made, and the conditions under which
awards are restricted.
EXECUTIVE COMPENSATION POLICY
The base salaries of the executive officers of the Company are based on the
Company's performance and each executive's contribution to the operational
success of the Company as a whole, particularly in view of the very demanding
conditions in the automotive industry. Based on the Company's operating results,
and following an ongoing study of executive salaries in general, and the
Company's executive salaries in particular, as they relate to the Company's
overall performance and the performance of the Company's stock, the Salary
Compensation Committee recommended a five percent increase in base salary to
each executive named in the Summary Compensation Table on page 6 of this proxy
statement, which increase was subsequently implemented by the Board of Directors
effective February 1, 2001. The Compensation Committee will continue its
evaluation of each executive's performance under the Company's highly
competitive circumstances, as well as the Company's performance, including
improving production efficiencies with an emphasis on quality and parts
requiring high technology. While the Compensation Committee takes into
consideration the factors mentioned above, the Committee does rely to a large
degree upon subjective (rather than objective) standards and evaluations to
determine executive compensation.
During fiscal 1998 the Compensation Committee and the Board of Directors
made exhaustive and detailed studies, with its actuaries and consultants, of the
possibility of installing a Supplemental Executive Retirement Plan (SERP) to
replace cash payments made to those employees who are not able to participate
fully, due to certain Internal Revenue Service regulations, in the Company's
long standing Salaried Employees Pension Plan, a defined benefit program. The
studies resulted in the Salary Compensation Committee recommending to the Board
of Directors, and the Board subsequently adopting, a new SERP effective as of
July 1, 1998, which SERP is further discussed in this proxy statement on page
12.
The Compensation Committee will continue to emphasize the Company's
long-term performance and increases in shareholder value, will support a bonus
incentive program based on the financial performance of the Company, and will
offer meaningful and competitive retirement and supplemental benefits that are
consistent with the Company's objective of rewarding and retaining key
employees.
The Cash Bonus Plan described in footnote (1) to the Summary Compensation
Table on page 6 was adopted in 1989, and is similar to a plan in place for many
years prior to 1989. Bonuses awarded under the Plan are discretionary. The Plan
is structured in such a way that no bonus amount is accrued in any fiscal year
unless earnings exceed a base amount equal to eight percent of shareholders'
equity as of the beginning of the year.
CEO COMPENSATION
The compensation of the Chief Executive Officer is fixed by the full Board
of Directors (other than the CEO), after considering recommendations of the
Compensation Committee. The Committee reviews the performance of the CEO and
makes recommendations consistent with the objectives, performance, and results
mentioned above. The Committee engages and consults with outside compensation
consultants, and considers overall competitive compensation arrangements of
other automotive industry suppliers as well as a broad range of companies, some
of which may not be comparable to the Company for Performance Graph purposes.
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However, because of the extremely competitive automotive markets served by the
Company, the Committee does not specifically link remuneration of the CEO solely
to quantitative measures of performance.
In determining the CEO's compensation, the Committee further considers the
Company's improvement, on an operating basis, of its financial position,
improvement in its financial structure, and improvement in shareholder value. As
with the other executives, factors considered by the Committee in recommending
the CEO's compensation to the full Board are generally subjective.
COMPENSATION COMMITTEE
F. D. Tennent, Chairman
Thomas W. Butler, Jr., Vice Chairman
Frank S. Galgan, Member
W. T. ZurSchmiede, Jr., Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One Member of the Committee, W.T. ZurSchmiede, Jr. is an officer of the
Company and, the Committee Chairman, F.D. Tennent is a former officer. There are
no "interlocks" as defined by the Securities and Exchange Commission.
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EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company during the Company's last three fiscal years to (i) the
Chief Executive Officer of the Company and (ii) each of the four highest
compensated executive Officers of the Company whose compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------
RESTRICTED
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS(3) COMPENSATION(4)
--------------------------- ---- ------ -------- --------------- ---------- ---------------
W. T. ZurSchmiede, Jr. ...... 2001 $382,917 $180,700 $40,886 0 $24,829
Chairman of the Board and 2000 364,500 302,104 41,036 0 23,805
Chief Executive Officer, 1999 347,083 310,600 42,200 0 21,471
Chief Financial Officer,
Secretary and Treasurer
Thomas ZurSchmiede........... 2001 377,917 180,700 45,942 0 2,368
President and C.O.O. 2000 359,500 302,104 46,114 0 2,734
1999 342,083 310,600 46,114 0 3,101
Robert F. ZurSchmiede........ 2001 313,667 180,700 42,254 0 2,559
Vice President-- 2000 298,250 302,104 42,409 0 2,887
Traverse City and 1999 283,833 310,600 42,409 0 3,221
Romulus Divisions
J. M. O'Brien................ 2001 313,667 180,700 44,428 0 2,740
Vice President-- 2000 298,250 302,104 44,428 0 2,643
Sales and Marketing 1999 283,833 310,600 44,428 0 2,982
Jeffrey M. Harness........... 2001 313,667 180,700 33,657 0 1,478
Vice President--Chelsea 2000 298,250 302,104 33,657 0 1,654
and Novex Divisions 1999 263,417 310,600 33,780 0 1,715
</Table>
---------------------
(1) A Cash Bonus Plan, the eligible participants in which are the Officers of
the Company, was adopted for the fiscal year ended June 30, 1989, and has
been in effect during each subsequent year. The bonus fund is subject to a
discretionary award by the Board to those eligible participants recommended
to the Board by the Salary Compensation Committee which receives a
recommendation from the CEO and the President. Any accrued bonus fund not
awarded may be carried forward for award in the current or subsequent years.
Under the Plan, no allocation is made to the bonus fund in any fiscal year
in which pre-tax earnings fail to exceed a base amount equal to eight (8%)
percent of beginning of the year shareholders' equity. In any year that
pre-tax earnings exceed the base amount, an allocation is made to the bonus
fund calculated as a percentage of pre-tax earnings, the percentage being
equal to the sum of one percent (1%) plus .04 of one percent (1%) for each
$10,000 that pre-tax earnings exceed the base amount. The maximum percentage
allowable is 9 1/2%. For the fiscal year ended June 30, 2001, the base
amount was $4,682,885, the percentage allowance was 9 1/2%, and the fund
allocation was $903,460, all of which was awarded by the Board. The Plan has
been continued for the fiscal year to be ended June 30, 2002, with the base
amount of pre-tax earnings required for allocation being increased to
$4,836,456 as a result of a $1,919,637 increase in shareholders' equity.
Pre-tax earnings is defined to exclude the effect of FAS 106.
(2) The amount shown for each officer in 2001 includes special payments to
assist them in obtaining life insurance in lieu of the Company undertaking
such expense directly, and gross-up payments for tax liabilities on such
insurance premium payments, at each officer's effective tax rate, as
follows: W. T. ZurSchmiede, Jr., $22,385 (premium), $18,501 (tax liability
gross-up); J. M. O'Brien, $23,569
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and $19,481; Jeffrey M. Harness, $18,427 and $15,230; Thomas ZurSchmiede,
$24,694 and $21,248; and Robert F. ZurSchmiede, $23,134 and $19,120.
(3) No restricted stock awards were made in the 1999, 2000, or 2001 fiscal
years, and all previous awards have been earned out.
(4) The amounts shown consist of the Company-paid portion of premiums on term
life insurance.
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COMPARATIVE PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
common stock of the Company for the last five fiscal years with the cumulative
total return on the S&P 500 Index and a Peer Group over the same period
(assuming initial investment of $100 in the Company's common stock, the S&P 500
Index and the Peer Group, and reinvestment of all dividends).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
ASSUMES INITIAL INVESTMENT OF $100 AND REINVESTMENT OF DIVIDENDS
[PERFORMANCE GRAPH]
<Table>
<Caption>
-----------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
-----------------------------------------------------------------------------------------------------------
FEDERAL SCREW WORKS $100.00 $188.10 $207.01 $213.99 $188.71 $210.89
-----------------------------------------------------------------------------------------------------------
S&P 500 INDEX $100.00 $134.70 $175.33 $215.23 $230.83 $196.60
-----------------------------------------------------------------------------------------------------------
PEER GROUP (1) $100.00 $110.20 $110.79 $138.83 $187.96 $196.02
-----------------------------------------------------------------------------------------------------------
</Table>
(1) The Peer Group for the graph shown above includes Chicago Rivet & Machine
Co., Penn Engineering & Manufacturing Corp., SPS Technologies, SPX Corp.,
Park Ohio Holdings, Inc., and Hastings Mfg. Co.
In determining the Peer Group, the Company selected primarily automotive
suppliers, companies which may be considered generally comparable in size or
larger, with similar labor markets, are direct or partial competitors to the
Company, are primarily metal working companies, and companies with a steady
record of earnings. The index is weighted based upon the beginning of period
market capitalization values.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 4, 2001, information with
respect to beneficial ownership of the Company's common shares by any
shareholder known to the Company to beneficially own 5% or more of the Company's
outstanding common shares.
<Table>
<Caption>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ----------------------- --------
Dimensional Fund Advisors Inc. 82,500 6.42%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
FMR Corp. 136,000 10.6 %
82 Devonshire Street
Boston, Massachusetts 02109-3614
Robert F. ZurSchmiede(1) 103,580 8 %
Hugh G. Harness(1) 130,275 10 %
W.T. ZurSchmiede, Jr.(1) 165,905 12.9 %
Thomas ZurSchmiede(1) 87,597 6.8 %
</Table>
---------------------
(1) The Company's mailing address may be used. The Nature of Beneficial
Ownership is set forth under Security Ownership of Management.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of the Company's common
stock beneficially owned as of September 4, 2001 by each director, each officer
named in the Summary Compensation Table, and directors and executive officers as
a group.
<Table>
<Caption>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT
AS OF SEPTEMBER 4, 2001 OF CLASS
----------------------- --------
Directors and Executive Officers who are Directors:
Dr. Thomas W. Butler, Jr.................................. 1,500 less than 1%
Frank S. Galgan........................................... 200 less than 1%
Hugh G. Harness........................................... 130,275(1) 10%
F. D. Tennent............................................. 1,250 less than 1%
W. T. ZurSchmiede, Jr..................................... 165,905(2) 12.9%
Thomas ZurSchmiede........................................ 87,597(3) 6.8%
Robert F. ZurSchmiede..................................... 103,580(4) 8%
Executive Officers who are not Directors:
J. M. O'Brien............................................. 31,250 2.4%
Vice President--Sales and Marketing of the Company
since 1986; Vice President--General Sales Manager, 1984
to 1986; General Sales Manager, 1982 to 1984, all of
the Company
Jeffrey M. Harness........................................ 36,947 2.9%
Vice President and General Manager--Chelsea Division
and Brighton Division of the Company since 1994; Vice
President and General Manager--Chelsea Division, 1992
to 1994; General Manager--Chelsea Division, 1985 to
1992; Sales Manager--Chelsea Division, 1984 to 1985,
all of the Company
All Directors and Officers of the Company as a group........ 544,255 42.4%
</Table>
---------------------
(1) Includes 27,347 shares as to which Mr. Harness has sole voting and
investment power. Also includes 49,532 shares owned by Mr. Harness' wife,
27,647 shares owned by his children, and 17,500 shares owned by a Trust for
Descendants, the beneficial ownership of which may be attributable to Mr.
Harness, and 8,249 shares owned by the W. T. ZurSchmiede, Sr. Foundation, of
which Mr. and Mrs. Harness and Mr. ZurSchmiede, Jr. comprise the three
Trustees. Mr. Harness disclaims beneficial ownership of all but 27,347
shares owned by him. 8,249 of the shares attributed to Mr. Harness are also
attributed to Mr. ZurSchmiede, Jr., who shares the related voting and
investment power. Mr. Harness is Mr. ZurSchmiede, Jr.'s brother-in-law. The
elimination of duplicate holdings reduces the percent of class to 9.5%.
(2) Includes 8,999 shares as to which Mr. ZurSchmiede has sole voting and
investment power. Also includes 148,657 shares owned by Mr. ZurSchmiede's
daughters and their spouses, individually and as custodian for
grandchildren, and 8,249 shares owned by the W. T. ZurSchmiede, Sr.
Foundation, of which he is a Trustee, the beneficial ownership of all of
which may be attributable to Mr. ZurSchmiede. Mr. ZurSchmiede disclaims
beneficial ownership of all but 8,999 shares owned by him. 8,249 of the
shares attributed to Mr. ZurSchmiede are also attributed to Mr. Harness, who
shares the related voting and investment power. The elimination of duplicate
holdings reduces the percent of class to 12.2%.
(3) Includes 81,597 shares as to which Mr. ZurSchmiede has sole voting and
investment power. Also includes 6,000 shares held as co-trustee for a niece
and nephews, which shares are also attributable to Robert F. ZurSchmiede,
who shares the related voting and investment powers. Mr. ZurSchmiede
disclaims beneficial ownership of all but 81,597 shares owned by him. Mr.
ZurSchmiede is a son of W. T. ZurSchmiede, Jr. The elimination of duplicate
holdings reduces the percentage of class to 6.4%.
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(4) Includes 97,580 shares as to which Mr. ZurSchmiede has sole voting and
investment power, 35,625 of which he holds as custodian for his children,
the beneficial ownership of which may be attributable to Mr. ZurSchmiede.
Also includes 6,000 shares held as co-trustee for a niece and nephews, which
shares are also attributable to Thomas ZurSchmiede, who shares the related
voting and investment powers. Mr. ZurSchmiede disclaims beneficial ownership
of all but 61,955 shares owned by him. Mr. ZurSchmiede is a son of W. T.
ZurSchmiede, Jr. The elimination of duplicate holdings reduces the
percentage of class to 7.6%.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Hugh G. Harness took early retirement as President and C.O.O. of the
Company effective February 1, 1994. Mr. Harness agreed to perform consulting
services for the Company for eight years with compensation for those services
commencing in 1994 at $130,200, with annual reductions of $5,000 a year to
$95,200 in 2001. Mr. Harness' monthly retirement supplement is $4,000, payable
for 120 months, commencing at his retirement. Mr. Harness' participation in the
Cash Bonus Plan was terminated.
RESTRICTED STOCK BONUS PLANS
The Board of Directors adopted a Restricted Stock Bonus Plan in 1979, and
an Employee Restricted Stock Bonus Plan in 1983, for allocation of restricted
shares of the Company's common stock to officers and other employees of the
Company in recognition of their past contributions, and to encourage their
future contributions, to the profitability of the Company. Allocations of
restricted shares to individual employees are recommended to the Board by the
Restricted Stock Bonus Committee, taking into consideration evaluations by
management. Among the factors considered by the Committee are improvement in
earnings, the Company's performance in relation to others in its field of
business, the results of the particular Division of the Company in which an
individual is employed, the performance of individual employees and such other
factors as the Committee may deem relevant. The Plan is administered by the
Restricted Stock Bonus Committee of the Board, none of the members of which are
employees of the Company or eligible to receive such awards. No bonus shares
were awarded during fiscal 2001. See further note 3 to the Summary Compensation
Table, on page 7.
RETIREMENT SUPPLEMENT
In 1986, W. T. ZurSchmiede, Jr. entered into an agreement with the Company
pursuant to which he has earned supplemental retirement and death benefits by
serving continuously in the Company's employment from that time until age 65.
Supplemental retirement benefits under the agreement are payable monthly after
Mr. ZurSchmiede's retirement for 120 months, but the Company may terminate such
payments if Mr. ZurSchmiede fails or refuses to provide advice and counsel to
the Company after retirement when reasonably asked to do so. The monthly benefit
of $4,166 under the original agreement has been increased to $5,416 by amendment
adopted by the Company in 1998. In the event of Mr. ZurSchmiede's death, his
designated beneficiary is entitled to a supplemental death benefit equal to the
balance of any unpaid monthly retirement benefits. All benefits have been
charged to operations in prior years.
SALARIED PENSION PLAN
The Company maintains a Salaried Pension Plan, which covers all salaried
employees. The remuneration covered by the qualified Plan is base salary only.
The approximate years of credited service for the officers named in the Summary
Compensation Table are: Robert F. ZurSchmiede, 23, Thomas ZurSchmiede, 20; J. M.
O'Brien, 26; Jeffrey M. Harness, 21. Effective July 1, 1998, the maximum salary
taken into account in calculating plan benefits is limited to $80,000, in order
to comply with requirements of the Internal Revenue Code. Company contributions
are computed on an actuarial basis which provides for fixed benefits in the
event of retirement at a specific age or after a specified number of years of
service. Contributions by the Company are, therefore, made to the Plan in the
aggregate and the amount of the contribution, payment, or accrual in respect of
a specified person is not and cannot readily be separately or individually
calculated by the regular actuaries for the Plan.
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In addition, effective July 1, 1998, the Company established a Supplemental
Executive Retirement Plan, (SERP) for the benefit of certain participants
designated by the Compensation Committee. The SERP benefit is equal to the
difference between the normal monthly benefit received under the Pension Plan
and the unrestricted benefit. The unrestricted benefit is equal to the monthly
pension benefit as determined under the qualified Pension Plan calculated using
the average base and bonus compensation for the five highest paid plan years
without regard to compensation limits.
The following table illustrates representative retirement benefits at the
maximum levels payable under the Salaried Pension Plan and the Supplemental
Executive Retirement Plan for various earnings and credited service periods:
<Table>
<Caption>
AVERAGE
COMPENSATION
DURING THE FIVE
HIGHEST PAID ANNUAL NORMAL RETIREMENT BENEFITS
PLAN YEARS (1) FOR YEARS OF CREDITED SERVICE INDICATED(2)
--------------- --------------------------------------------------
15 20 25 30
-- -- -- --
$ 80,000....................... $ 22,800 $ 30,400 $ 38,000 $ 38,000
$100,000....................... $ 28,500 $ 38,000 $ 47,500 $ 47,500
$200,000....................... $ 57,000 $ 76,000 $ 95,000 $ 95,000
$300,000....................... $ 85,500 $114,000 $142,500 $142,500
$400,000....................... $114,000 $152,000 $190,000 $190,000
$500,000....................... $142,500 $190,000 $237,500 $237,500
$600,000....................... $171,000 $228,000 $285,000 $285,000
$700,000....................... $199,500 $266,000 $332,500 $332,500
$800,000....................... $228,000 $304,000 $380,000 $380,000
</Table>
---------------------
(1) The Compensation covered by the plans under which the benefits are
summarized in the table above equals the sum of base salary and annual bonus
payments, as reported in the Summary Compensation Table for the named
executive officers for the last three fiscal years, and is equal to the
average of such amounts during the highest paid five years of employment.
(2) Payable on a Life and 10 Year Certain basis. Life Only Option is not
available under the Plan. For married participants, however, the form of
benefit payment is the qualified 50% or 100% Joint and Survivor Annuity,
unless another form is elected. Benefits are increased actuarially for late
retirement. The benefit amounts set forth are not subject to any reduction
for Social Security benefits.
401K SAVINGS PLAN
The Company adopted, effective September 1, 1993, a 401(k) tax deferred
savings plan. This plan is available to all eligible employees, including
employees who are participants in the plan in accordance with their union
contract. The plan is non-contributory, that is, the Company does not match any
portion of the employees' contributions. The Company does, however, bear the
costs of administering the plan, which are expected to be about $19,000 per
year. Employees may contribute up to 20% of their annual compensation, but not
more than the maximum amount permitted under the Internal Revenue Code. Comerica
Bank is the Trustee of the plan. Contributions are invested in one or more of
eighteen mutual funds, administered by Comerica Bank, as selected by each
employee.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS AND FEES PAID
The Board of Directors has reappointed Ernst & Young as independent
accountants to audit the financial statements of the Company for the current
fiscal year, and to review financial statements contained in the Company's
interim period reports on Form 10Q in accordance with the Statement on Auditing
Standards No. 71.
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Audit Fees
Total fees paid to Ernst & Young by the Company for its audit of the
Company's fiscal 2001 financial statements and for its review of financial
statements on Form 10Q were $74,000.
Financial Information Systems Design and Implementation Fees
The Company did not pay any fees to Ernst & Young in fiscal 2001 for
financial information systems design and implementation services.
Audit Related Fees
The total fees paid to Ernst & Young for all other services, which were
audit related, were $36,000.
One or more members of the firm of Ernst & Young are expected to be present
at the Company's Annual Meeting of Shareholders, will be available to respond to
appropriate questions, and will be afforded the opportunity to make a statement.
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AUDIT COMMITTEE REPORT
In accordance with the written Charter adopted by the Board of Directors
and attached to this Proxy Statement as Appendix A, the Audit Committee oversees
the Company's financial reporting process on behalf of the Board of Directors,
and assists the Board of Directors in carrying out its responsibilities in
regard to such reporting process. Management has the primary responsibility for
the financial statements and the reporting process, including the Company's
system of internal controls.
In discharging its oversight responsibility as to the audit process, the
Audit Committee reviewed the audited financial statements in the Company's 2001
Annual Report with management, including a discussion of the quality, and the
acceptability, of the financial statements. The Committee also considered the
reasonableness of significant judgements, and the clarity of disclosures in the
financial statements.
The Audit Committee received from the Company's independent auditors the
written disclosures and letter required by the Independence Standard Board
regarding independence discussions with the Committee, discussed with the
auditors any relationships that may impact their objectivity and independence,
and satisfied itself as to the auditor's independence.
The Audit Committee discussed with the auditors reporting and auditing
matters as required by the Statement on Auditing Standards No. 61 "Communication
with Audit Committees," including their judgement as to the quality and
acceptability of the Company's financial reporting, under generally accepted
auditing standards.
The Committee meets regularly with the independent auditors, with and
without management present, to discuss the results of their examinations, their
evaluation of the Company's internal controls, and the overall quality of the
Company's financial reporting.
In reliance on the aforementioned reviews and discussions with management
and the independent auditors, the Audit Committee recommended to the Board of
Directors that the Company's audited financial statements be included in its
Annual Report on Form 10K for filing with the Securities and Exchange Commission
for the fiscal year ended June 30, 2001.
F. D. Tennent, Chairman
Thomas W. Butler, Jr., Vice-Chairman
Frank S. Galgan, Member
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COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, the Company's
directors and its executive officers and persons who own more than ten percent
of the Company's equity securities are required to report ownership of the
Company's common stock and any changes in that ownership to the Securities and
Exchange Commission and to furnish to the Company copies of all Section 16(a)
forms they file. Based solely on review of the copies of such forms furnished to
the Company, and written representations of its directors and executive
officers, the Company believes that during the fiscal year ended June 30, 2001
those filing requirements were met.
CONCERNING OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
At the meeting, reports will be received from the Officers of the Company
relative to the operation, management and conduct of the Company during the
fiscal year ended June 30, 2001, but it is not contemplated that there will be
any vote in respect of any of said matters. Management is not aware of any other
matters to be presented for action at the meeting. However, should any other
matters requiring the vote of the Shareholders arise, the persons named in the
enclosed form of Proxy will vote such Proxy according to their best judgment.
PROPOSALS FOR 2002 ANNUAL MEETING
Shareholder proposals pursuant to Rule 14(a-8) promulgated under the
Securities Exchange Act of 1934 must be received by the Company no later than
May 31, 2002 in order to be included in the Company's Proxy Statement and Form
of Proxy for that meeting. Such proposals must also meet the other requirements
of the rules of the Securities and Exchange Commission relating to shareholders'
proposals.
The Company expects the persons named as proxies for the 2002 Annual
Meeting of Shareholders to use their discretionary voting authority, to the
extent permitted by law, with respect to any proposal presented at that meeting
by a shareholder who does not provide the Company with written notice of such
proposal on or before August 14, 2002.
CONCERNING EXPENSES OF PROXY SOLICITATION
The cost of soliciting Proxies will be borne by the Company. Proxies may be
solicited by mail, telegraph or telex, or by directors, officers and regular
employees of the Company in person or by telephone. The Company has retained the
services of Corporate Investor Communications, Inc. to assist in the
distribution of Proxy materials and to solicit Proxies from banks, brokers and
nominees at a cost not to exceed $4,500 plus reasonable out-of-pocket expenses.
The Company will also reimburse brokerage houses and other custodians, nominees
and fiduciaries for their reasonable out-of-pocket expenses for forwarding the
Proxy Statement and the Annual Report to the beneficial owners of common stock
of the Company.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY TO ASSURE THAT A QUORUM
OF THE COMPANY'S SHARES BE REPRESENTED AT THE ANNUAL MEETING. SHAREHOLDERS WHO
DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO EXECUTE AND RETURN,
WITHOUT DELAY, THE ENCLOSED FORM OF PROXY IN THE ENCLOSED, STAMPED ENVELOPE.
By Order of the Board of Directors
W. T. ZurSchmiede, Jr., Secretary
September 27, 2001
P.S. Although not a part of the Proxy soliciting material, a copy of the
Company's
Annual Report for the fiscal year ended June 30, 2001 is enclosed herewith.
15
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APPENDIX A
AUDIT COMMITTEE CHARTER
ORGANIZATION
1. This Charter governs the operations of the Audit Committee (the "Committee").
The Committee shall review and reassess the Charter at least annually and, if
any changes are made to the Charter, the Board of Directors (the "Board")
shall approve the changes. The Committee shall be appointed by the Board and
shall comprise at least three Directors, each of whom are independent of
management and the Company, as determined in accordance with the rules and
regulations of NASDAQ.
2. All Committee members shall be able to read and understand fundamental
financial statements, including the Company's balance sheet, income
statement, and cash flow statement, or will become able to do so within a
reasonable period of time after his or her appointment to the Audit
Committee. At least one member of the Committee shall have accounting or
related financial management expertise.
3. The members of the Committee shall be elected by the Board at the annual
meeting of the Board. Unless a Chair is elected by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
STATEMENT OF POLICY
4. The Audit Committee shall provide oversight on matters relating to
accounting, financial reporting, auditing and financial regulatory compliance
activities. While the Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Committee to plan or conduct
audits or to determine that the Company's financial statements are complete
and accurate and in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditors.
MEETINGS
5. The Committee shall meet at least four times annually. In addition, the
Committee or its Chair should meet with the independent accountants and
management quarterly to review the Company's financial statements.
RESPONSIBILITIES AND PROCESSES
6. The primary responsibility of the Audit Committee is to oversee the Company's
financial reporting process on behalf of the Board and report the results of
its activities to the Board. Management is responsible for preparing the
Company's financial statements and the independent auditors are responsible
for auditing those financial statements.
7. The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities.
- 8. The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the Board.
- 9. Annually, the Committee shall recommend to the Board the selection of
the independent auditors. The Committee shall have authority and
responsibility to evaluate the independent auditors and the authority
and responsibility to make recommendations to the Board regarding
replacing the independent auditors, where appropriate. The Board shall
have the ultimate authority and responsibility to evaluate and, where
appropriate, replace the independent auditors.
- 10. On an annual basis, the Committee shall require the independent
auditors to provide a formal written statement delineating all
relationships between the auditors and the Company, consistent with
Independence Standards Board Standard 1. The Committee shall discuss
with the auditors any
16
19
disclosed relationships or services that may impact the objectivity and
independence of the auditors. The Committee shall continually monitor
the independence of the auditors.
- 11. The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits.
- 12. The Committee shall discuss with management, the internal auditors, and
the independent auditors the adequacy and effectiveness of the
accounting and financial controls.
- 13. The Committee shall meet separately with the internal auditors and the
independent auditors, with and without management present, to discuss
the results of their examinations.
- 14. The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q.
- 15. The Committee shall discuss the results of the quarterly review and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
- 16. The Committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report
on Form 10-K (or the annual report to shareholders if distributed prior
to the filing of Form 10-K), including their judgment about the
quality, not just acceptability of accounting principles, the
reasonableness of significant judgments, and the clarity of the
disclosures in the financial statements.
- 17. The Committee shall discuss the results of the annual audit and any
other matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
- 18. The Committee shall prepare a Report, in accordance with applicable SEC
rules, for inclusion in the Company's Annual Meeting Proxy Statement.
- 19. The Committee shall review and update this Charter as conditions
dictate, but in no case less than annually. Any changes to the Charter
shall be approved by the Board.
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FSWCM-PS-00
21
<Table>
[ X ] AS IN THIS EXAMPLE
==============================================
FEDERAL SCREW WORKS 1. Election of Directors.
============================================== For All With- For All
Nominees hold Except
(01) Frank S. Gaigan
(02) F.D. Tennent [ ] [ ] [ ]
(03) W.T. ZurSchmiede, Jr.
NOTE: If you do not wish your shares voted "For" a particular
CONTROL NUMBER: nominee, mark the "For All Except" box and strike a line
RECORD DATE SHARES: through nominee's name. Your shares will be voted for the
remaining nominees.
2. To act in their discretion upon the transaction of such other
business as may properly come before the meeting.
---------------------
Please be sure to sign and date this Proxy | Date | Mark box at right if an address change has been noted [ ]
----------------------------------------------------------------- on the reverse side of this card.
| |
| |
| |
--Shareholder sign here-----------------------Co-owner sign here-
DETACH CARD DETACH CARD
</Table>
22
FEDERAL SCREW WORKS
The undersigned hereby constitutes and appoints Robert F. ZurSchmiede and Thomas
ZurSchmiede or either of them, attorneys and proxies with full power of
substitution to vote at the Annual Meeting of Shareholders of Federal Screw
Works, to be held on Thursday, October 25, 2001, or at any adjournments thereof.
The shares represented by the proxy will be voted as directed. Unless
authority is withheld, this proxy will be voted to elect as directors the
nominees shown.
Discretionary authority is hereby conferred as to any other matters as may
properly come before the meeting. The undersigned acknowledges receipt of the
Notice of Annual Meeting of Shareholders, the Proxy Statement dated September
27, 2001 and the Annual Report of Federal Screw Works to its shareholders for
the year ended June 30, 2001. The undersigned ratifies that all the proxies or
any of them or their substitutes may lawfully do or cause to be done by virtue
hereof and revokes all former proxies.
--------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
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Please sign exactly as your name appears on the books of the Company. Joint
owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
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