SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] 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 Section 240.14a-11c or Section 240.14a-12
</Table>
LAYNE CHRISTENSEN COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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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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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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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LAYNE CHRISTENSEN COMPANY
May 7, 2003
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Layne Christensen Company, to be held at the Corporate Headquarters of Layne
Christensen Company, located at 1900 Shawnee Mission Parkway, Mission Woods,
Kansas, on Thursday, June 5, 2003, commencing at 10:00 a.m., local time. The
business to be conducted at the meeting is described in the attached Notice of
Annual Meeting and Proxy Statement. In addition, there will be an opportunity to
meet with members of senior management and review the business and operations of
the Company.
Your Board of Directors joins with me in urging you to attend the
meeting. Whether or not you plan to attend the meeting, however, please sign,
date and return the enclosed proxy card promptly. A prepaid return envelope is
provided for this purpose. You may revoke your proxy at any time before it is
exercised and it will not be used if you attend the meeting and prefer to vote
in person.
Sincerely yours,
/s/ A. B. Schmitt
---------------------------
A. B. Schmitt
President and Chief Executive Officer
LAYNE CHRISTENSEN COMPANY
1900 SHAWNEE MISSION PARKWAY
MISSION WOODS, KANSAS 66205
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 2003
The Annual Meeting of Stockholders of Layne Christensen Company, a
Delaware corporation ("Layne Christensen"), will be held at the Corporate
Headquarters of Layne Christensen, located at 1900 Shawnee Mission Parkway,
Mission Woods, Kansas, on Thursday, June 5, 2003, commencing at 10:00 a.m.,
local time, and thereafter as it may from time to time be adjourned, for the
following purposes:
1. To elect two Class II directors to hold office for terms expiring
at the 2006 Annual Meeting of the Stockholders of Layne
Christensen and until their successors are duly elected and
qualified or until their earlier death, retirement, resignation
or removal;
2. To consider and act upon ratification and approval of the
selection of the accounting firm of Deloitte & Touche LLP as the
independent auditors of Layne Christensen for the fiscal year
ending January 31, 2004; and
3. To transact such other business as may properly come before the
meeting and any adjournment or adjournments thereof.
The Board of Directors of Layne Christensen has fixed the close of
business on April 8, 2003, as the record date for determination of the
stockholders entitled to notice of, and to vote at, the Annual Meeting and any
adjournment or adjournments thereof.
All stockholders are cordially invited to attend the meeting. Whether
or not you intend to be present at the meeting, the Board of Directors of Layne
Christensen solicits you to sign, date and return the enclosed proxy card
promptly. A prepaid return envelope is provided for this purpose. You may revoke
your proxy at any time before it is exercised and it will not be used if you
attend the meeting and prefer to vote in person. Your vote is important and all
stockholders are urged to be present in person or by proxy.
By Order of the Board of Directors
Steven F. Crooke
Vice President--General Counsel
and Secretary
May 7, 2003
Mission Woods, Kansas
LAYNE CHRISTENSEN COMPANY
1900 SHAWNEE MISSION PARKWAY
MISSION WOODS, KANSAS 66205
-------------------------
PROXY STATEMENT
-------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 2003
-------------------------
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of Layne
Christensen Company, a Delaware corporation ("Layne Christensen" or the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Stockholders to be
held on Thursday, June 5, 2003, and at any adjournment or adjournments thereof
(the "Annual Meeting"). The Annual Meeting will commence at 10:00 a.m., local
time, and will be held at the Corporate Headquarters of Layne Christensen,
located at 1900 Shawnee Mission Parkway, Mission Woods, Kansas 66205.
This Proxy Statement and the enclosed form of proxy were first mailed
to the Company's stockholders on or about May 7, 2003.
PROXIES
You are requested to complete, date and sign the enclosed form of proxy
and return it promptly to the Company in the enclosed postage prepaid envelope.
Shares represented by properly executed proxies will, unless such proxies
previously have been revoked, be voted in accordance with the stockholders'
instructions indicated in the proxies. If no instructions are indicated, such
shares will be voted in favor of the election of the nominees for directors
named in this Proxy Statement, in favor of ratifying the selection of the
accounting firm of Deloitte & Touche LLP as the Company's independent auditors
for the current fiscal year, and, as to any other matter that properly may be
brought before the Annual Meeting, in accordance with the discretion and
judgment of the appointed proxies. A stockholder who has given a proxy may
revoke it at any time before it is exercised at the Annual Meeting by filing
written notice of revocation with the Secretary of the Company, by executing and
delivering to the Secretary of the Company a proxy bearing a later date, or by
appearing at the Annual Meeting and voting in person.
VOTING AT THE MEETING
For purposes of voting on the proposals described herein, the presence
in person or by proxy of stockholders holding a majority of the total
outstanding shares of the Company's common stock, $0.01 par value, shall
constitute a quorum at the Annual Meeting. Only holders of record of shares of
the Company's common stock as of the close of business on April 8, 2003 (the
"Record Date"), are entitled to notice of, and to vote at, the Annual Meeting or
any adjournment or adjournments thereof. As of the Record Date, 11,852,650
shares of the Company's common stock were outstanding and entitled to be voted
at the Annual Meeting. Each share of common stock is entitled to one vote on
each matter properly to come before the Annual Meeting.
Directors are elected by a plurality (a number greater than those cast
for any other candidates) of the votes cast, in person or by proxy, of
stockholders entitled to vote at the Annual Meeting for that purpose. The
affirmative vote of the holders of a majority of the shares of the Company's
common stock, represented in person or by proxy and entitled to vote at the
Annual Meeting, is required for (i) the ratification of the selection of
Deloitte & Touche LLP as the Company's independent auditors and (ii) the
approval of such other matters as properly may come before the Annual Meeting or
any adjournment thereof.
In accordance with Delaware law, a stockholder entitled to vote in the
election of directors can withhold authority to vote for all nominees for
directors or can withhold authority to vote for certain nominees for directors.
Votes withheld in connection with the election of one or more nominees for
director will not be counted as votes cast for such nominees. Abstentions from
the proposal to approve the ratification of the selection of the Company's
independent auditors are treated as votes against the proposal. Broker non-votes
on a proposal are treated as shares of Layne Christensen common stock as to
which voting power has been withheld by the respective beneficial holders and,
therefore, as shares not entitled to vote on the proposal as to which there is
the broker non-vote. Accordingly, broker non-votes are not counted for purposes
of determining whether a proposal has been approved.
SOLICITATION OF PROXIES
This solicitation of proxies for the Annual Meeting is being made by
the Company's Board of Directors. The Company will bear all costs of such
solicitation, including the cost of preparing and mailing this Proxy Statement
and the enclosed form of proxy. After the initial mailing of this Proxy
Statement, proxies may be solicited by mail, telephone, telegram, facsimile
transmission or personally by directors, officers, employees or agents of the
Company. Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward soliciting materials to beneficial owners of shares held of
record by them, and their reasonable out-of-pocket expenses, together with those
of the Company's transfer agent, will be paid by Layne Christensen.
A list of stockholders entitled to vote at the Annual Meeting will be
available for examination at least ten days prior to the date of the Annual
Meeting during normal business hours at the Company's Corporate Headquarters,
1900 Shawnee Mission Parkway, Mission Woods, Kansas, 66205. The list also will
be available at the Annual Meeting.
ITEM 1
ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six directors.
The Certificate of Incorporation of Layne Christensen divides the Board of
Directors into three classes of directors, with the directors serving staggered
terms of three years and until their respective successors are duly elected and
qualified or until their respective earlier death, retirement, resignation or
removal. The present terms of the current Class II directors, Robert J. Dineen
and Sheldon R. Erikson, expire at this Annual Meeting. Directors in Class III
(Todd A. Fisher and Edward A. Gilhuly) and Class I (Donald K. Miller and Andrew
B. Schmitt) have been elected to terms expiring at the time of the annual
meetings of stockholders in 2004 and 2005, respectively.
One of the purposes of this Annual Meeting is to elect two directors in
Class II to serve for three-year terms expiring at the Annual Meeting of
Stockholders in 2006 and until their successors are duly elected and qualified
or until their earlier death, retirement, resignation or removal. The Board of
Directors has designated Robert J. Dineen and David A. B. Brown as the nominees
proposed for election at the Annual Meeting. Sheldon R. Erikson has decided not
to stand for re-election as a director of the Company in order to fulfill other
commitments. As a result of Mr. Erikson's decision, the Board has designated Mr.
Brown as a new nominee to stand for election at the Annual Meeting. Mr. Dineen
has served on the Company's Board since 1983, and has been nominated by the
Board to stand for re-election at the Annual Meeting. Unless authority to vote
for the nominees is withheld, it is intended that the shares represented by
properly executed proxies in the form enclosed will be voted for the election as
directors of the nominees. In the event that one or more of the nominees should
become unavailable for election, it is intended that the shares represented by
the proxies will be voted for the election of such substitute nominee as may be
designated by the Board of Directors, unless the authority to vote for the
nominee who has ceased to be a candidate has been withheld. The nominees have
indicated their willingness to serve as directors if elected, and the Board of
Directors has no reason to believe that the nominees will be unavailable for
election.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
ROBERT J. DINEEN AND DAVID A. B. BROWN AS CLASS II DIRECTORS OF THE COMPANY.
2
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The following table sets forth certain information with respect to the
persons nominated by the Board of Directors for election as Class II directors
at the Annual Meeting and each director whose term of office will continue after
the Annual Meeting.
PRESENT POSITION DIRECTOR
NAME AGE WITH THE COMPANY SINCE
---- --- --------------------------- --------
NOMINEES
CLASS II: TERM TO EXPIRE IN 2006
Robert J. Dineen ............ 73 Chairman of the Board 1983
David A. B. Brown ........... 59 None N/A
DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 2005
Donald K. Miller ............ 71 Director 1996
Andrew B. Schmitt............ 54 President, Chief Executive 1993
Officer and Director
CLASS III: TERM TO EXPIRE IN 2004
Todd A. Fisher .............. 37 Director 1997
Edward A. Gilhuly ........... 43 Director 1992
The business experience during the last five fiscal years of the
persons nominated by the Board of Directors for election as Class II directors
at the Annual Meeting and each director whose term of office will continue after
the Annual Meeting is as follows:
DAVID A. B. BROWN has been president of The Windsor Group, a consulting
firm that focuses on energy related issues facing oilfield services and
engineering companies, since 1984. Mr. Brown currently serves on the board of
directors of EMCOR Group, Inc., Mission Resources Corporation, NS Group, Inc.
and Pride International, Inc. He has over 22 years of energy related experience.
ROBERT J. DINEEN has served as Chairman of the Board of the Company
since August 1992. From May 1986 until his retirement in August 1993, Mr. Dineen
was President and Chief Executive Officer of The Marley Company, a manufacturer
and supplier of engineered equipment and services for heating, fluid handling,
control and treatment and heat exchange. Mr. Dineen served as a director of
Kansas City Power & Light Company from 1987 to 2000. Mr. Dineen is currently a
director of Owens-Illinois, Inc.
TODD A. FISHER has been an executive of Kohlberg Kravis Roberts & Co.,
L.P. ("KKR") since June 1993 and a member of KKR & Co., L.L.C., the general
partner of KKR, since January 2001. From July 1992 to June 1993, Mr. Fisher was
an associate at Goldman, Sachs & Co. Mr. Fisher is also a member of the board of
directors of Accuride Corporation and Willis Group Holdings Limited.
EDWARD A. GILHULY is a managing director of Kohlberg Kravis Roberts &
Co. Ltd. and has been a member of KKR & Co. L.L.C. since 1996 and a general
partner of KKR Associates, L.P. ("KKR Associates") since 1995. During 1995, Mr.
Gilhuly was a general partner of KKR. Prior to 1995, he was an executive of KKR
and a limited partner of KKR Associates for more than five years. Mr. Gilhuly is
a director of MedCath Inc., Owens-Illinois, Inc. and FIMEP SA, the indirect
parent of Legrand SA.
DONALD K. MILLER has been Chairman of Axiom International Investors,
LLC, a company engaged in international equity asset management, since 1999. He
has also been President of Presbar Corporation, a private firm engaged in
private equity investing and investment banking, since 1986, and was formerly
Chairman of Greylock Financial, Inc., an affiliate of Greylock Management
Corporation, from 1986 to 1996. In addition, Mr. Miller served as
3
Chairman and Chief Executive Officer of Thomson Advisory Group L.P. (now PIMCO
Advisors Holdings L.P.), an asset management company, from 1990 to 1993 and as
Vice Chairman from 1993 to 1994. Mr. Miller also served as Chairman of the Board
of Directors of Christensen Boyles Corporation ("CBC") from 1986 to December
1995 and was involved in the formation of CBC and in the acquisition of Boyles
Bros. Drilling Company and Christensen Mining Products. He currently is on the
Board of Directors of Huffy Corporation and RPM International, Inc. and has
spent the majority of his career in investment banking or as an investor
focusing on a variety of industries.
ANDREW B. SCHMITT has served as President and Chief Executive Officer
of the Company since October 1993. For approximately two years prior to joining
the Company, Mr. Schmitt was a partner in two privately owned hydrostatic pump
and motor manufacturing companies and an oil and gas service company. He served
as President of the Tri-State Oil Tools Division of Baker Hughes Incorporated
from February 1988 to October 1991.
There is no arrangement or understanding between any director and any
other person pursuant to which such director was selected as a director of the
Company.
COMPENSATION OF DIRECTORS
Each director of the Company who is not also an employee of the Company
receives an annual fee of $17,500, payable in quarterly installments, except
that the director may elect to defer receipt of the compensation in accordance
with the terms of the Company's Deferred Compensation Plan for Directors.
Directors of the Company who are also employees of the Company receive no
compensation for service to Layne Christensen as directors.
Under the Company's Deferred Compensation Plan for Directors, directors
of the Company can elect to receive deferred compensation in three forms--a cash
credit, a stock credit or a combination of the two. The value of deferrals made
in the form of a stock credit track the value of the Company's common stock.
Deferrals made in the form of a cash credit will accumulate interest at a rate
based on the annual yield of the longest term United States Treasury Bond
outstanding at the end of the preceding year. All payments made under the plan
will be made in cash. As of January 31, 2003, Mr. Erikson had accumulated the
equivalent of 12,800.9 shares of common stock in his stock credit account, Mr.
Fisher had accumulated the equivalent of 2,741.9 shares of common stock in his
stock credit account, Mr. Gilhuly had accumulated the equivalent of 10,449.1
shares of common stock in his stock credit account, and Mr. Miller had
accumulated the equivalent of 8,169.7 shares of common stock in his stock credit
account.
MEETINGS OF THE BOARD AND COMMITTEES
During the fiscal year ended January 31, 2003, the Board of Directors
of Layne Christensen held four meetings. All directors, except Messrs. Fisher
and Erikson, attended at least 75% of the meetings of the Board of Directors and
the committees of the Board of Directors on which they served which were held
during such fiscal year. It should be noted that the Company's directors
discharge their responsibilities throughout the year, not only at such Board of
Directors and committee meetings, but through personal meetings and other
communications with members of management and others regarding matters of
interest and concern to the Company.
Pursuant to the Company's Bylaws, the Board of Directors has
established Audit and Compensation Committees of the Board of Directors. There
currently is no Nominating Committee or committee performing similar functions
of the Board of Directors.
The Audit Committee assists the Board of Directors in fulfilling its
responsibilities with respect to the oversight of (i) the integrity of the
Company's financial statements, financial reporting process and internal control
system, (ii) the Company's compliance with legal and regulatory requirements,
(iii) the independent auditor qualifications and independence, (iv) the
performance of the Company's internal audit function and its independent
auditors, and (v) the system of internal controls and disclosure controls and
procedures established by management. The Audit Committee is responsible for the
appointment of the Company's independent auditors and the terms of their
engagement, reviewing the Company's policies and procedures with respect to
internal auditing, accounting and financial controls and reviewing the scope and
results of audits and any auditor recommendations. At its November 2002 meeting,
the Audit Committee approved an Amended and Restated Audit Committee Charter.
The complete
4
text of the Amended and Restated Charter is included in Appendix A to this Proxy
Statement. The current members of the Audit Committee are Donald K. Miller,
Sheldon R. Erikson and Todd A. Fisher. The Report of the Audit Committee for
fiscal year 2003 appears on page 12 below.
The Compensation Committee reviews management compensation, evaluates
the performance of management, considers management succession and makes
recommendations to the Board of Directors regarding the compensation and
benefits of the Company's executive officers and the members of the Board of
Directors. The Compensation Committee also administers certain of the Company's
incentive plans, including the Company's Executive Incentive Compensation Plan.
The current members of the Compensation Committee are Robert J. Dineen, Edward
A. Gilhuly and Sheldon R. Erikson. The Compensation Committee met once during
the fiscal year ended January 31, 2003, in addition to personal meetings and
other communications conducted throughout the year with members of management
and each other regarding compensation issues within the committee's area of
responsibility.
COMPOSITION OF THE AUDIT COMMITTEE
All of the members of the Audit Committee qualify as independent
directors under Nasdaq Marketplace Rule 4200(a)(14).
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years ended January 31,
2003, January 31, 2002, and January 31, 2001, respectively, the compensation of
the Company's chief executive officer and of each of the Company's four other
most highly compensated executive officers whose remuneration for the fiscal
year ended January 31, 2003, exceeded $100,000 (collectively, the "Named
Executive Officers") for services to the Company and its subsidiaries in all
capacities:
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------- -------------------- -------
OTHER RESTRICTED
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS(1) COMPENSATION(2)(3) AWARDS SARS PAYOUTS COMPENSATION(4)
POSITION YEAR ($) ($) ($) ($) # ($) ($)
- ------------------ ------ ------- -------- ------------------ ---------- -------- ------- ---------------
Andrew B. Schmitt 2003 387,000 0 0 0 0 0 10,665
President, Chief Executive 2002 325,000 325,000 0 0 0 0 8,456
Officer and Director 2001 325,000 163,321 0 0 75,000 0 8,656
H. Edward Coleman 2003 212,885 0 379 0 0 0 12,316
Executive Vice President 2002 205,000 205,000 996 0 0 0 12,096
2001 191,154 69,726 1,531 0 0 0 12,020
Norman E. Mehlhorn 2003 207,693 0 0 0 0 0 24,892
Executive Vice President 2002 200,000 200,000 0 0 0 0 9,883
2001 189,615 69,726 0 0 0 0 8,469
Eric R. Despain 2003 203,538 185,000 0 0 0 0 9,286
Senior Vice President 2002 185,000 64,928 0 0 0 0 7,683
2001 174,615 0 0 0 0 0 7,813
Jerry W. Fanska 2003 197,515 0 307 0 0 0 9,849
Vice President--Finance 2002 177,000 177,000 866 0 0 0 9,325
and Treasurer 2001 166,615 61,057 1,337 0 0 0 9,610
- ---------------
5
(1) Reflects bonuses earned for the fiscal years ended January 31, 2003, 2002
and 2001, respectively.
(2) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation exceeds the lesser of either $50,000 or 10% of the total
of annual salary and bonus reported for the Named Executive Officer.
(3) Reflects additional compensation paid to the Named Executive Officer for
taxes incurred on the imputed income resulting from interest-free loans
from the Company.
(4) All Other Compensation for the fiscal year ended January 31, 2003, includes
Layne Christensen contributions in the amounts of $8,800, $8,315, $8,308,
$8,354 and $8,355 which accrued during such fiscal year for the accounts of
Messrs. Schmitt, Coleman, Mehlhorn, Despain and Fanska, respectively, under
the Company's Capital Accumulation Plan; the cost of term life insurance
paid by the Company for the benefit of Messrs. Schmitt, Coleman, Mehlhorn,
Despain and Fanska, in the amounts of $1,865, $3,071, $2,780, $932 and
$897, respectively; imputed income from interest-free loans from the
Company for the benefit of Messrs. Coleman and Fanska pursuant to the
Company's 1992 Stock Option Plan in the amounts of $930 and $597,
respectively; and ordinary income in the amount of $13,804 recognized by
Mr. Mehlhorn in connection with the sale of certain stock received upon the
exercise of certain of his incentive stock options.
All Other Compensation for the fiscal year ended January 31, 2002, includes
Layne Christensen contributions in the amounts of $6,800, $6,800, $7,108,
$6,800 and $6,800, which accrued during such fiscal year for the accounts
of Messrs. Schmitt, Coleman, Mehlhorn, Despain and Fanska, respectively,
under the Company's Capital Accumulation Plan; the cost of term life
insurance paid by the Company for the benefit of Messrs. Schmitt, Coleman,
Mehlhorn, Despain and Fanska, in the amounts of $1,656, $2,851, $2,775,
$883 and $839, respectively; imputed income from interest-free loans from
the Company for the benefit of Messrs. Coleman and Fanska, pursuant to the
Company's 1992 Stock Option Plan in the amounts of $2,445 and $1,686,
respectively.
All Other Compensation for the fiscal year ended January 31, 2001, includes
Layne Christensen contributions in the amounts of $7,000, $6,069, $6,538,
$6,985 and $6,501, which accrued during such fiscal year for the accounts
of Messrs. Schmitt, Coleman, Mehlhorn, Despain and Fanska, respectively,
under the Company's Capital Accumulation Plan; the cost of term life
insurance paid by the Company for the benefit of Messrs. Schmitt, Coleman,
Mehlhorn, Despain and Fanska, in the amounts of $1,656, $2,614, $1,931,
$828 and $777, respectively; and imputed income from interest-free loans
from the Company for the benefit of Messrs. Coleman and Fanska pursuant to
the Company's 1992 Stock Option Plan in the amounts of $3,337 and $2,332,
respectively.
OPTION GRANTS DURING FISCAL 2003
No stock option grants were made under the Company's 2002 Stock Option
Plan (the "2002 Option Plan") or the Company's 1996 District Stock Option Plan
(the "1996 Option Plan") and no stock appreciation rights ("SARs") were awarded
to any Named Executive Officer during the fiscal year ended January 31, 2003.
OPTION/SAR EXERCISES AND HOLDINGS
The following table sets forth information with respect to each Named
Executive Officer concerning the exercise of options and stock appreciation
rights ("SARs") during the fiscal year ended January 31, 2003, and unexercised
options and SARs held as of January 31, 2003.
6
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND JANUARY 31, 2003
OPTION/SAR VALUES (1)
NUMBER OF
SECURITIES
UNDERLYING VALUE OF
SHARES UNEXERCISED UNEXERCISED
ACQUIRED SHARES OPTIONS/ IN-THE-MONEY
ON VALUE SARS AT OPTIONS/SARS AT
EXERCISE REALIZED JANUARY 31, 2003 JANUARY 31, 2003 (4)
NAME # ($) # ($)
- ------------------ -------- -------- ---------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Andrew B. Schmitt 0 0 403,125 59,375 847,188 242,812
H. Edward Coleman 714 1,992(2) 119,791 8,062 169,105 26,605
Norman E. Mehlhorn 58,317 145,693(3) 62,188 8,062 79,820 26,605
Jerry W. Fanska 0 0 118,688 10,562 189,395 34,855
Eric R. Despain 0 0 43,750 6,250 61,875 20,625
- --------------
(1) No stock appreciation rights have ever been granted by the Company.
(2) Value is calculated by determining the difference between the option
exercise price, which was $7.00 per share, and $9.79, which was the
last reported sale price of the Company's common stock on June 7, 2002,
the day Mr. Coleman exercised his options, multiplied by the number of
shares of common stock underlying the options.
(3) Mr. Mehlhorn exercised 5,000 options on June 11, 2002, and 53,317
options on August 20, 2002. Value for the exercise of the 5,000 options
is calculated by determining the difference between the option exercise
price, which was $7.00 per share, and $9.80, which was the last
reported sale price of the Company's common stock on June 11, 2002,
multiplied by the number of shares of common stock underlying the
options. Value for the exercise of the 53,317 options is calculated by
determining the difference between the option exercise price, which was
$7.00 per share, and $9.47, which was the last reported sale price of
the Company's common stock on August 20, 2002, multiplied by the number
of shares of common stock underlying the options.
(4) As of January 31, 2003, the last reported sale price of the Company's
common stock, which was reported on the NASDAQ National Market System
on January 31, 2003, was $8.55 per share. Value is calculated by
determining the difference between the option exercise price and $8.55,
multiplied by the number of shares of common stock underlying the
options
INCENTIVE COMPENSATION PLAN
The Company adopted an Executive Incentive Compensation Plan (the "IC
Plan") in fiscal 1993. Each of the Company's executive officers, including the
Named Executive Officers, is eligible to participate in the IC Plan. Under the
IC Plan, each participant will be eligible for an annual cash bonus in a target
amount (the "Target Bonus") equal to a percentage (50% in the case of Mr.
Schmitt and 37.5% in the case of Messrs. Coleman, Mehlhorn, Fanska and Despain)
of such participant's base compensation. The Target Bonus will be adjusted (up
or down) based upon the performance of the Company as compared to certain
financial goals included in the business plan adopted and approved by the Board
of Directors. In no event, however, can a participant's annual cash bonus under
the IC Plan exceed 100% of such participant's base compensation for the relevant
year. No bonus will be payable should performance be equal to or below 80% of
the relevant goals established by the business plan. In addition, the formula
bonus derived as described in the preceding sentences can be further adjusted
(up or down) at the discretion of the Board of Directors by one-third of the
Target Bonus. All or part of an employee's incentive compensation under the IC
Plan may, at the discretion of the Board of Directors, be paid in the form of
shares of the Company's common stock which may consist of authorized but
unissued shares of common stock or shares of common stock reacquired by the
Company on the open market. No bonuses were paid to the Executive Officers,
including the Named Executive Officers, under the IC Plan for services rendered
to the Company in the fiscal year ended January 31,
7
2003. However, Mr. Despain did receive a discretionary bonus in the amount of
$185,000 for the 2003 fiscal year. See "Executive Compensation and Other
Information--Executive Compensation."
CAPITAL ACCUMULATION PLAN
The Company has adopted a capital accumulation plan (the "Capital
Accumulation Plan"). Each of the Company's executive officers, including the
Named Executive Officers, and substantially all other salaried employees of the
Company are eligible to participate in the Capital Accumulation Plan. The
Capital Accumulation Plan is a defined contribution plan qualified under Section
401, including Section 401(k), of the Internal Revenue Code of 1986, as amended
(the "Code"). The Capital Accumulation Plan provides for two methods of Company
contributions, a Company matching contribution tied to and contingent upon
participant deferrals and a Company profit sharing contribution which is not
contingent upon participant deferrals. The amount, if any, of Company paid
contributions, both matching and profit sharing, for each fiscal year under the
Capital Accumulation Plan is determined by the Board of Directors in its
discretion. Currently, the Company makes a matching contribution that is equal
to 100% of a participant's salary deferrals that do not exceed 3% of the
participant's compensation plus 50% of a participant's salary deferrals between
3% and 5% of the participant's compensation. This form of matching contribution
qualifies as what is known as a "safe harbor" matching contribution under the
Employee Retirement Income Security Act of 1974. Each eligible employee meeting
certain service requirements participates in Company profit sharing
contributions to the Capital Accumulation Plan in the proportion his or her
eligible compensation bears to the aggregate compensation of the group
participating in the Capital Accumulation Plan. In addition, each eligible
employee meeting certain service requirements and electing to defer a portion of
his or her compensation under the Capital Accumulation Plan participates in the
Company's matching contribution program pursuant to a formula as designated by
the Board of Directors. At the option of the Board of Directors of the Company,
all or any portion of such Company contributions may be made in the Company's
common stock. In addition, each participant can voluntarily contribute, on a
pre-tax basis, a portion of his or her compensation (which cannot exceed $12,000
for participants who are 49 or younger, or $14,000 for participants who are 50
or older, for the calendar year 2003) under the Capital Accumulation Plan. A
participant's account will be placed in a trust and invested at the
participant's direction in any one or more of a number of available investment
options. Each participant may receive the funds in his or her Capital
Accumulation Plan account upon termination of employment. For services rendered
in fiscal 2003, total Company contributions under the Capital Accumulation Plan
of $8,800, $8,315, $8,308, $8,355 and $8,354 accrued for the accounts of Messrs.
Schmitt, Coleman, Mehlhorn, Fanska and Despain, respectively.
RETIREMENT, DISABILITY AND DEATH PLANS
The Company has agreed to pay Mr. Schmitt an annual retirement benefit
beginning at age 65 equal to 40% of the average of his total compensation (as
defined in the agreement) received during the highest five consecutive years out
of his last ten years of employment, less 60% of his annual primary Social
Security benefit (the "Annual Benefit"). The Annual Benefit is to be reduced,
however, by the annual annuity equivalent of the value of all funds, including
earnings, in the Company funded portion of Mr. Schmitt's Capital Accumulation
Plan account as of the date of his retirement (the "Annuity Equivalent"). As of
January 31, 2003, the Company funded balance in Mr. Schmitt's account under the
Capital Accumulation Plan was $36,531. To the extent the Annual Benefit is not
satisfied by the Annuity Equivalent, payments will be made out of the general
funds of the Company. The agreement includes certain provisions, exercisable at
Mr. Schmitt's election, for early retirement and joint and survivor benefits if
he is married at the time payment commences. Upon termination of Mr. Schmitt's
service for any reason other than disability or death, and subject to special
provisions in the event of a "change in control" as discussed below, his Annual
Benefit will vest in the percentage determined under the following schedule:
YEARS OF SERVICE VESTING PERCENTAGE
6 20%
7 40%
8 60%
9 80%
10 100%
8
Mr. Schmitt currently has nine years of service credited towards his annual
retirement benefit.
Mr. Schmitt is entitled to a disability benefit determined in the same
manner as the Annual Benefit as of the date of termination of his service
resulting from total and permanent disability (the "Disability Benefit"). The
Disability Benefit will also be reduced by the Annuity Equivalent. Disability is
to be determined by an administrative committee of the Board of Directors to be
appointed at the time of any claim of disability.
Mr. Schmitt's surviving spouse, if any, will be entitled to receive a
death benefit (the "Death Benefit") upon Mr. Schmitt's death which will be equal
to the Annual Benefit his surviving spouse would have received if (i) he had
retired at the date of his death and had received an Annual Benefit in the form
of a monthly joint and survivor benefit and (ii) he subsequently died. The Death
Benefit will be reduced by the Annuity Equivalent.
In the event of Mr. Schmitt's death or involuntary termination within
two years following a "change in control" (as defined in the agreement), Mr.
Schmitt's benefits under his retirement plan become fully vested effective upon
such death or involuntary termination. A "change in control" is deemed to occur
if (i) during any 24-month period, individuals who at the beginning of such
period constituted the Company's Board of Directors or whose nomination for
election by the Company's stockholders was approved by a vote of a majority of
the directors who either were directors at the beginning of such period or whose
election or nomination was previously so approved cease for any reason to
constitute a majority of the Board of Directors of the Company, or (ii) the
beneficial ownership of the Company's common stock changes resulting in KKR
having less beneficial ownership than any person or group of persons if that
person or group of persons holds 20% or more of the outstanding common stock of
the Company. Based upon the beneficial ownership of the Company's common stock
reported by third parties in filings with the Securities and Exchange
Commission, a "change in control", as defined above, did occur during fiscal
year 2000.
CERTAIN CHANGE-IN-CONTROL AGREEMENTS
The benefits which Mr. Schmitt will receive under his annual retirement
benefit program may be adjusted and, in addition, he will be entitled to a
lump-sum payment equal to 24 month's salary in the event of a change in control.
In addition, all of the executive officers who have been granted stock options
have a "change in control" provision in their respective Incentive Stock Option
Agreements ("ISO Agreements") issued in accordance with the terms of the
Company's 1992 Stock Option Plan (the "1992 Option Plan") and the Company's 1996
Option Plan. See "Stock Option Plans--Report of Board of Directors and
Compensation Committee on Executive Compensation." Under the terms of the ISO
Agreements, the options vest at the rate of either 20% or 25% per year beginning
on the first day following the first anniversary of the option grant date. In
the event of a change in control, however, the options become 100% vested.
Under the terms of the ISO Agreements of the executive officers
executed during or after fiscal 1999, a "change in control" is deemed to occur
if: (i) there is a change in the composition of the Board of Directors of the
Company; (ii) any person, except for certain interested parties, acquires 35% or
more of the voting power of the Company's outstanding securities; or (iii) there
is a substantial change in the Company's business structure through merger, sale
of assets or other event. No ISO Agreements were entered into during fiscal
1998. Under the terms of the ISO Agreements of the executive officers executed
in fiscal 1997, a "change in control" is deemed to occur if, during any 24-month
period, individuals who at the beginning of such period constituted the
Company's Board of Directors or whose nomination for election by the Company's
stockholders was approved by a vote of a majority of the directors who either
were directors at the beginning of such period or whose election or nomination
was previously so approved cease for any reason to constitute a majority of the
Board of Directors of the Company. A "change in control" will not be deemed to
have occurred, however, if such a change in the composition of the Board of
Directors occurs in connection with any public offering by the Company, KKR or
their affiliates.
REPORT OF BOARD OF DIRECTORS AND COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
The Company's executive compensation program currently is administered
by the Compensation Committee of the Board of Directors which is comprised of
Messrs. Dineen, Gilhuly and Erikson. It is the Compensation Committee's duty to
review the compensation levels of management, evaluate performance of management
and
9
consider management succession and related matters. The Company's incentive
plans, including the Company's 2002 Option Plan, the Company's 1996 Option Plan
(collectively, the "Option Plans") and the Company's Executive Incentive
Compensation Plan ("Incentive Plan"), are administered by the Board of Directors
with respect to grants made to officers of the Company.
Compensation Policy. The Company's overall compensation policy is
designed to attract, retain and motivate qualified individuals who are expected
to contribute to the Company's long-term growth and success. The Company has
adopted an annual incentive compensation program which is designed to reinforce
its strategic long and short term goals and to provide executive officers with
the opportunity to receive greater compensation in those years in which the
Company achieves its financial goals than in those years in which it does not.
In addition, the Company's Option Plans are designed to promote a mutuality of
interest between executive officers and stockholders through stock purchases and
options allowing the executive officers and stockholders to share in the risks
and rewards associated with stock ownership.
Compensation Components. The Company's executive compensation program
is reviewed periodically to ensure that pay levels and incentive opportunities
are competitive and reflect the performance of the Company and the individual
executive officer. The principal components of the Company's executive
compensation package are salary, annual incentive compensation and stock
options.
Base Salary. Base pay levels largely are determined through an
assessment of the executive officer's performance during the relevant period
based upon objective and subjective criteria and, to a lesser extent, through an
informal comparison with similarly sized public companies engaged primarily in
related industries. The Company does not know of any direct competitors which
are public companies. Accordingly, the Compensation Committee has had to look at
companies outside of its industry to identify companies for which a comparison
of pay levels would be deemed by the committee to be relevant. These companies
are not necessarily the same companies which comprise the index of companies
with similar market capitalizations utilized for purposes of Company shareholder
returns in the performance graph included elsewhere in the Proxy Statement.
Actual salaries are based upon subjective assessments of individual factors such
as the responsibilities of the position and the skill, knowledge and experience
of each individual executive officer. Each executive officer's individual
performance is considered from the previous year and takes into account an
assessment of the executive officer's growth and effectiveness in the
performance of his duties.
Incentive Compensation. Under the Company's Incentive Plan, bonuses are
paid based on the officer's performance and the performance of the entire
Company. The Incentive Plan is administered by the Board of Directors. The
target bonus is 50% of base salary in the case of Mr. Schmitt and, in the case
of the remaining executive officers, 37.5% of base salary, subject to adjustment
up or down by one-third in the case of extraordinary circumstances. The
Company's performance for purposes of incentive compensation decisions is
measured against goals established for the Incentive Plan at the beginning of
the fiscal year by the Board of Directors. The maximum bonus payable is 100% of
salary, and no bonus is payable if the Company does not attain at least 80% of
the established goals. For fiscal 2003, a goal based on threshold earnings
before income taxes was established by the Board in order to qualify for payment
of incentive compensation.
Stock Option Plans. Under the Company's Option Plans, each Named
Executive Officer and certain other key employees are eligible to receive
options to purchase shares of the Company's common stock. The Option Plans are
administered by the Board of Directors. Under the Option Plans, the Board is
authorized from time to time to grant to executive officers and other employees
of the Company options to purchase up to an aggregate of 1,250,000 shares (as
amended) of the common stock at a price fixed by the Board. Such options may be
either incentive stock options or non-qualified stock options. The price for
incentive stock options cannot be less than the fair market value of the
Company's common stock on the date of grant while the price for non-qualified
options may be set at any price. Individual grant sizes are determined after
considering the Company's performance and the competitiveness of the Named
Executive Officer's long-term compensation package. The Board also takes into
account the number of shares of the Company's common stock and stock options
held by or previously granted to each Named Executive Officer. The grant of
stock options is intended to strengthen the linkage between executive
compensation and stockholder return.
10
No options granted under the Option Plans are exercisable more than ten
years after the date of grant. All options granted under the Option Plans are
evidenced by and subject to option agreements entered into by the Company and
the individual receiving the options.
Discussion of 2003 Compensation for the Chief Executive Officer. Mr.
Schmitt's compensation is established using the same methodology and criteria as
the other Named Executive Officers. Mr. Schmitt's base compensation was
increased to $390,000 in March 2002 from his previous base compensation of
$325,000 per year. As previously discussed, none of the Company's domestic
competitors are listed on the U.S. stock exchanges nor are any of these
competitors comparable to the Company in terms of size and scope of services
offered. Accordingly, the Compensation Committee, in making a determination
concerning Mr. Schmitt's compensation, undertook a subjective analysis of his
performance since his last increase in July 1998 considering such factors as the
scope of his responsibilities, his personal performance and the overall
performance of the Company in light of worldwide market conditions, particularly
in the last two years. Based upon this analysis, the Compensation Committee
concluded that Mr. Schmitt had performed in a manner which was deserving of
recognition and reward in the form of an increase in compensation. No additional
option grants were made to any executive officer during fiscal 2003.
Mr. Schmitt is a participant under the Incentive Plan. The Company did
not meet the performance criteria established by the Board under the Incentive
Plan for fiscal 2003, and, accordingly, Mr. Schmitt did not receive an incentive
compensation award for fiscal 2003.
Tax Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code of 1986, as amended, places a limit of $1 million on the
amount of annual compensation that may be deducted by the Company in any year
with respect to the Company's Chief Executive Officer and its other four most
highly compensated executive officers. Certain performance-based compensation
approved by stockholders is not subject to this deduction limitation, and is,
therefore, deductible.
The Company intends to maximize the deductibility of executive
compensation while retaining the discretion necessary to compensate executive
officers in a manner commensurate with performance and the competitive market
for executive talent, and, therefore, the Committee and/or the Board may from
time to time, in circumstances it deems appropriate, award compensation in
addition to these option grants and bonus payments that may not be deductible.
COMPENSATION COMMITTEE
BOARD OF DIRECTORS OF THE BOARD OF DIRECTORS
Robert J. Dineen Donald K. Miller Robert J. Dineen
Edward A. Gilhuly Sheldon R. Erikson Edward A. Gilhuly
Todd A. Fisher Andrew B. Schmitt Sheldon R. Erikson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 2003, the members of the
Compensation Committee were Messrs. Dineen, Gilhuly and Erikson. As discussed
above under "Report of Board of Directors and Compensation Committee on
Executive Compensation," all decisions relating to the compensation of executive
officers for fiscal 2003 were made by the Board or the Compensation Committee.
Among the members of the Compensation Committee, Mr. Dineen is the only employee
or current or former officer of the Company or any of its subsidiaries. KKR has
agreed to render management consulting and financial services to the Company for
an annual fee. The annual fee for the fiscal year ended January 31, 1999 was
$125,000. Beginning with fiscal year 2000, the Company and KKR agreed to suspend
the fee until such time as the Company's earnings prospects have improved. Such
services include, but are not necessarily limited to, advice and assistance
concerning any and all aspects of the operations, planning and financing of the
Company, as required from time to time by the Company. KKR Associates, the
general partners of which are the general partners of KKR, owns approximately
14.6% of the Company's common stock.
11
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUE SOLICITING
MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE INTO ANY
OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS
REPORT BY REFERENCE THEREIN.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is composed of
independent directors as required by and in compliance with the listing
standards of the Nasdaq National Market. The Audit Committee operates pursuant
to a written charter adopted by the Board of Directors. On November 27, 2002,
the Board of Directors adopted an Amended and Restated Charter of the Audit
Committee, a copy of which is filed as an appendix to this Proxy Statement.
The functions of the Audit Committee are set forth in its charter. One
of the Audit Committee's principle functions is overseeing the Company's
financial reporting process on behalf of the Board of Directors. Management of
the Company has the primary responsibility for the Company's financial reporting
process, principles and internal controls as well as preparation of its
financial statements. The Company's independent auditors are responsible for
performing an audit of the Company's financial statements and expressing an
opinion as to the conformity of such financial statements with accounting
principles generally accepted in the United States.
The Audit Committee has reviewed and discussed the Company's audited
financial statements as of and for the year ended January 31, 2003, with
management and the independent auditors. The Audit Committee has discussed with
the independent auditors the matters required to be discussed under auditing
standards generally accepted in the United States, including those matters set
forth in Statement on Auditing Standards No. 61 (Communication with Audit
Committees), as currently in effect. The independent auditors have provided to
the Audit Committee the written disclosures and the letter required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as currently in effect, and the Audit Committee has discussed with
the auditors their independence from the Company. The Audit Committee has also
considered whether the independent auditors' provision of information technology
and other non-audit services to the Company is compatible with maintaining the
auditors' independence. The Audit Committee has concluded that the independent
auditors are independent from the Company and its management.
Based on the reports and discussions described above, the Audit
Committee has recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2003, for filing with the Securities and
Exchange Commission. The Committee has also selected, subject to shareholder
ratification, Deloitte & Touche LLP as the Company's independent auditors for
the fiscal year ending January 31, 2004.
Respectfully submitted on March 26, 2003, by the members of the Audit
Committee of the Board of Directors:
Donald K. Miller, Chairman
Sheldon R. Erikson
Todd A. Fisher
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of January 31, 2003, with
respect to shares of the Company's common stock that have been authorized for
issuance under our existing equity compensation plans, including the Company's
2002 Option Plan and 1996 Option Plan.
The table does not include information with respect to shares subject
to outstanding options granted under equity compensation plans that are no
longer in effect. Footnote 5 to the table sets forth the total number of shares
of
12
the Company's common stock issuable upon the exercise of options under expired
plans as of January 31, 2003, and the weighted average exercise price of those
options. No additional options may be granted under such plans.
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of outstanding exercise price of plans (excluding
options, warrants and outstanding options, securities reflected in
Plan Category rights warrants and rights column (a))
- ------------- ----------------------- -------------------- -----------------------
(a) (b) (c)
Equity compensation
plans approved by 457,535(1) $ 6.558 792,465(2)
security holders
Equity compensation
plans not approved by 0 N/A (4)
security holders (3)
------- -------
Total 457,535(5) 792,465
======= =======
- ---------------
(1) Shares issuable pursuant to outstanding options under the 2002
Option Plan and the 1996 Option Plan.
(2) Represents shares of Company common stock which may be issued
pursuant to future awards under the 2002 Option Plan and the 1996
Option Plan.
(3) The equity compensation plans not approved by security holders
include the Company's Executive Incentive Compensation Plan (the
"Executive IC Plan"), the District Incentive Compensation Plan
(the "District IC Plan"), and the Corporate Staff Incentive
Compensation Plan (the "Corporate IC Plan").
(4) The number of shares issuable pursuant to equity compensation
plans not approved by security holders is not presently
determinable, as explained below.
(5) The table does not include information for equity compensation
plans that have expired. The Company's 1992 Option Plan expired
in May 2002. As of January 31, 2003, a total of 776,353 shares of
Company common stock were issuable upon the exercise of
outstanding options under the expired 1992 Option Plan. The
weighted average exercise price of those options is $8.493 per
share. No additional options may be granted under the 1992 Option
Plan.
EQUITY COMPENSATION PLANS NOT APPROVED BY SECURITY HOLDERS
The Executive IC Plan, the District IC Plan, and the Corporate IC Plan
(collectively, the "IC Plans") have each been adopted by the Board of Directors
of the Company. The IC Plans are each incentive compensation plans that provide
for an annual bonus equal to a certain percentage of a participant's base salary
to be paid to the participants upon the attainment of certain financial goals,
which are adopted and approved by the Board of Directors for each fiscal year.
The IC Plans differ in the eligible participants, the calculation of the annual
bonuses, the financial goals, and the percentages of a participant's salary paid
as an award. No shares of Company common stock have been authorized for future
issuance under the IC Plans and no options, warrants or rights may be granted
under the IC Plans. The IC Plans each provide that all or part of an employee's
incentive compensation under the IC Plans may, at the discretion of the Board of
Directors, be paid in either cash or shares of the Company's common stock, which
may be either restricted or unrestricted and may consist of authorized but
unissued shares of common stock or shares of common stock reacquired by the
Company on the open market. Prior to the payment of any
13
incentive compensation under the IC Plans in the form of shares of the Company's
common stock, the Board of Directors must authorize the issuance of such shares.
COMPANY PERFORMANCE
The following performance graph shows a comparison of cumulative total
returns for the Company, the NASDAQ Market Value index and an index of companies
selected by the Company having market capitalization similar to that of the
Company (the "SMC Group") for the period from January 31, 1998, through January
31, 2003.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
Among Layne Christensen Company, The NASDAQ Stock Market (U.S.) Index
and a Peer Group
[GRAPH OMITTED]
The cumulative total returns on investment for the Company, the NASDAQ
Market Value index and an index of the SMC Group are based on the stock price or
index at January 31, 1998. The performance graph assumes that the value of an
investment in the Company's common stock and each index was $100 at January 31,
1998, and that all dividends were reinvested. The information presented in the
performance graph is historical in nature and is not necessarily indicative of
future performance.
The comparison of cumulative total returns presented in the above graph
was plotted using the following index values and common stock price value:
1/31/98 1/31/99 1/31/00 1/31/01 1/31/02 1/31/03
------- ------- ------- ------- ------- -------
Layne Christensen Company $100.00 $ 49.11 $ 41.52 $ 33.49 $ 53.57 $61.07
NASDAQ Market Value $100.00 $156.49 $244.12 $171.44 $120.40 $82.97
SMC Group $100.00 $ 70.37 $ 65.12 $ 49.07 $ 59.92 $52.49
SOURCE: Research Data Group, Inc.
The performance graph compares the performance of the Company with that
of the NASDAQ Market Value index and an index of the SMC Group. The Company is
not aware of any published industry or line-of-business index in which its
common stock is included and was not able to reasonably identify a peer group of
issuers on an industry, line-of-business or other basis. The Company believes
that it is one of the largest water well drilling, well repair and maintenance
and mineral exploration drilling companies in the United States. The Company's
competitors primarily are local and regional firms and the Company is not aware
of any other publicly held company
14
principally engaged in the Company's line-of-business. Accordingly, in order to
provide a more meaningful comparison of cumulative total returns for the Company
in the above performance graph, the Company used an index of the SMC Group;
companies having market capitalization similar to that of the Company. Companies
in the index of the SMC Group are Ashanti Goldfields, Ltd., Cadiz, Inc., Calgon
Carbon Corporation, Coeur d' Alene Mines, Hecla Mining Company, Perini
Corporation and Waterlink, Inc.
OWNERSHIP OF LAYNE CHRISTENSEN COMMON STOCK
The following table sets forth certain information as of February 28,
2003, except as otherwise provided, regarding the beneficial ownership of Layne
Christensen common stock by each person known to the Board of Directors to own
beneficially 5% or more of the Company's common stock, by each director or
nominee for director of the Company, by each Named Executive Officer and by all
directors and executive officers of the Company as a group. All information with
respect to beneficial ownership has been furnished by the respective directors,
officers or 5% or more stockholders, as the case may be.
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL SHARES
NAME OWNERSHIP(1) OUTSTANDING(1)
- ---- ------------ --------------
T. Rowe Price Associates, Inc. (2) ...................... 1,739,300 14.7%
KKR Associates, L.P. (3) ................................ 1,730,436 14.6%
Van Den Berg Management Inc. (4) ........................ 1,387,736 11.7%
Dimensional Fund Advisors Inc. (5) ...................... 936,400 7.9%
Wynnefield Partners Small Cap Value Funds (6) ........... 775,900 6.5%
Franklin Resources, Inc. (7) ............................ 754,900 6.4%
Andrew B. Schmitt ....................................... 510,000 (8) 4.2%
Robert J. Dineen ........................................ 149,183 1.3%
Donald K. Miller ........................................ 110,234 *
Edward A. Gilhuly (3) ................................... -- --
Todd A. Fisher (3) ...................................... -- --
David A. B. Brown ....................................... -- --
H. Edward Coleman ....................................... 192,613 (8) 1.6%
Norman E. Mehlhorn ...................................... 141,608 (8) 1.2%
Jerry W. Fanska ......................................... 144,850 (8) 1.2%
Eric R. Despain ......................................... 118,493 (8) 1.0%
All directors and officers as a group (12 persons) ...... 1,484,691 (9) 11.6%
- -----------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities and includes
shares of common stock issuable pursuant to the exercise of immediately
exercisable stock options. Unless otherwise indicated, the persons or
entities identified in this table have sole voting and investment power
with respect to all shares shown as beneficially owned by them. Percentage
ownership calculations are based on 11,852,650 shares of common stock
outstanding plus 911,852 options exercisable within 60 days of February 28,
2003, where said options are considered deemed shares attributed to a given
beneficial owner.
(2) According to its most recent Schedule 13G filing with the Securities and
Exchange Commission dated February 14, 2003, these securities are owned by
various individual and institutional investors including T. Rowe Price
Small Cap Value Fund, Inc. (which owns 608,000 shares, representing 5.1% of
the shares outstanding), which T. Rowe Price Associates, Inc. ("Price
Associates") serves as investment adviser with power to direct investments
and/or sole power to vote the securities. For purposes of the reporting
requirements of the Securities Exchange Act of 1934, Price Associates is
deemed to be a beneficial owner
15
of such securities; however, Price Associates expressly disclaims that it
is, in fact, the beneficial owner of such securities. The business address
of Price Associates is 100 East Pratt Street, Baltimore, Maryland 21202.
(3) Mr. Gilhuly, Henry R. Kravis, George R. Roberts, Paul E. Raether, Michael
W. Michelson, James H. Greene, Jr., Perry Golkin and Scott Stuart are the
general partners of KKR Associates and Messrs. Kravis and Roberts are also
the members of the Executive Committee of KKR Associates, and in such
capacity may be deemed to share beneficial ownership of the shares of
Common Stock that KKR Associates may beneficially own or be deemed to
beneficially own. Mr. Fisher is a limited partner of KKR Associates.
Messrs. Gilhuly and Fisher are directors of the Company. The foregoing
individuals disclaim beneficial ownership of the shares owned by KKR
Associates. The business address of KKR Associates is 9 West 57th Street,
New York, New York 10019.
(4) The ownership report is based upon the most recent Schedule 13G of Van Den
Berg Management Inc. ("Van Den Berg") filed with the Securities and
Exchange Commission on March 5, 2003. The Schedule 13G reports that as of
March 5, 2003, Van Den Berg beneficially owned 1,387,736 shares of the
Company's common stock. The business address for Van Den Berg is 1301
Capital of Texas Highway, Suite B-228, Austin, Texas 78746.
(5) The ownership reported is based upon the most recent Schedule 13G of
Dimensional Fund Advisors, Inc. ("Dimensional") filed with the Securities
and Exchange Commission on February 12, 2003. Dimensional is an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940. Dimensional furnishes investment advice to four investment companies
registered under the Investment Company Act of 1940 and serves as
investment manager to certain other commingled group trusts and separate
accounts. These investment companies, trusts and accounts are the "Funds".
In its role as investment adviser or manager, Dimensional possesses voting
and/or investment power over the securities of the Company owned by the
Funds. For the purposes of reporting requirements of the Securities
Exchange Act of 1934, Dimensional is deemed to be a beneficial owner of
such securities; however, Dimensional expressly disclaims that it is, in
fact, the beneficial owner of such securities. The business address of
Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401.
(6) The ownership reported is based upon the most recent Schedule 13G of
Wynnefield Partners Small Cap Value, L.P. ("Partners"), Wynnefield Partners
Small Cap Value, L.P. I ("Partners I"), Wynnefield Small Cap Value Offshore
Fund, Ltd. ("Offshore Fund"), Channel Partnership II, L.P. ("Channel"),
Wynnefield Capital Management, LLC ("WCM"), Wynnefield Capital, Inc.
("WCI"), and Nelson Obus ("Obus") filed with the Securities and Exchange
Commission on February 19, 2003. Partners, Partners I, the Offshore Fund,
Channel, WCM, WCI and Obus are collectively referred to herein as the
"Wynnefield Partners Small Cap Value Funds." The Schedule 13G reports that
as of February 14, 2003, Partners beneficially owned 280,100 shares of the
Company's common stock, Partners I beneficially owned 343,100 shares of the
Company's common stock, the Offshore Fund beneficially owned 142,700 shares
of the Company's common stock, WCM holds an indirect beneficial interest in
the 623,200 shares held by Partners and Partners I, and Channel
beneficially owned 10,000 shares of the Company's common stock, for a total
of 775,900 shares. WCI holds an indirect beneficial interest in the 142,700
shares held by the Offshore Fund and Obus, as general partner of Channel,
holds an indirect beneficial interest in the 10,000 shares held by Channel.
The business address for the Wynnefield Partners Small Cap Value Funds is
450 Seventh Avenue, Suite 509, New York, New York 10123
(7) The ownership reported is based upon the most recent Schedule 13G filed by
Franklin Resources, Inc. ("FRI"), Charles B. Johnson ("Charles"), Rupert H.
Johnson, Jr. ("Rupert") and Franklin Advisory Services, LLC ("FAS") with
the Securities and Exchange Commission on January 30, 2003. The securities
reported in Such Schedule 13G are beneficially owned by one or more open or
closed-end investment companies or other managed accounts which are advised
by direct and indirect investment advisory subsidiaries (the "Adviser
Subsidiaries") of FRI. Such advisory contracts grant to such Adviser
Subsidiaries all investment and/or voting power over the securities owned
by such advisory clients. Charles and Rupert each own in excess of 10% of
the outstanding common stock of FRI. As a result, FRI, Charles and Rupert
may be deemed to be, for purposes of Rule 13d-3 under the Securities
Exchange Act of 1934, the beneficial owner
16
of securities held by persons and entities advised by FRI subsidiaries.
FRI, Charles, Rupert and each of the Adviser Subsidiaries disclaim any
economic interest or beneficial ownership in such securities. The business
address for FRI, Charles and Rupert is One Franklin Parkway, San Mateo,
California 94403, and the business address for FAS is One Parker Plaza,
Sixteenth Floor, Fort Lee, New Jersey 07024.
(8) Includes options for the purchase of 425,000 shares, 127,853 shares, 70,250
shares, 129,250 shares and 50,000 shares of the Company's common stock
exercisable within 60 days granted to Messrs. Schmitt, Coleman, Mehlhorn,
Fanska and Despain, respectively.
(9) Includes options for the purchase of 911,852 shares of the Company's common
stock exercisable within 60 days granted to all directors and officers of
the Company as a group.
CERTAIN TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
Until January 23, 2003, the Company, through a wholly owned subsidiary,
leased a facility in Phoenix, Arizona, for its parts and material supply
business from Air Park Investments L.L.C., an Arizona limited liability company.
The members of Air Park Investments L.L.C. are Mr. Mehlhorn and two of his
brothers. On January 23, 2003, the Company terminated its lease with Air Park
Investments L.L.C. in connection with the sale of its parts and material supply
business. Total payments to the lessor under the lease in fiscal 2003 were
$113,559.57.
ITEM 2
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected the
independent certified public accounting firm of Deloitte & Touche LLP as the
Company's independent auditors to audit the books, records and accounts of the
Company for the year ending January 31, 2004. Stockholders will have an
opportunity to vote at the Annual Meeting on whether to ratify the Audit
Committee's decision in this regard.
Deloitte & Touche LLP has served as the Company's independent auditors
since fiscal 1990. A representative of Deloitte & Touche LLP is expected to be
present at the Annual Meeting. Such representative will have an opportunity to
make a statement if he or she desires to do so and will be available to respond
to appropriate questions.
During fiscal 2003, Deloitte & Touche LLP provided various audit and
non-audit services to the Company as follows:
(a) Audit Fees: Aggregate fees billed for professional services
rendered for the audit of the Company's annual financial
statements and review of financial statements included in the
Company's Form 10-Q reports.
Fiscal 2002 Fiscal 2003
----------- -----------
$236,634 $ 356,200
(b) Audit-Related Fees: Audit-related fees include benefit plan
audits.
Fiscal 2002 Fiscal 2003
----------- -----------
$34,500 $ 34,500
(c) Tax Fees: Tax fees include income tax consultation.
Fiscal 2002 Fiscal 2003
----------- -----------
$ 70,512 $ 49,900
17
(d) All Other Fees: All other fees relate to business consultation
for the Company's foreign subsidiaries. The Company did not
incur any fees relating to the design and implementation of
financial information systems in either fiscal 2002 or fiscal
2003.
Fiscal 2002 Fiscal 2003
----------- -----------
$ 0 $ 9,700
The Audit Committee of the Board of Directors has considered whether
provision of the services described in sections (b), (c) and (d) above is
compatible with maintaining the independent accountant's independence and has
determined that such services have not adversely affected Deloitte & Touche
LLP's independence.
The Company's Audit Committee has established procedures that prohibit
the Committee from engaging an independent auditor to perform any service that
the independent auditor is prohibited by the Securities laws from providing.
Such procedures also require the Audit Committee to pre-approve all permitted
non-audit services. None of the services performed by Deloitte & Touche LLP, as
described above, were required to be approved by the Audit Committee pursuant to
Rule 2-01(c)(7)(i)(C) of Regulation S-X.
Submission of the selection of the independent auditors to the
stockholders for ratification will not limit the authority of the Audit
Committee to appoint another independent certified public accounting firm to
serve as independent auditors if the present auditors resign or their engagement
otherwise is terminated. If the stockholders do not ratify the selection of
Deloitte & Touche LLP at the Annual Meeting, the Company intends to call a
special meeting of stockholders to be held as soon as practicable after the
Annual Meeting to ratify the selection of another independent certified public
accounting firm as independent auditors for the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
SELECTION OF DELOITTE & TOUCHE LLP.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's directors and executive officers, and certain
persons who own more than 10% of the Company's outstanding common stock, to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership in Layne Christensen common stock and other
equity securities. SEC regulations require directors, executive officers and
certain greater than 10% stockholders to furnish Layne Christensen with copies
of all Section 16(a) reports they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to Layne Christensen and written representations that no
other reports were required, during the fiscal year ended January 31, 2003, all
Section 16(a) filing requirements applicable to its directors, executive
officers and greater than 10% stockholders were met, except for Mr. Mehlhorn's
Statement of Changes in Beneficial Ownership on Form 4 for the month of June
2002, which was to be filed on or before July 10, 2002. Such report was filed on
July 11, 2002.
OTHER BUSINESS OF THE MEETING
The Board of Directors is not aware of, and does not intend to present,
any matter for action at the Annual Meeting other than those referred to in this
Proxy Statement. If, however, any other matter properly comes before the Annual
Meeting or any adjournment, it is intended that the holders of the proxies
solicited by the Board of Directors will vote on such matters in their
discretion in accordance with their best judgment.
ANNUAL REPORT
A copy of the Company's Annual Report to Stockholders, containing
financial statements for the fiscal year ended January 31, 2003, is being mailed
with this Proxy Statement to all stockholders entitled to vote at the Annual
Meeting. Such Annual Report is not to be regarded as proxy solicitation
material.
18
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED JANUARY 31, 2003 (THE "FORM 10-K"), EXCLUDING EXHIBITS, WILL BE FURNISHED
WITHOUT CHARGE TO ANY STOCKHOLDER OF RECORD AS OF APRIL 8, 2003, AS SOON AS IT
IS AVAILABLE, UPON WRITTEN REQUEST ADDRESSED TO THE ATTENTION OF THE SECRETARY
OF LAYNE CHRISTENSEN AT 1900 SHAWNEE MISSION PARKWAY, MISSION WOODS, KANSAS
66205. The Company's Form 10-K is also available on its website at
www.laynechristensen.com. Layne Christensen will provide a copy of any exhibit
to the Form 10-K to any such person upon written request and the payment of the
Company's reasonable expenses in furnishing such exhibits.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
It is presently anticipated that the 2004 Annual Meeting of
Stockholders will be held on May 27, 2004. Stockholder proposals intended for
inclusion in the proxy statement for the 2004 Annual Meeting of Stockholders
must be received at the Company's offices, located at 1900 Shawnee Mission
Parkway, Mission Woods, Kansas 66205, within a reasonable time before the
solicitation with respect to the meeting is made, but in no event later than
December 29, 2003. Such proposals must also comply with the other requirements
of the proxy solicitation rules of the Securities and Exchange Commission.
Stockholder proposals should be addressed to the attention of the Secretary or
Assistant Secretary of Layne Christensen.
By Order of the Board of Directors.
Steven F. Crooke
Vice President--General Counsel
and Secretary
May 7, 2003
Mission Woods, Kansas
19
APPENDIX A
AMENDED AND RESTATED CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF
LAYNE CHRISTENSEN COMPANY
I. PURPOSE
The primary function of the Audit Committee of the Board of Directors
(the "Board") of Layne Christensen Company (the "Company") is to assist the
Board in fulfilling its oversight of (a) the integrity of the Company's
financial statements, financial reporting process and internal control system,
(b) the Company's compliance with legal and regulation requirements, (c) the
independent auditor qualifications and independence, (d) the performance of the
Company's internal auditor function, if any, and independent auditors, and (e)
the system of internal controls and disclosure controls and procedures
established by management. The Audit Committee is expected to maintain and
encourage free and open communication with the independent auditors, the
internal auditors, if any, management of the Company and the Board, and should
foster adherence to, the Company's policies, procedures and practices at all
levels.
II. COMPOSITION OF THE AUDIT COMMITTEE
A. INDEPENDENCE. The Audit Committee shall be comprised of three
or more independent directors as determined by the Board. The Audit Committee
shall report to the Board. No member of the Audit Committee may be an
"affiliated person" of the Company or any of its subsidiaries or receive any
advisory, consulting or compensatory fee except as a Board member. Each member
shall also be free of any relationship that, in the opinion of the Board, would
interfere with their exercise of independent judgment as a member of the Audit
Committee. Examples of such relationships include, but are not limited to:
1. an Audit Committee member being employed by the
Company or any of its affiliates for the current year or any of the
past three years.
2. an Audit Committee member who accepts, directly or
indirectly, any compensation from the Company or any of its affiliates
during the previous fiscal year, other than compensation for service as
a member of the Board.
3. an Audit Committee member being a member of the
immediate family of an individual who is, or has been in any of the
past three years, employed by the Company or any of its affiliates as
an executive officer. "Immediate family member" includes a person's
spouse, parents, children, siblings, mother-in-law, father-in-law,
brother-in-law, sister-in-law, son-in-law, daughter-in-law, and anyone
who resides in such person's home.
4. an Audit Committee member who is a partner in, or a
controlling shareholder or an executive officer of, any organization to
which the Company made, or from which the Company received, payments
(other than those arising solely from investments in the Company's
securities) that exceed 5% of the organization's consolidated revenues
for that year, or $200,000, whichever is more, in the current or any of
the past three years.
5. an Audit Committee member being employed as an
executive of another entity where any of the Company's executives
serves on that entity's compensation or Audit Committee.
6. an Audit Committee member who owns or controls 20% or
more of the Company's common stock.
B. QUALIFICATIONS. All members of the Audit Committee shall have
a working knowledge of basic finance, accounting and auditing practices and
shall be capable of reading and understanding fundamental financial statements,
including a company's balance sheet, income statement and cash flow statement or
will be able to do so within a reasonable period of time after his or her
appointment to the Audit Committee. At least one member shall have accounting or
related financial management expertise.
Audit Committee members may enhance their familiarity with finance and
accounting by participating in educational programs conducted by the Company or
an outside consultant. The members of the Audit Committee shall be elected by
the Board at the annual organizational meeting of the Board and shall serve
until the next annual organizational meeting of the Board or until their
successors shall be duly elected and qualified.
C. CHAIRPERSON. The Board shall elect one member of the Audit
Committee to serve as the Chairperson. The Chairperson shall be responsible for
the overall leadership of the Audit Committee, including presiding over the
meetings,
i
reporting to the Board and acting as a liaison with the Chief Executive Officer,
the Chief Financial Officer and the lead independent audit partner.
III. MEETING REQUIREMENTS
Except as provided by Section IV.B.2, the Audit Committee shall meet at
least four times annually, or more frequently as circumstances dictate. During
at least two of these meetings, separate executive sessions will be held with
each of the independent auditors, and corporate management to discuss privately
any matters these groups or the Audit Committee deem necessary.
IV. RESPONSIBILITIES AND DUTIES
A. INDEPENDENT AUDITORS. The Audit Committee is responsible for
appointing, compensating, terminating and overseeing the work of the independent
auditors employed by the Company for the purpose of preparing and issuing an
audit report or related work. The independent auditors shall report directly to
the Audit Committee and shall, in all respects, be accountable to the Audit
Committee. Accordingly, the Audit Committee is responsible for:
1. Selecting the Company's independent auditors, after
considering their independence and effectiveness, and approving the
fees and other compensation to be paid to the independent auditors.
2. Reviewing the performance of the independent auditors
and approving any proposed discharge of the independent auditors when
circumstances warrant.
3. At least annually, consulting with the independent
auditors out of the presence of management about internal controls and
the fullness and accuracy of the Company's financial statements.
4. Resolving disagreements, if any, between management
and the independent auditors regarding financial reporting.
5. At least annually, reviewing and discussing with the
independent auditors all significant relationships they have with the
Company and obtaining a written statement from the independent auditors
to determine and confirm their independence in relation to the Company.
6. Reviewing and approving the overall nature and scope
of the audit process, receive and review all reports and
recommendations of the independent auditors and providing the auditors
complete access to the Audit Committee and the Board to discuss all
appropriate matters.
7. Approving all permitted non-audit services; provided,
however, the following services cannot be provided even with Audit
Committee approval, unless the Public Accounting Oversight Board
(established pursuant to the Sarbanes-Oxley Act of 2002) approves an
exemption on a case by case basis: (A) bookkeeping or other services
related to the accounting records or financial statements of the
issuer; (B) financial information systems design and implementation;
(C) appraisal or valuation services, fairness opinions or
contribution-in-kind reports; (D) actuarial services; (E) internal
audit outsourcing services; (F) management functions or human
resources; (G) broker-dealer, investment adviser, or investment banking
services; (H) legal services and expert services unrelated to the
audit; and (I) any other service that the Public Accounting Oversight
Board determines, by regulation is not permissible.
8. At least annually, obtaining and reviewing a report
by the independent auditors describing: (A) the firm's internal
quality-control procedures; and (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 years, respecting
one or more independent audits carried out by the firm, and any steps
taken to deal with any such issues.
B. FINANCIAL REPORTING PROCESS. The Audit Committee is
responsible for:
1. Reviewing and discussing with management and the
independent auditors the annual audited financial statements, including
any opinion, certification, annual report on Form 10-K submitted to the
SEC or other annual report sent to stockholders, along with the
Company's disclosures under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" to determine that they
are satisfied with the disclosures and content of the financial
statements for presentation to the stockholders and others.
2. Reviewing and discussing with management and the
independent auditors the quarterly financial statements, including any
opinion, certification, quarterly report on Form 10-K submitted to the
SEC or other quarterly report sent to stockholders, along with the
Company's disclosures under "Management's Discussion and Analysis of
ii
Financial Condition and Results of Operations" to determine that they
are satisfied with the disclosures and content of the financial
statements for presentation to the stockholders and others; provided,
however, this review and discussion may be performed by the entire
Audit Committee or, in the alternative, the Chairperson of the Audit
Committee or designee Audit Committee member, and other members as
deemed appropriate by the Chairperson.
3. Reviewing and discussing with management earnings
press releases (paying particular attention to any use of "pro forma,"
or "adjusted" non-GAAP, information), as well as financial information
and earnings guidance provided to analysts and rating agencies.
4. Discussing with management and the independent
auditors the content of the Company's financial statements including
quality of earnings, review of reserves and accruals, suitability of
accounting principles, quality and adequacy of internal controls and
disclosure controls and procedures, review of highly judgmental areas,
recorded and unrecorded audit adjustments and other inquiries as may be
appropriate.
5. Instructing management and the independent auditors
to notify at least one member of the Audit Committee prior to the date
the Company issues its quarterly press release as to whether or not
either management or the independent auditors are aware of any of the
following matters and, if so, the details regarding any matter:
a. A change in a significant accounting policy.
b. A change in the process for determining
significant estimates.
c. Significant adjustments as a result of the
limited review by the independent auditors.
d. Disagreements between the independent
auditors and management regarding accounting principles,
estimates, scope of work or disclosures.
C. PROCESS IMPROVEMENT. In conjunction with the Audit Committee's
review of financial statements and reports, the Audit Committee shall:
1. Obtain and review reports from Management regarding
internal controls and disclosure controls and procedures.
2. Obtain and review reports submitted by the
independent auditors regarding the Company's critical accounting
policies and alternative treatment of financial information.
3. Obtain and review information from each of management
and/or the independent auditors regarding any significant management
judgments or significant adjustments made in preparation of the
financial statements and the view of each as to appropriateness of such
judgments and adjustments.
4. Discuss policies with respect to risk assessment and
risk management.
5. Meet separately with management, with internal
auditors, if applicable, and with independent auditors, in each case,
on a periodic basis.
6. Review with the independent auditor any audit
problems or difficulties and management's response.
7. Set clear policies for the Company with respect to
hiring employees or former employees of the independent auditors.
8. If an internal audit function is maintained, the
following should be performed:
a. Maintain free and open communication between
the Audit Committee and the staff performing the internal
audit function to confirm and ensure their continual
independence and objectivity.
b. Review the overall internal audit function
of the Company including the Internal Audit Charter, reporting
obligations and the qualifications of the internal audit
employees.
c. Review the proposed internal audit plan on
an annual basis, and continually monitor the department's
performance against the plan.
iii
d. Review all internal audit reports to be
aware of any potentially significant issues or control
weaknesses and corporate management's responses to these
issues.
9. If an internal audit function is not maintained,
ensure management has taken the necessary steps (i.e., outsourcing,
internal reviews, etc.) to ensure appropriate internal control reviews
are performed.
D. ETHICAL AND LEGAL COMPLIANCE. The Audit Committee shall:
1. Adopt and implement a policy to receive, handle,
retain complaints regarding accounting, internal controls, disclosure
controls and procedures or auditing matters, keep confidential certain
complaints, and keep confidential the identity of certain employees
making such complaints.
2. Investigate, as it deems appropriate, any matter
brought to its attention, with full power to retain outside counsel or
other experts for this purpose, as deemed necessary.
3. Review, with the Company's counsel, legal compliance
matters including corporate securities trading policies.
4. Review, with the Company's counsel, any legal matter
that could have a significant impact on the Company's financial
statements.
5. Perform any other activities consistent with this
Charter, the Company's Bylaws and governing law, as the Audit Committee
or the Board deems necessary or appropriate.
E. OTHER FUNCTIONS. The Audit Committee shall also:
1. As appropriate, obtain advice and assistance from
outside legal, accounting or other advisors.
2. Perform annual evaluation of its performance which
encompasses: (A) major issues regarding accounting principles and
financial statement presentations, including any significant changes in
the Company's selection or application of accounting principles, (B)
major issues as to the adequacy of the Company's internal controls,
disclosure controls and procedures and any special audit steps adopted
in light of material control deficiencies, (C) analyses prepared by
management and/or the independent auditor setting forth significant
financial reporting issues and judgments made in connection with the
preparation of the financial statements, including analyses of the
effects of alternative GAAP methods on the financial statements, (D)
the effect of regulatory and accounting initiatives, as well as
off-balance sheet structures, on the financial statements of the
Company, and (E) earnings press releases (paying particular attention
to any use of "pro forma," or "adjusted" non-GAAP, information), as
well as financial information and earnings guidance provided to
analysts and rating agencies,
3. Review, reassess and approve the adequacy of the
Audit Committee Charter on an annual basis and adopt amendments as
needed.
4. Prepare minutes of all Audit Committee meetings and
regularly report all Audit Committee activities to the full Board of
Directors with the issuance of an annual Audit Committee Report to be
included in the proxy statement for submission to the shareholders.
5. Review with corporate management, the independent
auditors and the internal auditors, if applicable, any legal matters,
risks or exposures that could have a significant impact on the
financial statements and what steps management has taken to minimize
the Company's exposure.
iv
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY
2003 ANNUAL MEETING OF STOCKHOLDERS OF LAYNE CHRISTENSEN COMPANY
The undersigned hereby appoints Robert J. Dineen, Andrew B. Schmitt and
Steven F. Crooke, and each of them, each with the power to act alone and
with full power of substitution and revocation, as attorneys and proxies of
the undersigned to attend the 2003 Annual Meeting of Stockholders of Layne
Christensen Company ("Layne Christensen") to be held at the Corporate
Headquarters of Layne Christensen, located at 1900 Shawnee Mission Parkway,
Mission Woods, Kansas, on Thursday, June 5, 2003, commencing at 10:00 a.m.,
local time, and at all adjournments thereof, and to vote all shares of
capital stock of Layne Christensen which the undersigned is entitled to
vote with respect to the following matters, all as set forth in the Notice
of Annual Meeting of Stockholders and Proxy Statement, dated May 7, 2003:
THE BOARD OF DIRECTORS OF LAYNE CHRISTENSEN RECOMMENDS A VOTE "FOR" EACH
ITEM.
Item 1: Election of two Class II directors to hold office for terms
expiring at the 2006 annual meeting of stockholders.
[ ] FOR the nominees listed below [ ] WITHHOLD AUTHORITY to
vote for the nominees listed
below
NOMINEES: Robert J. Dineen, David A. B. Brown
Item 2: Proposal to ratify the selection of the accounting firm of Deloitte
& Touche LLP as Layne Christensen's independent auditors for the
fiscal year ending January 31, 2004.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be signed, on other side)
(Continued from other side)
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder(s). IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" ITEMS 1 AND 2.
Dated: _________________________, 2003
---------------------------
Signature
---------------------------
Signature (if held jointly)
Please sign exactly as name
appears hereon. When shares
are held by joint tenants,
both should sign. When
signing as an attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If
a corporation, please sign
in full corporate name by
President or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE PREPAID ENVELOPE.