UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Federal Signal Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
--------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[FEDERAL SIGNAL CORPORATION LOGO]
1415 WEST 22ND STREET
OAK BROOK, ILLINOIS 60523
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 2004
To the Stockholders of
Federal Signal Corporation:
The Annual Meeting of Shareholders of Federal Signal Corporation
("Federal") for the year 2004 will be held at the Marriott Hotel-Oak Brook, 1401
West 22nd Street, Oak Brook, Illinois, on Friday, April 30, 2004, at 11:00 a.m.,
local time, for the following purposes:
1. To elect three directors of Federal;
2. To ratify the appointment of Ernst & Young LLP as our independent
public accountants for 2004; and
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business, March 2, 2004, as
the record date for determining the holders of Common Stock of Federal entitled
to notice of and to vote at the meeting or any adjournment thereof.
A copy of Federal's Financial Statements and its Annual Report for the year
ended December 31, 2003 and a Proxy Statement accompany this notice.
IMPORTANT! TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING,
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED.
NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.
By order of the Board of Directors,
JENNIFER L. SHERMAN
Secretary
March 10, 2004
[FEDERAL SIGNAL CORPORATION LOGO]
1415 WEST 22ND STREET
OAK BROOK, ILLINOIS 60523
MAILING DATE
ON OR ABOUT
MARCH 15, 2004
------------------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 2004
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Federal Signal Corporation ("Federal" or
the "Company") for use at the Annual Meeting of Shareholders to be held on
Friday, April 30, 2004 and any adjournment thereof for the purposes set forth in
the preceding Notice of Annual Meeting of Shareholders. Costs of solicitation
will be borne by Federal. Following the original solicitation of proxies by
mail, certain officers and regular employees of Federal may solicit proxies by
correspondence, telephone, e-mail, or in person, but without extra compensation.
Federal will reimburse brokers and other nominee holders for their reasonable
expenses incurred in forwarding the proxy materials to the beneficial owners.
Each proxy solicited herewith will be voted as to each matter as the
stockholder directs thereon, but in the absence of such directions it will be
voted for the nominees specified herein and for the ratification of the
appointment of Ernst & Young LLP as Federal's independent public accountants for
2004. If the appointment is not ratified, the Board will consider whether it
should select other independent auditors. Any proxy solicited herewith may be
revoked by the stockholder at any time prior to the voting thereof, but a
revocation will not be effective until satisfactory evidence thereof has been
received by the Secretary of Federal.
VOTING SECURITIES
The holders of record of the Common Stock of Federal at the close of
business on March 2, 2004 will be entitled to vote at the meeting. At such
record date, there were outstanding 48,064,603 shares of Common Stock. A
majority of the outstanding shares, present in person or by proxy, will
constitute a quorum at the meeting. Abstentions and broker non-votes are counted
to determine if a quorum is present. Abstentions are counted as votes cast,
whereas broker non-votes are not counted as votes cast for determining whether a
proposition has been approved. Each stockholder of record will be entitled to
one vote for each share of Common Stock standing in the name of the holder on
the books of Federal on the record date. A plurality of votes cast at the
meeting is required for the election of directors and approval of a majority of
shares entitled to vote is required for the ratification of Ernst & Young LLP as
the Company's independent public accountants and for all other matters submitted
to shareholders for a vote. Stockholders do not have the right to cumulate votes
in the election of directors.
1
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS
The following table sets forth information as of December 31, 2003 with
respect to (i) any person who is known to Federal to be the beneficial owner of
more than 5% of Federal's Common Stock, which is Federal's only class of
outstanding voting securities, and (ii) each director and executive officer, and
all directors and executive officers as a group:
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OWNERSHIP(2) CLASS(3)
---- ------------ ----------
Beneficial Owners of more than 5% of Federal's Common
Stock:.................................................... none .00%
Each Director and the Named Executive Officers and Directors
and Named Executive Officers as a Group:(1)
Charles R. Campbell, Director.......................... 41,137 .08%
Robert M. Gerrity, Director............................ 296 .00%
Robert S. Hamada, Director............................. 734 .00%
James C. Janning, Director............................. 17,000 .03%
Paul W. Jones, Director................................ 22,586 .05%
Walden W. O'Dell, Director............................. 619 .00%
Joan E. Ryan, Director................................. 681 .00%
Joseph J. Ross, Director and Executive Officer......... 1,365,513 2.81%
Richard R. Thomas, Director............................ 123,348 .25%
Robert D. Welding, Director and Executive Officer...... 0 .00%
Stephanie K. Kushner, Executive Officer................ 21,294 .04%
Andrew E. Graves, Executive Officer.................... 11,200 .02%
Kim A. Wehrenberg, Executive Officer................... 291,604 .60%
Richard L. Ritz, Executive Officer..................... 113,627 .23%
Karen N. Latham, Executive Officer..................... 7,525 .02%
All Directors and Executive Officers as a group (15
persons)............................................. 2,017,164 4.15%
------------
(1) The information contained in this table is based upon information furnished
to Federal by the individuals named above. Except as set forth in the
following footnotes, each director claims sole voting and investment power
with respect to these shares.
(2) These figures include options shares exercisable within 60 days of December
31, 2003 as follows: Mr. Campbell, 8,500; Mr. Janning, 7,000; Mr. Thomas,
8,500; Mr. Jones, 9,131; Mr. Ross, 570,000; Mr. Wehrenberg, 66,500; and Mr.
Ritz, 54,500. These figures also include stock award shares pursuant to
Federal's Stock Benefit Plan which are subject to certain restrictions under
the plan as follows: Mr. Ross, 35,000; Ms. Kushner, 12,500; Mr. Wehrenberg,
10,500; Mr. Ritz, 7,375; and Ms. Latham, 5,000.
(3) Based upon 47,918,000 shares of Common Stock issued and outstanding as of
December 31, 2003 and, for each director or executive officer or the group,
the number of shares subject to options exercisable by such director or
executive officer of the group within 60 days of December 31, 2003.
ELECTION OF DIRECTORS
Federal's Board of Directors consists of nine directors divided into three
classes with one class term expiring each year. Upon the retirement of Mr.
Richard R. Thomas at the Annual Meeting, the Board of Directors will consist of
eight members. Messrs. Robert M. Gerrity, Robert S. Hamada and Walden W. O'Dell
are nominated as directors for election at this Annual Meeting for a term to
expire at the 2007 Annual
2
Meeting or until their successors are elected and qualified. The Board of
Directors recommends a vote for the election of Messrs. Gerrity, Hamada and
O'Dell as directors.
The accompanying proxy card permits a stockholder to direct whether his or
her shares are to be voted for or withheld from the vote for the nominees and to
vote for, against or abstain with regard to the ratification of Ernst & Young
LLP as Federal's independent public accountants for 2004. Each proxy will be
voted as the stockholder directs thereon; however, if no such direction is
given, it is the present intention of the persons named in the proxy card to
vote such proxies for the election of the above-named nominees as directors and
for the ratification of Ernst & Young LLP as Federal's independent public
accountants for 2004. If on account of death or unforeseen contingencies a
nominee shall not be available for election, the persons named in the proxy will
vote the proxies for such other person(s) as the Nominating and Governance
Committee may nominate as directors so as to provide a full board. The three
nominees receiving the highest number of votes cast will be elected as
directors.
Information regarding the nominees for election and the directors
continuing in office is set forth below:
YEAR FIRST YEAR PRESENT PRINCIPAL OCCUPATION
BECAME TERM OR EMPLOYMENT FOR
NAME AGE DIRECTOR EXPIRES LAST FIVE YEARS(1)
---- --- ---------- ------------ --------------------
NOMINEES:
Robert M. Gerrity....... 66 2003 2007 Mr. Gerrity is a director and a principal in
Gerrity Partners, a consulting business. He is
also Chairman of the Industrial Group of Glencoe
Capital, a private equity firm. He is a director
of Standard Motor Products, Inc., an automotive
parts manufacturer, Rimrock Corporation, an
automation company, and Polyair Corporation, a
specialty packaging company. Mr. Gerrity was
recommended to be director by an employee of the
Company.
Robert S. Hamada........ 66 2003 2007 Mr. Hamada is the Edward Eagle Brown
Distinguished Service Professor of Finance
Emeritus, University of Chicago Graduate School
of Business. He is a director of Northern Trust
Corporation, a financial services company, A.M.
Castle & Co., a metal products company, and
Fleming Companies, Inc., a wholesale grocery
distributor. Mr. Hamada was recommended to be a
director by an independent director.
Walden W. O'Dell........ 58 2001 2007 Mr. O'Dell has been Chairman, President and
Chief Executive Officer of Diebold,
Incorporated, a provider of integrated
self-service delivery systems, security
solutions and services, since 2000 and President
and CEO since 1999. Mr. O'Dell is a director of
Lennox International Inc., a HVAC product
company.
CONTINUING DIRECTORS:
Charles R. Campbell..... 64 1998 2005 Mr. Campbell is a principal in The Everest
Group, a management consulting firm. He is a
director of Home Products International, Inc., a
houseware products company.
Paul W. Jones........... 55 1998 2005 On January 1, 2004, Mr. Jones became President
and Chief Operating Officer of A.O. Smith
Corporation, a manufacturer of water heating
systems and electric motors. Mr. Jones retired
in November 2002 as Chairman, President and
Chief Executive Officer of U.S. Can Company,
positions he held since April 1998.
3
YEAR FIRST YEAR PRESENT PRINCIPAL OCCUPATION
BECAME TERM OR EMPLOYMENT FOR
NAME AGE DIRECTOR EXPIRES LAST FIVE YEARS(1)
---- --- ---------- ------------ --------------------
James C. Janning........ 56 1999 2006 Mr. Janning is Group President of Harbour Group,
Ltd., a diversified holding company, and has
held various executive positions at Harbour
Group since 1987. Mr. Janning is also a director
of Menasha Corp., a manufacturing and printing
company, and a director and Chairman of Menasha
Forest Products Corp., a forestry business.
Robert D. Welding....... 55 2003 2006 Mr. Welding was elected President and Chief
Executive Officer of Federal effective December
1, 2003. Prior to joining Federal, Mr. Welding
was Executive Vice President of BorgWarner Inc.
and group president of its Driveline Group,
automotive parts businesses. Mr. Welding was
recommended to be a director by a third-party
search firm.
Joan E. Ryan............ 47 2002 2006 Ms. Ryan is Senior Vice President and Chief
Financial Officer of SIRVA, Inc., a global
relocation services company. She was Executive
Vice President and Chief Financial Officer of
Tellabs, Inc., a communication innovative
bandwidth company, from 2000 until 2003. She was
Senior Vice President and Chief Financial
Officer of Alliant Foodservice Corporation, a
broad line foodservice distributor, from 1998 to
2000.
------------
(1) The information contained in this table is based upon information furnished
to Federal by the individuals named above.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has determined that all of Federal's directors
except Mr. Ross, the former Chairman and Chief Executive Officer, and Mr.
Welding, the current President and Chief Executive Officer, qualify as
independent directors. This determination was made in accordance with the New
York Stock Exchange and Securities and Exchange Commission rules and a review of
all pertinent relationships between each director and the Company. In connection
with making this determination, the Board of Directors reviewed information
including director questionnaires, business conduct questionnaires and other
certifications concerning the relationships between the Directors and the
Company and any director relationships.
Pursuant to its by-laws, Federal has established standing audit, nominating
and governance, compensation and benefits, and executive committees.
The Board of Directors has adopted a revised Charter for the Audit
Committee, attached as Exhibit A, to comply with the requirements of the New
York Stock Exchange and the Sarbanes-Oxley Act. The Audit Committee is
responsible for monitoring (1) the integrity of the financial statements of the
Company, (2) the independent auditor's qualifications and independence, (3) the
performance of the Company's internal audit function and independent auditors,
and (4) the compliance by the Company with legal and regulatory requirements,
including the Company's Code of Business Conduct for all employees and Code of
Ethics for the Chief Executive Officer and senior financial officers. In
fulfilling its role, the Audit Committee reviews the design and operation of
internal control processes and the manner in which the Company controls its
major financial risk exposures. The Audit Committee has direct and regular
access to the Company's financial executives, including the internal auditor and
the Chief Financial Officer, and the independent auditor. The Audit Committee
has the sole authority to appoint or replace the independent auditor and is
directly responsible for the compensation and oversight of the work of the
independent auditor. In addition, the Audit Committee considers and approves the
performance of non-audit services by such accountants, taking into consideration
the effect which the performance of these services may have upon the
independence of the
4
accountants. The by-laws prohibit a director who is also an employee of Federal
from serving on the Audit Committee. The Board of Directors has determined that
all of the members of the Audit Committee are independent as defined under the
applicable New York Stock Exchange and Securities and Exchange Commission rules.
The members of the Audit Committee are Joan Ryan, Chair, Charles Campbell,
Robert Hamada, and Richard Thomas. The Board of Directors has determined that
Mr. Campbell and Ms. Ryan qualify as "audit committee financial experts" as
defined by the Securities and Exchange Commission. None of the Audit Committee
members serves on more than three Audit Committees.
The Nominating and Governance Committee is responsible for recommending
guidelines to the Board of Directors for the governance of the Company,
including the structure and function of the Board of Directors and its
committees and the management of the Company, as well as identification and
recommendation to the Board of Directors of candidates to be elected as
directors. Shareholders can nominate candidates for election as directors at
shareholder meetings by giving at least 30 days advance written notice to the
Secretary of the Company along with setting forth the following information
required by the Securities and Exchange Commission rules with respect to the
nominee: name, age, business and residence addresses, principal occupation or
employment, the number of Company shares beneficially owned and a consent to
serve as a director if elected that would be required for a nominee under the
Securities and Exchange Commission rules. The nominating procedure is set forth
in detail in the Company's by-laws which can be reviewed on the Company's
website. No procedure has been adopted by the Committee for considering the
recommendation of director nominees by stockholders, but the Committee will
consider stockholder nominees for new directorship on the same basis as other
nominees. The Committee has set no specific minimum qualification for a nominee,
but the Committee considers the current make-up of the Board of Directors, the
skills and business experience of the particular nominee, and the potential
value the nominee would add to the Board of Directors. In addition, the Board of
Directors has determined that all of the members of the Nominating and
Governance Committee are independent as defined under the applicable New York
Stock Exchange rules. The members of the Nominating and Governance Committee are
Robert Hamada, Chairman, James Janning, Paul Jones and Walden O'Dell.
The Compensation and Benefits Committee reviews and recommends to the Board
of Directors policies, practices and procedures relating to the compensation of
managerial employees, including the Chief Executive Officer and other officers,
and the establishment, investment of funds, and administration of employee
benefit plans. The members of the Compensation and Benefits Committee are Paul
Jones, Chairman, James Janning, Charles Campbell and Robert Gerrity.
During 2003, the Board of Directors held a total of five meetings and the
Executive Committee of the Board, which generally exercises the power and
authority of the Board in the intervals between full board meetings, held one
meeting. The members of the Executive Committee are Robert Welding, Chairman,
Robert Hamada, Paul Jones and Joan Ryan. During 2003, the Compensation and
Benefits Committee held five meetings; the Nominating and Governance Committee
held nine meetings; and the Audit Committee held six meetings. No director
attended less than 75% of the meetings of the Board and of each committee of
which he or she was a member.
Directors (other than the Chairman of the Board) who are not officers of
Federal receive the following compensation. Directors receive an annual retainer
of $29,500 and a $1,000 fee for each Board meeting they attend. They also
received an initial grant of 5,000 shares of stock options, plus 4,000 shares of
stock options per year. The Directors receive the following annual retainers for
committee membership: Audit; Chairman -- $12,000, Member -- $9,000; Compensation
and Benefits; Chairman -- $9,000, Member -- $6,000; Nominating and Governance;
Chairman -- $9,000, Member -- $6,000; Executive -- $2,000. All directors may
elect to receive stock options or stock awards in lieu of cash fees as described
in the Stock Benefit Plan. Directors are also reimbursed for their expenses
relating to attendance at meetings and receive $500 for each Board meeting they
participate in by telephone.
Effective January 1, 2004, the non-executive Chairman of the Company
receives the following compensation: an annual retainer of $59,000 and Board
Meeting fees of $2,000 per meeting; the same committee fees and annual stock
option grants as the other directors; a stock award grant equivalent to
5
$80,000 (to the nearest 100 shares) which shall vest 25% per year and a per diem
of $2,500, up to a maximum of $150,000 per year, for days he or she does
Chairman work for the Company.
CORPORATE GOVERNANCE
Federal is committed to good corporate governance. The foundation of
Federal's corporate governance is the independence of our directors, being a
good corporate citizen and a commitment to our shareholders' interests. In
accordance with the requirements of the New York Stock Exchange and the
Sarbanes-Oxley Act, the Board of Directors of Federal has adopted Corporate
Governance Guidelines as well as charters for the Nominating and Governance
Committee, the Compensation and Benefits Committee and the Audit Committee.
These guidelines and charters, as well as the Business Conduct Policy and the
Code of Ethics, are available for review on Federal's website at
http://www.federalsignal.com. In addition, the guidelines and charters are
available in print to any shareholder who requests them in writing from the
Secretary at the address provided below. The non-management directors meet in
regular executive session without management. The Chairman of the Nominating and
Governance Committee acts as the presiding director of executive sessions.
Directors may be contacted as a group, by committee or individually, and the
presiding director or the non-management directors as a group may be contacted,
on an anonymous and/or confidential basis, by addressing a letter to Federal
Signal Corporation, P.O. Box 98277, Chicago, IL 60693, Attn: Secretary. All such
letters will be forwarded to the directors. The Company's policy is for
directors to attend the annual shareholders meeting. All directors attended last
year's meeting.
6
EXECUTIVE COMPENSATION
The following is the Summary Compensation Table for the Chief Executive
Officers, the four other most highly compensated executive officers of Federal
in fiscal year 2003 and one other individual who would have been one of the four
most highly compensated executive officers had he remained an executive officer
of Federal as of December 31, 2003 (collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
--------------------------------------------- STOCK UNDERLYING
OTHER ANNUAL AWARDS OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) ($)(4) SARS(#) COMPENSATION($)(5)
--------------------------- ---- --------- -------- --------------- ---------- ---------- ------------------
Robert D. Welding........ 2003 50,000 0 0 0 100,000 0
President and Chief
Executive Officer(1)
Joseph J. Ross........... 2003 590,000 256,200(3) 0 0 100,000 6,000
Chairman and Chief 2002 570,000 218,538 0 912,200 20,000 20,593
Executive Officer(2) 2001 550,000 123,833 0 418,200 80,000 27,044
Andrew E. Graves......... 2003 28,333 0 0 0 0 352,917(6)
President and Chief 2002 340,000 86,904 0 185,680 25,000 6,966
Operating Officer(6) 2001 298,000 80,467 100,000 405,000 70,000 5,348
Stephanie K. Kushner..... 2003 245,000 29,400 0 78,250 45,000 6,406
Vice President and 2002 195,833 137,769 0 256,700 25,000 1,762
Chief Financial
Officer(7)
Kim A. Wehrenberg........ 2003 205,000 18,450 0 78,250 10,000 6,704
Vice President, General 2002 199,000 47,103 0 139,260 10,000 7,084
Counsel and Secretary(8) 2001 192,000 38,894 0 83,640 10,000 7,407
Richard L. Ritz.......... 2003 153,750 24,100 0 50,080 6,000 5,564
Vice President and 2002 150,000 31,725 0 104,445 6,000 5,215
Controller 2001 145,000 24,478 0 66,912 16,000 5,100
Karen N. Latham.......... 2003 150,000 13,500 0 0 0 2,406
Vice President and 2002 21,154 10,375 0 89,500 10,000 0
Treasurer(9)
------------
(1) Mr. Welding's employment with the Company began on November 29, 2003.
(2) Mr. Ross retired as Chief Executive Officer effective December 1, 2003 and
as Chairman on January 15, 2004.
(3) Mr. Ross was paid a bonus of $150,000 for the sale of the Company's sign
business and a bonus of $106,200 related to his employment in 2003.
(4) Stock awards generally vest 25% on each anniversary date after the date of
grant. The number and aggregate value of unvested stock awards as of
December 31, 2003 were: for Mr. Ross 35,000 shares ($613,200), for Ms.
Kushner 12,500 shares ($219,000), for Mr. Ritz 7,375 shares ($129,210), for
Mr. Wehrenberg 10,500 shares ($183,960), for Ms. Latham 5,000 shares
($87,600) and for Mr. Graves 0 shares. Dividends are paid at the regular
rate to these people on the unvested shares.
(5) This compensation includes the Company-matching contribution under Federal's
401(k) savings plan, in which most employees participate, and the
supplemental savings plan. Federal has a supplemental savings plan that
allows executives to receive the 3% match (the same percentage as other
employees) that they do not receive under the 401(k) plan because of the
definition of compensation. The supplemental plan also allows the executives
to tax-defer some of their other compensation, but the Company does not make
any additional matching contribution. The deferred compensation and 3%
company matching contribution are invested in Federal Signal stock on behalf
of the employees. This other compensation breaks out as follows for 401(k)
match and supplemental match, respectively: Mr. Welding $0, $0; Mr. Ross
$6,000,
7
$0; Ms. Kushner $3,300, $3,106; Mr. Wehrenberg $6,000, $704; Mr. Graves $0,
$0; Mr. Ritz $5,564, $0; Ms. Latham $2,406, $0.
(6) Mr. Graves left Federal effective January 31, 2003. He received $385,000
over the following 12 months for services he performed and pursuant to his
employment contract which is reflected in the column All Other Compensation.
(7) Ms. Kushner's employment with Federal began on March 1, 2002.
(8) Mr. Wehrenberg resigned as an executive officer on March 1, 2004.
(9) Ms. Latham's employment with Federal began on November 11, 2002.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option grants
made to the Named Officers in the year ended December 31, 2003.
GRANT DATE
INDIVIDUAL GRANT VALUE
--------------------------------------------------------------------------------------- -------------
PERCENT OF
NUMBER OF TOTAL OPTIONS GRANT DATE
SECURITIES GRANTED TO PRESENT VALUE
UNDERLYING EMPLOYEES IN EXERCISE OR BASED ON
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION BLACK-SCHOLES
NAME GRANTED(#) (%) ($/SH) DATE METHOD(1)
---- ---------- ------------- ----------- ---------- -------------
Robert D. Welding............... 100,000(2) 18 $15.10 11/28/2013 $385,000
Joseph J. Ross.................. 100,000(3) 18 $14.38 2/28/2013 224,000
Andrew E. Graves................ -- -- -- -- 0
Richard L. Ritz................. 6,000(2) 1 $15.65 2/6/2013 16,320
Stephanie K. Kushner............ 20,000(2) 4 $15.65 2/6/2013 54,400
25,000(2) 5 $14.48 10/30/2013 97,250
Kim A. Wehrenberg............... 10,000(4) 2 $15.65 2/6/2013 27,200
Karen N. Latham................. -- -- -- -- 0
------------
(1) The following assumptions were used under the Black-Scholes method:
Volatility .28; risk free rate of return 2.7%; dividend yield ranging from
2.7% to 5.6%; and expected life 8 years.
(2) The option vests in full three years from the date of grant.
(3) The option vests in full on retirement.
(4) The option was cancelled as a result of the Agreement with Mr. Wehrenberg
described in the section Certain Agreements.
8
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE
The following table sets forth information with respect to the number of
exercisable and unexercisable stock options held by the Named Officers at
December 31, 2003, as well as the value of such stock options having an exercise
price lower than the last reported trading price of the Common Stock on December
31, 2003:
VALUE OF
NO. OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
SHARES AT FY-END(#) FY-END($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- ----------- --------------- ------------------- ----------------
Robert D. Welding.................. 0 0 0/100,000 0/242,000
Joseph J. Ross..................... 0 0 470,000/0 401,450/0
Andrew E. Graves................... 0 0 0/0 0/0
Richard L. Ritz.................... 0 0 51,500/25,000 11,660/11,220
Stephanie K. Kushner............... 0 0 0/70,000 0/198,900
Kim A. Wehrenberg.................. 0 0 61,500/25,000 23,320/18,700
Karen N. Latham.................... 0 0 0/10,000 0/0
------------
(1) Market value of underlying securities at exercise, minus the exercise or
base price.
(2) "Spread" calculated by subtracting the exercise or base price from the
closing stock price of $17.52 on December 31, 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about equity compensation plans
of Federal as of December 31, 2003:
PLAN CATEGORY (B) (C)
--------------------------------------- (A) WEIGHTED NUMBER OF SECURITIES
NUMBER OF SECURITIES AVERAGE EXERCISE REMAINING AVAILABLE FOR
EQUITY COMPENSATION TO BE ISSUED UPON PRICE OF FUTURE ISSUANCE
PLANS APPROVED BY EXERCISE OF OUTSTANDING (EXCLUDING SECURITIES
SECURITY HOLDERS OUTSTANDING OPTIONS OPTIONS REFLECTED IN COLUMN (A))
--------------------------------------- -------------------- ---------------- ------------------------
1988 Stock Benefit Plan................ 268,824 $22.29 0
(1996) Stock Benefit Plan.............. 2,161,835 $19.78 1,242,543
Equity Compensation Plans not approved
by security holders.................. The company has no such plans.
--------------------------------------- -------------------- ---------------- ------------------------
Total.................................. 2,430,659 $20.06 1,242,543
RETIREMENT PLANS
Federal's Retirement Plan provides retirement benefits for many salaried
and hourly employees including officers. Contributions are made on an actuarial
group basis, and no specific amount of contributions is set aside for any
individual participant. The following table sets forth the approximate annual
pension benefit based on years of service and compensation, but does not reflect
dollar limitations under the Internal Revenue Code, as amended, which limits the
annual benefits which may be paid from a tax-qualified retirement plan.
9
Mr. Ross is covered by Federal's supplemental pension plans; amounts in excess
of the qualified plan limitations will be paid from the general funds of
Federal, pursuant to the terms of the supplemental plans.
PENSION PLAN TABLE
APPROXIMATE ANNUAL STRAIGHT-LIFE ANNUITY
PENSION UPON RETIREMENT AT 65
AVERAGE ANNUAL COMPENSATION FOR THE --------------------------------------------------------------
FIVE CONSECUTIVE CALENDAR YEARS OF THE 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
LAST TEN FOR WHICH COMPENSATION IS HIGHEST OF SERVICE OF SERVICE OF SERVICE OF SERVICE OF SERVICE
------------------------------------------ ---------- ---------- ---------- ---------- ----------
$300,000................................. $ 50,000 $ 75,000 $100,000 $125,000 $150,000
400,000................................. 66,667 100,000 133,334 166,167 200,000
500,000................................. 83,334 125,000 166,667 208,334 250,000
600,000................................. 100,000 150,000 200,000 250,000 300,000
700,000................................. 116,667 175,000 233,333 291,667 350,000
800,000................................. 133,333 200,000 266,667 333,334 400,000
900,000................................. 150,000 225,000 300,000 375,000 450,000
The amount of pension benefits is reduced by one-half of the amount of
available individual social security benefits. Estimated credited years of
service are as follows: Mr. Welding, 0; Mr. Ross, 19.5, Ms. Kushner, 1; Mr.
Wehrenberg, 16; Mr. Graves, 1; Mr. Ritz, 18.5; and Ms. Latham, .5.
The maximum benefit under the qualified Retirement Plan is $100,000 less
one-half of social security payments. For purposes of the Retirement Plan, an
employee's compensation is his Annual Compensation as set forth in the Summary
Compensation Table.
Mr. Ross retired on January 31, 2004. He will receive payments under the
qualified retirement plan of $37,047 annually as a single life annuity and
$131,335 annually as a single life annuity under the Company's Supplemental
Pension for Designated Management Employees. He will also receive $89,800 for 15
years under the Company's Retirement Survivor and Disability Plan for Key
Employees. Mr. Graves' pension and supplemental pension benefits were forfeited
when he left the Company on January 31, 2003. Ms. Kushner may receive a
supplemental pension payment upon retirement on or after age 57. She is entitled
to a $25,000 annual supplemental payment after five years of employment with the
Company. This annual supplemental payment will increase by $5,000 for each year
she works after five years of employment up to a maximum of $50,000 per year as
a supplemental pension payment beginning on or after age 57.
CERTAIN AGREEMENTS
Mr. Ross retired on January 31, 2004. The Company, in accordance with
instructions from the Board of Directors, entered into an agreement with Mr.
Ross with the following provisions. The Company cancelled 35,000 shares of
unvested stock awards that had previously been granted to Mr. Ross and cancelled
his employment agreement. The Company granted Mr. Ross 100,000 shares of stock
options at market price, which vested immediately and can be exercised for five
years after retirement, the same exercise period as the stock options granted to
Mr. Ross in 2001 and 2002. The exercise periods for the rest of the stock
options previously granted to Mr. Ross were extended to three years after
retirement or the life of the stock options, whichever is shorter. 30,000 shares
of unvested stock options granted in 2001 and 20,000 shares of unvested stock
options granted in 2002 were vested, and the 100,000 shares of stock options
granted in 2000 automatically vested upon Mr. Ross' retirement. Mr. Ross assumed
the lease on his company car and the amount of a life insurance policy in excess
of cash value of the policy (the cash value was retained by the Company) with a
benefit of up to $1,000,000 was assigned to Mr. Ross. Mr. Ross will be paid
$2,000 per day for consulting. The company anticipates using less than 10 days
of consulting services. Mr. Ross also has director retiree medical insurance in
accordance with the Company's plan. Mr. Ross agreed not to compete with the
Company for five years. Mr. Ross also has pension benefits as set forth under
"Retirement Plans" on page 9 which were not affected by his Retirement
Agreement. The Company's accounting cost for this Retirement Agreement is about
$46,000.
10
Mr. Wehrenberg resigned as an executive officer on March 1, 2004. The
Company, in accordance with instructions from the Board of Directors, entered
into an agreement with Mr. Wehrenberg with the following provisions. Mr.
Wehrenberg was named "of counsel" to the Company. Mr. Wehrenberg shall continue
employment with the Company at his current salary until September 1, 2004. After
such date, any services Mr. Wehrenberg provides to the Company will be at hourly
rates. The Company cancelled 26,000 stock options that had previously been
granted to Mr. Wehrenberg. The Company granted Mr. Wehrenberg 36,000 stock
options at market price, which vested immediately and can be exercised for ten
years after the end of employment. The exercise periods for the rest of the
stock options previously granted to Mr. Wehrenberg were extended to the earlier
of three years after the end of employment or the expiration of the stock
option. Any options not yet vested shall fully vest at the end of employment.
Any stock awards not vested at the end of his employment shall be cancelled. Mr.
Wehrenberg also has pension benefits as set forth under "Retirement Plans" on
page 9 which were not affected by his agreement.
EMPLOYMENT AGREEMENTS
Federal has an employment agreement with Mr. Welding and had agreements
with Messrs. Joseph J. Ross and Andrew E. Graves. The agreements continue until
the December 31 following the employee's 65th birthday subject to earlier
termination by either Federal or the employee. The termination salary under the
agreement is $600,000 for Mr. Welding, $570,000 for Mr. Ross and $340,000 for
Mr. Graves. As noted above, Mr. Graves left Federal effective January 31, 2003
and Mr. Ross retired as an employee on January 31, 2004. The annual salary of
Mr. Welding, which is approved by the Compensation and Benefits Committee, is
not set by his employment agreement. In the discretion of the Board of
Directors, annual compensation may be increased during the term of this
agreement. If Mr. Welding is terminated by Federal under circumstances not
involving cause, Federal would be obligated to pay in monthly installments an
amount equal to the then applicable salary for one year, or, if less, the amount
of minimum salary payable through the December 31 following Mr. Welding's 65th
birthday. In the event of death prior to termination of employment, the
employee's estate is entitled to receive in monthly installments an amount equal
to one year's minimum compensation. Ms. Kushner and Messrs. Welding and
Wehrenberg have change of control agreements and Mssrs. Ross and Graves had such
agreements. In the event Federal is subject to a "change of control" (as
specifically defined), the agreements permit the employee to elect to terminate
employment during a specified period and to receive termination payments
equivalent to three years' W-2 compensation. Upon termination of employment for
any reason, each employee is obligated not to engage in specified competitive
activities for a period of three years. Ms. Kushner also has an agreement that
provides for payment of one year's salary, currently $265,000, if Federal
terminates her employment without cause. She is required to perform consulting
services during the one-year period in return for the payments.
COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors consists
of three independent outside directors. The Committee meets without the Chief
Executive Officer present to evaluate his performance and establish his
compensation. Compensation for Federal's executive officers consists of three
major components: salary, bonus and stock options/awards. The officers'
compensation is based on the individual's skill level, years of experience, job
duties and the individual's and Company's performance. The Committee uses its
subjective evaluation of these factors, without a mechanical weighting, to
determine the officer's salary and level of participation in the bonus plan. Mr.
Welding and Mr. Ross participate at 60% of their salaries and the other officers
participate at 25% to 40% of their salaries.
The Company's total return to shareholders was down 6% in 2003, the Company
underperformed the Standard & Poor Industrial Index, the Standard & Poor Midcap
Index and the Russell 2000 Index, which were up 26%, 36% and 47%, respectively.
The Company's total return to shareholders was down 22% over the last five years
compared to the Standard & Poor Industrial Index which was down 9%, the Russell
2000 Index which was up 41%, and the Standard & Poor Midcap which was up 55%.
The Company's earnings from continuing operations in 2003 were $.79 per share
compared to $1.01 per share in 2002. Mr. Ross received a
11
$150,000 bonus in 2003 for the sale of the Company's sign business and a
$106,200 bonus related to his 2003 employment. The Retirement Agreement benefits
for Mr. Ross set forth on page 10 were authorized by the Compensation and
Benefits Committee and approved by the Board of Directors.
During 2003, the Board of Directors engaged an outside search firm to find
a replacement for Mr. Ross as Chief Executive Officer. The Board of Directors
elected Mr. Welding as President and Chief Executive Officer effective December
1, 2003. He was recruited from BorgWarner, Inc. where he was Executive Vice
President of BorgWarner and President of the Driveline Group. As part of the
recruiting process, the Compensation and Benefits Committee reviewed survey data
from outside consultants for comparable positions and approved Mr. Welding's
employment package of a base salary of $600,000 and participation in the
Company's bonus plan at a level of 60% of his salary. He also received 100,000
shares of stock options on his date of hire, as well as 50,000 shares of stock
options and 50,000 shares of stock awards in 2004. The options vest 50% after
two years and 100% after three years. The stock awards vest 25% per year.
The other officers' bonuses are principally tied to the Company's financial
performance and to the achievement of individual performance goals. Bonus
targets are established for the officers based on their level of responsibility.
The amount of bonus that an officer receives is based on Federal's pre-tax
profits (before extraordinary items, interest on long-term debt and bonus
payments) as a percentage of Federal's average stockholders' equity plus average
debt, as well as on goals for the growth of the Company's earnings per share and
individual performance goals. The officers did not receive any bonuses based on
the Company's financial performance. The reduced bonuses they received were
based on achievement of individual performance goals. The officers' bonus
targets remain the same for 2004. The 2003 bonus target achievement was 0% of
plan. The other officers' bonuses constituted about 11% of their cash
compensation.
The third major component of the officers' compensation consists of stock
options and awards. This is long-term compensation, which provides value to the
officers based on the increased market value of the Company for all
stockholders. The Performance Graph on page 15 shows that Federal outperformed
the Standard & Poor Industrials Index, the Standard & Poor Midcap Index and the
Russell 2000 Index in the years 2000, 2001 and 2002, and has underperformed them
in 2003 and over the five-year period. To give the officers an incentive to
increase shareholder value and to compensate them in accordance with such
increases in shareholder value, the Compensation and Benefits Committee
generally grants to the officers on an annual basis additional stock options and
restricted stock awards. The officers did not receive any compensation from
stock options in 2003 because of the performance of the Company's stock price.
The Committee subjectively determines the number of shares to be granted and
there is no mechanical relationship between the number of options and restricted
share awards to be granted, nor is there a mechanical relationship to prior
grants. The 25,000 shares of stock options granted to Ms. Kushner on October 30,
2003 were for retention purposes. The number of option shares, as well as the
value of stock awards on the date of grant for Mr. Welding, Mr. Ross and the
other named officers is set forth in the Summary Compensation Table on page 7.
Section 162(m) of the Internal Revenue Code provides that compensation in
excess of $1.0 million paid to the chief executive officer and the other most
highly compensated executive officers of a public company will generally be
non-deductible for federal income tax purposes, subject to certain exceptions.
The Committee intends to structure compensation arrangements in a manner that
will avoid the deduction limitations imposed by Section 162(m) in appropriate
circumstances. However, the Committee believes that it is important and
necessary that the Committee retain the right and flexibility to provide and
revise compensation arrangements, such as base salary and cash bonus incentive
opportunities, that may not qualify under Section 162(m) if, in the Committee's
view, such arrangements are in the best interests of the Company and its
shareholders.
CHARLES R. CAMPBELL* ROBERT M. GERRITY* JAMES C. JANNING PAUL W. JONES
* Became members of the Compensation and Benefits Committee on October 17, 2003.
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors is currently
comprised of four directors, none of whom are officers or employees of the
Company. All members are "independent" under rules adopted by the New York Stock
Exchange and the Sarbanes-Oxley Act. The Board of Directors has adopted a
revised charter for the Audit Committee, which is included as Exhibit A of the
proxy statement and is available on the Company's website. In accordance with
its written charter, the Audit Committee assists the Board in fulfilling its
responsibility for monitoring the integrity of the accounting, auditing and
financial reporting practices, and compliance with legal and regulatory
requirements of the Company, including its code of business ethics. In addition,
for each fiscal year, the Audit Committee selects independent public accountants
to audit the financial statements of the Company and its subsidiaries, subject
to approval of the Board of Directors. In fulfilling its oversight
responsibilities, the Committee reviewed the audited financial statements in the
Annual Report with management, including a discussion of the quality, not just
the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of disclosures in the financial
statements.
The Committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgments as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the Committee under
generally accepted auditing standards (including Statement on Auditing Standards
No. 61). In addition, the Committee has discussed with the independent auditors
the auditors' independence from management and the Company, including the
matters in the written disclosures required by the Independence Standards Board
(including under Independence Standards Board Standard No. 1), and considered
the compatibility of non-audit services with the auditors' independence. The
Committee has adopted a policy for the pre-approval of all services and fees to
be provided by the Company's independent auditors for audit, audit-related, tax
and all other services, which are allowable under applicable rules and
regulations. The Committee annually pre-approves general and specific services
and fees. The Committee periodically approves changes in such authorization and
also delegates such periodic approval to the Committee Chairman, who reports any
such authorizations to the Committee at its next meeting.
The Committee discussed with the Company's internal and independent
auditors the overall scope and plans for their respective audits. The Committee
meets with the internal and independent auditors, with and without management
present, to discuss the results of their examinations, their evaluations of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2003 for filing with the Securities and Exchange
Commission.
CHARLES R. CAMPBELL ROBERT S. HAMADA* JOAN E. RYAN RICHARD R. THOMAS
* Became a member of the Audit Committee on October 17, 2003.
13
ACCOUNTING INFORMATION
Ernst & Young LLP has been selected by Federal to serve as its independent
public accountants for the fiscal year ending December 31, 2004. A
representative of that firm will be present at the Annual Meeting with the
opportunity to make a statement if he or she desires to do so and to respond to
questions of stockholders. The appointment of the auditors is approved annually
by the Audit Committee, based in part on the ratification of shareholders. Ernst
& Young LLP fees for 2002 and 2003 were:
AUDIT ALL OTHER
AUDIT(1) RELATED(2) TAX(3) FEES(4) TOTAL
-------- ---------- -------- --------- ----------
2002........................... $696,000 $25,000 $289,000 $129,000 $1,139,000
2003........................... $740,000 $22,000 $289,000 $ 39,000 $1,090,000
------------
(1) Audit Fees -- These are fees for professional services performed by Ernst &
Young LLP for the audit of the Company's annual financial statements and
review of financial statements included in the Company's 10-Q filings, and
services that are normally provided in connection with statutory and
regulatory filings or engagements.
(2) Audit-Related Fees -- These are fees for the assurance and related services
performed by Ernst & Young LLP that are reasonably related to the
performance of the audit or review of the Company's financial statements.
(3) Tax Fees -- These are fees for professional services performed by Ernst &
Young LLP with respect to tax compliance, tax advice and tax planning.
(4) All Other Fees -- These are fees for miscellaneous other services performed
by Ernst & Young LLP that do not meet the above categories.
The Board of Directors recommends a vote for the ratification of the
appointment of Ernst & Young LLP as the Company's independent public accountants
for 2004.
14
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the cumulative stockholder returns, assuming
the reinvestment of dividends, of Federal's Common Stock on an index basis with
the S&P Industrials Index, the S&P Midcap 400 Index and the Russell 2000 for the
five-year period ending December 31, 2003:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
FOR FEDERAL SIGNAL CORPORATION
(GRAPH)
--------------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------
FSC 100 61 78 91 83 78
S&P Industrials 100 125 103 90 68 86
S&P Midcap 400 100 115 135 134 114 155
Russell 2000 100 121 118 121 96 141
Assumes $100 invested on December 31, 1998 in Federal Signal Corporation Common
Stock (FSC), S&P Industrials Index, the S&P Midcap 400 Index (S&P Midcap) and
the Russell 2000 Index.
* Total return assumes reinvestment of dividends and is based on fiscal years
ending December 31.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 2003, the Company had loans outstanding to Messrs. Ross and
Ritz for the purpose of exercising stock options. The stock option exercise
loans to Mr. Ross outstanding during fiscal 2003 had principal balances totaling
$860,694, bearing interest at the rate of 3.93% per annum. During fiscal 2003,
Mr. Ross repaid the Company $889,135 in respect of such loans, which amount
represented the full amount of outstanding principal and interest under such
loans. The stock option exercise loans to Mr. Ritz outstanding during fiscal
2003 had principal balances totaling $25,855, bearing interest at the rate of
5.93% per annum. During fiscal 2003, Mr. Ritz repaid the Company $6,124 in
respect of such loans, which amount included $1,815 of interest. In July 2002,
the Compensation and Benefits Committee of the Board of Directors voted to
prohibit any additional loans to executive officers. All loans to executive
officers outstanding on such date must be repaid in accordance with their terms.
15
FUTURE STOCKHOLDER PROPOSALS
In order to be considered for inclusion in the proxy statement for the 2005
Annual Meeting of Shareholders, stockholder proposals must be received by
Federal on or before November 15, 2004.
In order for other business to be considered at the 2005 Annual Meeting, it
must be received by Federal on or before January 29, 2005.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon its review of the Forms 3, 4 and 5 furnished to the
Company pursuant to Section 16(a) of the Securities Exchange Act of 1934, the
Company believes that all of its directors, officers and beneficial owners of
more than 10% of its Common Stock filed all such reports on a timely basis
during 2003.
OTHER BUSINESS
As of the date hereof, the foregoing is the only business which management
intends to present, or is aware that others will present, at the meeting. If any
other proper business should be presented to the meeting, the proxies will be
voted in respect thereof in accordance with the discretion and judgment of the
person or persons voting the proxies.
By order of the Board of Directors,
JENNIFER L. SHERMAN
Secretary
Federal Signal Corporation
16
EXHIBIT A
FEDERAL SIGNAL CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is appointed by the Board to assist the Board in
monitoring (1) the integrity of the financial statements of the Company, (2) the
independent auditor's qualifications and independence, (3) the performance of
the Company's internal audit function and independent auditors, and (4) the
compliance by the Company with legal and regulatory requirements.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission (the "Commission") to be included in the
Company's annual proxy statement.
COMMITTEE MEMBERSHIP
The Audit Committee shall consist of no fewer than three members. The
members of the Audit Committee shall meet the independence and experience
requirements of the New York Stock Exchange, Section 10A(m)(3) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations of the
Commission. At least one member of the Audit Committee shall be a financial
expert as defined by the Commission. Audit Committee members shall not
simultaneously serve on the audit committees of more than two other public
companies.
The members of the Audit Committee shall be appointed by the Board on the
recommendation of the Corporate Nominating and Governance Committee. Audit
Committee members may be replaced by the Board.
MEETINGS
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of
the Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
COMMITTEE AUTHORITY AND RESPONSIBILITIES
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work. The independent auditor shall report directly to the
Audit Committee.
The Audit Committee shall preapprove all material auditing services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Company by its independent auditor.
The Audit Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant preapprovals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant preapprovals shall be presented to the
full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems
necessary or appropriate, to retain independent legal, accounting or other
advisors. The Company shall provide for appropriate funding, as determined by
the Audit Committee, for payment of compensation to the independent auditor for
the purpose of rendering or issuing an audit report and to any advisors employed
by the Audit Committee.
A-1
The Audit Committee shall make regular reports to the Board. The Audit
Committee shall review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval. The Audit Committee
shall annually review the Audit Committee's own performance.
The Audit Committee, to the extent it deems necessary or appropriate,
shall:
FINANCIAL STATEMENT AND DISCLOSURE MATTERS
1. Review and discuss with management and the independent auditor the
annual audited financial statements, including disclosures made in management's
discussion and analysis, and recommend to the Board whether the audited
financial statements should be included in the Company's Form 10-K.
2. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of its Form 10-Q,
including the results of the independent auditors' review of the quarterly
financial statements.
3. Discuss with management and the independent auditor significant
financial reporting issues and judgments made in connection with the preparation
of the Company's financial statements, including any significant changes in the
Company's selection or application of accounting principles, any major issues as
to the adequacy of the Company's internal controls and any special steps adopted
in light of material control deficiencies.
4. Review and discuss reports from the independent auditors on:
(a) All critical accounting policies and practices to be used.
(b) All alternative treatments of financial information within
generally accepted accounting principles that have been discussed with
management, ramifications of the use of such alternative disclosures and
treatments, and the treatment preferred by the independent auditor.
(c) Other material written communications between the independent
auditor and management, such as any management letter or schedule of
unadjusted differences.
5. Discuss with management the Company's earnings press releases,
including the use of "pro forma" or "adjusted" non-GAAP information, as well as
financial information and earnings guidance provided to analysts and rating
agencies. Such discussion may be done generally (consisting of discussing the
types of information to be disclosed and the types of presentations to be made).
6. Discuss with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet structures on
the Company's financial statements.
7. Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures,
including the Company's risk assessment and risk management policies.
8. Discuss with independent auditor the matters to be discussed by
Statement on Auditing Standards No. 61 relating to the conduct of the audit.
9. Discuss any difficulties encountered in the course of the audit work,
restrictions on the scope of activities or access to requested information, and
any significant disagreements with management.
10. Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q about any
significant deficiencies in the design or operation of internal controls or
material weaknesses therein and any fraud involving management or other
employees who have a significant role in the Company's internal controls.
A-2
OVERSIGHT OF THE COMPANY'S RELATIONSHIP WITH THE INDEPENDENT AUDITOR
11. Review and evaluate lead partner of the independent auditor team.
12. Obtain and review a report from the independent auditor at least
annually regarding (a) the independent auditor's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry or
investigation by government or professional authorities within the preceding
five years respecting one or more independent audits carried out by the firm,
(c) any steps taken to deal with any such issues, and (d) all relationships
between the independent auditor and the Company. Evaluate the qualifications,
performance and independence of the independent auditor, including considering
whether the auditor's quality controls are adequate and the provision of
permitted non-audit services is compatible with maintaining the auditor's
independence, and taking into account the opinions of management and internal
auditors. The Audit Committee shall present its conclusions with respect to the
independent auditor to the Board.
13. Ensure the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible for
reviewing the audit as required by law.
14. Recommend to the Board policies for the Company's hiring of employees
or former employees of the independent auditor who participated in any capacity
in the audit of the Company.
15. Meet with the independent auditor prior to the audit to discuss the
planning and staffing of the audit.
OVERSIGHT OF THE COMPANY'S INTERNAL AUDIT FUNCTION
16. Review the appointment and replacement of the senior internal auditing
executive.
17. Review the significant reports to management prepared by the internal
auditing department and management's responses.
18. Discuss with the independent auditor and management the internal audit
department responsibilities, budget and staffing and any recommended changes in
the planned scope of the internal audit.
COMPLIANCE OVERSIGHT RESPONSIBILITIES
19. Obtain from the independent auditor assurance that Section 10A(b) of
the Exchange Act has not been implicated.
20. Obtain reports from management, the Company's senior internal auditing
executive and the independent auditor that the Company and its
subsidiary/foreign affiliated entities are in conformity with applicable legal
requirements and the Company's Code of Business Conduct and Ethics. Review
reports and disclosures of insider and affiliated party transactions. Advise the
Board with respect to the Company's policies and procedures regarding compliance
with applicable laws and regulations and with the Company's Code of Business
Conduct and Ethics.
21. Establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submission by
employees of concerns regarding questionable account or auditing matters.
22. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports which raise
material issues regarding the Company's financial statements or accounting
policies.
23. Discuss with the Company's General Counsel legal matters that may have
a material impact on the financial statements or the Company's compliance
policies.
A-3
Limitation of Audit Committee's Role
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements and disclosures
are complete and accurate and are in accordance with generally accepted
accounting principles and applicable rules and regulations. These are the
responsibilities of management and the independent auditor.
A-4
DETACH CARD
------------------------------------------------------------------------------
PROXY
[FEDERAL SIGNAL CORPORATION LOGO]
FEDERAL SIGNAL CORPORATION
1415 W. 22ND STREET, OAK BROOK, ILLINOIS 60523
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS ON APRIL 30, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
James C. Janning and Jennifer L. Sherman, or either of them, with full power of
substitution, are hereby authorized to vote the shares of Common Stock of
Federal Signal Corporation which the undersigned is entitled to vote at the 2004
Annual Meeting of Stockholders to be held at the Marriott Hotel-Oak Brook, 1401
W. 22nd Street, Oak Brook, Illinois on Friday, April 30, 2004 at 11:00 a.m., and
at all adjournments thereof, as indicated on this card for the proposals
described in the Notice and Proxy Statement for such meeting and in their
discretion on other matters which may properly come before the meeting.
UNLESS OTHERWISE INSTRUCTED, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2.
1. ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as otherwise marked below) to vote for all nominees listed below
Robert M. Gerrity, Robert S. Hamada and Walden W. O'Dell
Instructions: FOR, except vote withheld from the following nominee(s):
--------------------------------------------------------------------------------
2. RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS FEDERAL SIGNAL CORPORATION'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR 2004
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed, on the reverse side)
DETACH CARD
------------------------------------------------------------------------------
Proxy No. (Continued from reverse side) Shares
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH SPECIFICATIONS MADE. IF NO CHOICES
ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN PROPOSAL 1
AND FOR PROPOSAL 2.
DATE: ------------, 2004
------------------------
------------------------
SIGNATURE(S)
Please sign exactly as
name appears hereon.
Joint owners should each
sign. Where applicable,
indicate official
position or
representative capacity.