SCHEDULE 14A
(Rule 14a-10) INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities and 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 Under Rule 14a-12 |
LSI Industries Inc.
Payment of Filing Fee (Check the appropriate box):
[X] | No fee required. |
[ ] | Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11. |
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (4) and 0-11.
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[ ] | Fee paid previously with preliminary materials. |
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September 25, 200229, 2004
Dear Shareholder:
We invite you to attend our annual meetingAnnual Meeting of shareholdersShareholders on Thursday, November 14, 2002,18, 2004, at 10:00 a.m. at the Company’s headquarters located at 10000 Alliance Road, Cincinnati, Ohio. At the meeting, you will hear a report on our operations and have a chance to meet your Company’s directors and executives.
This booklet includes the formal notice of the meeting and the proxy statement. The proxy statement tells you more about the agenda and procedures for the meeting. It also describes how the Board operates and provides information about our director candidates.
Even if you only own a few shares, we want your shares to be represented at the meeting. I urge you to complete, sign, date and promptly return your proxy card in the enclosed envelope.
Sincerely yours,
/s/Robert J. Ready
Robert J. Ready
Chairman of the Board,
Chief Executive Officer, and President
10:00 a.m., Eastern Standard Time
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Thursday, November 18, 2004
LSI Industries Corporate Headquarters
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Only shareholders of record on September 17, 20022004 may vote at the meeting. The approximate mailing date of the Proxy Statement and accompanying Proxy Cardproxy card is September 26, 2002.30, 2004.
Yourvoteisimportant.Pleasecomplete,sign,date,andpromptlyreturnyour proxycardintheenclosedenvelope.
/s/Robert J. Ready
Robert J. Ready
Chairman of the Board,
Chief Executive Officer, and President
September 25, 200229, 2004
LSI Industries Inc.
Proxy Statement
Table of Contents
Begins onPage
--------- INTRODUCTION.............................................................. 1 VOTING AT ANNUAL MEETING.................................................. 1 General Information..................................................... 1 Principal Shareholders.................................................. 2 Shareholder Proposals...................................................
INTRODUCTION VOTING AT ANNUAL MEETING | 1 1 |
General Information Principal Shareholders Shareholder Proposals | 1 2 2 |
Proposal 1. Election of Directors Proposal 2. Ratification of Appointment of Independent Registered Public Accounting Firm Proposal 3. Amendment of Regulations to Remove Classified Board Other Matters | 3 3 4 5 |
MANAGEMENT | 5 |
Directors and Executive Officers Section 16(a) Beneficial Ownership Reporting Compliance Executive Compensation Stock Options | 5 7 7 8 |
CORPORATE GOVERNANCE | 9 |
The Executive Committee The Audit Committee Report of the Audit Committee The Nominating and Corporate Governance Committee The Compensation Committee Report of the Compensation Committee | 10 11 12 13 13 13 |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION CERTAIN TRANSACTIONS CORPORATE PERFORMANCE GRAPH COMPARISON OF FIVE YAR CUMULATIVE TOTAL RETURN OTHER MATTERS QUESTIONS | 15 15 15 15 16 16 |
Annex A – Amendment to Code of Restated Audit Committee CharterDirectors.................................... 3
Proposal 2. Ratification of Appointment of Independent
Certified Public Accountants............................. 3
Other Matters........................................................... 6
MANAGEMENT................................................................ 6
DirectorsRegulations
Annex B – Amended and Executive Officers........................................ 6
Board Actions........................................................... 8
Section 16(a) Beneficial Ownership Reporting Compliance................. 9
Executive Compensation.................................................. 9
Stock Options...........................................................10
REPORT OF THE COMPENSATION COMMITTEE......................................11
Base Compensation.......................................................11
Incentive Compensation..................................................11
Stock Option Grants.....................................................12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...............12
REPORT OF THE AUDIT COMMITTEE.............................................12
CORPORATE PERFORMANCE GRAPH...............................................14
OTHER MATTERS.............................................................15
QUESTIONS.................................................................15
Annex C – Nominating and Corporate Governance Committee CharterLSI INDUSTRIES INC.
10000 Alliance Road
Cincinnati, Ohio 45242Telephone (513) 793-3200
__________________________________________P R O X Y S T A T E M E N T
Annual Meeting of Shareholders
November 14, 2002
18, 2004INTRODUCTION
The Board of Directors of LSI Industries Inc. is requesting your Proxyproxy for the Annual Meeting of Shareholders on November 14, 2002,18, 2004, and at any postponement or adjournment thereof, pursuant to the foregoing Notice.of such meeting. This Proxy Statement and the accompanying proxy card were first mailed on September 26, 2002,30, 2004 to shareholders of record onas of September 17, 2002.2004.
In order to carry on the business of the meeting, we must have a quorum. This means at least a majority of the outstanding shares eligible to vote must be represented at the meeting either by proxy or in person. Shareholders may vote in person or by proxy at the Annual Meeting. Proxies given may be revoked at any time by filing with the Company (to the attention of Ronald S. Stowell) either a written revocation or a duly executed proxy bearing a later date, or by appearing at the Annual Meeting and voting in person. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote. All shares will be voted as specified on each properly executed proxy.proxy card. If no choice is specified, the shares will be voted as recommended by the Board of Directors, namely “FOR” Proposal 1 to elect the twothree persons nominated as Class B directors by the Board of Directors, and “FOR” Proposal 2 (Ratification of Appointment of Independent CertifiedRegistered Public Accountants)Accounting Firm), and “FOR” Proposal 3 (Amendment of the Code of Regulations). If any other matters come before the meeting or any postponement or adjournment, each proxy will be voted in the discretion of the individuals named as proxies on the proxy card.
As of September 17, 2002,2004, the record date for determining shareholders entitled to notice of and to vote at the Annual Meeting, LSI Industries had 15,776,70219,776,396 Common Shares outstanding. Each share is entitled to one vote. Only shareholders of record at the close of business on September 17, 2002,2004, will be entitled to vote at the Annual Meeting. Abstentions and shares otherwise not voted for any reason, including broker non-votes, will have no effect on the outcome of any vote taken at the Annual Meeting.
As of September 4, 2002,17, 2004, the following are the only shareholders known by the Company to own beneficially 5% or more of its outstanding Common Shares:
Amount and Nature of Percent Name of Beneficial Owner Beneficial Ownership Of Class - --------------------------------- -------------------- --------- David L. Babson & Co., Inc. 1,815,550 11.47% One Memorial Drive, Suite 1100 Cambridge, MA 02142-1300 William Blair & Company, L.L.C 1,672,725 10.55% 222 West Adams Street, 34th Floor Chicago, IL 60606 T. Rowe Price Associates, Inc. 1,495,850 (a) 9.45% 100 East Pratt Street Baltimore, MD 21202 Fleet Investment Advisors, Inc. 970,667 6.13% 100 Federal Street Boston, MA 02110 Robert J. Ready 850,471 (b) 5.36% 10000 Alliance Road Cincinnati, Ohio 45242
Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent Of Class | |||
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Babson Capital Management | 2,667,492 | 13.36% | |||
1295 State Street | |||||
Springfield, MA 01111-0002 | |||||
William Blair Capital Management LLC | 1,334,292 | 6.68% | |||
222 West Adams Street, 13th Floor | |||||
Chicago, IL 60606-5307 | |||||
Columbia Management Group, Inc. | 1,237,775 | 6.20% | |||
590 Madison Avenue | |||||
New York, NY 10022-2524 | |||||
Royce & Associates LLC | 1,102,911 | 5.52% | |||
1414 Avenue of the Americas, 9th Floor | |||||
New York, NY 10019-2578 | |||||
Artisan Partners LP | 1,088,699 | 5.45% | |||
875 Wisconsin Avenue, Suite 800 | |||||
Milwaukee, WI 53202-3197 | |||||
Robert J. Ready | 1,046,708 | (a) | 5.24% | ||
10000 Alliance Road | |||||
Cincinnati, Ohio 45242 |
(a) |
Includes |
Shareholders who desire to have proposals included in the Notice for the 20032005 Annual Meeting of Shareholders must submit their proposals to the Company at its offices on or before May 29, 2003.30, 2005.
The form of Proxy for the Annual Meeting of Shareholders grants authority to the persons designated therein as proxies to vote in their discretion on any matters that come before the meeting, or any adjournment thereof, except those set forth in the Company’s Proxy Statement and except for matters as to which adequate notice is received. In order for a notice to be deemed adequate for the 20032005 Annual Shareholders’ Meeting, it must be received prior to August 11, 2003.12, 2005. If there is a change in the anticipated date of next year’s annual meeting or if these deadlines change by more than 30 days, we will notify you of this change through our Form 10-Q filings.
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The Company’s Code of Regulations provides that the Board of Directors be composed of two classes of directors, with each class elected for a two-year term. One class is elected annually. The terms of the Class A directors expire at the 20032005 Annual Meeting of Shareholders while the terms of the Class B directors expire at the 20022004 Annual Meeting of Shareholders.
The Nominating and Corporate Governance Committee of the Board is nominatinghas nominated for reelection twothree present Class B directors, namely, Wilfred T. O'GaraO’Gara, Mark A. Serrianne and James P. Sferra. Proxies solicited by the Board will be voted for the election of these twothree nominees.
All Class B directors elected at the Annual Meeting will be elected to hold office for two years and until their successors are elected and qualified. However, if Proposal 3 relating to the Amendment of Regulations to Remove Classified Board is approved at the 2004 Annual Meeting, the classified Board will be eliminated and the term of office for each director elected at the 2004 Annual Meeting will be one year.
In voting to elect directors, shareholders are entitled to one vote for each share held of record. Shareholders are not entitled to cumulate their votes in the election of directors.
Should any of the nominees become unable to serve, proxies will be voted for any substitute nominee designated by the Board. The twothree nominees receiving the highest number of votes cast will be elected.
The Board of Directors recommends a vote FOR each of the Class B directors nominated in this Proxy Statement. Nominees receiving the highest number of votes will be elected. |
Proposal 2. Ratification of Appointment of Independent
CertifiedRegistered Public AccountantsAccounting Firm
The Audit Committee of the Board of Directors appointed Grant Thornton LLP as the Company’s independent certified public accountants for fiscal 2002. Grant Thornton LLP has been the independent certified public accounting firm for the Company since April 2002. Prior to April 2002, Arthur Andersen LLP served as the Company’s independent public accountants. Although not required by law, the Board is seeking shareholder ratification of its selection. If ratification is not obtained, the BoardAudit Committee intends to continue the employment of Grant Thornton LLP at least through fiscal 2003.2005.
Representatives of Grant Thornton LLP are expected to be present at the Shareholders’ Meeting and will be given an opportunity to comment,make a statement, if they so desire, and to respond to appropriate questions that may be asked by shareholders.
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The Company estimates thatexpensed the aggregatefollowing fees billed or to be billed byfrom Grant Thornton LLP for professional services rendered in connection with (i) the annualfiscal years ended June 30, 2003 and 2004:
2003 | 2004 | ||||||
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Audit fees | $111,962 | $161,562 | |||||
Audit-related fees | 36,214 | 46,551 | |||||
Tax fees | 35,898 | 41,665 | |||||
All other fees | -- | -- | |||||
Total fees | $184,074 | $249,779 | |||||
Audit fees represent fees and out-of-pocket expenses related to the fiscal 2004 audit of the Company’s financial statements, for the fiscal year ended June 30, 2002 set forth inreview and documentation of the Company’s Annual Report onsystem of internal controls, filing of the Form 10-K, and (ii) the quarterly reviewsservices related to review of the Company’s quarterly financial statements included inand Form 10-Q’s, and attendance at the Company’s Quarterly Report on Form 10-Qquarterly Audit Committee meetings.Audit-related fees represent fees for the quarter ended March 31, 2002 were $75,600. The aggregate fees billed by Arthur Andersen LLP for professional services rendered in connection with the quarterly reviewsconsultation related to accounting and regulatory filing matters, and to audits of the financial statements included inCompany’s two qualified retirement plans.Tax fees relate to services and out-of-pocket expenses related to tax compliance (or filing of the Company’s Quarterly Report on Form 10-Q forvarious income and franchise tax returns), tax planning, and tax advice.All other fees represent fees related to services and consultation related to various planning matters.
Financial Information Systems Design and Implementation Fees
Grant Thornton LLP was not engaged by the Company for professional services in connection with the design or implementationBoard of financial information systems. Arthur Andersen LLP billed the Company an aggregate $3,500 in fees for professional fees rendered in connection with the design and implementation of financial information systems.
All Other Fees
Grant Thornton LLP billed the Company $275 in fees for tax consulting and $3,318 of other fees in fiscal year 2002. Arthur Andersen LLP billed the Company an aggregate $172,950 in fees for other services rendered to the Company in fiscal year 2001. These fees include $5,500 of audit-related fees for the Company’s Retirement Plan, tax compliance and consulting fees of $166,250, and other fees of $1,200.
The Audit Committee has advised the Company it has determined that the non-audit services rendered by both Grant Thornton LLP and Arthur Andersen LLP during fiscal year 2002 are compatible with maintaining the independence of Grant Thornton LLP and Arthur Andersen LLP as auditors during the respective times that each firm was engaged by the Company.
The Board of Directors recommends a vote FOR Proposal 2. The affirmative vote of a majority of Common Shares voting at the Annual Meeting is required for approval of this proposal. |
Change
On April 8, 2002,The Board of Directors is asking shareholders to repeal Article III, Section 2(b) of the Company dismissed Arthur Andersen LLP as its independent public accountant. In selecting a new independent public accountant,Company’s Code of Regulations. That section provides that the Board of Directors solicited bids from and metbe classified into two classes with representatives from Deloitte & Touche LLP, Ernst & Young LLP, Grant Thornton LLP, and PricewaterhouseCoopers LLP. The Audit Committeethe number of directors in each class elected to hold office for a two-year term. If shareholders approve this proposal, the Company’sclassified Board of Directors after reviewing audit proposals fromwill be eliminated and the current term of office of each director, including those elected at this 2004 Annual Meeting, will end at the 2005 Annual Meeting of Shareholders. Directors would thereafter be elected for one year terms at each Annual Meeting of Shareholders beginning at the 2005 Annual Meeting of Shareholders.
The Board believes that shareholders should have an opportunity to vote on all four firms, approveddirectors every year and that this will be an effective way to maintain and enhance the selection of Grant Thornton as the Company’s independent accountants to replace Arthur Andersen, effective April 8, 2002.
Arthur Andersen’s report on the Company’s financial statements for eachaccountability of the last two fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company’s two most recent fiscal years and the subsequent interim period preceding the replacement of Arthur Andersen, there were no disagreements with Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolveddirectors to the satisfactionshareholders. Approval of Arthur Andersen, would have caused themthis proposal will replace Article III, Section 2(b) with a new section, which is attached as Annex A, and will also repeal those portions of Article X of the Code of Regulations which specify the vote required to make a referenceadopt an amendment relating to the subject matterclassification of directors.
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Recommendation of the disagreement(s) in connection with its report. The Company has authorized Arthur Andersen to respond fully to any inquiries by Grant Thornton.
Arthur Andersen did not advise the Company either during the Company’s two most recent fiscal years or during the subsequent interim period preceding the Company’s decision not to extend Arthur Andersen’s engagement:
The Board of Directors recommends a vote FOR Proposal 3. The affirmative vote of the holders of over two-thirds of the outstanding Common Shares is required to approve this proposal. |
During the two most recent fiscal years and during the interim period prior to engaging Grant Thornton, neither the Company nor anyone on its behalf consulted Grant Thornton regarding either:
In its letter dated April 12, 2002 to the Office of the Chief Accountant of the Securities and Exchange Commission, Arthur Andersen stated that it agreed with the statements in the four preceding paragraphs. The letter was filed as Exhibit 16 to the Company’s Form 8-K dated April 8, 2002.
Other Matters
Approval of any other matters considered at the Annual Meeting, including adjournment, will require the affirmative vote of a majority of Common Shares voting at the meeting.
The directors and executive officers of LSI Industries are:
Common Shares Beneficially Owned ----------------------- Name and Age Position Amount Percentage - ------------------------ ------------------------- ----------- ---------- Robert J. Ready (a) Chairman, President, and 850,471 (d) 5.36% 62 Chief Executive Officer James P. Sferra (a) Executive Vice President- 338,596 (e) 2.14% 63 Manufacturing; Secretary and Director Ronald S. Stowell Vice President, Chief 67,935 (e) * 52 Financial Officer and Treasurer Allen L. Davis (b)(c) Director 53,718 (e) * 60 Wilfred T. O'Gara (b)(c) Director 10,500 (e) * 45 Gary P. Kreider (b) (c) Director 3,500 (e) * 64 Dennis B. Meyer (b)(c) Director 3,000 (e) * 68 All Directors and Executive Officers --------- ----- as a Group (Seven Persons) 1,327,720 8.37%
Common Shares Beneficially Owned | |||||||||||
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Name and Age | Position | Amount | Percentage | ||||||||
Robert J. Ready(a) 64 | Chairman, President, and Chief Executive Officer | 1,046,708 | (e) | 5.24 | % | ||||||
James P. Sferra(a) 65 | Executive Vice President- Manufacturing; Secretary and Director | 437,690 | (f) | 2.19 | % | ||||||
Ronald S. Stowell 54 | Vice President, Chief Financial Officer and Treasurer | 75,163 | (f) | * | |||||||
David W. McCauley 55 | President of LSI Graphic SolutionsPlus and President of Grady McCauley Inc. | 58,594 | (f) | * | |||||||
Scott D. Ready 42 | President of LSI Lighting SolutionsPlus | 130,245 | (f) | * | |||||||
Wilfred T. O'Gara(b)(c)(d) 47 | Director | 18,492 | (f) | * | |||||||
Gary P. Kreider(b)(d) 66 | Director | 20,240 | (f) | * | |||||||
Dennis B. Meyer(b)(c)(d) 70 | Director | 8,115 | (f) | * | |||||||
Mark A. Serrianne(b)(c)(d) 57 | Director | 1,659 | (f) | * | |||||||
All Directors and Executive Officers as a Group (Nine Persons) | 1,706,271 | (g) | 8.55 | % | |||||||
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Information as of September 4, 200217, 2004
(a) | Executive Committee Member |
(b) | Compensation Committee Member |
(c) | Audit Committee Member |
(d) | Nominating Committee Member |
(e) | See “Principal Shareholders” |
(f) | Includes options exercisable within 60 days for Mr. Sferra of 43,126 shares, Mr. Stowell of 39,939 shares, Mr. McCauley of 34,689 shares, Mr. Scott Ready of 17,502 shares, Mr. O’Gara of 15,002 shares, Mr. Kreider of 5,625 shares, Mr. Meyer of 6,563 shares, and Mr. Serrianne of 1,500 shares; and indirect beneficial ownership for Mr. Sferra of 12,622 shares. |
(g) | This total counts only once 90,635 shares reported above as both indirect beneficial holdings of Robert J. Ready and as direct holdings of Scott D. Ready. |
(a) Executive Committee Member(b) Compensation Committee Member(c) Audit Committee Member(d) See "Principal Shareholders"(e) Includes options exercisable within 60 days for Mr. Sferra of 26,700 shares, Mr. Stowell of 22,500 shares, Mr. Davis of 9,000 shares, Mr. O'Gara of 9,000 shares, Mr. Kreider of 1,500 shares, Mr. Meyer of 2,250 shares; and indirect beneficial ownership for Mr. Sferra of 10,098 shares.
*Less than 1%
Robert J. Ready is the founder of the Company and has been its President and a Class A Director since 1976. Mr. Ready was appointed Chairman of the Board of Directors in February 1985. Mr. Ready is also a Director of Meridian Bioscience, Inc. and WS Packaging Group, Inc.
James P. Sferra shared in the formation of the Company. Mr. Sferra has served as Corporate Vice President of Manufacturing from November 1989 to November 1992, and as Executive Vice President-Manufacturing since then. Prior to that, he served as Vice President-Manufacturing of LSI Lighting Systems, a division of the Company. Mr. Sferra has served as a Class B Director since 1976, and was appointed Secretary in 1996.
Ronald S. Stowell has served as Chief Financial Officer since joining the Company in December 1992, and was appointed Treasurer in November 1993 and Vice President in November 1997. From 1985 to November 1992, Mr. Stowell served as Corporate Controller of Essef Corporation (a Nasdaq listed company), Chardon, Ohio, a manufacturer of high performance composite and engineered plastics products.
Allen L. Davis was elected a Class B Director David W. McCauley has served as President of LSI Graphic SolutionsPlussince April 2003 and as either President or Vice President of Operations of Grady McCauley Inc. (a subsidiary of the Company involved in February 1985.graphics) since June 1997. Prior to the June 1997 acquisition date, Mr. DavisMcCauley was a founder and Vice President of Grady McCauley, Inc.
Scott D. Ready has served as President of LSI Lighting SolutionsPlussince July 2004. Prior to that, he held various sales and Chief Executive Officer,other positions at the Company, including Vice President of the Image Group, Vice President Petroleum Sales, and as Director of Provident Financial Group, Inc. and The Provident Bank, Cincinnati, Ohio from 1986 and 1984, respectively, to May 1998 at which time he retired.Regional Sales Manager. Mr. Davis currently serves as a financial consultant to various companies. Mr. Davis decided not to stand for reelection because of other business demands and commitments.Scott Ready has been employed by the Company since 1985.
Gary P. Kreider was appointedhas been a Class A Director of the Company insince April 2002 to fill a vacancy created by the death of director Michael J. Burke.2002. Mr. Kreider is a senior partner in the Cincinnati law firm of Keating, Muething & Klekamp, P.L.L., the Company'sCompany’s outside counsel. His primary practice areas are securities law, mergers and acquisitions, and general corporate law, and he has been with Keating, Muething & Klekamp since 1963. Mr. Kreider has been an Adjunct Professor of Law in securities regulation at the University of Cincinnati College of Law since 1977.1977 and is Chairman of the Ohio State Bar Association Corporate Law Committee. Mr. Kreider is also a Director of Meridian Bioscience, Inc.
Dennis B. Meyer was appointedhas been a Class A Director of the Company insince August 2001 to fill a vacancy.2001. Mr. Meyer serves on the Board and Executive Committee of Midmark Corporation. Mr. Meyer was Executive Vice President of Midmark Corporation from 1985 to 2001, and held several other executive and managerial positions during his 36 years with that company.
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Wilfred T. O’Gara was appointed a Class B Director of the Company in January 1999. Mr. O’Gara has beenis the President and Chief Executive Officer of Ohio Medical Instrument Corporation since January 2002The O’Gara Group, Inc., a security and isdefense related firm and the President of The O’Gara Group, LLC, an unrelated financial and advisory consulting firm. Previously Mr. O’Gara was the CEO of Ohio Medical Inc. from January 2002 until the sale of substantially all of its assets in May of 2004. Previously, he was the Chief Executive Officer of O’Gara-Hess & Eisenhardt Armoring Co., a subsidiary of Armor Holdings, Inc. He was named Co-Chief Executive Officer of Kroll-O’Gara and Chief Executive Officer of the Security Products and Services Group in April, 2000 and served as such until May 2001 when O’Gara-Hess & Eisenhardt was sold to Armor Holdings, Inc. He had also served as Kroll-O’Gara’s President and Chief Operating Officer since the Kroll Holdings merger and as its CEO from August, 1996 until that merger. In addition, Mr. O’Gara has served in various executive officer and director positions in its subsidiaries and predecessors since 1983.
Board Actions
The Board of Directors met five times during fiscal 2002.
The Executive Committee, composed of Messrs. Ready (Chairman), and Sferra, is responsible, during the intervals between meetings of the Board of Directors, for exercising all the powers of the Board of Directors in the management and control and the businessMark A. Serrianne was appointed a Class B Director of the Company to the extent permitted by law. Thein August 2004. Mr. Serrianne has been principal owner and Chief Executive Committee did not meet during fiscal 2002.
The Audit CommitteeOfficer of Northlich, Inc. since 1998. Northlich is composed of Messrs. O’Gara (Chairman), Davis, Kreider (effective April 22, 2002)a privately held advertising, marketing communication and Meyer. The primary function of the Audit Committee is to assist the Board of Directorspublic relations company with headquarters in fulfilling its oversight responsibilities by reviewing the following:
Additionally, the Audit Committee provides an open avenue of communication among the independent certified public accountants, financial and senior management, and the Board of Directors. The Audit Committee also appoints the Company’s independent certified public accountants and reviews the relationships between the Company and the independent certified public accountants. The Audit Committee met six times during fiscal 2002.
The Compensation Committee, composed of Messrs. Meyer (Chairman), Davis, Kreider (effective April 22, 2002) and O’Gara, is responsible for establishing compensation levels for management and for administering the Company’s stock option plans and Deferred Compensation Plan. The Compensation Committee met one time during fiscal 2002.
The Company does not haveCincinnati, Ohio. Mr. Serrianne has held a Nominating Committee.
During fiscal year 2002, directors who are not employees of the Company received $13,000 per year for serving as a Director plus $1,200 for each meeting attended. Committee members received $750 per year for serving as Chairman of a committee plus $600 for each committee meeting attended. Directors who are employees of the Company do not receive any compensation for serving as a Director. During fiscal year 2002 Allen Davis attended 58% of the aggregate of the total number of meetings ofpositions with Northlich from 1974 through 1996 when be became President.
LSI has determined that the following Board of Directorsmembers are independent: Gary P. Kreider, Dennis B. Meyer, Wilfred T. O’Gara and Committees of which he is a member. All other directors attended at least 75% of the aggregate of the total number of meetings of the Board of Directors and Committees of which they are members. Non-employee directors received an annual grant of an option to purchase 1,500 Common Shares at the market price at the time of grant. The option is exercisable at the time of grant and has a ten year term.Mark A. Serrianne.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers, directors, and persons who own more than ten percent of the Company’s Common Shares to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.file, since September 2002 within two days of a transaction in shares of the Company. Based solely upon its review of copies of such forms received by it, and upon written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during fiscal 20022004 all other filing requirements were met.met except that Mr. O'Gara reported on July 27, 2004 a May 6, 2004 acquisition of 1,000 shares.
Executive Compensation
The following table sets forth information regarding annual, long-term, and other compensation paid by the Company to its Chief Executive Officer and each of the other twofour executive officers at June 30, 20022004 during each of the last three fiscal years for services rendered to the Company and its subsidiaries.
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Annual Compensation ------------------------------- Other Annual Securities All Other Name and Compensation Underlying Compensation Principal Position Year Salary Bonus (1) Options (2) (3) - ------------------ ---- -------- -------- ------------ ----------- ------------ Robert J. Ready 2002 $500,000 $142,500 $29,388 18,000 $103,238 Chairman, 2001 500,000 -- 35,100 15,000 101,723 President and 2000 441,480 64,015 39,400 -- 108,388 Chief Executive Officer James P. Sferra 2002 385,601 110,616 19,496 15,000 50,307 Executive Vice 2001 375,000 -- 18,900 15,000 48,033 President- 2000 336,128 48,739 18,400 -- 64,601 Manufacturing; Secretary Ronald S. Stowell 2002 213,880 76,355 21,096 15,000 26,997 Vice President, 2001 208,000 -- 20,400 10,000 29,724 Chief Finacial 2000 188,760 27,370 20,900 -- 36,889 Officer, and Treasurer - ----------------------
Annual Compensation | ||||||||||||||||||||
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Name and Principal Position | Year | Salary | Bonus | Other Annual Compensation (1) | Securities Underlying Options(2) | All Other Compensation (3) | ||||||||||||||
Robert J. Ready | 2004 | $ | 515,923 | $ | 127,500 | $ | 34,988 | -- | $ | 101,818 | ||||||||||
Chairman, President | 2003 | 500,000 | -- | 34,218 | -- | 106,468 | ||||||||||||||
and Chief Executive | 2002 | 500,000 | 142,500 | 29,388 | 22,500 | 103,238 | ||||||||||||||
Officer | ||||||||||||||||||||
James P. Sferra | 2004 | 416,322 | 105,000 | 19,896 | -- | 67,492 | ||||||||||||||
Executive Vice President- | 2003 | 388,125 | -- | 18,496 | -- | 54,954 | ||||||||||||||
Manufacturing; Secretary | 2002 | 385,601 | 110,616 | 19,496 | 18,750 | 50,307 | ||||||||||||||
Ronald S. Stowell | 2004 | 232,725 | 65,000 | 20,396 | -- | 82,176 | ||||||||||||||
Vice President, Chief | 2003 | 215,280 | 12,000 | 20,696 | -- | 61,072 | ||||||||||||||
Financial Officer, and | 2002 | 213,880 | 76,355 | 21,096 | 18,750 | 26,997 | ||||||||||||||
Treasurer | ||||||||||||||||||||
David W. McCauley | 2004 | 199,698 | 64,260 | 12,000 | -- | 15,526 | ||||||||||||||
President of LSI Graphic | 2003 | 184,046 | 10,000 | 12,000 | -- | 17,512 | ||||||||||||||
SolutionsPlus | 2002 | 181,977 | 46,120 | 12,000 | 11,250 | 21,309 | ||||||||||||||
Scott D. Ready | 2004 | 173,462 | 35,000 | 12,012 | -- | 17,495 | ||||||||||||||
President of LSI Lighting | 2003 | 150,000 | 2,700 | 12,012 | -- | 16,105 | ||||||||||||||
SolutionsPlus | 2002 | 139,129 | 42,000 | 11,550 | 8,750 | 20,031 |
| (1) | Other Annual Compensation consists of automobile allowances for all executive officers as well as professional fee allowances for Mr. Ready and Mr. Sferra. |
| (2) | Represents Common Shares underlying options awarded under the |
| (3) | All Other Compensation includes Retirement Plan and Deferred Compensation Plan contributions, premiums paid on long-term disability and life insurance policies, and payment of accrued vacation. |
Under separate agreements, Messrs. Ready and Sferra will receive disability payments for up to 50 months at 60% of their average salary and bonus received in the last five fiscal years, reduced by any Social Security payments, if they become disabled while employed by LSI. Health insurance will be maintained for the person and his spouse for five years after termination or death. If such person dies while employed by LSI or while receiving disability payments, the Company shall pay their heirs one million dollars less any payments made as disability compensation or from any policies of life insurance maintained by LSI. In order to provide clear continuity of management influence, LSI has also agreed to employ Messrs. Ready and Sferra as consultants for a period of three years commencing at an unspecified time in the future when such person determines to retire from employment. Such consulting compensation will be at annual rates of 60%, 50%, and 40% of the average of the last five full fiscal year salary levels. Messrs. Ready and Sferra have no plans to retire in the near future. However, the establishment of provisions for consulting services by Messrs. Ready and Sferra are intended to facilitate a smooth transition as part of any future management succession plan.
No stock options were granted to the Company’s Executive Officers in fiscal year 2004. The following two tables containtable contains information concerning (a) the grant of stock options to the Named Executives and (b) the exercise and appreciation of stock options held by the Named Executives.
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Fiscal
2002 Option Grants ------------------------- Potential Realizable Value % of at Assumed Total Annual Rates Number of Options of Share Price Securities Granted to Appreciation for Underlying Employees Exercise Option Term (1) Options in Fiscal Price Expiration ----------------- Name Granted 2002 ($/Share) Date 5% 10% - ----------------- ---------- ---------- --------- ---------- -------- -------- Robert J. Ready 18,000 9.4% $14.60 11/14/11 $165,274 $418,836 James P. Sferra 15,000 7.8% $14.60 11/14/11 $137,728 $349,030 Ronald S. Stowell 15,000 7.8% $14.60 11/14/11 $137,728 $349,030
Fiscal 20022004 Option Exercises and Year-End Option Values------------------------------------------------------- Number of Securities Underlying Value of Shares Unexercised Options Unexercised In-the-Money Acquired on Value at Fiscal Year-End Options at Fiscal Year-End(1) Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable - ----------------- ----------- -------- ------------------------- ----------------------------- Robert J. Ready -- -- 9,600 / 30,900 $ 77,568 / $172,092 James P. Sferra -- -- 17,100 / 27,900 $139,668 / $160,782 Ronald S. Stowell -- -- 15,000 / 30,000 $123,450 / $178,500
Name | Shares Acquired on Exercise | Value Realized | Number of Securities Underlying Unexercised Options at Fiscal Year-End Exercisable/Unexercisable | Value of Unexercised In-the-Money Options at Fiscal Year-End(1) Exercisable/Unexercisable | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Robert J. Ready | -- | -- | 33,751/16,874 | $91,969/$ -- | ||||||||||
James P. Sferra | -- | -- | 43,126/13,124 | $124,125/$ -- | ||||||||||
Ronald S. Stowell | -- | -- | 39,939/16,311 | $110,299/$15,326 | ||||||||||
David W. McCauley | -- | -- | 34,689/10,311 | $106,586/$15,326 | ||||||||||
Scott D. Ready | -- | -- | 17,502/ 6,717 | $38,328/$ 7,662 |
(1) | In-the-Money Options are options for which the market value of the underlying Common Shares exceeds the exercise price. Calculation is based upon the market value of the underlying Common Shares at fiscal year-end, minus the exercise price. |
The following table presents information about the Company'sCompany’s equity compensation plans (LSI Industries Inc. 1995 Stock Option Plan, and the LSI Industries Inc. 1995 Directors'Directors’ Stock Option Plan and the 2003 Equity Compensation Plan) as of June 30, 2002.2004.
Number
Plan category Number of securities to be
issued upon exercise of
outstanding options,
warrants and rightsWeighted average
exercise price of
outstanding options,
warrants and rightsNumber of securities
remaining available
for future grantsEquity compensation plans approved by security holders 667,345 $9.73 2,242,843 Equity compensation plans not approved by security holders -- -- -- Total 667,345 $9.73 2,242,843 CORPORATE GOVERNANCE
LSI Industries Inc. is an Ohio corporation and, therefore, governed by the corporate laws of
Weightedthe State of Ohio. Since its shares are publicly traded on the Nasdaq Stock Market and it files reports with the Securities and Exchange Commission, it is also subject to NASD rules as well as various provisions of federal securities laws as recently changed by the Sarbanes-Oxley Act.Governance of the corporation is placed in the hands of the Directors who, in turn, elect officers to
average be issued upon exercise exercisemanage the business operations. The Board oversees the management of LSI Industries on your behalf. It reviews the Company’s long-term strategic plans and exercises direct decision making authority in all major decisions, such as significant acquisitions, the declaration of dividends, major capital expenditures and the establishment of critical policies.During fiscal 2004, the Board of Directors met on six occasions. In addition, the independent directors met on one occasion during fiscal 2004 without the presence of the Company’s management or executives who are directors.
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The Company expects all directors to attend shareholders’ meetings. All directors attended the 2003 Annual Meeting. Each of the directors attended over 75% of the aggregate of all meetings of the Board and committees of which they were a member.
Shareholders may communicate with the full Board or individual directors on matters of concern by mail or through our website in each case to the attention of the Secretary of LSI Industries Inc.
During the first half of fiscal year 2004, directors who are not employees of the Company received $6,500 for serving as a Director plus $1,200 for each meeting attended. Committee members received $375 for serving as Chairman of a committee plus $600 for each committee meeting attended. During the second half of fiscal 2004, non-employee directors of the Company received $12,500 ($5,000 of which was in the form of common shares of the Company, paid quarterly at the closing price of
Numberthe Company’s common shares at the end ofoutstanding outstandingthe first business day ofsecuritiesthat quarter), plus $1,500 for each meeting attended. Committee members received $3,000 or $1,500, respectively, for serving as Chairman or a member of the Audit Committee, $1,500 or $750, respectively, for serving as Chairman or a member of either the Compensation or Nominating Committee, plus either $500 or $750 per committee meeting. Gary Kreider serves as Board Secretary. Mr. Kreider receives no fees for this service except that he receives committee meeting fees for serving as Board secretary for committees of which he is not a member. Directors who are employees of the Company do not receive any compensation for serving as a Director. Non-employee directors received an annual grant of an option to purchase 1,500 Common Shares at the market price at the time of grant. Mr. Serrianne received a grant of an option to purchase 1,500 Common Shares at the market price at the time of grant, the day he was appointed a director. These optionsoptions, remaining warrantsare exercisable at the time of grant andwarrantshave a ten year term.At its meeting on April 27, 2004, the Board reviewed, approved and adopted the LSI Industries Inc. Code of Ethics. There have been no amendments to the Code of Ethics nor any waivers granted to employees, managers or executive officers. The Company’s Code of Ethics is available as Exhibit 14 to the Form 10-K filed for
Plan category rights rights future grants - --------------------- --------------- ------------- ------------- Equity compensation plans approved by security holders 643,919 $11.59 775,981 Equity compensation plans not approved by security holders -- -- -- Total 643,919 $11.59 775,981
REPORT OF THE COMPENSATION COMMITTEEthe year ended June 30, 2004.
The CompensationDirectors have organized themselves into the committees described below to help carry out Board responsibilities. In particular, Board committees work on key issues in greater detail than would be possible at full Board meetings. Each committee reviews the results of its meetings with the full Board.
Each of the following committees, except for the Executive Committee, is composed of nonemployee directors each of whom meets the relevant independence requirements established by Nasdaq and the Sarbanes-Oxley Act that apply to their particular assignments.
The Executive Committee, composed of Messrs. Ready (Chairman), and Sferra, is responsible, during the intervals between meetings of the Board of Directors, for exercising all the powers of the Board of Directors in the management and control and the business of the Company to the extent permitted by law. The Executive Committee did not meet during fiscal 2004.
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The Audit Committee is governed by an Audit Committee Charter adopted by the Board of Directors. The Charter, revised as of August 11, 2004, is attached to this proxy statement as Annex B. The Audit Committee is composed of Messrs. O’Gara (Chairman), Kreider (until his August 2004 resignation from this Committee), Meyer, and Serrianne (who was appointed to the Committee in August 2004). Wilfred T. O’Gara has furnishedbeen designated as the Audit Committee financial expert by the Board of Directors. The Audit Committee met five times in fiscal 2004.
The Audit Committee is solely responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm, our auditors. The Audit Committee also evaluates information received from both the outside auditor and management to determine whether the auditor is independent of management. The independent registered public accounting firm reports directly to the Audit Committee.
The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the following:
1. | The financial reports and other financial information provided by the Company to any governmental body or the public, |
2. | The Company’s systems of internal controls regarding finance, accounting, legal compliance and ethics that management and the Board have established, and |
3. | The Company’s auditing, accounting and financial reporting processes generally. |
The Audit Committee has established procedures for the receipt, retention and treatment of any complaints concerning accounting, internal accounting controls or auditing matters and will establish procedures for the confidential and anonymous submission by employees of any concerns they may have regarding questionable accounting or auditing matters.
The Audit Committee approves all audit and non-audit services performed for the Company by its independent registered public accounting firm prior to the time that those services are commenced. The Chairman also has the authority to approve these services between regularly scheduled meetings. In this event, the Chairman reports approvals made by him to the full Committee at each of its meetings. For these purposes, the Committee, or its Chairman, is provided with information as to the nature, extent and purpose of each proposed service, as well as the approximate timeframe and proposed cost arrangements for that service.
The Company adheres to a policy that limits the scope of consulting services that may be provided by the independent registered public accounting firm that performs the annual audit. This policy draws a distinction between audit, audit related and nonaudit services, and prohibits the independent registered public accounting firm from performing certain nonaudit services. The Company will not use its independent registered public accounting firm to perform certain nonaudit related services such as nonfinancial or management consulting services, business strategy consulting, information technology consulting, internal audit, price allocation appraisals and fairness opinions. Audit related services that will be permitted include: retirement plan and 401(k) audits, securities registration and reporting, tax compliance and planning, advice on the application of accounting policies, guidance on acquisition accounting and assistance with due diligence audits.
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During the year, the Committee has discussed with both Grant Thornton LLP and management the Company’s actions to establish, document, test and evaluate controls and procedures pursuant to new requirements of the Sarbanes-Oxley Act.
The Audit Committee receives and approves Engagement Letters from the Company’s independent registered public accounting firm for the major components of their services rendered, such as the year end audit, audit of the Company’s Retirement Plan, tax compliance work, etc. All other services are approved in advance on a project-by-project basis by the Audit Committee, acting through its Chairman, and are subsequently additionally approved by the Audit Committee following report on executive compensation forits quarterly detailed review and discussion of fees from the Company’s independent registered public accounting firm.
The Audit Committee has advised the Company it has determined that the non-audit services rendered by Grant Thornton LLP during fiscal year 2002.2004 are compatible with maintaining the independence of Grant Thornton LLP as auditors during fiscal year 2004.
Following the audit of the Company’s year-end financial statements, the Audit Committee reviewed with Grant Thornton LLP, the independent registered public accounting firm who is responsible for expressing an audit opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States, 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 auditing standards generally accepted in the United States, including Statement of Auditing Standards No. 61 (SAS 61 – Communications with Audit Committee). SAS 61 requires Grant Thornton LLP to provide the Committee with additional information regarding the scope and results of their audit of the Company’s financial statements with respect to (i) their responsibility under auditing standards generally accepted in the United States, (ii) significant accounting policies, (iii) management judgments and estimates, (iv) any significant audit adjustments, (v) any disagreements with management and (vi) any difficulties encountered in performing the audit. The Committee discussed with Grant Thornton the overall scope and plan for their audit.
Grant Thornton LLP also provided a letter containing the disclosures required by Independence Standards Board No. 1 (Independence Discussions with Audit Committees) with respect to relationships between Grant Thornton LLP and either the Company or management that in its professional judgment may reasonably be thought to bear on independence. This letter from Grant Thornton LLP confirms that, in its professional judgment, it is independent of the Company within the meaning of the federal securities laws and the requirements of the Independence Standards Board. The Audit Committee has advised Company management that it has determined that the services rendered by Grant Thornton LLP during fiscal year 2004 are compatible with maintaining their independence as the Company’s auditors.
The Audit Committee reviewed and discussed with management the audited financial statements for the year ended June 30, 2004. In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended June 30, 2004 for filing with the Securities and Exchange Commission.
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Respectfully submitted by members of the Audit Committee Wilfred T. O'Gara, Chairman Dennis B. Meyer Mark A. Serrianne |
The Nominating and Corporate Governance Committee, composed of Messrs. O’Gara (Chairman), Meyer, Kreider and Serrianne, is responsible for nominating persons for election as directors at each annual shareholders’ meeting and to fill any Board vacancies that may arise between meetings. The Nominating and Corporate Governance Committee will consider nominees recommended by security holders in written correspondence directed to the Secretary of the Company. The Nominating and Corporate Governance Committee did not meet during fiscal year 2004. However, at its July 27, 2004 meeting, the Committee nominated Mark Serrianne to LSI's Board at the recommendation of the Committee's Chairman. The Committee also met on August 12, 2004 and it nominated this year’s slate of directors. The Nominating and Governance Committee did not seek, nor did it receive the recommendation of any of the director candidates named in this proxy statement from any shareholder, non-management director, executive officer or third-party search firm in connection with its own approval of such candidates. The Company has not paid any fee to a third party to assist it in identifying or evaluating nominees. Although a copy of the Committee’s Charter is not currently available on LSI's website, a copy of such charter is attached to this proxy statement as Annex C.
The Compensation Committee, composed of Messrs. Meyer (Chairman), Kreider, O’Gara, and Serrianne (who was appointed to the Committee in August 2004), is responsible for establishing compensation levels for management and for administering the Company’s Equity Compensation Plan and Non-Qualified Deferred Compensation Plan. The Compensation Committee met one time during fiscal 2004.
The Compensation Committee annually establishes salaries, bonuses and stock option or stock grant awards for executive officers and key management personnel. The Committee reviews the performance of the Company’s executive officers on an individual basis and also reviews each executive’s performance in connection with the Company’s overall performance. The Committee desires to establish executive compensation that enhances the Company’s overall fundamental objective of providing long-term value for its shareholders and employees. In addition, major emphasis is being placed on retaining current management and incentivizing key managers to align their interests to make them consistent with the Company’s growth. The Committee believes that the interests of management and shareholders can be more closely aligned by providing executives with competitive levels of compensation that will enable LSI Industries to attract and retain key executives by rewarding exceptional individual performance, and by tying executive pay to personal goals as well as overall corporate performance.
The Compensation Committee considered the bench marking and competitive analysis performed for the Company by Arthur Andersen LLP during fiscal 2000 to determine the various elements of the compensation of the Company’s senior officers, including the granting of additional stock options.-13-
The Committee uses base salaries, incentive and deferred compensation arrangements, automobile allowances, life and disability insurance programs, and stock options designed to tie a portion of the executive’s compensation to the stock market performance of the Company’s Common Shares when establishing executive and managerial compensation programs.
Base Compensation
The Committee reviewedgenerally reviews the base salaries of the Company’s executive officers and each executive’s level of responsibility and potential, as well as salary levels offered by competitors and the overall competition in the existing marketplace. Each executive’s particular division of the Company wasis reviewed, and its contribution to the overall results of the Company assessed. The Committee usedgenerally uses this information to determine the executive’s base compensation level and to setlevel. In consideration of the performance goalsfiscal year 2003 freeze of base salaries, the Committee determined that modest salary adjustments were appropriate for the upcoming year.Company’s executive officers, key management and all salary personnel in fiscal 2004.
The Committee appliedgenerally applies a collective, subjective evaluation of the above factors to determine the annual base compensation level of its executive officers in light of the Company’s performance and, in certain cases, the performance of its various divisions. The Committee did not utilize a particular objective formula as a means of establishing annual base compensation levels. Mr.Chief Executive Officer and President Robert J. Ready’s salary wasis generally established on the same basis.
Incentive Compensation
Incentive compensation awards for performance during fiscal 20022004 were made to employees of certain operating divisions based upon the achievement of specific goals set forth in the strategic Plan adopted for the 20022004 fiscal year. The Plan provides that 20% of certain employees’ bonuses are based upon a combination of overall corporate results, with the remaining 80% based upon divisional results.results, as well as discretionary factors such as attitude and individual performance. Bonuses for corporate officers, including Robert J. Ready, are based entirely on overall corporate results.results, as well as discretionary factors such as attitude and individual performance.
Stock Option Grants and Equity Compensation
The shareholders of LSI Industries established a Stock Option Plan and, last year, an Equity Compensation Plan, to provide a method of attracting, retaining and providing appropriate incentives to key employees. The Committee is responsible for the administration of this Plan,these Plans, both with respect to executive officers and all other employees. To that end, the Committee determines which employees receive options, the time of grant and the number of shares subject to the option. All option prices are set at 100% of market value on the date of grant. The Committee bases its individual option awards upon the past contributions of the particular employee as well as the capability of the employee to positively impact the Company’s future success and profitability. In fiscal 2002, a total of 37 employees, including the threeThere were no stock options granted to executive officers shown in the Summary Compensation Table,fiscal year 2004. The Committee can also award shares, restricted stock, stock appreciation rights, and other equity awards to executive officers and all other employees. None of these equity compensation awards were granted options to purchase 191,338 common shares of the Company.made in fiscal year 2004.
Respectfully submitted by members of the Compensation Committee Dennis B. Meyer, Chairman Gary P. Kreider, Wilfred T. O'Gara, Mark A. Serrianne |
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Gary P. Kreider, who is a member of the Compensation Committee, is a senior partner of Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio, a law firm that provided legal services to the Company in fiscal year 2002.2004.
Scott D. Ready, age 40, is Corporate Vice President of the Image Group and is the son of Robert J. Ready, Chairman, President and Chief Executive Officer of LSI Industries. In fiscal year 2002, Scott D. Ready's total compensation was $212,192. J. Scott Sferra, age 38,40, is Vice President Manufacturing of the Cincinnati Operations of LSI Industries and is the son of James P. Sferra, Director, Secretary and Executive Vice President Manufacturing of LSI Industries. In fiscal year 2002,2004, J. Scott Sferra'sSferra’s total compensation was $112,911. Scott Ready received a stock option grant for 7,000 common shares in fiscal year 2002.$111,046. J. Scott Sferra received adid not receive any stock option grant for 1,500 common sharesgrants in fiscal 2002.2004.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors has furnished the following report on the Committee’s activities for fiscal year 2002.
The Audit Committee is composed of four non-employee, independent directors as defined by its charter and the rules of the Nasdaq National Market. The Committee operates under a written charter that was first adopted and approved by the Board of Directors in June 2000.
The primary function of the Audit Committee is to oversee the Company’s financial reporting process on behalf of the Board of Directors. Management has primary responsibility for the financial statements and the reporting process, including the system of internal controls. These oversight responsibilities of the Committee consist of a review of the audited financial statements in the Annual Report on Form 10-K for the fiscal year ended June 30, 2002 with management, including a discussion of the quality and acceptability of the accounting principles, clarity of disclosures in the financial statements, and the reasonableness of significant judgements. Management has confirmed to us that such financial statements are their responsibility and that they have been prepared with integrity and objectivity in conformity with accounting principles generally accepted in the United States.
The Audit Committee held a special meeting in March 2002 with corporate management to discuss the ability of the Company’s then independent public accountants, Arthur Andersen LLP, to continue to provide audit and tax compliance and consulting services. The need for this evaluation was due solely to Andersen’s problems related to services provided to other clients by other offices of the firm. Agreement was reached that LSI Industries should immediately seek service proposals from four other auditing firms. A second special Audit Committee meeting was convened in April 2002 to evaluate proposals submitted by Deloitte & Touche LLP, Ernst & Young LLP, Grant Thornton LLP, and PricewaterhouseCoopers LLP. Following a thorough and meticulous evaluation and selection process, the Audit Committee selected Grant Thornton LLP to become the Company’s independent certified public accountants effective in early April 2002.
Following the audit of the Company’s year-end financial statements, the Audit Committee met with Grant Thornton LLP, the independent certified public accountants who are responsible for expressing an audit opinion on the financial statements, and discussed the matters required to be discussed by Statement of Auditing Standards No. 61 (SAS 61 – Communications with Audit Committee). SAS 61 requires Grant Thornton LLP to provide the Committee with additional information regarding the scope and results of their audit of the Company’s financial statements with respect to (i) their responsibility under auditing standards generally accepted in the United States, (ii) significant accounting policies, (iii) management judgements and estimates, (iv) any significant audit adjustments, (v) any disagreements with management and (vi) any difficulties encountered in performing the audit.
Grant Thornton LLP also provided a letter containing the disclosures required by Independence Standards Board No. 1 (Independence Discussions with Audit Committees) with respect to relationships between Grant Thornton LLP and the Company that in its professional judgement may reasonably be thought to bear on independence. This letter from Grant Thornton LLP confirms that, in its professional judgement, it is independent of the Company within the meaning of the federal securities laws and the requirements of the Independence Standards Board. The Audit Committee has advised Company management that it has determined that the non-audit services rendered by both Arthur Andersen LLP and Grant Thornton LLP during fiscal year 2002 are compatible with maintaining the independence of those firms as the Company’s auditors.
The Audit Committee reviewed and discussed with management the audited financial statements for the year ended June 30, 2002. In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K for the year ended June 30, 2002 for filing with the Securities and Exchange Commission.
|
The following graph compares the cumulative total shareholder return on the Company’s Common Shares during the five fiscal years ended June 30, 2002,2004 with a cumulative total return on the Nasdaq Stock Market Index (U.S. companies) and the Dow Jones Electrical Equipment Index. The comparison assumes $100 was invested June 30, 19971999 in the Company’s Common Shares and in each of the indexes presented; it also assumes reinvestment of dividends.
June 30 | LSI Industries Inc. | Nasdaq Market Index (U.S.) | Dow Jones Electrical Equipment Index |
---|---|---|---|
1999 | 100.0 | 100.0 | 100.0 |
2000 | 63.9 | 192.7 | 112.8 |
2001 | 100.1 | 68.6 | 70.0 |
2002 | 119.5 | 58.2 | 44.1 |
2003 | 73.9 | 56.0 | 38.7 |
2004 | 98.0 | 76.4 | 53.7 |
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LSI Nasdaq Dow Jones Industries Market Index Electrical June 30 Inc. (U.S.) Equipment Index ------- ---------- ------------ --------------- 1997 100.0 100.0 100.0 1998 150.5 131.6 101.7 1999 184.0 189.3 138.6 2000 117.6 280.0 156.2 2001 184.1 151.8 97.0 2002 220.0 103.4 61.1
LSI Industries is not aware of any other matters to be presented at the Annual Meeting other than those specified in the Notice.
If you have any questions or need more information about the annual shareholders’ meeting, write to or contact:
LSI Industries Inc.
Ronald S. Stowell,
Vice President, Chief Financial
Officer & Treasurer
10000 Alliance Road
Cincinnati, Ohio 45242
(513) 793-3200
For more information about your stockshare ownership, call The Provident BankComputershare Investor Services, LLC at (513) 763-8113.(312) 588-4993.
We also invite you to visit the LSI Industries site on the Internet atwww.lsi-industries.com. Internet site materials are for your general information only and are not part of this proxy solicitation.
By order of the Board of Directors /s/James P. Sferra James P. Sferra Secretary |
Dated: September 25, 200229, 2004
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ANNEX A
Number. The number of Directors, which shall not be less than three, may be fixed or changed at a meeting of the Shareholders called for the purpose of electing Directors at which a quorum is present, by a majority of votes cast at the meeting. In addition, the number of Directors may be fixed or changed by action of the Directors at a meeting called for that purpose at which a quorum is present by a majority vote of the Directors present at the meeting. The Directors then in office may fill any Director’s office that is created by an increase in the number of Directors. The number of Directors elected shall be deemed to be the number of Directors fixed unless otherwise fixed by resolution adopted at the meeting at which such Directors are elected.
ANNEX B
LSI INDUSTRIES INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
As Revised August 11, 2004
I. PURPOSE
The Board of Directors has established this Audit Committee Charter to specify the functions and authority of the Audit Committee. The primary function of the Committee is to oversee the accounting and financial reporting process of the Company and the audit of its financial statements and perform those other functions outlined in this Charter.
The Audit Committee shall:
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors each of whom shall meet the independence and financial literacy requirements of The Nasdaq Stock Market and Section 10A of the Securities Exchange Act of 1934. At least one member shall be a financial expert as defined under the United States Securities and Exchange Commission rules.
The members of the Committee shall be elected by the Board at the annual organizational meeting of the Board and serve until their successors shall be duly elected and qualified. Unless a Chair is elected by the Board, the members of the Committee shall designate a Chair.
III. MEETINGS
The Committee shall meet at least four times annually, and more frequently as circumstances dictate. As part of its job to foster open communication, the Committee should meet at least annually with management, the internal auditor, the chief financial officer and the independent certified public accountants in separate executive sessions to discuss any matters that the Committee or any of these groups believe should be discussed independently. In addition, the Committee or at least its Chair should meet with the independent certified public accountants and management quarterly to review the Company’s financial statements and disclosures prior to the quarterly reports being filed with the Securities and Exchange Commission. The Committee shall maintain minutes of its meetings and activities.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. | Review and update this Charter annually. |
2. | Review the Company’s annual financial statements, press releases, and any reports or other financial information submitted to the Securities and Exchange Commission or to the public, including any certification, report, opinion, or review rendered by the independent certified public accountants. This information should be sent to the Committee at least 24 hours before release. |
Independent Certified Public Accountants
3. | Have a clear understanding with the Company’s independent certified public accountants that they are ultimately accountable to the Committee, as representatives of this Company’s shareholders. As such, the Committee has the ultimate authority to select, evaluate, compensate and, where appropriate, replace the independent certified public accountants. |
4. | On an annual basis, ensure the receipt from the independent certified public accountants of their formal written statement delineating all relationships between them and the Company. The Committee shall, as appropriate, also discuss with the independent certified public accountants any undisclosed relationships or non-accounting services rendered to the Company or any of its affiliates that could impact the objectivity and independence of the independent certified public accountants, and take, or recommend that the Board take, appropriate action to oversee the independence of the independent certified public accountants. |
5. | Review the most recent report of the Public Company Accounting Oversight Board of its examination of the Company’s independent certified public accountants. |
6. | Ensure that the lead audit partner of the Company’s independent certified public accountants and the audit partner responsible for reviewing the audit are rotated at least every five years. |
7. | Pre-approve all audit and non-audit services and their accompanying fees to be performed by the Company’s independent certified public accountants. The Committee may delegate this function to a Committee member between meetings with a reporting obligation to the full Committee. |
8. | Ensure disclosure in the Company’s periodic reports filed with the SEC, of any non-audit services approved to be performed by the Company’s independent certified public accountants. |
9. | Determine whether the provision of non-audit services by the Company’s independent certified public accountants is compatible with maintaining their independence. |
10. | Periodically consult with the independent certified public accountants out of the presence of management about internal controls, the fullness and accuracy of the Company’s financial statements, and the adequacy/capability of financial staff given the business and changes in operations. |
11. | Review with the independent certified public accountants and the internal auditor efforts related to the coordination of audit work to assure completeness of coverage, reduction of redundant efforts, and the effective use of audit resources. |
Internal Audit
12. | Review and approve internal audit’s charter, budget and staffing plans. |
13. | Review internal audit’s annual risk assessment and audit plans, including significant changes in plan scope and internal audit coverage. |
14. | Receive and discuss periodic reports of significant internal audit findings and follow-up actions. |
15. | Periodically assess the effectiveness of the Company’s internal audit function and its compliance with the Institute of Internal Audit (II) Standards for the Practice of Internal Auditing. |
16. | Periodically review the internal audit function and recommend any changes in the internal audit position. |
Financial Reporting Processes
17. | Meet with the independent certified public accountants and the appropriate Company financial staff to approve the plan and the scope of each audit prior to commencement of each audit process. |
18. | In consultation with the independent certified public accountants and the internal auditors review the integrity of the Company’s financial reporting processes, both internal and external. |
19. | Consider the independent certified public accountants’ judgments about the quality and appropriateness of the Company’s accounting principles as applied in its financial reporting. |
20. | Advise financial management and the independent certified public accountants that they are expected to provide a timely analysis of significant current financial reporting issues and practices. Consider and approve, if appropriate, major changes to the Company’s auditing and accounting principles and practices as suggested by the independent certified public accountants, management, or internal auditor. |
21. | Continue the process of reporting to the Committee by each of management and the independent certified public accountants regarding any significant judgments made in management’s preparation of the financial statements and the view of each as to appropriateness of such judgments. |
22. | Review, at least annually, a report from the independent certified public accountants regarding any material risk areas, critical accounting policies and practices, alternative treatments with financial information within GAAP discussed with management, ramifications of the use of alternative disclosures, the treatment preferred by the independent certified public accountants in each instance, management letters and other communications. |
Process Improvement
23. | Following completion of the annual audit, review separately with each of management and the independent certified public accountants any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information. |
24. | Resolve any disagreement among management and the independent certified public accountants in connection with the preparation of the financial statements. |
25. | Consider and review with the independent certified public accountants and the internal auditor: |
a) | The adequacy of the Company’s internal controls including computerized information system controls and security. |
b) | Related findings and recommendations of the independent certified public accountants and the coordinator of any internal audit efforts together with management’s responses. |
26. | Review with the independent certified public accountants, the internal auditor and management the extent to which changes or improvements in financial or accounting practices, as approved by the Committee, have been implemented. This review should be conducted at an appropriate time after implementation of changes or improvements, as decided by the Committee. Review specifically all repeat audit points and recommendations not implemented from prior audits. |
Employee Concern Procedures
27. | Establish and maintain procedures for the receipt, retention and treatment of concerns received by the Company from employees or others regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or internal control matters. |
Related-Party Transactions
28. | Review and approve, if appropriate, all related-party transactions. A related party transaction is one which the Company would be required to disclose in its annual Proxy Statement pursuant to SEC Regulation S-K, Item 404. |
Ethical and Legal Compliance
29. | Keep current the Company’s Code of Ethics and Conduct and work to ensure that management has established a system to enforce this Code. |
30. | Review management’s monitoring of the Company’s compliance with its Code of Ethics and Conduct and insure that management has the proper review system in place to insure that the Company’s financial statements, reports and other financial information disseminated to governmental organizations, and the public satisfy legal requirements. |
31. | Review with the Company’s counsel, legal compliance matters including, without limitation, corporate securities trading. |
32. | Review with the Company’s counsel, any legal or regulatory matter that could have a significant impact on the Company’s financial statements. |
33. | Perform any other activities consistent with this Charter, the Company’s Code of Regulations and governing law, as the Committee or the Board deems necessary or appropriate. |
34. | Recommend to the Company whether the audited financial statements should be included in the annual Form 10-K report for submission to the Securities and Exchange Commission. |
35. | Prepare a report of the Audit Committee for transmission to shareholders through the annual Proxy Statement. |
36. | Review the processes utilized by management in presenting certifications concerning the financial statements to the Securities and Exchange Commission. |
37. | Review policies and procedures with respect to officers’ expense accounts and perquisites, including their use of corporate assets and requests from the independent accountants as to all loans or extensions of credit by the Company to its officers. |
Nasdaq Stock Market Certification
Review and approve the Company’s required Nasdaq Stock Market certification related to the Audit Committee
V. EFFECTIVE DATE
The effective date of this Audit Committee Charter is August 11, 2004. This charter may be amended from time to time by the LSI Industries Inc. Board of Directors.
ANNEX C
This Charter has been adopted by the Board of Directors of LSI Industries Inc. and may be modified by the Board from time to time. The Committee shall consist of a minimum of two directors who shall be appointed and removed by the Board of Directors. All members of the Committee shall satisfy standards of independence prescribed by The Nasdaq Stock Market. The Committee is authorized to engage advisors, consultants and search firms in connection with the performance of its duties. The following are the purposes, duties and responsibilities of the Committee:
1. To recommend to the Board any changes in the size of the Board and of its Committees;
2. To identify qualified nominees for the Board and determine the particular nominees who will be nominated by the Company for annual election to the Board. If there is a vacancy in any director’s seat, whether through an increase in the size of the Board or otherwise, the Committee shall recommend to the Board of Directors a nominee to fill such vacancy;
3. In nominating individuals as directors, the Committee shall take into account, among other factors which it may deem appropriate, the judgments, skill, diversity, business experience, and needs of the Board as its function relates to the business of the Company;
4. The Committee shall consider candidates proposed by management and stockholders as well as by its own members;
5. To identify Board members qualified to fill vacancies on Committees of the Board taking into account requirements of The Nasdaq Stock Market, federal and state law and the suitability of persons for particular Committee assignments and any other factors deemed appropriate by the Committee;
6. To monitor and recommend the structure and functions of the various committees of the Board;
7. To advise on changes in Board compensation;
8. To consider matters of corporate governance and to establish and review, periodically, any corporate governance principles implemented by the Board or the Company;
9. To enact policies and procedures as necessary or advisable from time to time with respect to any of the above-referenced purposes, duties and responsibilities as well as to conduct performance evaluations of the Committee in the Committee’s discretion.
PROXY FOR ANNUAL MEETING | The undersigned hereby appointsGary P. Kreider, Dennis B. Meyer and Robert J. Ready, |
1.Authority to elect as Class B Directors the twothree nominees below.
FOR ___ WITHHOLD AUTHORITY
___
Wilfred T. O'Gara, Mark A. Serrianne and James P. Sferra
WRITE THE NAME OF ANY NOMINEE(S) FOR
WHOM AUTHORITY TO VOTE IS WITHHELD
2.Ratification of the appointment of Grant Thornton LLP as the Company's independent certifiedregistered public accountantsaccounting firm for fiscal 2003.
2005.
FOR ___ AGAINST ___ ABSTAIN ___
3.Approval of the amended LSI Industries Inc. Code of Regulations.
FOR ___ AGAINST ___ ABSTAIN ___
THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS UNLESS A CONTRARY CHOICE IS SPECIFIED.
, 2004 | IMPORTANT: Please sign exactly as name appears hereon indicating, where proper, official position or representative capacity. In the case of joint holders, all should sign. |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS