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]
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
ICU Medical, Inc.
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(Name of Registrant as Specified In Its Charter)
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ICU MEDICAL, INC.
951 CALLE AMANECER
SAN CLEMENTE, CALIFORNIA 92673
_______________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 28, 2004
_______________________
This Annual Meeting of Stockholders of ICU Medical, Inc. (the "Company") will be
held by means of remote communication on the Internet at the Company's web site,
www.icumed.com, and by conference telephone at (800) 915-4836, on Friday, May
28, 2004 at 9:00 a.m., Pacific Daylight Time, for the following purposes:
1. To elect two directors of the Company to serve for a term
of three years and until their successors have been elected and
qualified;
2. To ratify the selection of Deloitte & Touche LLP, as
independent auditors for the Company for the year ending December 31,
2004; and
3. To transact such other business as may properly come before
the Annual Meeting or any adjournment thereof.
The Board of Directors has determined that only holders of Common Stock
of record at the close of business on April 5, 2004 will be entitled to receive
notice of, and to vote at, the Annual Meeting or any adjournment thereof.
YOU MAY ATTEND THE ANNUAL MEETING BY EITHER CLICKING ON "ANNUAL
MEETING" ON OUR WEB SITE, WWW.ICUMED.COM, OR CALLING (800) 915-4836 FROM A
TOUCH-TONE TELEPHONE. IF YOU HOLD STOCK CERTIFICATES REGISTERED IN YOUR OWN
NAME, YOU WILL NEED THE CONTROL NUMBER PRINTED ON THE ATTACHMENT TO THE ENCLOSED
PROXY CARD TO VERIFY THAT YOU ARE A STOCKHOLDER OF RECORD. IF YOUR STOCK IS HELD
IN "STREET NAME" BY YOUR BROKER OR OTHER NOMINEE, YOU WILL NEED TO PROVIDE THE
NAME OF YOUR BROKER OR NOMINEE TO GAIN ACCESS TO THE ANNUAL MEETING.
By Order of the Board of Directors
/S/ FRANCIS J. O'BRIEN
Francis J. O'Brien, Secretary
San Clemente, CA
April 19, 2004
YOUR VOTE IS IMPORTANT
Even though you plan to attend the Annual Meeting in person by means of
remote communication, please complete, sign, date and return the enclosed proxy
promptly or submit your proxy over the Internet or by telephone. If you attend
the Annual Meeting electronically, you may withdraw your proxy and vote in
person. You will find information on submitting your proxy over the Internet and
by telephone and information about voting in person at the Annual Meeting on the
reverse side of this notice.
THANK YOU FOR ACTING PROMPTLY
HOW DO I SUBMIT MY PROXY?
You will have the opportunity to attend the Annual Meeting by means of
remote communication and vote during the Annual Meeting if you choose. Whether
or not you vote during the Annual Meeting, it is important that your shares be
represented and voted. If you are a stockholder of record, you can give a proxy
to have your shares voted at the Annual Meeting either:
o by mailing the enclosed proxy card in the enclosed envelope;
o electronically, using the Internet; or
o over the telephone by calling a toll-free number.
The Internet and telephone proxy submission procedures are set up for
your convenience and are designed to verify your identity, to allow you to give
voting instructions, and to confirm that those instructions have been properly
recorded. If you are a stockholder of record and you would like to submit your
proxy by telephone or by using the Internet, please refer to the specific
instructions on the attachment to the enclosed proxy card. Alternatively, you
may submit your proxy by mail by returning your signed proxy in the enclosed
envelope. If we receive your proxy by mail, electronically or by telephone
before the annual meeting, we will vote your shares as you direct.
If you hold your shares in "street name," you must give voting
instructions in the manner prescribed by your broker or nominee. Your broker or
nominee has enclosed or provided a voting instruction card for you to use in
directing the broker or nominee how to vote your shares.
HOW CAN I VOTE MY SHARES IN PERSON AT THE MEETING?
If you are a stockholder of record, you may vote your shares at the
Annual Meeting by telecopier or facsimile. The procedures for voting during the
Annual Meeting are designed to verify your identity and allow you to vote. You
should retain the attachment to the proxy card enclosed with this Proxy
Statement on which your unique control number appears. You will need to write
this control number on your ballot to verify your identity.
To vote during the meeting, access the Company's website at
www.icumed.com, then click on the Investors tab, and click on the icon that says
"Voting Ballot." You may download and print the ballot. Alternatively, you may
request that a ballot be faxed to you by calling Investor Relations at (800)
824-7890 any time before 4:00 PM PDT on May 27, 2004. After you have marked your
votes and recorded your control number on your ballot, you may fax the ballot to
the Company at (949) 366-8368. Ballots must be received before the polls are
closed during the Annual Meeting to be counted. We anticipate that the polls
will be open from approximately 9:15 to 9:40 AM PDT on May 28, 2004.
Even if you currently plan to attend the Annual Meeting, we recommend
that you also submit your proxy as described above so that your vote will be
counted if you later decide not to attend the Annual Meeting. If you vote by
proxy and then decide to attend the Annual Meeting, you will be able to vote
during the Annual Meeting, even if you have previously submitted your proxy.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.
1
ICU MEDICAL, INC.
951 CALLE AMANECER
SAN CLEMENTE, CALIFORNIA 92673
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of ICU Medical, Inc. (the "Company") for
use at the Annual Meeting of Stockholders to be held by means of remote
communication on the Internet at the Company's web site, www.icumed.com, and by
conference telephone at (800) 915-4836, on Friday, May 28, 2004 at 9:00 a.m.,
Pacific Daylight Time, and at any adjournments thereof, for the purposes set
forth herein and in the accompanying Notice.
The approximate date of mailing of this Proxy Statement and the
accompanying proxy is April 19, 2004. This Proxy Statement was also posted on
the Company's web site, www.icumed.com, on April 20, 2004.
ATTENDANCE BY REMOTE COMMUNICATION
The Annual Meeting will be held entirely by remote communication on the
Internet, as permitted by Delaware law. There will be no physical location at
which stockholders may attend the Annual Meeting, but stockholders may attend
and participate in the meeting electronically. Stockholders who participate in
the Annual Meeting by means of remote communication will be deemed to be present
in person and will be able to vote during the Annual Meeting at the times that
the polls are open. Stockholders who wish to attend the meeting should go to
www.icumed.com, click on the Investors tab and click on the icon that says
"Annual Meeting" or telephone (800) 915-4836 at least 10 minutes before the
beginning of the meeting to register their attendance and complete the
verification procedures to confirm that they were stockholders of record as of
April 5, 2004, the record date. Stockholders of record will need to provide the
control number on the attachment to the enclosed proxy card to verify their
identity.
Beneficial owners whose stock is held for them in street name by their
brokers or other nominees may also attend the meeting by going to
www.icumed.com, clicking on the Investors tab and clicking on the icon that says
"Annual Meeting" or telephoning (800) 915-4836 at least 10 minutes before the
beginning of the meeting. Such beneficial owners may not vote at the meeting,
and may only cause their shares to be voted by providing voting instructions to
the persons who hold the beneficial owners' shares for them. Beneficial owners
will need to provide the name of the broker or other nominee that holds their
shares to gain access to the meeting.
There is additional information about voting at the Annual Meeting on
the opposite page. Stockholders may also obtain additional information about
accessing and voting at the Annual Meeting by calling Investor Relations at
800-824-7890.
PROXY INFORMATION
A stockholder giving a proxy may revoke it at any time before it is
exercised by filing with the Secretary of the Company a written notice of
revocation or a duly executed proxy bearing a later date. The powers of the
proxy holders will be suspended if the person executing the proxy is present at
the Annual Meeting electronically and elects to vote in person. Subject to such
revocation or suspension, all shares represented by each properly executed proxy
received by the Company will be voted in accordance with the instructions
indicated thereon, and if instructions are not indicated, will be voted in favor
of (i) the election of the nominees for director named in, or otherwise
nominated as set forth in this Proxy Statement, and, (ii) the proposal to ratify
the selection of indepdent auditors.
2
RECORD DATE AND VOTING
As of April 5, 2004 the outstanding voting securities of the Company
consisted of 13,716,827 shares of $.10 par value Common Stock. Each stockholder
of record at the close of business on April 5, 2004 is entitled to one vote for
each share then held on each matter submitted to a vote of stockholders. The
presence in person electronically or by proxy of holders of a majority of the
issued and outstanding Common Stock will constitute a quorum for the transaction
of such business as shall properly come before the meeting.
Directors are elected by a plurality of the votes of the shares present
in person electronically or by proxy and entitled to vote on the election of
directors. Generally, stockholder approval of other matters, such as the
ratification of the selection of independent auditors, requires the affirmative
vote of a majority of the shares present in person or represented by proxy and
entitled to vote on the matter. Shares voted to abstain on such a matter will be
treated as entitled to vote on the matter and will thus have the same effect as
"no" votes. Broker non-votes on such matters are not counted as entitled to vote
on a matter in determining the number of affirmative votes required for approval
of the matter, but are counted as present for quorum purposes.
The term "broker non-votes" refers to shares held by a broker in street
name that are present by proxy but are not voted on a matter pursuant to rules
prohibiting brokers from voting on non-routine matters without instructions from
the beneficial owner of the shares. The election of directors and ratification
of the selection of independent certified public accountants are generally
considered to be routine matters on which brokers may vote without instructions
from beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to shares of Common Stock
owned as of April 5, 2004, by (i) each person who, insofar as the Company has
been able to ascertain, beneficially owned more than five percent of the
outstanding Common Stock, (ii) each director, (iii) each nominee for election as
a director, and (iv) all directors and officers as a group. Unless otherwise
indicated in the footnotes following the table, and subject to community
property laws where applicable, the Company believes that the persons as to whom
the information is given have sole voting and investment power over the shares
listed as beneficially owned. The business address of the George A. Lopez, M.D.
Second Family Limited Partnership, the Lopez Family Trust, George A. Lopez, M.D.
and Diana K. Lopez, M.D. is 951 Calle Amanecer, San Clemente, California 92673.
3
SHARES PERCENT
OWNED OF
BENEFICIALLY CLASS(1)
------------ --------
George A. Lopez, M.D........................................................ 3,875,818 (3) 23.7%
George A. Lopez, M.D. Second Family Limited Partnership .................... 1,186,843 (2) 8.7%
Wasatch Advisors, Inc. ..................................................... 2,790,592 (7) 20.3%
150 Social Hall Avenue, Salt Lake City, UT 84111
FMR Corp. .................................................................. 1,590,881 (7) 11.6%
82 Devonshire Street, Boston, MA 02109
Kayne Anderson Rudnick Investment Management, LLC........................... 1,011,332 (7) 7.4%
1800 Avenue of the Stars, Second Floor, Los Angeles, CA 90067
Columbia Wanger Asset Management, L.P....................................... 901,500 (7) 6.6%
227 West Monroe Street, Suite 3000, Chicago, IL 60606
Lord, Abbett & Co. ......................................................... 875,572 (7) 6.4%
90 Hudson Street, Jersey City, NJ 07302
Eaton Vance Management...................................................... 724,986 (7) 5.3%
255 State Street, Boston, MA 02109
Rice Hall James & Associates LLC............................................ 699, 030 (7) 5.1%
600 West Broadway, Suite 1000, San Diego, CA 92101
Jack W. Brown............................................................... 39,375 (5) *
John J. Connors............................................................. 35,625 (5) *
Michael T. Kovalchik III, M.D............................................... 37,687 (5) *
Joseph R. Saucedo........................................................... 28,505 (5) *
Richard H. Sherman, M.D..................................................... 110,926 (5) *
Robert S. Swinney, M.D...................................................... 35,875 (4)(5) *
All officers and directors as a group (11 persons).......................... 4,340,482 (6) 26.0%
---------------
* Less than one percent
(1) Based on total shares of Common Stock outstanding plus outstanding options
to acquire Common Stock currently exercisable or exercisable within 60 days
held by the beneficial owner whose percent of outstanding stock is
calculated.
(2) Dr. George A. Lopez is the general partner of the George A. Lopez, M.D.
Second Family Limited Partnership (the "Partnership") and holds a
one-percent general partnership interest in the Partnership. As general
partner, he has the power to vote and power to dispose of the 1,186,843
shares owned by the Partnership and may be deemed to be a beneficial owner
of such shares. Trusts for the benefit of Dr. Lopez's children, the
Christopher George Lopez Children's Trust and the Nicholas George Lopez
Children's Trust, own a 99% limited partnership interest in the
Partnership. Dr. Lopez is not trustee of and has no interest in his
children's Trusts. Except to the extent of the undivided one percent
general partnership interest in the assets of the Partnership, Dr. Lopez
disclaims any beneficial ownership of the shares owned by the Partnership.
(3) Includes options to acquire 2,652,761 shares. Also includes the 1,186,843
shares owned by the Partnership, as to which shares Dr. Lopez disclaims any
beneficial ownership except to the extent described in Note (2). Includes
49,351 shares owned by the Lopez Family Trust. Dr. George A. Lopez and his
wife, Dr. Diana K. Lopez, are trustees and beneficiaries of the Family
Trust; except to the extent of their pecuniary interests as beneficiaries
of the Family Trust, the Drs. Lopez disclaim any beneficial ownership of
the shares owned by the Family Trust. Does not include 174,400 held by Dr.
Diana K. Lopez as Trustee of the Lopez CRT #1 for the benefit of the Drs.
Lopez, as to which shares Dr. George A. Lopez has no voting or investment
power and disclaims any beneficial ownership.
(4) Does not include 750 shares owned by Dr. Swinney's wife as to which he has
no voting or investment power and disclaims any beneficial ownership.
(5) Includes options to acquire 28,125 shares.
(6) Includes options to acquire 2,990,508 shares.
(7) Information included solely in reliance information included in a Statement
on Schedule 13D or 13G filed with the Securities and Exchange Commission by
the indicated holder.
4
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
Two directors, of the seven directors currently constituting the Board
of Directors, are to be elected at the Annual Meeting and to hold office until
the 2007 Annual Meeting and until their successors are elected and qualified.
The Company's Board of Directors is divided into three classes. Each year a
different class of directors is elected at the Annual Meeting to a three-year
term.
In the election of directors, the proxy holders intend to vote for the
election of George A. Lopez, M.D. and Robert S. Swinney, M.D., who are now
members of the Board and whose current terms of office are expiring. It is not
anticipated that the nominees will decline or be unable to serve as directors.
If, however, that should occur, the proxy holders will vote the proxies in their
discretion for any nominee designated to fill the vacancy by the Company's
Nominating/Corporate Governance Committee.
CURRENT
DIRECTOR TERM
NAME AGE SINCE EXPIRES PRINCIPAL OCCUPATION
------------------------------------ --- -------- ------- --------------------------------------------
George A. Lopez, M.D. .............. 56 1984 2004 Chairman of the Board, President and Chief
Executive Officer of the Company
Jack W. Brown....................... 64 1992 2006 Former Chairman of the Board and President
of Gish Biomedical, Inc., disposable medical
devices
John J. Connors, Esquire............ 64 1992 2005 Patent Attorney, founder, Connors &
Associates, a legal network serving
inventors and entrepreneurs
Michael T. Kovalchik III, M.D. ..... 58 1989 2005 Physician and Director of Gambro Healthcare
Kidney Center, Torrington, Connecticut;
Chairman Ethics Committee, Charlotte
Hungerford Hospital, Torrington, Connecticut
Joseph R. Saucedo .................. 60 2001 2005 Chairman and President of Bolsa Resources,
Inc., a management consulting firm
Richard H. Sherman, M.D. ........... 57 1990 2006 Physician and Assistant Chair, Department of
Medicine, Bay Health Medical Center,
Milford Memorial Hospital, Milford, Delaware
Robert S. Swinney, M.D. ............ 58 1998 2004 Physician and member of the faculty of the
Los Angeles County-University of Southern
California Medical Center
Dr. Lopez is the founder of the Company and has served as Chairman of
the Board, President and Chief Executive Officer for more than five years. Dr.
Lopez has held various offices and served as a director of the Company since its
founding in 1984 with some interruptions in service.
Messrs. Brown, Connors and Saucedo and Drs. Kovalchik, Sherman and
Swinney have been engaged in their current occupations for more than five years.
Mr. Connors previously served as a director from December 1988 to July 1989. Dr.
Swinney previously served as a director from 1989 to October 1995.
5
BOARD COMMITTEES AND ATTENDANCE AT MEETINGS
The Board of Directors has standing Audit, Compensation and
Nominating/Corporate Governance Committees.
AUDIT COMMITTEE. The Board of Directors has an Audit Committee, which
consists of Messrs. Brown, Connors and Saucedo (Chairman). As more fully
described in the Audit Committee Charter, the Audit Committee oversees the
accounting and financial reporting processes of the Company and audits of its
financial statements. The Audit Committee met six times in 2003.
During 2003, the Audit Committee consisted of three directors who are
independent directors as defined under the listing standards of the Nasdaq
National Market System. The Company's Board of Directors adopted a revised Audit
Commitee charter on July 25, 2003 which is attached to this proxy statement as
Appendix I.
The Board of Directors has determined that Joseph R. Saucedo is an
"audit committee financial expert" and is "independent," as both those terms are
defined by Securities and Exchange Commission regulations.
COMPENSATION COMMITTEE. The Board of Directors has a Compensation
Committee, consisting of Messrs. Brown, Connors and Saucedo, Drs. Kovalchik
(Chairman), Sherman and Swinney. The Board has determined that all members of
the Compensation Committee are independent directors under the listing standards
of the Nasdaq Stock Market. The Compensation Committee, as more fully described
in the Compensation Committee Report, discharges the responsibilities of the
Board of Directors relating to executive and director compensation, and oversees
incentive, equity based and other compensatory plans in which executive officers
and key employees of the Company participate, including authorization of the
grant of stock options. The Compensation Committee met three times in 2003.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE. The Nominating/Corporate
Governance Committee (the "Committee" under this heading) consists of Drs.
Kovalchik, Sherman and Swinney, each of whom the Board of Directors has
determined is independent under the listing standards of the Nasdaq National
Market System. The Committee operates pursuant to a written charter adopted by
the Board of Directors on July 25, 2003, a copy of which can be found on the
Company's web site, www.icumed.com. The Committee's role is to recommend to the
Board of Directors policies on Board composition and criteria for Board
membership, to identify individuals qualified to serve as directors and approve
candidates for director and to recommend directors for appointment to committees
of the Board of Directors. The Committee also makes recommendations to the Board
of Directors concerning the Company's corporate governance guidelines and codes
of ethics and business conduct, oversees internal investigations of conduct of
senior executives, if necessary, and conducts evaluations of the performance of
the Board of Directors. The Committee, which was first appointed on October 17,
2003, did not meet during 2003.
In evaluating and determining whether to recommend a person as a
candidate for election as a director, the Committee considers, among other
things, relevant management and/or industry experience; values such as
integrity, accountability, judgment and adherence to high performance standards;
independence pursuant to the guidelines set forth in the listing standards of
the Nasdaq National Market System; ability and willingness to undertake the
requisite time commitment to Board service; and an absence of conflicts of
interest with the Company.
The Committee may employ a variety of methods for identifying and
evaluating nominees for director. The Committee will assess the need for
particular expertise on the Board of Directors, the upcoming election cycle of
the Board and whether any vacancies on the Board of Directors are expected due
to retirement or otherwise. In the event that vacancies are anticipated, or
otherwise arise, the Committee will consider various potential candidates for
director that may come to the Committee's attention through current directors,
the Company's professional advisors, stockholders or others.
The Committee will consider candidates recommended by stockholders. The
deadlines and procedures for stockholder recommendations of director candidates
are the same as those described below under "Nomination of Directors and
Stockholder Proposals." Following verification of the stockholder status of
persons proposing candidates, the Committee will make an initial analysis of the
qualifications of any candidate recommended by stockholders or others pursuant
to the criteria summarized above to determine whether the candidate is qualified
for service on the Company's Board before deciding to undertake a complete
evaluation of the candidate. Other than the verification of compliance with
procedures and stockholder status, and the initial analysis performed by the
6
Committee, a potential candidate nominated by a stockholder will be treated like
any other potential candidate during the review process by the Committee.
The Committee has approved the nominations of Drs. George A. Lopez and
Robert S. Swinney for reelection as directors at the Annual Meeting. The
Committee considered the candidates' past contributions to the Board of
Directors, their willingness to continue to serve and the benefits of continuity
in the membership of the Board of Directors and determined that the reelection
of the two candidates was appropriate.
The Board of Directors has adopted a Code of Business Conduct and
Ethics for Officers, and a copy is available on the Company's website,
www.icumed.com.
During 2003, the Board met 13 times. Each director attended more than
75% of the total of all meetings of the Board and any committees on which he
serves. It is the policy of the Company to invite and encourage all members of
the board of directors to attend the annual meeting. In 2003, five directors
attended the annual meeting.
COMMUNICATIONS WITH BOARD OF DIRECTORS
The Company's Board of Directors has an established process for
stockholder communications. Stockholders may send communications to the Board of
Directors or any individual director by mail addressed to: Board of Directors,
ICU Medical, Inc. 951 Calle Amanecer, San Clemente, California 92673.
Communications addressed to the Board of Directors will be reviewed by the
Secretary of the Company and directed to the Chairman of the Board for further
review and distribution to certain or all members of the Board of Directors, if
and as appropriate. Communications addressed to individual directors will be
forwarded directly to the named director. In the past year, the Board of
Directors did not take any material action as a result of any stockholder
communications that it received.
7
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
During 2003, the Compensation Committee (the "Committee" under this
heading) consisted of six directors who are not employees or former employees
of, or consultants to, the Company. The Committee reviews the performance of the
Company and the Chief Executive Officer, sets performance objectives,
establishes the compensation of the Chief Executive Officer, and authorizes the
grant of options to employees.
The Company's policy in compensating executive officers is to establish
methods and levels of compensation that will provide strong incentives to
promote the profitability and growth of the Company and reward superior
performance and that are sufficiently competitive to attract, retain and
motivate highly competent management personnel. Compensation of executive
officers includes base salary, performance-based incentive bonuses and
stock-based programs.
The Committee has adopted an executive compensation policy which
provides a base salary and, if certain performance objectives are met, incentive
bonuses and stock options. Upon achievement of performance objectives
established by the Committee, officers other than Dr. Lopez could receive, in
addition to base salaries, bonuses in amounts ranging from 20% to 33% of their
base salaries. The Committee believes that performance-based and stock-based
compensation serve to align the interests of the executive officers with the
interests of the Company's stockholders.
Bonuses were paid to officers who were deemed to have met the
performance objectives for the first half of 2003; cash bonuses were not paid
for the second half of 2003. Option awards to officers were made for both the
first and second halves of 2003. Officers also receive options under a provision
of the 1993 Plan that provides for automatic grants of options to each employee,
including officers, every five years on the anniversary date of his or her
employment.
The base salary paid to Dr. Lopez in 2003 was set by the Committee in
accordance with the Company's executive compensation policy at near the middle
of the range of total compensation paid to chief executive officers of companies
that the Committee deemed to be comparable to the Company. Under the executive
compensation policy, Dr. Lopez received a cash incentive bonus of 55% of his
annual base salary for the first half of 2003, but did not receive a bonus for
the second half of 2003. Additionally, in 2003, Dr. Lopez was granted options to
purchase 50,000 shares in each quarter. The executive compensation policy sets
the incentive bonuses and the value of stock options to be awarded to Dr. Lopez
at a higher percentage of his base salary than that awarded to other officers.
The Committee believes that in view of the Chief Executive Officer's overall
responsibility for the success of the Company, it is appropriate that a larger
portion of his compensation be contingent on performance.
April 16, 2004
COMPENSATION COMMITTEE
Michael T. Kovalchik III, M.D., Chairman
Jack W. Brown
John J. Connors
Joseph R. Saucedo
Richard H. Sherman, M.D.
Robert S. Swinney, M.D.
8
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows the compensation earned for the past three
years by each of the Company's executive officers whose 2003 compensation
exceeded $100,000 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------
NAME AND POSITION SECURITIES UNDERLYING ALL OTHER
YEAR SALARY ($) BONUS (1) OPTIONS (#) (1) COMPENSATION ($)
------- ---------- --------- --------------------- ----------------
George A. Lopez......................... 2003 $340,000 $187,000 200,000 (2) $48,069 (3)
Chairman of the Board, 2002 340,000 374,000 250,000 (2) 44,369 (3)
President and Chief Executive Officer 2001 340,000 374,000 300,000 (2) 41,268 (3)
Francis J. O'Brien...................... 2003 222,000 27,750 25,000 (2) 2,500 (4)
Secretary, Treasurer and 2002 200,000 75,000 12,500 (2) 2,125 (4)
Chief Financial Officer 2001 200,000 50,000 1,500 (2) 2,125 (4)
Richard A. Costello..................... 2003 183,333 30,000 20,000 (2) 2,500 (4)
Vice President of Sales 2002 180,000 60,000 11,000 (2) 2,125 (4)
2001 180,000 70,000 15,000 (2) 2,125 (4)
Steven C. Riggs.......................... 2003 130,667 18,900 7,000 (2) 2,033 (4)
Vice President of Operations 2002 116,792 33,900 23,750 (2) 1,884 (4)
Alison D. Burcar (5)..................... 2003 90,000 8,500 5,000 (2) 50 (4)
Vice President of Marketing 2002 79,333 10,000 3,500 (2) 184 (4)
(1) Bonus amounts are included in the year earned rather than the year actually
paid; a portion is paid in the following year.
(2) Options to acquire shares of the Company.
(3) Includes dollar value of life insurance premiums paid by the Company, based
on the cost of term life insurance, plus the dollar value, on an actuarial
basis, of the net cash surrender value accruing to the Diana Lopez
Insurance Trust as owner of the life insurance policy on Dr. Lopez of
$45,569 in 2003, $42,244 in 2002 and $39,161 in 2001 and Company matching
contributions under Section 401(k) retirement plan for employees of $2,500
in 2003 and $2,125 in 2002 and 2001.
(4) Company matching contribution under section 401(k) retirement plan.
(5) Ms. Burcar is the niece of Dr. Lopez.
9
(6) STOCK OPTION GRANTS
Options to purchase Common Stock of the Company were granted in 2003 to
employees under the ICU Medical, Inc. 1993 Stock Incentive Plan ("1993 Plan"),
which provides for the grant of options to purchase up to 7,162,500 shares. The
exercise price of options granted under the 1993 Plan is the fair market value
of the Common Stock on the date of grant. All options granted under the 1993
Plan through April 2000 expire eleven years from issuance and are
time-accelerated options which vest upon the earlier of the Company achieving
specific operating performance levels or ten years from the date of grant.
Options granted since April 2000 expire eleven years from issuance and vest in
equal annual amounts on the first, second and third anniversary of issuance
except for time-accelerated options granted in 2001, 2002, and 2003 on 16,500,
22,500 and 45,000 shares, respectively; 37,500 of those options vest five years
from issuance, and the balance ten years from issuance, unless vesting is
accelerated upon achievement of performance goals. The Company may issue more
time-accelerated options in the future.
In 2000, two of the Company's wholly owned subsidiaries, Budget Medical
Products and SetFinder, Inc. adopted stock option plans. Options were to expire
ten years from issuance, except Incentive Stock Options which were to expire
five years from issuance. Options vested in equal annual amounts on the first,
second and third anniversary of issuance. The subsidiary companies had certain
rights to repurchase shares issued under options for as long as the subsidiary
was not subject to the reporting requirements of the Securities Exchange Act of
1934. In 2002, non-director employees of the subsidiaries exchanged the options
to acquire stock of the subsidiaries, which options were estimated to have an
exercise price no less than the fair value of the subsidiaries stock, for
options to buy the Company's Common Stock at fair market value on the exchange
date. In January 2003, the remaining option holders, consisting solely of the
Company's directors, agreed to surrender their options for no consideration, and
the stock option plans of the subsidiaries were terminated.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
-------------------------------------------------------
-- -- --
% OF TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OF OPTIONS EXERCISE ASSUMED ANNUAL RATES OF
SECURITIES GRANTED OR BASE STOCK PRICE APPRECIATION
UNDERLYING TO PRICE FOR OPTION TERM
OPTIONS EMPLOYEES PER SHARE EXPIRATION -----------------------------
NAME GRANTED (#) IN 2003 ($/SH) DATE 5% ($) (1) 10% ($) (1)
------------------------- -------------- ----------- ------------ ------------ -------------- -------------
George A. Lopez, M.D. 50,000 12% $ 26.15 3/9/14 $928,769 $2,422,950
50,000 12% 32.68 6/9/14 1,160,517 3,027,529
50,000 12% 29.27 9/9/14 1,039,404 2,271,573
50,000 12% 34.18 12/9/14 1,213,970 3,166,976
Francis J. O'Brien 12,500 3% 30.35 2/5/08 104,814 231,612
12,500 3% 29.57 9/20/08 102,103 225,822
Richard A. Costello 10,000 2% 30.35 2/5/14 215,588 562,421
10,000 2% 29.57 9/2/14 210,012 547,874
Steven C. Riggs 3,500 * 29.57 9/2/14 73,504 191,956
Alison D. Burcar 3,000 * 30.35 2/5/14 64,676 168,726
2,500 * 29.57 9/2/14 52,503 136,968
* Less than 1%
(1) The rates of stock appreciation reflected in the table are assumed solely
for the purpose of compliance with the rules of the Securities and Exchange
Commission relating to the disclosure of executive compensation. The
Company's Common Stock has at times appreciated at rates substantially
different than the assumed rates and at other times the value of the Common
Stock has declined. Neither the assumed appreciation rates nor the actual
changes in the share value of the Company's common stock since the dates of
option grants are necessarily indicative of any future value of the Common
Stock. The actual realizable value of the options may be substantially
greater or less than that reflected in the table depending on the actual
changes in the share value during the options' terms.
10
STOCK OPTION EXERCISES AND HOLDINGS
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
The following table contains information about stock options of the
Company exercised during 2003, and stock options on shares of the Company held
at December 31, 2003, by the named executive officers of the Company.
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT YEAR-END(#) YEAR-END($)
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---------------------------- ------------ ------------ ------------------------------ ---------------------------
George A. Lopez, M.D. 0 $ 0 2,586,095 / 466,668 $61,201,935 / $2,283,458
Francis J. O'Brien 0 0 1,972 / 115,085 26,063 / 2,270,007
Alison D. Burcar 1,125 24,881 7,166 / 7,834 139,694 / 31,168
Richard A. Costello 3,000 86,125 13,251 / 76,276 262,049 / 1,211,273
Steven C. Riggs 3,000 71,552 29,415 / 20,585 455,213 / 93,837
PERFORMANCE GRAPH
The following graph shows the total stockholder return on the Company's
Common Stock based on the market price of the Common Stock from January 1, 1998
to December 31, 2003 and the total returns of the Nasdaq Stock Market National
Market Tier Index and Common Stocks of a peer group selected by the Company for
the same period.
COMPARISON OF TOTAL RETURN FROM JANUARY 1, 1998 TO DECEMBER 31, 2003
AMONG ICU MEDICAL, INC., THE NASDAQ STOCK MARKET INDEX AND PEER GROUP
[GRAPH APPEARS HERE]
1/1/98 12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003
ICU Medical, Inc. 100.0 69.3 136.9 202.3 254.3 233.8
Nasdaq 100.0 185.4 111.8 88.7 61.4 91.7
Peer Group 100.0 110.0 167.5 234.5 168.0 242.0
Assumes $100 invested on January 1, 1998 in the Company's Common Stock,
the Nasdaq Stock Market National Market Tier Index and the Peer Group.
The companies in the peer group selected by the Company are Merit
Medical Systems, Inc., Microtek Medical Holdings, Inc., ResMed, Inc., Utah
Medical Products, Inc. and Vital Signs, Inc. The basis for the selection of the
companies in the peer group is that, like the Company, they are all small to
mid-size producers of medical products. The peer group for the graph above has
been changed from the peer group for the 2002 performance graphs, by including
ResMed, Inc. in place of Gish Biomedical, Inc., because there has been no public
market for Gish shares since its acquisition prior to December 31, 2003.
11
DIRECTORS' COMPENSATION
During 2003, the Company paid directors who were not employees of the
Company an annual retainer of $10,000 plus $1,000 per day for attendance at
meetings of the Board and $500 if the meeting is conducted telephonically. Pay
for attendance at meetings of Committees of the Board is $750 per day, and $375
if the meeting is conducted telephonically. In addition, under the 2001
Directors' Stock Option Plan, each non-employee director was automatically
awarded options to purchase 1,875 shares of Common stock each quarter in 2003.
EMPLOYMENT AGREEMENTS
The Company enters into employment agreements with each named executive
officer for semi-annual periods ending on June 30 and December 31, and they may
be renewed for successive six-month periods upon expiration, unless terminated.
They provide for an annual base salary and a bonus payable in cash based on
achievement of performance goals. Under the employment agreement, Dr. Lopez
receives quarterly grants of options to acquire the Company's stock. Under
employment agreements with the other officers, options to acquire the Company's
stock are awarded based on achievement of performance goals. In 2003, goals were
deemed met for the first half of the year, but not the second half. The
Committee approved the grant of options to the officers, other than Dr. Lopez,
for the second half of 2003 even though performance goals had not been achieved.
Options granted for 2003 expire eleven years from date of grant and vest in
equal annual amounts on the first, second and third anniversary of issuance,
except for 20,000 options granted to Mr. Costello and 25,000 options granted to
Mr. O'Brien, which vest ten and five years, respectively, from date of issuance,
unless vesting is accelerated upon achievement of performance goals.
The Company also has an agreement with Dr. Lopez which generally
provides that, in the event the Company undergoes a change in control, as
defined, and his employment is terminated, or certain negative changes in
condition of employment occur, within 24 months of a change in control, he will
be entitled to three times his annual salary and bonus, payment of bonus through
the date of termination or change in conditions, and continuation of benefits
for three years, and any stock options he holds will vest in full. In addition,
if any payments are subject to excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended, he will be entitled to a "gross up" of
payments to offset the effect of the excise tax. The company will not be
entitled to a tax deduction for any payments made under the agreement that are
subject to the excise tax.
LIFE INSURANCE
The Diana Lopez Insurance Trust is the owner of a $3 million life
insurance policy on Dr. Lopez. The Company has in the past advanced funds to pay
the premium on the policy. The Company has a collateral assignment entitling it
to recover, generally from the value of the policy, all premiums paid on the
policy. Because of legislative changes, the Company has ceased paying premiums
on the policy, and has not reached agreement with Dr. Lopez or the owner of the
policy on the disposition of the policy. The current premium has not been paid.
The total premiums paid to date are $479,000 and the net surrender value of the
policy is approximately $384,000. If no further premiums are paid and no other
action is taken, the policy will lapse in approximately fifteen years, at which
time it will have no value.
SELECTION OF AUDITORS
The Audit Committee of the Board of Directors of the Company has
selected Deloitte & Touche LLP, as independent auditors of the Company for the
year ending December 31, 2003, and has further directed that management submit
the selection of independent auditors for ratification by the stockholders at
the Annual Meeting. Deloitte & Touche LLP audited the Company's financial
statements for the first time in 2002. Representatives of Deloitte & Touche LLP
are expected to be present at the Annual Meeting and will have an opportunity to
make a statement if they so desire and respond to appropriate questions.
On July 22, 2002, we first engaged Deloitte & Touche LLP as our
independent auditors. During the past two years and the subsequent interim
period before we engaged Deloitte & Touche LLP, we had not (and no one on our
behalf had) consulted with Deloitte & Touche LLP on the application of
12
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our financial statements,
or any other matter that was either the subject of a disagreement or reportable
event as set forth in the regulations of the Securities and Exchange Commission.
FEES PAID TO AUDITORS
It is the policy of our Audit Committee to have the engagement of our
independent auditor to perform any audit or non-audit services approved in
advance by the Audit Committee. Such approval authority is delegated to the
Chairman of the Audit Committee on behalf of the Audit Committee as permitted by
the Audit Committee Charter.
Deloitte & Touche LLP was our independent auditor for the past two
years. Fees billed by Deloitte & Touche LLP for those years are as follows:
2003 2002
--------- ---------
Audit fees $190,360 $ 48,200
Audit related fees 19,250 1,000
Tax fees -0- -0-
All other fees -0- -0-
Audit related services:
Seminar $ 5,000 $ -0-
SEC filings 4,500 1,000
Special audit procedures 5,250 -0-
Accounting consultation 4,500 -0-
--------- ---------
$ 19,250 $ 1,000
========= =========
The engagement for all audit related services was approved in advance by our
Audit Committee.
On June 18, 2002, we dismissed Arthur Andersen LLP ("Andersen") as our
independent accountants. Andersen's report on our financial statements for 2001
did not contain an adverse opinion, a disclaimer of opinion or a qualification.
During 2001 and the interim period of 2002 before we dismissed Andersen, there
were no disagreements on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, and there were
no "reportable events" as defined in the regulations of the Securities and
Exchange Commission. The decision to change independent accountants was approved
by the Audit Committee.
We furnished Andersen a copy of our Current Report on Form 8-K dated
June 18, 2002 containing the foregoing disclosures, and requested Andersen to
furnish us a letter addressed to the Securities and Exchange Commission stating
whether Andersen agreed with the foregoing disclosures, or, if not, stating the
respects in which it does not agree. Andersen's letter stating that it agreed
with our disclosures was included as an exhibit to the Form 8-K
In 2002 we paid Andersen fees and expenses for the following services:
Audit fees $47,040
Audit related fees 1,500
Tax fees 47,040
All other fees 58,459
Audit fees related to the audit of the 2001 consolidated financial
statements and review of the quarterly consolidated financial statements
included in the Company's March 31, 2002 Form 10-Q. Audit related services
related to SEC filings ($1,000) and Other ($500). Tax fees were for tax planning
and tax return preparation. All other fees were for financial information system
design and implementation services.
The Audit Committee had considered whether the provision of non-audit
services was compatible with maintaining Arthur Andersen LLP's independence and
concluded that there was no incompatibility.
13
AUDIT COMMITTEE REPORT
The Company's audited consolidated financial statements are included in
the Company's Annual Report to Shareholders and Form 10-K. The Audit Committee
has reviewed and discussed those financial statements with management of the
Company and has discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61, "Communication with
Audit Committees," as amended. Further, the Committee has received the written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standards No. 1, "Independence Discussions with
Audit Committees", as amended, and has discussed the independent auditor's
independence with them. Based on these reviews and discussions, the Audit
Committee has recommended to the Board of Directors that the audited
consolidated financial statements be included in the Company's Annual Report to
Stockholders and Form 10-K.
April 16, 2004
AUDIT COMMITTEE
Joseph R. Saucedo, Chairman
John J. Connors
Jack W. Brown
OTHER MATTERS
The Company knows of no other matters to be brought before the Annual
Meeting. If any other matters are properly presented for action, the persons
named in the accompanying proxy intend to vote on such matters in their
discretion.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 2003 is
being mailed to all stockholders together with this Proxy Statement. The
Company's Annual Report is also posted on the Company's web site,
www.icumed.com.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT
ON FORM 10-K, INCLUDING FINANCIAL STATEMENTS AND RELATED SCHEDULES, FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST IN WRITING FROM ANY PERSON
WHO WAS A HOLDER OF RECORD, OR WHO REPRESENTS IN GOOD FAITH THAT HE OR SHE WAS A
BENEFICIAL OWNER, OF COMMON STOCK OF THE COMPANY ON APRIL 5, 2004. ANY SUCH
REQUEST SHALL BE ADDRESSED TO THE SECRETARY OF THE COMPANY AT 951 CALLE
AMANECER, SAN CLEMENTE, CA 92673. THE COMPANY'S ANNUAL REPORT ON FORM 10-K IS
ALSO POSTED ON THE COMPANY'S WEB SITE, WWW.ICUMED.COM.
NOMINATION OF DIRECTORS AND
SUBMISSION OF STOCKHOLDER PROPOSALS
Any stockholder who intends to nominate persons for election as
directors at an annual meeting shall give timely written notice to the Secretary
of the Company setting forth (a) as to each nominee whom the stockholder
proposes to nominate for election or reelection as a director, (i) the name,
age, business address and residence address of the nominee, (ii) the principal
occupation or employment of the nominee, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the nominee and
(iv) any other information concerning the nominee that would be required under
the rules of the Securities and Exchange Commission in a proxy statement
soliciting proxies for the election of such nominee; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
Company which are beneficially owned by the stockholder. Such notice shall
include a signed consent of each such nominee to serve as a director of the
Company, if elected. The Company may require any proposed nominee to furnish
such other information as may reasonably be required by the Company to determine
14
the eligibility for such proposed nominee to serve as a director of the Company.
Any stockholder who intends to propose any business at a meeting shall give
timely written notice to the Secretary of the Company setting forth as to each
matter the stockholder proposes to bring before the meeting (i) a brief
description of the business to be brought before the meeting and the reasons for
conducting the business at the meeting, (ii) the name and record address of the
stock holder giving the notice, (iii) the class and number of shares of capital
stock of the Company that are beneficially owned by the stockholder, and by any
other stockholders known by the stockholder giving the notice to be supporting
the proposal and (iv) any material or financial interest of the stockholder in
such business. Either of the notices described above will be timely if it is
delivered to or mailed and received at the Company's executive offices not less
than 50 days nor more than 75 days prior to the date of the annual meeting,
unless the Company has given less than 60 days notice or prior public disclosure
of the date of the meeting, in which case the notice must be received by the
Company not less than 10 days after notice of the meeting was mailed or public
disclosure of the date of the meeting was made. A proposal that a stockholder
wants the Company to include in the Proxy Statement for the 2004 Annual Meeting
must be received by the Company at its principal executive offices by December
21, 2004 or if the date of the annual meeting is changed by more than 30 days
from May 28, then the deadline is a reasonable time before the Company begins to
print and mail its proxy materials, to be included in the Proxy Statement for
that meeting, and all other conditions for such inclusion must be satisfied.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than 10% of the
Company's Common Stock to file reports on prescribed forms regarding ownership
of and transactions in the Common Stock with the Securities and Exchange
Commission and to furnish copies of such forms to the Company. Based solely on a
review of the forms received by it, the Company believes that with respect to
2003 the following Section 16(a) filings were not filed on a timely basis: two
Form 4 filings each for Messrs. Brown, Connors and Saucedo, Drs. Kovalchik,
Sherman and Swinney; three Form 4 filings for Ms. Burcar; one Form 4 filing for
Dr. Lopez; one Form 4 filing each for Messrs. Costello, O'Brien and Riggs.
Thirteen of the Form 4 filings were filed one day late and none were more than
three days late.
SOLICITATION OF PROXIES
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made by mail, telephone or telegram and personally by
directors, officers and other employees of the Company, but such persons will
not receive compensation for such services over and above their regular
salaries. The Company will reimburse brokers, banks, custodians, nominees and
fiduciaries holding stock in their names or in the names of their nominees for
their reasonable charges and expenses in forwarding proxies and proxy material
to the beneficial owners of such stock.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ FRANCIS J. O'BRIEN
Francis J. O'Brien, Secretary
15
Appendix I
AUDIT COMMITTEE CHARTER
ADOPTED BY THE BOARD OF DIRECTORS OF
ICU MEDICAL, INC.
JULY 25, 2003
There shall be a committee of the Board of Directors to be known as the Audit
Committee.
PURPOSE
The purpose of the Audit Committee (the "Committee") of the board of directors
(the "Board") of ICU Medical, Inc. (the "Company") is to oversee the accounting
and financial reporting processes of the Company and audits of its financial
statements. The Committee is not responsible, however, for planning or
conducting audits, or determining whether the Company's financial statements are
complete and accurate or in accordance with generally accepted accounting
principles.
COMPOSITION
The Committee shall be composed of three or more directors, as determined by the
Board, each of whom shall be "independent", as that term is defined in Section
10A(m) of the Securities Exchange Act of 1934 (the "Exchange Act"), and the
Rules and Regulations (the "Regulations") of the Securities and Exchange
Commission (the "Commission") under the Exchange Act, and shall meet the
independence and financial literacy requirements of the Nasdaq Stock Market. At
least one member of the Committee shall be an "audit committee financial
expert", as that term is defined in the Regulations, and shall have past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its responsibility to shareholders relating to corporate accounting,
reporting practices of the Company and the quality and integrity of the
financial reports of the Company.
RESPONSIBILITIES
The responsibilities of the Audit Committee are to:
ENGAGEMENT OF INDEPENDENT AUDITORS
----------------------------------
o Appoint and provide for the compensation of a "registered public
accounting firm" (as that term is defined in Section 2(a) of the
Sarbanes-Oxley Act of 2002) to serve as the Company's independent
auditor, oversee the work of the independent auditor (including
resolution of any disagreements between management and the independent
auditor regarding financial reporting), evaluate the performance of the
independent auditor and, if so determined by the Committee, replace the
independent auditor; it being acknowledged that the independent auditor
is ultimately accountable to the Board and the Committee, as
representatives of the stockholders.
o Ensure the receipt of, and evaluate the written disclosures and the
letter that the independent auditor submits to the Committee regarding
the auditor's independence in accordance with Independence Standards
Board Standard No. 1, discuss such reports with the auditor, oversee
1
the independence of the independent auditor and, if so determined by
the Committee in response to such reports, take appropriate action to
address issues raised by such evaluation.
CONDUCT OF THE AUDIT
--------------------
o Discuss with the independent auditor the matters required to be
discussed by SAS 61, as it may be modified or supplemented.
o Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review the results of such audit, including any comments or
recommendations of the independent auditors.
o Instruct the independent auditor to advise the Committee if there are
any subjects that require special attention.
o Instruct the independent auditor to report to the Committee on all
critical accounting policies of the Company, 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 auditors, and other material written
communication between the auditors and management.
o Review and approve, after discussion with management and the
independent auditors, the initial selection of and any changes in
accounting principles or policies that effect the Company's external
financial statements, and the accounting for and disclosure of any
significant unusual transaction.
o Meet with management and the independent auditor to discuss the annual
financial statements and the report of the independent auditor on those
financial statements and the Company's internal controls, and to
discuss significant issues encountered in the course of the audit work,
including: restrictions on the scope of activities; access to required
information; the adequacy of internal financial controls; the adequacy
of the disclosure of off-balance sheet transactions, arrangements,
obligations and relationships in reports filed with the Commission; and
the appropriateness of the presentation of any non-GAAP pro forma
financial measures (as defined in the Regulations) included in any
report filed with the Commission or in any public disclosure or
release.
o Discuss with management and the independent auditors any consultation
by management with other accountants about significant accounting and
auditing matters, including the independent auditor's views about such
matters.
o Review with the independent auditors and financial management, among
other things, sensitive accounting estimates by management that have a
material effect on the financial statements and the basis for the
independent auditor's conclusions regarding the reasonableness of those
estimates, significant audit adjustments, the independent auditor's
responsibility for information other than the financial statements that
is contained in the annual report including any procedures the
independent auditors performed and the results of those procedures, and
the accounting for and disclosure of any significant unusual
transaction.
o Discuss with the independent auditor any disagreements with management
concerning matters such as application of accounting policies,
management's judgments abut accounting estimates, disclosures in the
financial statements, audit scope or the wording of the audit report.
o Discuss with management and the independent auditor the independent
auditor's judgments about the quality of the company's accounting
principles as applied in its financial reporting.
o Following such reviews and discussions, if so determined by the
Committee, recommend to the Board that the annual financial statements
be included in the Company's annual report.
OTHER COMMUNICATIONS
--------------------
o Review the management letter, if any, delivered by the independent
auditor in connection with the audit.
2
o Meet quarterly with management and the independent auditor to discuss
the quarterly financial statements prior to the filing of the Form
10-Q; provided that this responsibility may be delegated to the
chairman of the Committee.
o Meet at least once each year in separate executive sessions with
management, the internal auditor (if any) and the independent auditor
to discuss matters that any of them or the Committee believes could
significantly affect the financial statements and should be discussed
privately.
INTERNAL AUDIT (Nothing herein is to imply that the Company should have an
-------------- internal auditor)
o Review the scope and results of internal audits, if any.
o Evaluate the performance of the internal auditor, if any, and, if so
determined by the Committee, recommend replacement of the internal
auditor.
OTHER GOVERNANCE RESPONSIBILITIES
---------------------------------
o Review accounting and finance personnel resources and succession
planning and make the Committee's recommendations, if any, to the
Board.
o Conduct or authorize such inquiries into matters within the Committee's
scope of responsibility as the Committee deems appropriate.
o Provide minutes of Committee meetings to the Board, and report to the
Board on any significant matters arising from the Committee's work.
o At least annually, evaluate the performance of the Committee, review
and reassess this Charter and, if appropriate, recommend changes to the
Board.
o Prepare the Committee report required by the Regulations to be included
in the Company's annual proxy statement.
o Establish a procedure for receipt, retention and treatment of any
complaints received by the Company about its accounting, internal
accounting controls or auditing matters and for the confidential and
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
o Review and approve certifications concerning the Committee that are
required by NASDAQ.
o Approve, in accordance with sections 10A(h) and (i) of the Exchange Act
and the Regulations of their performance, all professional services to
be provided to the Company by its independent auditor, provided that
the Committee shall not approve any non-audit services proscribed by
Section 10A(g) of the Exchange Act in the absence of an applicable
exemption. The Committee may adopt policies and procedures for the
approval of such services which may include delegation of authority to
a designated member or members of the Committee the authority to
approve such services so long as any such approvals are disclosed to
the full Committee at its next scheduled meeting.
o Review any non-audit services not recognized in advance by the Company
to be such. Fees for these non-audit services should not aggregate more
than 5% of the total fees to the auditor.
o Review and approve all related party transactions.
3
AUTHORITY
By adopting this Charter, the Board delegates to the Committee full and
exclusive authority to:
1. Perform each of the responsibilities of the Committee
described above.
2. Appoint a chair of the Committee, unless a chair is designated
by the Board.
3. Engage independent counsel and other advisors as the Committee
determines necessary to carry out its responsibilities.
4. Cause the officers of the Company to provide such funding as
the Committee shall determine to be appropriate for payment of
compensation to the Company's independent auditor and any
legal counsel or other advisors engaged by this Committee, and
payment of ordinary administration expenses of the audit
committee that are necessary or appropriate in carrying out
its duties.
4