ELDORADO ARTESIAN SPRINGS, INC.
294 Artesian Drive
P.O. Box 445
Eldorado Springs, CO 80025
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 15, 2003
SOLICITATION OF PROXIES
This Proxy Statement, together with the accompanying Proxy, is furnished in
connection with the Board of Directors' solicitation of Proxies for use at the
Annual Meeting of Shareholders of Eldorado Artesian Springs, Inc. (the
"Company"), to be held at 10:00 a.m., Mountain Daylight Time, on Tuesday, July
15, 2003, at 1783 Dogwood Street, Louisville, Colorado, 80027, and at any and
all adjournments thereof. It is anticipated that this Proxy Statement and the
accompanying Proxy Card will be mailed to the Company's shareholders on or about
June 12, 2003. Any shareholder who executes and returns a Proxy may revoke it by
delivering a written revocation to the offices of the Company at any time before
such Proxy is voted at the meeting; by submitting a later dated Proxy; or by
casting a ballot at the meeting.
The cost of solicitation of Proxies, including the cost of preparing,
assembling and mailing this proxy material to shareholders, will be borne by the
Company. The Company may also reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for expenses incurred by them in sending
proxy material to the beneficial owners of stock. Brokerage houses, custodians,
nominees and fiduciaries are requested to vote directly Proxies held for their
beneficial owners. The Company will send the Proxy Statement directly to the
beneficial owners of the Company's shares if provided a complete list of these
owners, including name, address (including zip code), and number of shares held
as of the record date, May 29, 2003. In addition to solicitation by mail,
certain directors, officers and regular employees of the Company may solicit
Proxies by telephone. No additional remuneration will be paid for such
solicitation.
SHARES OUTSTANDING AND VOTING RIGHTS
The Company has fixed the close of business on May 29, 2003, as the record
date for determining the holders of its $0.001 par value Common Stock who will
be entitled to notice of and to vote at the meeting. On May 29, 2003, the
Company had issued and outstanding 2,995,495 shares of the Company's $0.001 par
value Common Stock. Holders of the Company's Common Stock are entitled to one
vote for each share owned of record. The presence in person or by proxy of the
holders of a majority of the shares outstanding and entitled to vote at the
meeting shall constitute a quorum. Affirmative votes of the holders of a
majority of the quorum are required for the election of Directors and the
ratification of auditors. Affirmative votes of the holders of a majority of the
outstanding shares entitled to vote are required for the adoption of the
amendment to the Company's Articles of Incorporation. Abstentions and broker
non-votes, if any, will not be included in vote totals, and as such, will have
no effect on any proposal.
The accompanying proxy, unless the shareholder otherwise specifies in the
proxy, will be voted (i) for the election of each of the five nominees named
herein for the office of director, (ii) for the selection of Ehrhardt Keefe
Steiner & Hottman, P.C., independent public accountants, as the auditors of the
Company for the fiscal year ending March 31, 2004; and (iii) at the discretion
of the proxy holders, on any other matter that may property come before the
meeting or any adjournment thereof.
Where shareholders have appropriately specified how their proxies are to be
voted, they will be voted in accordance with such instructions. If any other
matter of business is properly brought before the meeting, the proxy holders may
vote the proxies on such matters at their discretion. The directors do not know
of any such other matter or business.
ELECTION OF DIRECTORS
(Proxy Item #1)
The Board of Directors recommends the election as Directors of the five
nominees listed below, to hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualified or until their
earlier death, resignation or removal.
The enclosed Proxy provides that each shareholder may specify that his or
her shares be voted "FOR" the election of the five nominees named herein as
Directors with provision to "withhold authority" as to any individual Director.
At the Annual Meeting, the shares represented by the Proxies will be voted in
accordance with shareholder instructions, and, if no instructions are given, for
the election of the five nominees. In the event any nominee is unable or
declines to serve, which the Board does not anticipate, it is intended that such
Proxies will be voted for the election of the remaining nominees and for
substitute nominees, if any, recommended by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF ITS
NOMINEES FOR THE BOARD OF DIRECTORS
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company presently held
by him, and the period during which he has served as such:
All Positions and Period Served
Offices Held With as Director
Name Age The Company of the Company
- ------------------- --- -------------------------- ---------------
Douglas A. Larson * 48 President and Director 1986 to Present
Kevin M. Sipple 47 Vice President, Secretary 1986 to Present
and Director
Jeremy S. Martin 48 Vice President and Director 1986 to present
George J. Schmitt * 71 Director 1998 to present
Don P. Van Winkle * 46 Director 1998 to present
- ----------------------------------------
* Audit Committee member
The principal occupation and business experience of each nominee for
Director are set forth below.
Douglas A. Larson was a co-founder of Eldorado Artesian Springs, Inc. in
1983 and has been President of Eldorado since 1991. Mr. Larson's
responsibilities include corporate strategy and administration of all operating
activities at Eldorado. Before his association with Eldorado, Mr. Larson worked
as a stockbroker with Richey-Frankel and Co. from 1981 to 1983 and with B.J.
Leonard, Inc. from 1980 to 1981. Mr. Larson holds a Bachelor of Science Degree
in Business Finance from the University of Colorado.
Kevin M. Sipple was a co-founder of Eldorado Artesian Springs, Inc. in 1983
and has served as Vice President and Secretary of Eldorado since 1991. Mr.
Sipple's responsibilities include management of the wholesale products division.
In addition, he is also responsible for quality control, testing, source
protection and is a licensed Water Plant operator and manages the utility
productions. Before his association with Eldorado, Mr. Sipple worked for King
Soopers, Inc. from 1972 to 1983, serving in a variety of positions including
inventory ordering and control. Mr. Sipple attended the University of Colorado
from 1973 to 1977.
Jeremy S. Martin was a co-founder of Eldorado Artesian Springs, Inc. in
1983 and has served as Vice President since 1985. Mr. Martin's responsibilities
include management of the 5-gallon sales and service business. In addition, he
is also responsible for special event promotions and public relations. Before
his association with Eldorado, Mr. Martin was an independent distributor for
Sunasu International, a nutritional products manufacturer. Mr. Martin holds a
Bachelor of Science Degree in Business from the University of Colorado.
George J. Schmitt has been a director of the Company since 1998. Mr.
Schmitt has over forty years of experience in the bottled water business. From
1968 to 1996, Mr. Schmitt was CEO and President of Hinckley & Schmitt Bottled
Water Group. He built an old family business from a small local company in
Chicago, Illinois with revenues of less than one million dollar to a two hundred
million dollar profitable industry leader. Mr. Schmitt was a founding member of
the American Bottled Water Association, now called the International Bottled
Water Association, in 1959 and was inducted into the Industry Hall of Fame in
1991. Mr. Schmitt is a director of Eureka Bottled Water Co. and National Fuel
Corporation. Mr. Schmitt holds a Bachelor of Arts degree from Dartmouth.
Don P. Van Winkle has been a director of the Company since 1998. Mr. Van
Winkle is the President of Van Winkle Associates, a contract Chief Financial
Officer and Advisory firm he founded in 1991. Clients include a wide range of
industry from retail and manufacturing to service firms including the Company.
He has served as both CEO of a multiple store retail grocery store group and the
CFO/COO of a sportswear design and manufacturing firm. From 1980 to 1991, Mr.
Van Winkle was a corporate banker with the two largest Colorado based bank
holding companies, formerly United Banks of Colorado and First National
Bancorporation. Mr. Van Winkle is also a director of other Colorado based
companies including The Great Divide Brewing Company, Fresh Produce Sportswear,
Inc., Silver Canyon Coffee, Inc., Correctional Products and Services, Inc. and
Goodbye Blue Monday, Inc. He holds a Bachelor of Science Degree in Finance from
New Mexico State University.
Directors are elected at each annual meeting of stockholders and serve
until the next annual meeting. Executive officers are elected at each annual
meeting of the Board of Directors.
During the fiscal year ended March 31, 2003, the Company's Board of
Directors held two formal, in-person meetings. All directors were in attendance.
There is no family relationship between any Director or nominee for Director of
the Company and any other Director, nominee or Executive Officer of the Company.
Committee of the Board of Directors
The Board of Directors has an Audit Committee comprised of Messrs. Larson,
Schmitt and Van Winkle. Among other functions, the Audit Committee makes
recommendations to the Board of Directors regarding the selection of independent
auditors, reviews the results and scope of the annual audit and other services
provided by the Company's independent auditors, reviews the Company's financial
statements, reviews and evaluates the Company's internal control functions, and
is available to the independent auditors for consultation purposes. The Audit
Committee met one time in the fiscal year ended March 31, 2003.
Audit Committee Report
The audit committee oversees the Company's financial process on behalf of
the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgements, and the clarity of
disclosures in the financial statements. The Board has adopted a written Charter
of the Audit Committee (See Appendix A).
The committee reviewed with the independent auditors, who are responsible
for expressing an opinion on the conformity of those audited financial
statements with generally accepted accounting principles, their judgements as to
the quality, not just the acceptability, of the Company's accounting principles
and such other matters as are required to be discussed with the committee under
generally accepted auditing standards, including Statements on Auditing
Standards Nos. 61, 89 and 90. In addition, the committee has discussed with the
independent auditors the auditors' independence from management and the Company
including the matters in the written disclosures and the letter from the
independent auditors required by the Independence Standards Board, Standard No.
1.
The committee discussed with the Company's independent auditors the overall
scope and plans for their audit. The committee meets with the independent
auditors to discuss the results of their examination, their evaluation of the
Company's internal controls, and the overall quality of the Company's financial
reporting.
In reliance on the reviews and discussions referred to above, the audit
committee recommended to the board, and the board has approved, that the audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-KSB for the year ended March 31, 2003, for filing with the Securities
and Exchange Commission.
Compliance with Section 16(a)
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of the Company's Common Stock to
file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of Common Stock of the Company. Based solely
upon a review of ownership reports and reports of changes in ownership furnished
to the Company during the fiscal year ended March 31, 2003, to the best of the
Company's knowledge, the Company's directors, officers and holders of more than
10% of its Common Stock complied with all Section 16(a) filing requirements.
Compensation of Outside Directors
Each outside director receives compensation totaling $1,000 for each annual
or special meeting of the board he attends in person or by qualified electronic
means. In addition, each outside director will receive compensation totaling
$500 for each committee meeting he attends in person or by electronic means. In
addition, if Eldorado engages an outside director as an independent consultant,
for such duties and responsibilities as the president determines, the outside
director will be compensated at the rate of $150 per hour, plus nominal travel
expenses as agreed upon if needed.
EXECUTIVE OFFICERS
The following table sets forth information about the executive officers of the
Company.
Name Age Position(s) Tenure as Officer
---- --- ----------- -----------------
Douglas A. Larson 48 President 1986 to present
Kevin M. Sipple 47 Vice President, Secretary 1986 to present
Jeremy S. Martin 48 Vice President and 1986 to present
Director
Robert E. Weidler 57 Vice President 1998 to present
Cathleen M. 34 Chief Financial Officer 1998 to present
Shoenfeld
Kate Janssen 31 Vice President 2002 to present
Biographical information about Messrs. Larson, Sipple and Martin can be
found in the section entitled Election of Directors above.
Robert E. Weidler joined Eldorado in 1990 and has served as Production
Manager from 1991 to 1998. Currently, Mr. Weidler is Vice President and his
responsibilities include inventory management, daily operations for finished
goods and conforming to safety and health department standards and other
governmental requirements. Mr. Weidler holds a Bachelor of Science Degree in
Sociology from Michigan State University.
Cathleen M. Shoenfeld joined Eldorado in 1990 and has served as Assistant
Treasurer from 1991 to 1998. Currently, Ms. Shoenfeld is Chief Financial Officer
and her responsibilities include the procurement of financing for growth of
operations of Eldorado as well as overseeing the accounting functions for
Eldorado, including the annual audit and corporate reporting. Ms. Shoenfeld
holds a Bachelor of Science Degree in Economics and a Masters of Business
Administration from the University of Colorado.
Kate Janssen joined Eldorado in 1995 and has served as Director of Sales
and Service. Currently, Ms. Janssen is Vice President in charge of Sales and her
responsibilities include management of the sales and service sector of the
business. Ms. Janssen holds a Bachelor of Fine Arts Degree from the University
of Colorado.
EXECUTIVE COMPENSATION
The following table sets forth the compensation of Eldorado's President,
Douglas A. Larson, and Vice Presidents Kevin Sipple and Jeremy Martin, for the
fiscal year ended March 31, 2003. No other executive officer receives annual
compensation in excess of $100,000 per year.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
----------------------- ----------------------
Restricted
Name and Stock Options/ All Other
Principal Position Year Salary ($) Bonus ($) Awards ($) SARS ($) Compensation(1) ($)
- ------------------ ---- ---------- --------- ---------- -------- -------------------
Douglas A. Larson 2003 $112,087 $7,820 - - $14,490
2002 $101,624 $16,568
2001 $100,632 $15,713
Kevin Sipple 2003 $112,007 $7,818 - - $ 9,144
2002 $101,583 $ 9,475
2001 $100,567 $10,249
Jeremy Martin 2003 $112,072 $7,879 - - $12,591
2002 $101,913 $13,109
2001 $100,740 $12,517
(1) Other annual compensation includes annual health care premiums, a 3% match
for all contributions to the 401(k) plan and a car allowance.
Stock Option Plan
On September 10, 1997 Eldorado adopted a Stock Option Plan which reserves
875,000 shares for the grant of non-qualified stock options ("Non-Qualified
Options"), and incentive stock options ("Incentive Options"). The Plan is
administered by the Board of Directors. All salaried officers and key employees
of Eldorado and any subsidiaries are eligible to receive options under the Plan.
The Plan will terminate by its terms on September 10, 2007, and may be
terminated at any time by the exercise of all outstanding options.
Options granted may be exercisable for up to ten years. If any options
granted under the Plan expire, terminate or are canceled for any reason without
having been exercised in full, the corresponding number of unpurchased shares
reserved for issuance upon exercise thereof will again be available for the
purposes of the Plan. The purchase price of the Common Stock under each option
shall not be less than the fair market value of the Common Stock on the date on
which the option is granted. The option price is payable either in cash, by the
delivery of shares of Eldorado's common stock, or a combination of cash and
shares.
Options will be exercisable immediately, after a period of time or in
installments. Options will terminate not later than the expiration of ten years
from the date of grant, subject to earlier termination due to termination of
service. Except under certain circumstances where termination of service is due
to retirement or death, in which event options may be exercised for an
additional period of time following such termination of service, the option may
be exercised only while the optionee remains in the employ of Eldorado or one of
its subsidiaries.
As of March 31, 2003, 584,500 options were outstanding, of which 474,500
are fully vested. All of the options were granted at an option price
representing 100% of the fair market value on the date of the grant as
determined by the Board of Directors.
The following table sets forth the stock options exercised by each of the
Named Executive Officers and the year-end value of unexercised options to
purchase Common Stock of the Company for each of the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-the Money
acquired on Value Realized Options/SARs Options/SARs
Name Exercise (#) ($) at FY-End (#) at FY-End ($)
- ----------------- ------------ -------------- ------------- -------------
Robert E. Weidler - - 85,000 -
Cathleen M. - - 85,000 -
Shoenfeld
Kate Janssen - - 46,000 -
401(k) Plan
Eldorado has adopted a 401(k) plan for employees. Employees become eligible
to participate in the plan once they have completed one year of service and have
reached 21 years of age. Approximately 32 employees were eligible to participate
in the 401(k) plan as of March 31, 2003. Contributions by the Company and the
employees vest immediately. Eldorado matches 100% of employee contributions, up
to 3% of employee gross pay. The Company matched approximately $34,600 during
the year ended March 31, 2003.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2003, the number and
percentage of the Company's shares of $0.001 par value Common Stock owned of
record and beneficially by each person owning more than five percent (5%) of
such Common Stock and by all individual Officers and Directors and by all
Officers and Directors as a group.
Shares Percent
Beneficially Of
Name and Address of Beneficial Owners Owned Class
- ---------------------------------------- ------------- ----------
Kevin M. Sipple 763,674 25.5%
43 Fowler Lane
Eldorado Springs, CO 80025
Douglas A. Larson 779,005 (1) 26.0%
12 Baldwin Circle
Eldorado Springs, CO 80025
Jeremy S. Martin 771,060 25.7%
2707 Fourth Street
Boulder, CO 80302
George J. Schmitt 100,000 2.5%
11 Castle Pines North
Castle Rock, CO 80104
Don P. Van Winkle 50,000 1.3%
1600 Indian Wells
Alamogordo, NM 88310
All Officers and Directors as a Group 2,679,739 (1) 89.4%
(eight persons)
(1) Mr. Larson's shares include options to purchase 17,000 shares held by his
spouse. The shares owned by all officers and directors as a group include
options to purchase a total of 216,000 shares, of which 85,000 are held by
Ms. Shoenfeld, 85,000 by Mr. Weidler and 46,000 by Ms. Janssen.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 2001, the Company entered into an agreement to sell certain parcels of
real estate to two Company officers for a total of $900,000. The Company
received cash from the sale of $500,000. The Company also provided 60 month
carry back financing of $400,000 with interest at 7.5% due annually that has
been recorded as notes receivable related party and includes $27,500 of accrued
interest at March 31, 2003. The Company recognized a gain on the real estate
sales of $519,937 and deferred an additional $357,544 of gain as required by the
terms of the carry back note.
APPROVAL OF AUDITORS
(Proxy Item #2)
The Board of Directors, through its audit committee, has appointed Ehrhardt
Keefe Steiner & Hottman, P.C. to serve as the Company's independent auditors for
the current fiscal year, subject to the approval of the shareholders. The firm
has audited the financial records of the Company for the fiscal years ending
March 31, 2003 and 2002 and is considered well qualified.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE APPOINTMENT OF
EHRHARDT KEEFE STEINER & HOTTMAN, P.C. TO SERVE AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE CURRENT FISCAL YEAR.
Audit Fees
Fees and related expenses from Ehrhardt Keefe Steiner & Hottman, P.C. for
the fiscal year 2003 audit and the review of Forms 10-QSB are $38,798, which has
been billed through March 31, 2003.
Financial Information Systems Design and Implementation
Ehrhardt Keefe Steiner & Hottman, P.C. did not render any services related
to financial information systems design and implementation for the fiscal year
ended March 31, 2003.
All Other Fees
Aggregate fees billed for all other services, primarily related to tax
return preparation, rendered by Ehrhardt Keefe Steiner & Hottman, P.C. for the
fiscal year ended March 31, 2003 was $3,289.
ANNUAL REPORT AND FINANCIAL STATEMENTS
The Annual Report to Shareholders, which includes the financial statements
for the fiscal year ended March 31, 2003, is not incorporated in the Proxy
Statement and is not to be considered part of the proxy soliciting material. THE
COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF THE 10-KSB FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 TO ANY SECURITY HOLDER REQUESTING SUCH COPY IN
WRITING TO THE CHIEF FINANCIAL OFFICER, ELDORADO ARTESIAN SPRINGS, INC., P.O.
BOX 445, ELDORADO SPRINGS, COLORADO 80025.
MISCELLANEOUS
All information contained in this Proxy Statement relating to the
occupations, affiliations and securities holdings of directors and officers of
the Company and their relationship and transactions with the Company is based on
information received from the individual directors and officers. All information
relating to any beneficial owner of more than 5% of the Company's common stock
is based on information contained in reports filed by such owner with the
Securities and Exchange Commission.
The Company's independent public accountants for the fiscal year ended
March 31, 2003 are Ehrhardt Keefe Steiner & Hottman, P.C. and are expected to be
present at the Annual Meeting, to have the opportunity to make a statement if
they desire and are expected to be available to respond to appropriate
questions.
Matters to be Presented:
As of the date of this Proxy Statement, Management does not know of any
other matters to be presented at the Annual Meeting other than those set forth
herein. However, if any other matters properly come before the Meeting, the
accompanying Proxy will be voted in accordance with the best judgment of the
Proxy holders.
Shareholder Proposals for 2004 Annual Meeting:
The Board of Directors will make provision for presentation of shareholder
proposals at the 2004 Annual Meeting of Shareholders if such proposals are
submitted by eligible shareholders who have complied as to the substance of the
proposal with the relevant regulations of the Securities Exchange Act. Proposals
for inclusion in the Company's Proxy Statement must be delivered to the
Company's offices not later than March 10, 2004 so that proxy materials may be
prepared on a timely basis.
Shareholder proposals that will not be included in the Company's Proxy
Statement for the 2004 Annual Meeting in accordance with Rule 14a-8 of the
Securities Exchange Act will be considered untimely if notice of the proposal is
received by the Company after March 10, 2004. The proxy card solicited by the
Board of Directors may grant discretionary voting authority with respect to
proposals not included in the Proxy Statement unless the Company receives notice
of such proposals by March 10, 2004 and the conditions set forth in Rule
14a-4(c)(2)(i)-(iii) under the Securities Exchange Act are met.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas A. Larson, President
June 12, 2003
Exhibit A
ELDORADO ARTESIAN SPRINGS, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing the
financial reports and other financial information provided by the Corporation to
any governmental body, including but not limited to the Securities and Exchange
Commission or the public; the Corporations systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established; and the Corporations auditing, accounting and
financial reporting processes. Consistent with this function, the Audit
Committee should encourage continuous improvement of, and should foster
adherence to, the Corporations policies, procedures and practices at all levels.
The Audit Committees primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporations financial reporting process and internal control system.
o Review and appraise the audit efforts of the Corporations independent
accountants and internal auditing department.
o Provide an open avenue of communication among the independent
accountants, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV. of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, a majority of whom shall be independent directors, and
free from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the
Committee.
Independent Directors - A director will not be considered independent if,
among other things, he or she:
o has been employed by the Corporation or its affiliates in the current
or past three years;
o has accepted any compensation from the Corporation or its affiliates
in excess of $60,000 during the previous fiscal year (except for board
service, retirement plan benefits or non-discretionary compensation);
o is an immediate family member who is, or has been in the past three
years, employed by the Corporation or its affiliates as an executive
officer;
o has been a partner, controlling shareholder or an executive officer
for any for-profit business to which the Corporation made, or from
which it received, payments (other than those which arise solely from
investments in the corporations securities) that exceed five percent
of the Corporations consolidated gross revenues for that year, or
$200,000, whichever is more, in any of the past three years; or
o has been employed as an executive officer of another entity where any
of the Corporations executives serve on that entity's compensation
committee.
All Independent Directors must be able to read and understand fundamental
financial statements, including the Corporations balance sheet, income statement
and cash flow statement. At least one Independent Director must have past
employment experience in finance or accounting, requisite professional
certification in accounting or comparable experience or background, including a
current or past position as chief executive or financial officer or other senior
officer with financial oversight responsibilities.
The Chair of the Audit Committee must have the requisite financial or
accounting experience set forth above. Committee members may enhance their
familiarity with finance and accounting by participating in educational programs
conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board or until their successors shall be duly
elected and qualified. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
To fulfill its responsibilities, the Committee must:
1. Periodically self-assess the financial literacy and other skills of
Committee members against those skills that are needed to fulfill the
Committees rules and responsibility.
2. Periodically solicit feedback on the skill requirements and skill gaps
of the Audit Committee from the Board of Directors, management and
auditors.
III. MEETINGS
The Committee shall meet at least one time annually, or more frequently as
circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the Chief Financial
Officer and the independent public accountant in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should be
discussed privately. In addition, the Committee or at least its Chair should
meet with the independent public accountants and management quarterly to review
the Corporations financials consistent with IV.5 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfil its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as
conditions dictate.
2. Review the organizations annual and quarterly financial statements and
any reports or other financial information submitted to any
governmental body, or the public, including any certification, report,
opinion, or review rendered by the independent accountants.
3. Review the regular internal reports to management prepared by the
internal auditing response.
4. Review the Audit Committee report to be included in the proxy
statement.
5. Review with financial management and the independent accountants the
10-QSB reports and 10-KSB report prior to its filing and prior to the
release of earnings. The Chair of the Committee may represent the
entire Committee for purposes of this review.
6. Set guidelines for development of an Annual Audit Committee Plan which
is responsive to the primary Audit Committee responsibilities, and for
the review and approval of the Plan by the full Board.
Independent Accountants
1. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness and approve
the fees and other compensation to be paid to the independent
accounts.
2. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
3. Periodically consult with the independent accountants in the presence
of management about internal controls and fullness and accuracy of the
organizations financial statements.
4. Require the independent public accountant to submit a formal written
statement regarding relationships and services which may affect
objectivity and independence, for discussing any relevant matters with
the independent public accountants, and for recommending that the full
Board take appropriate action to address the independence of the
auditor.
Financial Reporting Processes
1. In consideration with the independent accountants and the internal
auditors, review the integrity of the organizations financial
reporting processes, both internal and external.
2. Consider the independent accountants judgments about the quality and
appropriateness of the Corporations accounting principles as applied
in its financial reporting.
3. Consider and approve, if appropriate, major changes to the
Corporations auditing and accounting principles and practices as
suggested by the independent accountants, management or the internal
auditing department.
4. The independent public accountant is ultimately accountable to the
Board of Directors and the Audit Committee.
Process Improvement
1. Establish regular and separate system of reporting to the Audit
Committee by each of management and the independent 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.
2. Following completion of the annual audit, review separately with each
of management, the independent accountants and the internal auditing
department any significant difficulties encountered during the course
of the audit, including any restrictions on the scope of work or
access to required information.
3. Review any significant disagreement among management and the
independent accountants or the internal auditing department in
connection what the preparation of the financial statements.
4. Review with the independent accountants and the internal auditing
department and management the extent to which changes or improvements
in financial or accounting practices as approved by the Audit
Committee, have been implemented. (This review should be conducted at
an appropriate time subsequent to implementation of changes or
improvements, as decided by the Committee.)
Ethical and Legal Compliance
1. Establish, review and update periodically a Code of Ethical Conduct
and ensure that management has established a system to enforce this
Code.
2. Review management's monitoring of the Corporations compliance with the
organizations Ethical Code, and ensure that management has the proper
review system in place to ensure that Corporations financial
statements, reports and other financial information disseminated to
governmental organization, and the public satisfies legal
requirements.
3. Review activities, organizational structure, and qualification of the
internal audit department.
4. Review, with the Corporations counsel, legal compliance matters
including corporate securities trading policies and general regulatory
oversight.
5. Review, with the Corporations counsel, any legal matter that could
have significant impact on the organizations financial statements.
6. Perform any activities consistent with this Charter, the Corporations
Bylaws and governing law, as the Committee or the Board deems
necessary or appropriate.
7. Review and assess conflicts of interest and related party
transactions.
