UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENTS
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------------------------------------------------
DYNTEK, INC.
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
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DYNTEK, INC.
18881 Von Karman Avenue, Suite 250
Irvine, California 92612
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held on April 26, 2004
To Our Stockholders:
The Annual Meeting of Stockholders of DynTek, Inc. for our fiscal year
ended 2003 will be held at our executive offices, 18881 Von Karman Avenue, Suite
250, Irvine, CA on Monday, April 26, 2004, at 10:00 a.m. Pacific Standard Time,
for the purpose of considering and acting upon the following Proposals:
(1) The election of five directors for terms expiring at our 2004 Annual
Meeting of Stockholders;
(2) The ratification of the appointment by the Audit Committee and the
full Board of Directors of Marcum & Kliegman LLP as our independent
accountants for the fiscal year ended June 30, 2004; and
(3) The transaction of such other business as may properly come before
the Annual Meeting and any adjournments thereof.
Pursuant to the provisions of our By-laws, the Board of Directors has
fixed the close of business on March 22, 2004 as the record date for determining
the stockholders entitled to notice of and to vote at the meeting and any
adjournments thereof.
ALL STOCKHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND PROMPTLY MAIL IT TO DYNTEK IN THE ACCOMPANYING POSTAGE PAID ENVELOPE.
By Order of the Board of Directors,
James Linesch
Executive Vice President and Secretary
March 23, 2004
Irvine, California
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OF DYNTEK, INC.
TO BE HELD ON APRIL 26, 2004
This Proxy Statement is being mailed to stockholders of DynTek, Inc., a
Delaware corporation ("DynTek"), on or about March 23, 2004 in connection with
the solicitation of proxies by the Board of Directors of DynTek to be used at
the 2003 Annual Meeting of Stockholders of DynTek to be held on April 26, 2004
and any adjournments thereof (the "Annual Meeting"). Accompanying this Proxy
Statement is a Notice of Annual Meeting of Stockholders and a form of proxy for
the Annual Meeting. This proxy statement is also accompanied by DynTek's 2003
Annual Report to Stockholders, which consists of DynTek's Form 10-K, as amended,
for the fiscal year ended June 30, 2003 that sets forth important business and
financial information concerning DynTek.
The Board of Directors has fixed the close of business on March 22, 2004
as the record date for the determination of stockholders who are entitled to
notice of and to vote at the Annual Meeting and any adjournments thereof. As of
the record date, DynTek had outstanding approximately 48,891,654 shares of its
Class A common stock, $.0001 par value (the "Common Stock"), and 959,692 shares
of its Series A Preferred Stock, $.0001 par value (the "Preferred Stock").
Holders of DynTek's Common Stock are entitled to one vote per share, and holders
of DynTek's Preferred Stock are entitled to 2.5 votes per share.
All proxies which are properly completed, signed and returned to DynTek in
a timely manner will be voted in accordance with the instructions thereon.
Proxies may be revoked by any stockholder through written notice to the
Secretary of DynTek prior to the exercise thereof, and stockholders who are
present at the Annual Meeting may withdraw their proxies and vote in person if
they so desire. Unless otherwise directed by the grantor of the proxy, the
persons acting under the accompanying proxy, if properly executed, will vote the
shares represented thereby for the following proposals: (1) the election of the
five (5) persons named herein as nominees for Directors of DynTek; (2) the
proposal to ratify the appointment of Marcum & Kliegman LLP as DynTek's
independent accountants for the year ended June 30, 2004; and (3) the
transaction of such other business that may be brought before the Annual
Meeting, in accordance with the judgment of the persons voting the proxy;
provided, that such discretionary authority granted to the person named in the
enclosed proxy card, if it is properly executed, shall specifically include the
right to vote in favor of adjournment of the Annual Meeting for the purpose of
postponing the Annual Meeting until such time as sufficient votes necessary to
take either or both of the actions called for under Proposal 1 and Proposal 2
have been received and cast therefor.
Any combination of outstanding shares of Common Stock and Preferred Stock,
which shares entitle the holders thereof to cast a majority of the votes which
can be cast by all of the outstanding Common Stock and Preferred Stock, taken
together, is required to establish a quorum at the Annual Meeting. The directors
will be elected by a plurality of the votes cast at the Annual Meeting by the
holders of the shares of the Common Stock and Preferred Stock entitled to vote.
A majority of the votes cast at the Annual Meeting by the holders of DynTek's
Common Stock and Preferred Stock entitled to vote is required for the
ratification of the appointment of independent accountants.
With regard to the election of directors, votes may be cast in favor or
withheld. Votes withheld from any director will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business
at the Annual Meeting, but will not affect the outcome of the voting in such
election. With regard to other proposals, abstentions may be specified. DynTek
believes that abstentions are shares present and entitled to vote, but do not
constitute votes cast in respect of a particular matter. DynTek, therefore,
intends to count abstentions and votes withheld in respect of the proposal to
ratify the appointment of independent accountants for purposes of determining
the presence or absence of a quorum for the transaction of business at the
Annual Meeting, but not as votes having been cast in respect of such proposal.
Accordingly, such abstentions and votes withheld will not affect the outcome of
the voting on that proposal. Broker non-votes (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares
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on a particular matter as to which the brokers or nominees do not have
discretionary power) may be counted as present or represented for purposes of
determining the presence or absence of a quorum for the transaction of business,
but not for the purpose of determining the voting power present with respect to
proposals in respect of which brokers do not have discretion (non-discretionary
proposals) because although they will count towards the quorum necessary to hold
the Annual Meeting they do not represent part of the voting power present for
any particular matter to come before the Annual Meeting. DynTek believes that
all proposals being presented to stockholders at the Annual Meeting are
discretionary proposals and, unless one or more beneficial owners of the Common
Stock have withheld discretionary authority from their brokers or nominees in
respect of these proposals, DynTek does not anticipate that there will be any
broker non-votes in respect of such proposals. If there are any broker non-
votes in respect of these proposals, however, DynTek intends to treat such
broker non-votes as stated above.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Board of Directors of DynTek is currently composed of five directors,
and the total number of directors is determined by the Board of Directors.
Each of the nominees for election to the Board has been approved and
recommended for nomination by a majority of the directors of DynTek who are
"independent" as defined in the Marketplace Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), which regulates companies, like DynTek,
whose stock is traded on The Nasdaq Stock Market. All nominees for director
presently are members of DynTek's Board of Directors.
If elected, each director will serve until the Annual Meeting of
Stockholders for the fiscal year ended June 30, 2004. Management has no reason
to believe that the named nominees will be unable or unwilling to serve if
elected to office. If a nominee is unable to serve, the shares of Common Stock
and Preferred Stock represented by all valid proxies will be voted for the
election of such substitute nominee as the Board may recommend.
Certain information concerning the nominees for director is set forth in
the following table:
Principal Occupation, Business
Name Age Experience and Directorships
---- --- ----------------------------
Steven J. Ross 46 Since February 2000, Mr. Ross has been DynTek's
President, Chief Executive Officer and Chairman
of the Board. Mr. Ross has an extensive industry
background, most recently serving as General
Manager of Toshiba's Computer System Division,
responsible for sales, marketing, and operations
in North and South America from 1998 to 1999.
Prior to that, Mr. Ross was President and
General Manager of the Reseller Division and
President of Corporate Marketing at Inacom
Corporation from 1996 to 1998. Mr. Ross' other
positions have included responsibility for sales
and marketing, operations, strategic planning,
and other senior executive activities.
James Linesch 49 Since August 14, 2000, Mr. Linesch has served as
the Chief Financial and Chief Accounting
Officer, Executive Vice President and Secretary,
and since February 1997 Director, of DynTek.
Previously, Mr. Linesch was the President, Chief
Executive Officer and Chief Financial Officer of
CompuMed, a public computer company involved
with computer assisted diagnosis of medical
conditions, which he joined in April 1996 as
Vice President and Chief Financial Officer. Mr.
Linesch served as a Vice President and Chief
Financial Officer
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Principal Occupation, Business
Name Age Experience and Directorships
---- --- ----------------------------
of DynTek from August 1991 to April 1996. From
May 1998 to August 1991, Mr. Linesch served as
the Chief Financial Officer of Science Dynamics
Corp., a corporation involved in the development
of computer software. Mr. Linesch holds a CPA
certification in the State of California, where
he practiced with Price Waterhouse from 1981 to
1984.
Brian D. Bookmeier 45 Mr. Bookmeier has served as a Director of DynTek
since July 1995, and was President and Chief
Executive of DynTek from July 1995 to February
2000. From September 1989 until its merger into
DynTek, Mr. Bookmeier served as Executive Vice
President and a Director of Patient Care
Services, a home medical equipment supply
company that specialized in diabetes management,
and the sale of related equipment and supplies
Mr. Bookmeier has served as a member of the
Board of Directors and Vice President of Seven
Sons, Inc., d/b/a Las Vegas Golf &Tennis. Seven
Sons, Inc. was in the business of franchised
retailing of golf and tennis products. Mr.
Bookmeier has held this position since 1997. He
is on the Board of Directors of Azurel, Ltd., a
public company that filed for protection under
Chapter 11 of the Federal Bankruptcy Code in
2001. He continues to serve as Chairperson of
the Audit and Compensation Committees of the
Reorganized Board of Azural, Ltd. In May 2003,
be became COO and Director of ModeEleven, Inc.,
a privately held software development and media
broadcast company.
Dr. Michael W. Grieves 54 Dr. Grieves has been a director since August 14,
2000. Previously, Dr. Grieves had served as Data
Systems Corporation's President, Chief Executive
Officer and Chairman of the Board since its
inception in 1986. Prior to 1986, Dr. Grieves
served in executive, managerial and technical
capacities with Computer Alliance Corporation, a
turnkey system house; Quanex Management
Sciences, a computer services bureau; and Lear
Siegler Corporation. He has more than 25 years
of experience in the computer industry.
Marshall Toplansky 53 Mr. Toplansky has been a director since October
2002. Mr. Toplansky founded the consulting firm
Core Strategies in 1996, of which he remains
CEO. The firm specializes in evaluating
marketing strategies and identifying growth
opportunities for technology-based companies.
From 1994 to 1996, he served as Senior Vice
President of Sales and Marketing for enterprise
software publisher Open Environment. He was Vice
President of Marketing for modem manufacturer
U.S. Robotics from 1989 to 1994. Mr. Toplansky's
other positions have involved advertising and
data base direct marketing management, primarily
with Ogilvy & Mather. Mr. Toplansky currently
serves on the board of directors of CompTIA, the
country's largest technology trade association,
and the Harvard Business School Association of
Orange County.
Board of Directors and Committees of the Board
The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. The Board of Directors has determined
that each of Messrs. Bookmeier, Grieves and Toplansky is an
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independent director, as defined in the Marketplace Rules of the NASD, for the
reason that none of these persons is a director who:
o is, or during the past three years was, employed by DynTek or by any
subsidiary of DynTek;
o accepted, or who has a relative by blood, marriage or adoption or
who has the same residence as such director (a "Family Member") who
accepted, any payments from DynTek or any subsidiary of DynTek in
excess of $60,000 during fiscal 2004 or any of the past three fiscal
years, other than compensation for service on the Board or any Board
committee, payments arising solely from investments in DynTek's
securities, compensation paid to a Family Member who is a
non-executive employee of DynTek, or its parent or subsidiary,
benefits under a tax-qualified retirement plan, or non-discretionary
compensation, or permitted loans;
o is a Family Member of an individual who is, or during the past three
years was, employed by DynTek or by any subsidiary of DynTek as an
executive officer;
o is a partner in, or a controlling stockholder or an executive
officer of, any organization to which DynTek made, or from which
DynTek received, payments for property or services that exceed 5% of
the recipient's consolidated gross revenues for that year, or
$200,000, whichever is more, in fiscal 2003 or any of the past three
fiscal years other than the following: (i) payments arising solely
from investments in DynTek's securities; or (ii) payments under
non-discretionary charitable contribution matching programs;
o is employed, or who has a Family Member who is employed, as an
executive officer of another entity where any of the executive
officers of DynTek serve on the compensation committee of such other
entity, at any time during the past three fiscal years; or
o is, or has a Family Member who is, a partner of DynTek's independent
auditors, and worked on DynTek's audit, at any time during any of
the past three years.
DynTek's Board of Directors met three (3) times (not including actions by
written consent) during the year ended June 30, 2003. Each of the directors
serving at the time attended all of the meetings held by the Board of Directors
and any Committees of the Board of Directors on which such person served during
the last fiscal year. The Board of Directors has two standing committees: the
Audit Committee and the Compensation Committee. Each of these committees has a
written charter that may be found on DynTek's website at http://www.dyntek.com.
The Board recently amended and restated the charter of the Audit Committee in
response to new requirements of the Sarbanes-Oxley Act of 2002 and related rules
and regulations issued by the Securities and Exchange Commission (the "SEC") and
the NASD. The Amended and Restated Audit Committee charter is attached to this
Proxy Statement as Annex A. The Compensation Committee charter is also attached
to this Proxy Statement as Annex B.
DynTek does not have a standing nominating committee because it has
determined that since it only has five directors, a nominating committee is not
necessary. Any discussions regarding a new director would be discussed with the
entire Board of Directors. Following any discussion with the entire Board of
Directors, DynTek's independent directors, Messrs. Bookmeier, Grieves and
Toplansky would determine and vote as to whether the individual named will be
nominated to the Board of Directors.
The Audit Committee met three (3) times during the year ended June 30,
2003, each time meeting separately and then in conjunction with the Board of
Directors. The Audit Committee, among other things, recommends the firm to be
appointed as independent accountants to audit DynTek's financial statements,
reviews DynTek's interim and year-end operating results, considers the adequacy
of the internal accounting controls and audit procedures of DynTek and reviews
the non-audit services to be performed by the independent accountants. The
members of the Audit Committee at the end of the 2003 fiscal year were Messrs.
Grieves, Bookmeier and Toplansky. The Board of Directors has determined that
each of these persons is qualified to serve on the Audit Committee in accordance
with the criteria specified in rules and regulations issued by the SEC and the
NASD for
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the reason that: (a) each of them is an independent director, as stated above;
(b) none of them, other than in his capacity as a member of the Audit Committee,
the Board of Directors or any other Board committee:
o accepts any consulting, advisory or other compensatory fee from the
DynTek, other than Mr. Bookmeier who received compensatory fees as a
part of his employment with the Corporation within the prior three
years (Mr. Bookmeier became an independent director as so defined by
the SEC and NASD in February 2003. DynTek appointed Mr. Bookmeier to
the Audit Committee because it believed that his prior employment
relationship with DynTek would not interfere with his exercise of
independent judgment in carrying out the responsibilities of a
director and member of the committee on behalf of DynTek's
stockholders); or
o is an affiliated person of the DynTek or any subsidiary of the
DynTek;
(c) none of them owns or controls 20% or more of DynTek's voting securities; and
(d) each of them is able to read and understand financial statements, including
DynTek's balance sheet, income statement and cash flow statement. In addition,
the Board of Directors has determined that Dr. Grieves is qualified to serve as
the "audit committee financial expert" of DynTek as defined in Item 401(h) of
SEC Regulation S-K.
The Compensation Committee met three times during the year ended June 30,
2003. The Compensation Committee has the authority to review and recommend
compensation arrangements for management of DynTek. The members of the
Compensation Committee at the end of the 2003 fiscal year were Messrs. Grieves,
Toplansky and Ross.
Compensation of Directors
Directors are paid an annual board membership fee of $25,000 and are
reimbursed for certain reasonable expenses incurred in attending Board or
Committee meetings. The Chairman of the Audit Committee and the Chairman of the
Compensation Committee are each paid an additional fee of $25,000 for service in
those positions, effective April 2003. Currently, Dr. Grieves is Chairman of
both the Audit Committee and the Compensation Committee. Directors are eligible
for awards under DynTek's 1997 Non-Employee Directors' Stock Option Plan. The
Non-Employee Directors' Stock Option Plan provides for option grants with
respect to 10,000 shares of Common Stock to be made to each eligible director
upon each July 1st on which such director is a member of DynTek's Board of
Directors. Options are exercisable for 5 years after the date of grant. The
exercise price for any option under the plan shall be equal to the fair market
value of the Common Stock at the time such option is granted. The plan provides
that grants thereunder vest immediately. During the year ended June 30, 2003,
each of Messrs. Bookmeier and Grieves received grants in accordance with the
Non-Employee Directors' Plan.
Communications Between Stockholders and Directors
The Board is currently in the process of evaluating its policies and
guidelines regarding stockholder communications to directors in response to
recent SEC rulemaking.
Corporate Governance
DynTek has adopted corporate governance policies and practices in
compliance with the new requirements of the Sarbanes-Oxley Act of 2002 and
related rules and regulations issued by the SEC and the NASD, including:
o A majority of the members of the DynTek's Board of Directors are
independent of DynTek and its management;
o All members of the committees of the Board - the Audit Committee and
the Compensation Committee - are independent;
o The independent members of DynTek's Board of Directors have enacted
a program to meet regularly without the presence of management;
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o The charters of the committees of the Board clearly establish their
respective roles and responsibilities;
o DynTek's Audit Committee is in the process of implementing
procedures for the anonymous submission of employee complaints on
accounting, internal controls or auditing matters, which DynTek
expects will be in place prior to the date of the Annual Meeting;
and
o DynTek has adopted a code of ethics that applies to all of its
directors, officers and other employees, including its principal
executive officer, principal financial officer, principal accounting
officer and other members of its management performing similar
functions, which is posted on the DynTek's website at
http://www.dyntek.com.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder require DynTek's officers and directors and persons
who own more than ten percent of a registered class of DynTek's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission and to furnish to DynTek copies of all such
filings. DynTek has determined, based solely upon a review of those reports and
amendments thereto furnished to DynTek during and with respect to the year ended
June 30, 2003 and written representations from reporting persons, to the extent
that DynTek deemed it necessary, that all filing requirements were timely
satisfied by DynTek's officers and directors.
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Recommendation
The Board of Directors recommends a vote FOR the election of Messrs. Ross,
Linesch, Bookmeier, Grieves and Toplansky as Directors of DynTek.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
DynTek's independent accountants and auditors are Marcum & Kliegman LLP,
certified public accountants. Marcum & Kliegman LLP was appointed by the Audit
Committee and the full Board of Directors as DynTek's independent accountants on
May 1, 2003, replacing Grassi & Co., P.C., DynTek's independent accountant for
the prior fiscal year. The Board of Directors, on the recommendation of the
Audit Committee of the Board, has appointed the firm of Marcum & Kliegman LLP as
independent accountants, to audit and report on the financial statements of
DynTek for the year ending June 30, 2004. At the Annual Meeting, the
stockholders will consider and vote upon a proposal to ratify the appointment of
independent accountants for DynTek's fiscal year ending June 30, 2004.
It is expected that a representative of Marcum & Kliegman LLP will be
available at the Annual Meeting to answer questions of stockholders.
Audit Fees
DynTek paid Marcum & Kliegman LLP, audit fees in the aggregate of $212,320
for professional services rendered for the audit of DynTek's annual financial
statements for the year ended June 30, 2003 and for the review of the financial
statements included in DynTek's quarterly reports on Form 10-Q for such year.
Audit-Related Fees
In addition to fees disclosed under "Audit Fees" above, the aggregate fees
for professional services rendered by Marcum & Kliegman LLP for assurance and
related services that are reasonably related to the
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performance of the audit and reviews of DynTek's financial statements were
$72,880 for the fiscal year ended June 30, 2003. Such services included
accounting consultations and audits in connection with merger and acquisition
activity, and additional assurance and related services for DynTek's
subsidiaries.
Tax Fees
The aggregate fees for professional services rendered by Marcum & Kliegman
LLP for tax compliance, tax planning and tax advice for the DynTek and its
subsidiaries were $33,500 for the fiscal year ended June 30, 2003.
All Other Fees
Marcum & Kliegman LLP did not provide DynTek with any other services
during the fiscal years ended June 30, 2003.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee of DynTek's Board of Directors pre-approves on an
annual basis the audit, audit-related, tax and other non-audit services to be
rendered by DynTek's accountants based on historical information and anticipated
requirements for the following fiscal year. The Audit Committee pre-approves
specific types or categories of engagements constituting audit, audit-related,
tax and other non-audit services as well as the range of fee amounts
corresponding to each such engagement. To the extent that DynTek's management
believes that a new service or the expansion of a current service provided by
the DynTek's accountants is necessary or desirable, such new or expanded
services are presented to the Audit Committee for its review and approval prior
to DynTek's engagement of its accountants to render such services. No non-audit
services were approved by the Audit Committee pursuant to Rule 2-01, paragraph
(c)(7)(i)(C) of SEC Regulation S-X during the fiscal year ended June 30, 2003.
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Required Vote
The ratification of the appointment of Marcum & Kliegman LLP requires a
majority of the votes cast by holders of DynTek's Common Stock and Preferred
Stock entitled to vote at the Annual Meeting. Abstentions and broker non-votes
will be counted as present for purposes of determining whether a quorum is
present, and abstentions and broker non-votes, if any, will not be treated as
votes cast on this matter at the Annual Meeting.
Recommendation
The Board of Directors recommends a vote FOR the ratification of the
appointment of Marcum & Kliegman LLP.
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SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of outstanding Common as of March 1, 2004 by (i) each of DynTek's
directors and executive officers, (ii) all directors and executive officers as a
group, and (iii) each owner of more than 5% of DynTek's Common Stock, referred
to as the 5% owners. For purposes of the following table, the number of shares
of Common Stock assumes the conversion to Common Stock of all outstanding shares
of Preferred Stock. No person holds 5% or more of the outstanding Preferred
Stock
Number of
Shares of Percentage
Common Stock Outstanding
Name and Address of Beneficially of Common
Beneficial Owner (2) Owned (1) Stock Owned
- -------------------- ------------ -----------
H. T. Ardinger(4) 2,895,241 5.4%
9040 Governors Row
P.O. Box 569360
Dallas, TX 75356
Estate of Fred Kassner(3) 3,045,610 5.8%
59 Spring Street
Ramsey, NJ 07446
Steven J. Ross(5) 961,939 1.8%
Dr. Michael W. Grieves(6) 562,729 1.1%
34705 West 12 Mile Road, Suite 300
Farmington Hills, MI 48009
James Linesch(7) 565,573 1.1%
Brian D. Bookmeier(8) 60,000 *
19327 Agusta Dr.
Livonia, MI 48152
Arion Kalpaxis(9) 274,000 *
Marshall Toplansky(10) 130,000 *
Wade Stevenson(11) 62,250 *
ALL OFFICERS AND DIRECTORS 2,616,491 4.8%
as a group (7 persons)(6)(7)(8)(9)(10)
* Less than 1%
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(1) As used herein, the term beneficial ownership with respect to a security
is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, as consisting of sole or shared voting power (including the power
to vote or direct the vote) and/or sole or shared investment power
(including the power to dispose or direct the disposition of) with respect
to the security through any contract, arrangement, understanding,
relationship or otherwise, including a right to acquire such power(s)
during the next 60 days. Unless otherwise noted, beneficial ownership
consists of sole ownership, voting and investment rights.
(2) Except as set forth in the footnotes to this table, the business address
of each director and executive officer listed is c/o DynTek, Inc., 18881
Von Karman Avenue, Irvine, California 92612.
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(3) Includes 40 shares of Common Stock underlying DynTek's publicly-traded
Class A warrants and 100,000 shares of Common Stock underlying Warrants
granted in connection with certain financial accommodations granted by Mr.
Kassner related to the release of security interests in DynTek's assets.
(4) The person having sole voting and dispositive power over the shares owned
by H.T. Ardinger & Sons, Inc. is H.T. Ardinger. Mr. Ardinger disclaims
beneficial ownership of the shares held by H.T. Ardinger & Sons, Inc. The
number of shares stated for H.T. Ardinger & Sons, Inc. beneficial
ownership includes 1,374,247 shares which may be acquired upon the
exercise of warrants, and 15,750 shares which may be acquired upon
conversion of Series A Preferred Stock shares. Does not include 1,140,310
shares held by the Ardinger Family Trust, over which shares Mr. Ardinger
has sole voting and dispositive power but not beneficial ownership.
(5) Includes options to purchase 905,000 shares of Common Stock exercisable at
prices ranging from $0.80 to $2.25 per share granted to Mr. Ross under
DynTek's 1992 and 2001 Employee Stock Option Plans and the 1997
Non-Employee Directors' Stock Option Plan, 7,939 shares of Common Stock,
and 49,000 shares of Common Stock underlying options to purchase 19,600
shares of DynTek's Series A Preferred Stock with strike prices of $1.69
per share.
(6) Includes 89,883 shares of Common Stock which are issuable to Dr. Grieves
upon conversion of 35,935 shares of Series A Preferred Stock held by him.
Also includes beneficial ownership of options to purchase 90,846 shares of
Common Stock at prices between $0.957 to $13.52 per share, upon exercise
of options to purchase 36,642 shares of Series A Preferred Stock. Also
includes 30,000 options exercisable for Common Stock granted to Dr.
Grieves under the 1997 Non-Employee Directors' Stock Option Plan at prices
between $0.80 and $2.25.
(7) Includes 420,000 options granted to Mr. Linesch under the 1997
Non-Employee Directors' Stock Option Plan, 1992 Plan and 2001 Employee
Stock Option Plan at prices ranging from $0.80 to $3.78 and includes 8,750
shares of Common Stock which are issuable to Mr. Linesch upon conversion
and 3,500 shares of Series A Preferred Stock held by him.
(8) Includes options to purchase 60,000 shares of Common Stock granted under
the 1997 Non-Employee Directors' Stock Option Plan at prices between $0.80
and $3.78.
(9) Includes 15,000 options to purchase 15,000 shares of Common Stock granted
to Mr. Kalpaxis at $2.04 per share under the 2001 Employee Stock Option
Plan.
(10) Includes 100,000 options to purchase shares of Common Stock at $3.00 per
share issued to Mr. Toplansky for services rendered and 20,000 options to
purchase shares of Common Stock granted at $0.80 and $1.00 per share under
the 1997 Non-Employee Directors' Stock Option Plan.
(11) Includes options to purchase 62,250 shares of Common Stock with strike
prices between $0.96 and $2.04 per share under the 1992 and 2001 Employee
Stock Option Plans.
- 10 -
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the three-year
period ended June 30, 2003 to the chief executive officer of DynTek and the
other four most highly paid executive officers of DynTek whose annual salary and
bonus exceeded $100,000 for all services rendered to DynTek during each such
annual period.
Summary Compensation Table
Annual
Compensation Long Term Compensation
------------ ----------------------
Other
Annual Restricted All Other
Fiscal Compen- Stock Options/ LTIP Compen-
Name and Position Year Salary($) Bonus($) sation Awards SARs (#) Payouts sation
----------------- ---- --------- -------- ------- ------ --------- ------- ------
Steven J. Ross 2003 $400,000 $100,000 $25,000 -- -- -- --
President, Chief 2002 $376,000 $205,000 $70,000 -- 75,000 -- $40,431(1)
Executive Officer and 2001 $175,000 -- $25,000 -- 810,000 -- --
Chairman of the Board
James Linesch 2003 $200,000 $ 25,000 $25,000 -- -- -- $ 6,000
Chief Financial Officer, 2002 $179,000 $ 75,000 $25,000 -- 45,000 -- $ 6,321(1)
Executive Vice President 2001 $138,000 $ 10,000 $25,000 -- 335,000 -- --
and Director
Wade Stevenson 2003 $140,000 $ 10,000 -- -- -- -- --
Vice President 2002 $129,000 $ 20,000 -- -- 20,000 -- --
Finance 2001 $ 98,990 $ 26,000 -- -- -- -- --
Arion Kalpaxis 2003 $175,000 -- -- -- -- -- --
Chief Technology Officer 2002 $176,000 -- -- -- -- -- --
2001 $153,798 -- -- -- 15,000 -- --
- ----------
(1) In accordance with the terms of their employment agreements, both Mr. Ross
and Mr. Linesch are reimbursed for medical claims that are not payable
under DynTek's health plan. Since DynTek is currently operating under a
self-insurance health plan, such reimbursements are considered as a
component of compensation.
Option Grants
The following table sets forth certain information concerning individual
grants of stock options made during the fiscal year ended June 30, 2003 to each
of the executive officers named in the Summary Compensation Table above.
Option/Sar Grants In Fiscal Year Ended June 30, 2003
Number of Potential Realizable Value at
Securities Percent of Total Assumed Annual Rates of Stock
Underlying Options/SARs Exercise or Base Price Appreciation
Name Options/SARs Granted Granted in Fiscal Year Price ($/Sh) for Option Term
---- -------------------- ---------------------- ------------ ---------------
(a) (b) (c) (d) 5% 10%
Steven J. Ross 10,000 6% $1.75 $875 $1,750
James Linesch 10,000 6% $1.75 $875 $1,750
Wade Stevenson -- -- -- -- $4,000
Arion Kalpaxis -- -- -- $2,000 $3,000
- 11 -
The following table sets forth information concerning exercises of stock
options by each of the executive officers named in the Summary Compensation
Table during the fiscal year ended June 30, 2003 and the fiscal year-end value
of options held by such named individuals.
Aggregated Option/Sar Exercised In Fiscal Year Ended
June 30, 2003 And Fiscal Year-End Option/Sar Values
The following table provides information concerning stock options
exercised during fiscal year ended June 30, 2003 and the number of unexercised
options held by the executive officers named in the Summary Compensation Table
as of June 30, 2003. Also reported are the values for unexercised, "in the
money" options, which represent the positive spread between the respective
exercise prices of such options and the fair market value of the Common Stock as
of June 30, 2003.
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs At In-The-Money Options/SARs
Shares Acquired Value Fiscal Year-End (#) At Fiscal Year-end ($)
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- ------------ ----------- ------------- ----------- -------------
(a) (b) (c) (d) (e)
Steven J. Ross -- 0 921,500 32,500 $8,330 $0
James Linesch -- 0 402,500 17,500 $ 0 $0
Wade Stevenson -- 0 42,250 20,000 $ 0 $0
Arion Kalpaxis -- 0 7,500 7,500 $ 0 $0
Employment Agreements
On December 10, 2001, DynTek entered into an employment agreement with
Steven J. Ross, its President, Chief Executive Officer, and Chairman of the
Board, which replaced the prior employment agreement dated January 2, 2001. The
agreement is for a three-year term, commencing December 10, 2001, which term may
be extended upon the consent of all parties to the agreement. During the term of
the agreement, Mr. Ross shall serve on DynTek's Board of Directors and on the
board of each of DynTek's wholly-owned subsidiaries. On October 16, 2003, the
Board of Directors approved an increase in Mr. Ross's base salary from $400,000
to $440,000, effective October 1, 2003. Based upon meeting criteria established
by mutual consent of Mr. Ross and DynTek's Board of Directors, and then upon
further approval by the Board of Directors (which actions by the Board of
Directors are taken by DynTek's Compensation Committee), Mr. Ross is entitled to
receive an annual bonus, payable quarterly, the aggregate amount of which is
equal to at least 50% of his annual base salary. For the fiscal year ended June
30, 2003, Mr. Ross received $100,000 in quarterly bonus payments. In August
2003, Mr. Ross received $100,000 in bonus payments. In addition to participation
in all employee benefit programs generally made available to members of DynTek's
executive management, Mr. Ross also receives a supplemental executive benefits
plan that includes premium payments for a $1 million life insurance policy,
long-term disability and supplemental medical insurance coverage. The maturity
date of Mr. Ross's note payable to us, dated January 2, 2001, of $170,000
principal was extended to December 10, 2004 under the agreement. In addition,
the agreement provided that, should the average closing price for a share of
DynTek's Common Stock as reported by the Nasdaq Stock Market (the "Stock Price")
for the ten trading days prior to June 30, 2002 meet or exceed 110% of the Stock
Price for the ten trading days prior to the December 27, 2001 closing date of
DynTek's merger with DynTek Management Resources, then Mr. Ross's obligation to
repay $100,000 principal of the note would be forgiven. The criterion for such
forgiveness was not met.
In the event Mr. Ross is terminated without cause, all options granted to
Mr. Ross during his employment term that are exercisable to acquire Common Stock
will become fully vested, his medical and other insurance coverage benefits will
be extended for a period of 18 months from the date of employment termination,
and he shall receive additional expense reimbursements for certain health
insurance coverages. He shall also be entitled to receive a severance payment
equal to the lesser of (1) the aggregate of the remaining base salary payments
due under the agreement or (2) the aggregate of 24 payments each being equal to
his monthly base salary amount plus one-twelfth of the bonus amount that could
be earned under the contract as of the date of termination. The severance
- 12 -
payment shall be payable one-half in a lump sum at termination and one-half in
equal monthly installments over the succeeding 24 months. In addition, Mr. Ross
is entitled to the same compensation and stock option benefits afforded
non-employee directors.
On August 14, 2000, DynTek entered into an employment agreement with James
Linesch, its Chief Financial Officer and Executive Vice President, which
agreement was subsequently amended on August 15, 2001 and again on October 8,
2003. Under the revised terms, DynTek reduced Mr. Linesch's salary from an
annual rate of $200,000 to $150,000, effective November 1, 2003. On November 1,
2004, his salary shall be further reduced to an annual rate of $100,000 for one
year, and the Employment Agreement shall terminate on October 31, 2005 without
further obligation by us. In addition to participation in all employee benefit
programs generally made available to members of DynTek's executive management,
Mr. Linesch also receives a supplemental executive benefits plan that includes
premium payments of up to $1 for a million life insurance policy and
supplemental medical insurance coverage. During the first year of the agreement,
Mr. Linesch earned a bonus in the amount of $25,000. Commencing on August 15,
2001, Mr. Linesch became eligible for quarterly bonuses in the annual cumulative
amount of 50% of his then current base salary, with the criteria for achievement
of quarterly bonuses being equivalent to such criteria described in the
preceding paragraph of this section established for Mr. Ross under his
employment agreement. For the fiscal year ended June 30, 2003, Mr. Linesch
received an aggregate of $25,000 in quarterly bonus payments.
In the event Mr. Linesch is terminated without cause, all options granted
to Mr. Linesch during his employment term that are exercisable to acquire Common
Stock will become fully vested, his medical and other insurance coverage
benefits will be extended for a period of 12 months from the date of employment
termination, and he shall be entitled to receive a Severance Payment equal to
the greater of (1) the aggregate of the remaining base salary and bonus in
effect under the agreement at the time of termination or (2) a lump sum
severance payment equal to 18 times the aggregate of the monthly base salary
payment plus one-twelfth of the bonus in effect under the agreement at the time
of termination. In addition, Mr. Linesch is entitled to the same compensation
and stock option benefits afforded non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
As of June 30, 2003, DynTek's Compensation Committee consisted of Messrs.
Ross, Grieves and Toplansky with only Mr. Ross being an employee of DynTek. For
information concerning Mr. Ross' Employment Agreement, see "Employment
Agreements," above.
In March 2001, DynTek purchased 25% of the equity in LaborSoft Corporation
("LaborSoft"), a company providing labor relations software to labor unions and
commercial customers. As a result of its investment, DynTek assigned Dr. Grieves
to become the Chairman of the Board of Directors of LaborSoft. DynTek provides
infrastructure services to LaborSoft, on a fee-for-service basis, with monthly
charges of approximately $17,000.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for reviewing DynTek's
compensation program. The Compensation Committee did not meet separately during
the fiscal year ended June 30, 2003 for the purpose of reviewing employee salary
issues, but its members did participate in all full Board meetings at which
employee compensation issues were discussed.
Compensation Philosophy
Our compensation program generally is designed to motivate and reward
DynTek's executive officers and employees for promoting financial, operational
and strategic objectives while reinforcing the overall goal of enhancing
stockholder value. Our compensation program generally provides incentives to
achieve short and long term objectives. The major components of compensation for
executive officers are base salary, bonus incentives (on an individual basis in
DynTek's discretion), and stock option grants. Each component of the total
executive officer
- 13 -
compensation package emphasizes a different aspect of DynTek's compensation
philosophy. These elements generally are blended to provide compensation
packages which provide competitive pay, reward the achievement of financial,
operational and strategic objectives, and align the interests of our executive
officers and employees with those of DynTek stockholders.
Components of Executive Compensation
Base Salary. Base salaries for DynTek's executive officers are determined
by evaluating the responsibilities required for the position held, individual
experience and breadth of knowledge, and by reference to the competitive
marketplace for management talent.
Stock Awards. To promote our long-term objectives, all directors, officers
and employees of DynTek are eligible for grants of stock options. The stock
option awards are made to directors, officers and employees pursuant to our 1992
Employee Stock Option Plan, as amended, and our 2001 Employee Stock Option Plan,
in the form of incentive stock options for employees and non-qualified stock
options for non-employees, and to non-employee directors pursuant to the 1997
Non-employee Directors Stock Option Plan, in the form of non-qualified stock
options.
Stock options represent rights to purchase shares of Common Stock in
varying amounts pursuant to a vesting schedule determined by the Compensation
Committee or the full Board at a price per share specified in the option grant,
which may be less than the fair market value on the date of the grant under
certain circumstances when non-qualified options are awarded. Stock options
expire at the conclusion of a fixed term (generally 5 years).
Since the stock options may grow in value over time, these components of
our compensation plan are designed to reward performance over a sustained period
and to enhance stockholder value through the achievement of corporate
objectives. We intend that these awards will strengthen the focus of our
directors, officers and employees on managing DynTek from the perspective of a
person with an equity stake in DynTek. The number of options granted to a
particular employee is based on the position, level, competitive market data and
annual performance assessment of each employee.
Tax Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code of 1986, as amended, imposes limitations upon the federal
income tax deductibility of compensation paid to our chief executive officer and
to each of the other four most highly compensated executive officers of DynTek.
Under these limitations, we may deduct such compensation only to the extent that
during any fiscal year the compensation paid to any such officer does not exceed
$1,000,000 or meets certain specified conditions (such as certain
performance-based compensation that has been approved by our stockholders).
Based on our current compensation plans and policies and proposed regulations
interpreting the Internal Revenue Code, DynTek and the Compensation Committee
believe that, for the near future, there is not a significant risk that DynTek
will lose any significant tax deduction for executive compensation. Our
compensation plans and policies will be modified to ensure full deductibility of
executive compensation if DynTek and the Compensation Committee determine that
such an action is in the best interests of DynTek.
COMPENSATION COMMITTEE
Michael W. Grieves
Marshall Toplansky
- 14 -
AUDIT COMMITTEE REPORT
In connection with the preparation and filing of DynTek's Annual Report on
Form 10-K for the year ended June 30, 2003:
The Audit Committee of the Board of Directors reviewed and discussed the
audited financial statements of DynTek with DynTek's management.
o The Audit Committee discussed with Marcum & Kliegman LLP, DynTek's
independent auditors, the matters required to be discussed by
Statement on Auditing Standards No. 61 (Codification of Statements
on Auditing Standards, AU (S) 380).
o The Audit Committee also received the written disclosures and the
letter from Marcum & Kliegman LLP required by the Independence
Standards Board Standard No. 1 (Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees) and
discussed with Marcum & Kliegman LLP the independence of that firm
as DynTek's independent auditors. All audit and non-audit services
provided by Marcum & Kliegman LLP were reviewed by the Audit
Committee, which considered whether the provision of non-audit
services was compatible with maintaining the independent auditors'
independence.
o Based on the Audit Committee's review and discussions referred to
above, the Audit Committee recommended to the Board that DynTek's
audited financial statements be included in DynTek's Annual Report
on Form 10-K for the fiscal year ended June 30, 2003 for filing with
the Securities and Exchange Commission.
AUDIT COMMITTEE
Michael W. Grieves
Brian Bookmeier
Marshall Toplansky
- 15 -
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the cumulative total stockholder
return on Common Stock, based upon the market price of Common Stock as reported
by The Nasdaq Stock Market, with the cumulative total return of companies in the
Nasdaq Composite Index and the Nasdaq Computer Index for the period from June
30, 1997 through June 30, 2003.
[The following information was depicted as a line chart in the printed material]
Index Data
------------------------------------
NASDAQ NASDAQ
Chart Composite Computer
Date DYTK Index Index
- -------- ------ --------- --------
7/1/99 100.00 100.00 100.00
9/30/99 79.87 104.08 110.16
12/31/99 87.86 154.23 170.34
3/31/00 126.84 173.31 197.88
6/30/00 89.78 150.32 171.70
9/30/00 65.81 139.20 155.55
12/31/00 28.12 93.63 94.86
3/31/01 42.17 69.75 65.05
6/30/01 74.76 81.89 79.43
9/30/01 54.31 56.81 49.47
12/31/01 67.73 73.92 71.82
3/31/02 67.09 69.94 66.40
6/30/02 57.51 55.46 49.95
9/30/02 28.75 44.42 38.04
12/31/02 31.95 50.62 45.61
3/31/03 27.16 50.83 45.09
6/30/03 25.56 61.50 54.65
----------
According to SEC rules, the information presented in this Proxy Statement
under the captions "Compensation Committee Report on Executive Compensation",
"Audit Committee Report" and "Stock Price Performance" shall not be deemed to be
"soliciting material" or to be filed with the SEC under the Securities Act of
1933 or the Securities Exchange Act of 1934 and nothing contained in any
previous filings made by DynTek under such acts shall be interpreted as
incorporating by reference the information presented under the specified
captions.
- 16 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to Certain Relationships and Related
Transactions, please see "Compensation Committee Interlocks and Insider
Participation in Compensation Decisions," above.
STOCKHOLDER PROPOSALS
Based upon the regulations of the Securities and Exchange Commission, any
stockholder who wishes to bring any proposal before a regularly scheduled annual
meeting of DynTek stockholders or to nominate a person to serve as a director to
be elected at such annual meeting shall give written notice thereof and certain
related information to DynTek at least 120 calendar days prior to the date of
DynTek's proxy statement released to stockholders in connection with the
previous year's annual meeting.
Management does not know of any matters which are likely to be brought
before the Annual Meeting other than those referred to in this Proxy Statement.
However, in the event that any other matters properly come before the Annual
Meeting, including the decision to postpone the Annual Meeting until such time
as sufficient votes necessary to take action have been received and cast, the
persons named in the enclosed proxy will vote in accordance with their judgment
on such matters.
The presiding officer at the Annual Meeting may determine that any
stockholder proposal was not permissible under or was not made in accordance
with applicable procedures or is otherwise not in accordance with law and, if he
so determines, he may refuse to allow the stockholder proposal or nomination to
be considered at the Annual Meeting.
Under the rules of the SEC, stockholder proposals intended to be presented
at the next annual meeting (to be held in 2004) must be received by DynTek on or
before June 30, 2004 to be included in the proxy statement and proxy for that
meeting. Proposals should be directed to the Corporate Secretary, DynTek, Inc.,
18881 Von Karman Avenue, Suite 250, Irvine, California 92612.
ADDITIONAL INFORMATION
The expense of preparing, assembling, printing and mailing the form of
proxy and the material used in the solicitation of proxies will be borne by
DynTek. In addition to the solicitation of proxies by use of the mails, DynTek
may utilize the services of some of its officers and regular employees to
solicit proxies personally and by telephone, telegram, letter, facsimile or
other means of communications. DynTek has requested banks, brokers and other
custodians, nominees and fiduciaries to forward copies of the proxy materials to
their principals and to request authority for the execution of proxies and will
reimburse such persons for their services in doing so.
- 17 -
ANNEX A
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
AMENDED AND RESTATED 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 or the public; the Corporation's systems of internal
controls regarding finance, accounting, legal compliance and ethics that
management and the Board have established: and the Corporation's auditing,
accounting and financial reporting processes generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Corporation's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control
system.
o Review and appraise the audit efforts of the Corporation's
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.
o 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, at least three of whom, subject to exceptions provided
under the Rules of the Nasdaq Stock Market, Inc., 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. All members of the Committee shall have a working familiarity
with basic finance and accounting practices, and at least one member of the
Committee shall have accounting or related financial management expertise.
The members of the Committee shall be elected by the Board at the annual
organizational meeting of the Board, or at another meeting of the Board, and
shall hold office until they resign or are removed, 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. Successors to Committee members, or vacancies
left in the Committee's composition, may be filled by vote of the Committee
members.
III. MEETINGS
The Committee shall meet at least four times 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 director of the
internal auditing department and the independent accountants 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 accountants and management
quarterly to review the Corporation's financials consistent with Section IV. 4
below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically as conditions
dictate.
2. Review the Corporation's quarterly and annual 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 department and management's response.
4. Review with financial management and the independent
accountants the 10-Q and 10-K prior to its filing of the
quarterly (unaudited) or annual (audited) financials prior to
the release of earnings. The Chair of the Committee may
represent the entire Committee for purposes of this review.
Independent Accountants
5. 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 accountants. On an annual basis,
the committee should review and discuss with the accountants
all significant relationships the accountants have with the
Corporation to determine the accountants' independence.
6. Review the performance of the independent accountants and
approve any proposed discharge of the independent accountants
when circumstances warrant.
7. Periodically consult with the independent accountants out of
the presence of management about internal controls and the
fullness and accuracy of the organization's financial
statements.
Financial Reporting Processes
8. In consultation with the independent accountants and the
internal auditors, review the integrity of the organization's
financial reporting processes, both internal and external.
9. Consider the independent accountants' judgments about the
quality and appropriateness of the Corporation's accounting
principles as applied in its financial reporting.
10. Consider and approve, if appropriate, major changes to the
Corporation's auditing and accounting principles and practices
as suggested by the independent accountants, management, or
the internal auditing department.
Process Improvement
11. Establish regular and separate systems of reporting to the
Audit Committee by each of management, the independent
accountants, and the internal auditors regarding any
significant judgments made in management's preparation of the
financial statements and the view of each as to
appropriateness of such judgments.
12. Following completion of the annual audit, review separately
with each of management, the independent accountants, and the
internal auditing department any significant difficulties
- 2 -
encountered during the course of the audit, including any
restrictions on the scope of work or access to required
information.
13. Review any significant disagreement among management and the
independent accountants or the internal auditing department in
connection with the preparation of the financial statements.
14. Review with the independent accountants, 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
15. Review management's monitoring of the Corporation's compliance
with appropriate auditing and ethical standards, and ensure
that management has the proper review system in place to
ensure that the Corporation's financial statements, reports
and other financial information disseminated to governmental
organizations and the public satisfy legal requirements.
16. Review activities, organizational structure, and
qualifications of the internal audit department.
17. Review, with the Corporation's counsel, legal compliance
matters (including corporate securities trading policies by
employees/management).
18. Review, with the Corporation's counsel, any legal matter that
could have a significant impact on the organization's
financial statements.
19. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or
the Board deems necessary or appropriate.
- 3 -
ANNEX B
CHARTER OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Adopted as of March 23, 2004
I. Purpose
The Compensation Committee shall discharge the Board's responsibilities in
determining the compensation of the Company's executive officers and
directors. The Committee shall have overall responsibility for approving
and evaluating the compensation plans, policies and programs of the
Company. To that end, the Committee shall have the responsibility, power
and authority to set the compensation and benefits for the chief executive
officer and the Company's other senior officers, determine distributions
and grant awards under and administer the Company's various stock option
and other incentive plans, and assume responsibility for all matters
related to all of the foregoing. The Committee is also responsible for
producing an annual report on executive compensation for inclusion in the
Company's proxy statement.
II. Membership
The Committee shall be comprised of two (2) or three (3) independent
directors appointed by the Company's Board of Directors (the "Board").
Each member of the Committee must satisfy the independence requirements
contained in the applicable rules and regulations of the Securities and
Exchange Commission the "SEC") and the Nasdaq Stock Market, and must be
free of any relationship that, in the opinion of the Board, would
interfere with their exercise of independent judgment as a Committee
member. The Board shall appoint one person to act as Chair of the
Committee. The members shall serve until their resignation, retirement,
removal by the Board or until their successors shall be appointed and
qualified. The Board may remove a member from the Committee at any time
with or without cause.
III. Authority
The Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain special legal, accounting or other consultants
or advisors to advise the Committee on human resource related matters. The
Company shall provide funding, as determined by the Committee, for payment
of compensation to any consultants or advisors retained by the Committee.
The Committee may request any officer or employee of the corporation or
its outside counsel or consultants to attend a meeting of the Committee or
to meet with any members of, or consultants to, the Committee. The
Compensation Committee may form subcommittees for any purpose that the
Compensation Committee deems appropriate and may delegate to such
subcommittees such power and authority as the Compensation Committee deems
appropriate; provided, however, that no subcommittee shall consist of
fewer than two members of the Compensation Committee. The Committee shall
not delegate to a subcommittee any power or authority required by any law,
regulation or listing standard to be exercised by the Compensation
Committee as a whole.
IV. Meetings and Procedures
The Committee shall meet at least two times per year and as many other
times as it deems necessary to fulfill its duties and responsibilities set
forth in this Charter. The Chair of Compensation Committee or a majority
of the members of the Compensation Committee may call a special meeting of
the Compensation Committee. A majority of the members of the Committee
shall constitute a quorum for the transaction of business. The vote of a
majority of the members present at any meeting at which a quorum is
present shall be the act of the Committee.
The Committee shall keep minutes of its proceedings that shall be signed
by the person whom the Chairperson designates to act as secretary of the
meeting. The minutes of the meeting shall be approved by the Committee at
its next meeting, shall be available for review by the entire Board, and
shall be filed as permanent records with the Company.
V. Duties and Responsibilities
The Committee shall have the following duties and responsibilities:
1. Review and approve periodically the Company's executive
compensation program and strategy to assure that it (i)
supports the Company's financial, operational and strategic
objectives, (ii) attracts, motivates and retains key executive
officers, (iii) links executive compensation with the
Company's business objectives and performance to promote
shareholder interest, and (iv) provides for appropriate and
competitive rewards and incentives for the Company's executive
officers and other higher level employees.
2. Chief Executive Officer Compensation. The committee shall
review and approve corporate goals and objectives relevant to
CEO compensation, evaluate the CEO's performance in light of
those goals and objectives, and approve the CEO's compensation
level based on this evaluation, subject to any employment
contract that may be in effect. The Committee shall
specifically approve any changes in CEO compensation,
including base salary, bonuses and fringe benefits. In
determining the CEO compensation, the Committee should
consider the Company's performance and relative shareholder
return, the value of similar incentive awards to CEO's at
comparable companies, the compensation given to the CEO in
past years, and such other factors as the Committee may
consider relevant.
3. Compensation of senior management. Senior management shall be
defined as those individuals with a title of Vice President or
above. The Committee shall approve the following with respect
to the senior management of the Company (a) the annual base
salary, (b) the annual incentive bonus, (c) employment
agreements, severance arrangements, and change in control
agreements or provisions, and (d) any supplemental or special
benefits, in each case as, when and if appropriate. The
structure of management compensation should link the interests
of management, both individually and as a team, to the
interests of shareholders. Management compensation packages
should be designed to create a commensurate level of risk and
opportunity based on business and individual performance.
4. Approve all awards made under the Company's stock option
incentive plans, including the number of shares to be optioned
or awarded, and the time, manner of exercise and other terms
of the awards. Make recommendations to the Board with respect
to incentive-compensation plans and equity-based plans.
5. Administer the Company's stock incentive plans and any other
executive compensation plans to the extent required by the
terms of such plans.
6. Annually prepare the report on the Company's executive
compensation required under the SEC's rules to be included in
the Company's annual proxy statement.
7. In consultation with management of the Company, oversee the
Company's compliance with regulatory requirements relating to
compensation of its officers and employees.
8. Review and approve employment agreements, severance,
change-in-control, termination and retirement agreements for
all employees.
9. On an annual basis, review the plan for executive development
and succession plan for management development and evaluation
of key personnel.
10. Compensation of Directors. The Committee shall periodically
review and make recommendations to the Board with respect to
the compensation of directors, including Board and committee
retainers, meeting fees, equity-based compensation, and such
other forms of compensation as the Committee may consider
appropriate.
11. Perform such other duties and responsibilities pertaining to
the Company's compensation matters as may be assigned to the
Committee by the Board and/or the Chairman of the Board.
12. To recommend an appropriate method by which shareholder
concerns about compensation may be communicated by
shareholders to the Compensation Committee and, as the
Compensation Committee deems appropriate, to respond to such
shareholder concerns.
VI. Performance Evaluation
The Committee shall conduct an annual evaluation of its performance in
fulfilling its duties and responsibilities. The adequacy of this Charter
shall be reviewed by the Committee on an annual basis. The Committee will
recommend to the Board any modifications to this Charter, which the
Committee deems appropriate, for approval by the Board.