SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
(PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)-2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
ss.240.14a-11(c) or ss.240.14a-12
MedSource Technologies, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required
|_| Fee computed on table below per Exchange Act Rules
14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
MEDSOURCE TECHNOLOGIES, INC.
110 CHESHIRE LANE, SUITE 100
MINNEAPOLIS, MINNESOTA 55305
------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
November 5, 2002
TO THE STOCKHOLDERS OF
MEDSOURCE TECHNOLOGIES, INC.
The annual meeting of stockholders of MedSource Technologies, Inc. will
be held at the offices of Jenkens & Gilchrist Parker Chapin LLP, 405 Lexington
Avenue, New York, New York 10174, on Tuesday, November 5, 2002, at 2:00 p.m.,
local time, to consider the following:
1. The election of three Class I directors to serve until the annual
meeting of stockholders to be held in 2005 and until their
respective successors are elected and qualified;
2. A proposal to ratify the action of our board of directors in
appointing Ernst & Young LLP as our independent auditors for the
fiscal year ending June 30, 2003; and
3. Such other business as may properly come before the meeting or any
adjournments or postponements thereof.
Only stockholders of record at the close of business on September 25,
2002 will be entitled to notice of, and to vote at, the meeting and any
adjournments or postponements thereof.
You are cordially invited to attend the meeting. Whether or not you
plan to be present, kindly fill out and sign the enclosed proxy exactly as your
name appears on the proxy, and mail it promptly in order that your vote can be
recorded. A return envelope is enclosed for your convenience and requires no
postage if mailed within the United States. The giving of this proxy will not
affect your right to vote in person in the event that you find it convenient to
attend the meeting.
By Order of the Board of Directors
Joseph J. Caffarelli, Secretary
Minneapolis, Minnesota
September 30, 2002
MEDSOURCE TECHNOLOGIES, INC.
110 CHESHIRE LANE, SUITE 100
MINNEAPOLIS, MINNESOTA 55305
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
We are sending you this proxy statement on or about October 1, 2002, in
connection with the solicitation by our board of directors of proxies in the
accompanying form for use at our annual meeting to be held on November 5, 2002
and at any adjournments or postponements thereof.
Only holders of record of our common stock as of the close of business
on September 25, 2002 are entitled to notice of, and to vote at, our annual
meeting. As of the close of business on that date, there were issued and
outstanding an aggregate of 27,607,067 shares of our common stock. Each issued
and outstanding share of our common stock on that date is entitled to one vote
upon each matter to be acted upon at the annual meeting.
The presence, in person or by proxy, of at least more than 50% of the
total issued and outstanding shares of common stock entitled to vote at our
annual meeting will constitute a quorum to transact business.
All proxies received will be voted in accordance with the
specifications made thereon or, in the absence of specification: (a) for the
election of all nominees named herein to serve as directors, and (b) in favor of
the proposal to ratify the appointment of Ernst & Young LLP as our independent
auditors. Management does not intend to bring before the annual meeting any
matters other than those specifically described above and knows of no other
matters to come before the annual meeting. If any other matters or motions come
before the annual meeting, it is the intention of the persons named in the
accompanying form of proxy to vote proxies in accordance with their judgment on
those matters or motions, including any matter dealing with the conduct of the
annual meeting. Proxies may be revoked at any time prior to their exercise by
written notification to our Secretary at our principal executive offices located
at 110 Cheshire Lane, Suite 100, Minneapolis, Minnesota 55305, by voting at the
annual meeting or by submitting a later dated proxy.
A plurality of votes cast at the annual meeting in person or by proxy
is required for the election of each nominee to serve as a director. The
affirmative vote of a majority of votes cast at the annual meeting in person or
by proxy is required to ratify the selection of Ernst & Young as our independent
auditors for fiscal 2003. Votes withheld, in the case of the election of
directors, and abstentions with respect to the ratification of the selection of
our independent auditors will not be considered votes cast in the final tally of
votes with regard to those proposals but will be counted in determining whether
a quorum is present.
If you hold your shares through a broker, bank or other representative,
generally the broker or other representative may only vote the shares that it
holds for you in accordance with your instructions. However, if the broker or
other representative does not timely receive your instructions, it may vote on
certain matters for which it has discretionary authority. If a broker or other
representative cannot vote on a particular matter because it does not have
discretionary voting authority, this is a "broker non-vote" on that matter.
Brokers and other representatives will be able to exercise discretionary voting
authority on each matter that is presently scheduled to come before the meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of September 25, 2002,
regarding the beneficial ownership of:
o our common stock by each person or group of affiliated persons
that beneficially owns more than 5% of our outstanding common
stock;
o our common stock by each of our directors;
o our common stock by each of our executive officers named in the
Summary Compensation Table; and
o our common stock by all of our directors and executive officers as
a group.
Unless otherwise indicated below, the address for each listed director
and executive officer is MedSource Technologies, Inc., 110 Cheshire Lane, Suite
100, Minneapolis, Minnesota 55305. We have determined beneficial ownership in
accordance with the rules of the SEC and, as a result, include voting and
investment power with respect to shares. To our knowledge, except under
applicable community property laws or as otherwise indicated, the persons named
in the table have sole voting and sole investment control with respect to all
shares shown as beneficially owned. The percentage of ownership of common stock
for each stockholder is based on 27,607,067 shares of our common stock
outstanding as of September 25, 2002. The number of shares of our common stock
outstanding used in calculating the percentage for each listed person includes
the shares of our common stock underlying the options and warrants held by that
person that are exercisable within 60 days following September 25, 2002.
NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ---------------- ------------------ --------------------
Richard J. Effress(a)..................................... 680,146 2.5
Joseph J. Caffarelli(b)................................... 31,250 *
Daniel Croteau(c)......................................... 38,321 *
James Drill(d)............................................ 90,000 *
Rick McWhorter(e)......................................... 26,666 *
Joseph Ciffolillo(f)...................................... 37,553 *
John Galiardo(g).......................................... 48,283 *
William J. Kidd(h)........................................ 2,728,754 9.9
T. Michael Long(i)........................................ 3,418,570 12.4
Ross Manire(j)............................................ 84,249 *
Carl S. Sloane(k)......................................... 33,287 *
Funds Affiliated with Whitney & Co.(l).................... 3,243,749 11.8
The 1818 Fund III, L.P. (m)............................... 3,418,366 12.4
Carla G. Kidd(n).......................................... 2,728,754 9.9
Edward R. Mandell, as trustee(o).......................... 993,693 3.6
All directors and executive officers as a group
(14 persons)(p)......................................... 7,365,412 26.1
- -----------
* Represents less than 1% of our outstanding common stock.
(a) Includes (1)175,000 shares of our common stock issuable upon exercise
of options that are exercisable on or within 60 days of September 25,
2002; and (2) 3,724 shares of our common stock owned by a trust
established for the benefit of Mr. Effress`s current and future
children, as to which Mr. Effress disclaims beneficial ownership. Does
not include shares that may be transferred by the stockholder to
affiliates of Whitney & Co., pursuant to a share transfer agreement to
which the stockholder and such affiliates, among others, are parties.
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(b) Includes 30,000 shares of our common stock issuable upon exercise of
options that are exercisable on or within 60 days of September 25,
2002.
(c) Represents shares of our common stock issuable upon exercise of options
that are exercisable on or within 60 days of September 25, 2002.
(d) Includes 85,000 shares of our common stock issuable upon exercise of
options that are exercisable on or within 60 days of September 25,
2002.
(e) Represents shares of our common stock issuable upon exercise of options
that are exercisable on or within 60 days of September 25, 2002.
(f) Represents (i) 9,375 shares of our common stock issuable upon exercise
of options that are exercisable on or within 60 days of September 25,
2002; and (2) 28,178 shares of our common stock beneficially owned by
River Edge Partners, Inc.
(g) Includes 18,750 shares of our common stock issuable upon exercise of
options that are exercisable on or within 60 days of September 25,
2002.
(h) Includes (1) 898,998 shares of our common stock that are owned by Mr.
Kidd's wife; (2) 1,233 shares of our common stock issuable upon
exercise of a warrant owned by Mr. Kidd; (3) 9,566 shares of our common
stock issuable upon exercise of a warrant owned by Mr. Kidd's wife; and
(4) 989,969 shares of our common stock owned by various trusts
established for the benefit of Mr. Kidd's children (of which 28,698
shares of our common stock are issuable upon exercise of warrants). Mr.
Kidd disclaims beneficial ownership of the shares owned by his wife and
these trusts. Does not include shares that may be transferred by the
stockholder to affiliates of Whitney & Co. pursuant to a share transfer
agreement to which the stockholder and such affiliates, among others,
are parties.
(i) Mr. Long, a general partner of Brown Brothers Harriman & Co., which is
the general partner of The 1818 Fund III, L.P., may be deemed to be the
beneficial owner of shares held of record by The 1818 Fund III, L.P.
due to his role as co-manager of The 1818 Fund III, L.P. Mr. Long
disclaims beneficial ownership of the shares beneficially owned by The
1818 Fund III, L.P., except to the extent of his pecuniary interest
therein.
(j) Includes (1) 18,750 shares of our common stock issuable upon exercise
of options that are exercisable on or within 60 days of September 25,
2002; (2) 48,833 shares of our common stock beneficially owned by
Manire Limited Partnership; and (3)16,666 shares of our common stock
issuable upon exercise of a warrant. Mr. Manire is a director and
officer of Odyssey Corp., the general partner of Manire Limited
Partnership.
(k) Represents (1) 18,750 shares of our common stock issuable upon exercise
of options that are exercisable on or within 60 days of September 25,
2002 and (2) 8,333 shares of our common stock issuable upon exercise of
a warrant.
(l) Represents 2,929,412 shares of our common stock owned by J.H. Whitney
III, L.P., 70,588 shares owned by Whitney Strategic Partners III, L.P.
and 243,750 shares owned by J.H. Whitney Mezzanine Fund, L.P. J.H.
Whitney Equity Partners III, LLC is the general partner of J.H. Whitney
III and Whitney Strategic Partners III and has voting and investment
power over their shares. Whitney GP, LLC is the general partner of
Whitney Mezzanine Fund and has voting and investment power over its
shares. Each of these funds is affiliated with Whitney & Co., LLC.
Peter M. Castleman, Michael R. Stone, William Laverack, Jr., Jeffrey R.
Jay, Daniel J. O `Brien, James H. Fordyce and Joseph D. Carrabino, Jr.
are managing members of J.H. Whitney Equity Partners III, LLC and
Whitney GP, L.L.C. Accordingly, they may be deemed to share beneficial
ownership of the shares beneficially owned by J.H. Whitney III, Whitney
Strategic Partners III and Whitney Mezzanine Fund, although they
disclaim this beneficial ownership except to the extent of their
pecuniary interest in J.H. Whitney III, Whitney Strategic Partners III
and Whitney Mezzanine Fund. Does not include shares that may be
transferred to J.H. Whitney III Strategic Partners pursuant to a share
transfer agreement to which it, among others, is a party. The address
of each beneficial owner is 177 Broad Street, Stamford, Connecticut
06901.
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(m) Represents shares owned of record by The 1818 Fund III, L.P. Brown
Brothers Harriman &Co. is the general partner of The 1818 Fund III. Mr.
Long and Michael C. Tucker are partners of Brown Brothers Harriman &
Co. and have the power to vote and dispose of these shares, but each
disclaims beneficial ownership except to the extent of his pecuniary
interest. The address of each beneficial owner is 59 Wall Street, New
York, New York 10005.
(n) Includes (1) 828,988 shares of our common stock that are owned by Mrs.
Kidd's husband; (2) 9,566 shares of our common stock issuable upon
exercise of a warrant owned by Mrs. Kidd; (3) 1,233 shares of our
common stock issuable upon exercise of a warrant owned by Mrs. Kidd's
husband; and (4) 989,969 shares of our common stock owned by various
trusts established for the benefit of Mrs. Kidd's children (of which
28,698 shares of our common stock are issuable upon exercise of
warrants). Mrs. Kidd disclaims beneficial ownership of the shares owned
by her husband and these trusts. Does not include shares that may be
transferred by the stockholder to affiliates of Whitney & Co. pursuant
to a share transfer agreement to which the stockholder and such
affiliates, among others, are parties. Mrs. Kidd's address is c/o Kidd
& Company, LLC, Three Pickwick Plaza, Greenwich, Connecticut 06830.
(o) Represents shares owned by trusts established for the benefit of Mr.
and Mrs. Kidd's children, of which 28,698 shares of our common stock
are issuable upon exercise of warrants. Also represents 3,724 shares
owned by a trust established for the benefit of Mr. Effress's current
and future children. Does not include shares that may be transferred by
the trusts to affiliates of Whitney & Co. pursuant to a share transfer
agreement to which the trusts, among others, are parties. The address
of Mr. Mandell is c/o Jenkens & Gilchrist Parker Chapin LLP, 405
Lexington Avenue, New York, New York 10174.
(q) Includes (1) 553,329 shares of our common stock issuable upon exercise
of options that are exercisable on or within 60 days of September 25,
2002; and (2) 64,496 shares of our common stock issuable upon exercise
of warrants.
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ELECTION OF DIRECTORS
Our board of directors presently consists of eight directors, divided
into three classes. The terms of office of Class I, Class II and Class III
directors expire at our annual meetings of stockholders to be held during 2002,
2003 and 2004, respectively. At each annual meeting, directors are chosen to
succeed those in the class whose term expires at that annual meeting to serve
for a term of three years each and until their respective successors are elected
and qualified.
Unless otherwise directed, persons named in the enclosed proxy intend
to cast all votes pursuant to proxies received for the election of Richard J.
Effress, William J. Kidd and T. Michael Long as Class I directors to serve until
the 2005 annual meeting of stockholders and until his successor is elected and
qualified (those persons are referred to in this proxy statement as the
"nominees"). Each nominee currently serves as a director and has indicated his
availability to serve as a director. In the event that any of the nominees
should become unavailable or unable to serve for any reason, the holders of the
proxies have discretionary authority to vote for one or more alternate nominees
who will be designated by our board.
A plurality of the votes cast at our annual meeting in person or by
proxy is required for the election of each nominee. Votes withheld will have no
effect on the outcome of the election of directors.
Our board unanimously recommends a vote "FOR" each nominee.
BACKGROUND OF NOMINEES, CONTINUING DIRECTORS AND NON-DIRECTOR EXECUTIVE OFFICERS
The following tables set forth the name, age (as of September 25, 2002)
and background of each of our directors.
NOMINEES (CLASS I)
NAME AGE BACKGROUND
- ---- --- ----------
Richard J. Effress........ 32 Mr. Effress was a co-founder of MedSource, has been the Chairman of our board
of directors since inception and became Chief Executive Officer in January
2000. From May 1997 until January 2000, he worked as a principal at Kidd &
Company, a venture management firm, of which he is also a founder. While at
Kidd & Company he participated in the development of Chatham Technologies, a
provider of custom electronic enclosure systems for the communications
industry. Previously, he was an associate at Kidd, Kamm & Company, a private
equity investment firm. Mr. Effress received a B.S. from the Wharton School
of the University of Pennsylvania and an M.B.A. from Harvard Business School,
where he was a Baker Scholar.
William J. Kidd........... 61 Mr. Kidd was a co-founder of MedSource and has been a director since our
inception. Bill was a founding principal of Kidd & Company, a venture management
firm he founded in 1997. Prior to Kidd & Company, Mr. Kidd was a founding
partner of Kidd, Kamm & Company, a private equity investment firm. He
received a B.A. and M.B.A. from Cornell University.
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NAME AGE BACKGROUND
- ---- --- ----------
T. Michael Long........... 59 Mr. Long has been a director of MedSource since October 2000. He has been a
Partner of Brown Brothers Harriman & Co., an investment bank, since 1983 and
has been with Brown Brothers Harriman since 1971. He serves as a director of
HCA, a company that owns and operates hospitals and related health care
entities, Vaalco Energy Company, an independent energy company, and Genesee &
Wyoming, a company that operates short line and regional freight railroads
and provides related rail services. Mr. Long received a B.A. from Harvard
University and an M.B.A. from Harvard Business School.
DIRECTORS WHOSE TERM OF OFFICE CONTINUES AFTER THE ANNUAL MEETING (CLASS II AND CLASS III)
NAME AGE BACKGROUND
Joseph Ciffolillo......... 63 Mr. Ciffolillo has been a director of MedSource since April 2001. From 1983
until his retirement in May 1997, he worked at Boston Scientific, a medical
technology company, most recently as Chief Operating Officer. Prior to Boston
Scientific, he worked in several positions at Johnson & Johnson, a
diversified medical products company, where he last served as president of
Johnson & Johnson Orthopedics. He serves as a director of Boston Scientific
and as Chairman of the Advisory Board of the Health Science Technology
Division of Harvard University and Massachusetts Institute of Technology.
Mr. Ciffolillo received his B.A. from Bucknell University.
John Galiardo............. 68 Mr. Galiardo has been a director of MedSource since January 2000. From 1977
until his retirement in January 2000, he worked at Becton Dickinson, a
medical technology company, where he was Vice Chairman and General Counsel.
He is a director of Gynetics, a healthcare products company, VISX
Incorporated, a company that develops products and procedures to improve
eyesight using lasers, and the New Jersey Manufacturers Insurance Companies,
an insurance company. Jack received a B.S. from the University of Maryland
and an LL.B. from Columbia Law School.
Ross Manire............... 50 Mr. Manire has been a director of MedSource since November 2000. Mr. Manire
has been Chairman and CEO of ClearLinx Network Corporation, a wireless
network company, since September 2002. Mr. Manire was President of
Flextronics Enclosures, a division of Flextronics International, an
electronics contract manufacturer from September 2000 until August 2002. He
was the President and CEO of Chatham Technologies, Inc., which merged with
Flextronics in September 2000. Prior to joining Chatham in 1999, Ross was
Senior Vice President of the Carrier Systems Business Unit of 3Com
Corporation, a provider of networking solutions, a position he held since
1997. Previously, he served in various executive positions with U.S. Robotics
including Chief Financial Officer, Senior Vice President, Operations, and
General Manager, Network Systems Division. Mr. Manire holds a B.A. from
Davidson College and an M.B.A. from the University of Chicago.
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NAME AGE BACKGROUND
- ---- --- ----------
Carl S. Sloane............ 65 Mr. Sloane was a director of MedSource from January 2000 through October 2000
and re-joined our board in January 2002. He was the Ernest L. Arbuckle
Professor of Business Administration at Harvard Business School from 1991
until his retirement in 2000, and is presently Professor Emeritus.
Previously, Carl spent thirty years in management consulting, the last twenty
with the firm he co-founded, Temple, Barker & Sloane, Inc., and its successor
firm, Mercer Management Consulting, where he served as Chairman and Chief
Executive Officer. He is also an independent consultant and serves as a
director of Ionics, Incorporated, a water purification company, Rayonier
Inc., a forest products company, and The Pittston Co., a company engaged in
security and gold, timber and natural gas operations.
INFORMATION ABOUT NON-DIRECTOR EXECUTIVE OFFICERS
The following table sets forth the name, age (as of September 25, 2002) and background of each of our
executive officers and key employees who is not a director.
NAME AGE BACKGROUND
- ---- --- ----------
Joseph J. Caffarelli...... 57 Mr. Caffarelli joined MedSource in February 2001 as Senior Vice President,
Chief Financial Officer and Treasurer. From April 1999 until December 2000,
he was Senior Vice President and Chief Financial Officer of Airspan Networks,
a wireless communications equipment company, and from November 1994 until
February 1999, he was the Executive Vice President and Chief Financial
Officer of Physio-Control, a medical equipment company. Joe also served in
numerous senior financial management positions at General Electric, a
diversified industrial corporation. Mr. Caffarelli received a B.A. from the
State University of New York.
Daniel Croteau............ 37 Mr. Croteau joined MedSource in August 1999 as Director of Business
Development, became our Vice President--Business Development in January 2000
and became our Vice President--Corporate Development in December 2001. From
July 1997 until July 1999, he was a consultant at Booz Allen & Hamilton in
Sydney, Australia. Previously, he worked at General Electric, a diversified
industrial corporation, in various technical marketing, sales, and general
management roles. Mr. Croteau has a B.S. from the University of Vermont and
an M.B.A. from Harvard Business School.
James W. Drill............ 37 Mr. Drill joined MedSource in February 1999 as Vice President--Sales and
Marketing. From 1994 until 1999, he worked at Parametric Technology
Corporation, a developer and marketer of design and manufacturing software
platforms, where he was Senior Vice President--North America West and served
in several other senior sales management positions throughout the United
States and Europe. Prior to that he worked at International Business
Machines, a computer manufacturer. Mr. Drill has a B.S. from the University
of Wisconsin-Madison.
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William Ellerkamp......... 43 Mr. Ellerkamp joined MedSource in June 2000 as Vice President--Market
Development. From 1995 until 2000, he worked at TFX Medical, a supplier of
engineered components, assemblies and products to medical device and
equipment original equipment manufacturers, most recently as President. Prior
to that he spent over ten years in Europe with Teleflex and Rusch
International in various sales and marketing positions. Mr. Ellerkamp has a
B.A. from Colgate University and an M.B.A. from the London Business School.
Richard McWhorter......... 54 Mr. McWhorter joined MedSource in March 2001 as Senior Vice
President--Operations. From 1977 until 2001, he worked at Baxter Healthcare
International, a global healthcare manufacturing company, where he was most
recently Vice President--Manufacturing of Baxter's I.V. Systems group. Prior
to that he worked at Ludlow Corporation, a textile manufacturing company.
Mr. McWhorter has a B.S. and M.B.A. from Delta State University.
Ralph Polumbo............. 50 Mr. Polumbo joined MedSource in April 1999 as Vice President--Human Resources
and Integration. From 1995 until 1999, he worked at Rubbermaid, a company
that produces and markets products principally in the home, juvenile and
commercial products categories, where he held several positions including
Vice President of Integration and Vice President of Human Resources for
Rubbermaid's Home Products division. Previously, he worked at The Stanley
Works, a tool manufacturer, in a variety of positions including Vice
President of Human Resources and Vice President of Operations. Mr. Polumbo
has a B.S. from the Wharton School of the University of Pennsylvania and a
Masters of Labor and Industrial Relations from Michigan State University.
Rich Snider............... 51 Mr. Snider joined MedSource in February 2000 as Vice President--New Product
Introduction. From 1996 until 2000, he worked at Bridge Medical, a start-up
medical device and information company, where he was a Vice President and
co-founder. Rich served in various senior management positions at Amcare
Health Services, McGaw, and Quest Medical. Mr. Snider has a B.S. degree in
Mechanical Engineering from Southern Methodist University and an M.B.A. from
Louisiana State University.
Doug Woodruff............. 45 Mr. Woodruff joined MedSource in January 2000 as Vice President--Regulatory
Affairs and Quality Assurance. From 1998 until 2000, he was the Vice
President--Quality Assurance and Technical Services for Tenax Corporation, a
company acquired by MedSource. From 1996 to 1998 he was the Director of
Quality Assurance and Regulatory Affairs for the Meadox Division of Boston
Scientific, a medical technology company. Mr. Woodruff has a B.S. and M.S.
from Washington State University.
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COMMITTEES OF THE BOARD
We have an audit committee and a compensation and benefits committee,
but we do not have a nominating committee.
Our audit committee consists of Messrs. Ciffolillo, Long, Manire and
Sloane, each of whom we believe meets the independence requirements for audit
committee members under the listing standards of the Nasdaq Stock Market's
National Market, on which our common stock is listed. Our audit committee
provides assistance to our directors in fulfilling their oversight
responsibility to ensure that management is maintaining an adequate system of
internal controls to assure:
o that assets are safeguarded and that financial reports are
properly presented;
o consistent application of generally accepted accounting
principles; and
o compliance with management's policies and procedures.
The specific functions and responsibilities of our audit committee are
set forth in our audit committee's written charter, which was adopted by our
board of directors. Our audit committee reviews and reassesses the charter
annually and recommends any changes to the board for approval. A copy of the
charter is attached as Appendix A to this proxy statement. A report of our audit
committee appears under the caption "--Audit Committee Report," below. Our audit
committee met six times during the past fiscal year.
Our compensation and benefits committee consists of Messrs. Ciffolillo,
Galiardo, Long and Sloane and is authorized to determine management and
executive compensation and establish health and benefit plans and other
compensation policies. Our compensation and benefits committee is also
responsible for the administration of our stock plans, including reviewing
management's recommendation with respect to grants of awards and taking other
actions that may be required in connection with our compensation and incentive
plans. Our compensation and benefits committee met eight times during the past
fiscal year and acted by written consent on one occasion during the past fiscal
year.
Our board met eleven times during the past fiscal year. Each incumbent
director attended at least 75% of the meetings of our board and committees on
which he served which were held during the fiscal year.
AUDIT COMMITTEE REPORT
Management has the primary responsibility for our financial reporting
process, including our financial statements, while our board is responsible for
overseeing our accounting, auditing and financial reporting practices. Our
independent auditors have responsibility for examining our annual financial
statements and expressing an opinion on the conformity of those financial
statements with accounting principles generally accepted in the United States.
In assisting our board in fulfilling its oversight responsibility with respect
to our year ended June 30, 2002, our audit committee:
o reviewed and discussed the audited financial statements for our
fiscal year ended June 30, 2002 with management and Ernst & Young
LLP, our independent auditors;
o discussed with Ernst & Young the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct
of the audit; and
o received the written disclosures and the letter from Ernst & Young
regarding its independence as required by Independence Standards
Board Standard No. 1.
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Our audit committee also discussed Ernst & Young's independence with
Ernst & Young and considered whether the provision of non-audit services
rendered by Ernst & Young was compatible with maintaining its independence under
Securities and Exchange Commission rules governing the independence of a
company's outside auditors. See "Ratification of the Selection of Auditors."
Based on the foregoing review and discussions, our audit committee
recommended to our board that our audited financial statements for the fiscal
year ended June 30, 2002 be included in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission for that year.
Respectfully,
Ross Manire, Chairman
Joseph Ciffolillo
T. Michael Long
Carl S. Sloane
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation earned by our Chief
Executive Officer and our four other most highly compensated executive officers
during our fiscal years ended June 30, 2002 and 2001:
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION NUMBER OF
FISCAL --------------------- SECURITIES ALL OTHER
YEAR SALARY BONUS UNDERLYING OPTIONS COMPENSATION
------ ------ ----- ------------------ ------------
Richard J. Effress ...................... 2002 $268,750 $ 84,960(b) 100,000 $ --
Chairman and Chief Executive Officer . 2001 250,000 50,000 300,000 --
Joseph J. Caffarelli .................... 2002 223,750 44,756(b) -- --
Senior Vice President, Chief Financial 2001 82,500(a) 25,000 120,000 32,590(c)
Officer, Secretary and Treasurer
Daniel Croteau .......................... 2002 206,458 34,757(b) 41,620 --
Vice President - Corporate ........... 2001 152,083 30,751 50,000 23,648(c)
Development
James W. Drill .......................... 2002 225,000 29,140(b) -- --
Vice President - Sales and Marketing . 2001 208,333 41,466 -- --
Richard McWhorter ....................... 2002 223,750 28,669(b) 20,000 --
Senior vice President - Operations ... 2001 71,782(a) 12,822 100,000 --
- ---------------
(a) Messrs. Caffarelli and McWhorter began working for us in February 2001
and March 2001, respectively. Accordingly, the amounts listed as their
salary for fiscal 2001 reflects amounts actually paid from the amount
they were paid as salary from their start dates until June 30, 2001.
(b) Bonus for fiscal year 2002 includes $56,560, $23,138, $23,138, $19,427
and $23,138 that we paid to Messrs. Effress, Caffarelli, Croteau, Drill
and McWhorter, respectively, in the form of restricted stock grants
valued at a price per share equal to the closing sales price per share
of our common stock on Nasdaq on the last trading day of our fiscal
year ended June 30, 2002.
(c) We reimbursed the named executive for relocation-related expenses in
the amount listed under "All Other Compensation."
OPTION GRANTS DURING YEAR ENDED JUNE 30, 2002
The following table shows grants of stock options to our Chief
Executive Officer and to the other executive officers named in the Summary
Compensation Table above during our fiscal year ended June 30, 2002.
All options were granted under our 1999 stock plan. Except where noted,
these options were granted at exercise prices equal to the fair market value of
our common stock as determined by our board of directors on the dates of grant.
The percentage of options granted is based on options to purchase an aggregate
of 739,624 shares of our common stock granted by us during the fiscal year ended
June 30, 2002 to our employees, including the named executive officers.
The potential realizable value amounts in the last two columns of the
following chart are based on the assumption that our common stock appreciates at
the annual rate shown, compounded annually, from the date of grant until the
expiration of the 10-year term. Potential realizable value for options granted
prior to our IPO on March 27, 2002 has been calculated using the initial public
offering price of $12.00 per share, although we estimate that, in each case, the
fair market value of our stock at the time the option
-11-
was granted was less than that amount. These number are calculated based on the
requirements of the SEC and do not reflect our estimate of future stock price
growth.
POTENTIAL
INDIVIDUAL GRANTS ** REALIZABLE VALUE
AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION FOR OPTION
NAME GRANTED FISCAL YEAR (%) SHARE ($) DATE 5% 10%
- ---- ------- --------------- --------- ---- -- ---
Richard J. Effress....... 100,000(a) 13.5% $ 17.00 11/13/11 $ 254,674 $1,412,491
Joseph C. Caffarelli..... -- -- -- -- -- --
Daniel Croteau........... 6,667(a) * 17.00 11/13/11 16,979 34,171
1,620(a) * 17.00 11/13/11 4,126 22,882
33,333(b) 4.5 17.00 1/17/12 84,890 470,826
James W. Drill........... -- -- -- -- -- --
Richard McWhorter........ 6,667(a) * 17.00 11/13/11 16,979 94,171
13,333(b) 1.8 17.00 1/17/12 33,956 188,327
- ----------
* Less than one percent.
(a) Vests as to one-fourth of such shares on November 13 of each of 2002,
2003, 2004 and 2005.
(b) Vests as to one-fourth of such shares on January 17 of each of 2003,
2004, 2005 and 2006.
STOCK OPTION VALUES AS OF JUNE 30, 2002
The following table provides summary information concerning stock
option exercises during our year ended June 30, 2002 and stock options held as
of June 30, 2002 by our Chief Executive Officer and by the other executive
officers named in the Summary Compensation Table above.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AS OF JUNE 30, 2002 AS OF JUNE 30, 2002(A)
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
Richard J. Effress....... -- -- 150,000 250,000 -- --
Joseph J. Caffarelli..... -- -- 30,000 90,000 -- --
Daniel Croteau........... -- -- 27,500 94,120 -- --
James W. Drill........... -- -- 85,000 45,000 $ 7,500 --
Richard McWhorter........ -- -- 25,000 95,000 -- --
(a) Determined based on the fair market value of the underlying securities
(the closing sales price ($12.25) per share of common stock on Nasdaq
on the last trading date of the fiscal year ended June 30, 2002, minus
the exercise price.)
DIRECTOR COMPENSATION
We pay our non-employee directors $10,000 per year, payable, at their
option, in cash or shares of our common stock. During fiscal 2002, we granted
each non-employee director an option to purchase 2,100 shares of our common
stock and expect to grant an option to purchase additional common stock to each
non-employee director during fiscal 2003. We reimburse directors for reasonable
expenses incurred in attending board or committee meetings.
-12-
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information about our equity
compensation plans as of June 30, 2002:
NUMBER OF SECURITIES
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE REMAINING AVAILABLE FOR
BE ISSUED UPON EXERCISE EXERCISE PRICE OF FUTURE ISSUANCE
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
------------- ----------------------- ------------------- -----------------------
Equity compensation plans
approved by security holders. 3,063,314 $15.02 2,056,680 (a)
Equity compensation plans
not approved by security
holders...................... -- -- -- (b)
--------------------------- ----------------------- --------------------
Total...................... 3,063,314 $15.02 2,056,680
=========================== ======================= ====================
- ----------
(a) Includes 500,000 shares available for issuance under our 2001 Employee
Stock Purchase Plan. The number of shares reserved for issuance under
the purchase plan is subject to an annual increase on the first day of
each fiscal year equal to the lowest of 750,000 shares, 2.5% of our
outstanding stock on that date or such lesser amount as may be
determined by our board of directors.
(b) Does not include shares that we may issue to non-employee directors in
the future (as described above under "-- Director Compensation," we pay
our non-employee directors $10,000 per year, payable, at their option,
in cash or stock).
EMPLOYMENT ARRANGEMENTS
We have entered into the following employment agreements with our Chief
Executive Officer and the other executive officers named in the Summary
Compensation Table above:
o our employment agreement with Mr. Effress that provides him with a
base salary of $275,000, subject to increase by the compensation
and benefits committee, and a bonus opportunity of at least 100%
of his base salary at target performance;
o our employment agreement with Mr. Caffarelli that provides him
with a base salary of $225,000, subject to increase by the
compensation and benefits committee, and a bonus opportunity of at
least 50% of his base salary at target performance;
o our employment agreement with Mr. Croteau that provides him with a
base salary of $225,000, subject to increase by the compensation
and benefits committee, and a bonus opportunity of at least 50% of
his base salary at target performance;
o our employment agreement with Mr. Drill that provides him with a
base salary of $225,000, subject to increase by the compensation
and benefits committee, and a bonus opportunity of at least 50% of
his base salary at target performance; and
o our employment agreement with Mr. McWhorter that provides him with
a base salary of $225,000, subject to increase by the compensation
and benefits committee, and a bonus opportunity of at least 50% of
his base salary at target performance.
-13-
Additionally, Messrs. Effress, Caffarelli, Croteau, Drill, McWhorter,
Polumbo, Snider and Woodruff have entered into employment severance and
termination agreements that provide for them to receive an amount equal to their
base salary for one year following a termination by us without cause or
following a termination by them for good reason. The amount would be reduced by
any amounts they receive from any new employer during the year (but they will in
any event receive an amount at least equal to their base salary for six months)
and payment is conditioned upon their agreement not to compete with us or
solicit our employees or customers during that one-year period. If any of these
employees are terminated without cause or leave MedSource with good reason
within one year following a change of control of MedSource, we would be required
to pay them a lump sum equal to two times the highest annual cash compensation
they received during their three prior years of employment and would be required
to provide them with health benefits for 24 months following termination.
Receipt of the lump sum payment would not be conditioned upon their agreement
not to compete or solicit our employees or customers. In the event of a change
of control, the options held by Messrs. Effress, Caffarelli, Croteau, Drill,
Ellerkamp, McWhorter, Polumbo, Snider and Woodruff will become immediately
exercisable in full.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of our compensation and benefits committee are Messrs.
Ciffolillo, Galiardo, Long and Sloane.
We paid $0.3 million of the proceeds from our initial public offering
to Mr. Sloane for the redemption of our Series E preferred stock issued to
finance our acquisition of HV Technologies, together with accrued and unpaid
dividends thereon.
REPORT WITH RESPECT TO EXECUTIVE COMPENSATION DETERMINATIONS
The following report with respect to our compensation policies
applicable to the determination of the compensation of our executive officers
for fiscal 2002 is presented by our compensation and benefits committee.
EXECUTIVE COMPENSATION. Compensation of executive officers is comprised
of salary as a base compensation, bonuses as a means of short-term incentive
compensation and stock options and restricted stock grants to foster long-term
incentive.
All determinations as to the compensation of an executive officer who
is also a member of our board is made on an individual basis by our board, based
on recommendations of our compensation and benefits committee and after
consultation with senior management, although an executive officer who is also a
member of the board does not participate in the board's determination of his own
compensation. In making its decisions as to base salary, our board gives effect
to the executive's performance and responsibilities, inflationary trends,
competitive market conditions and other subjective factors, without ascribing
specific weights to these factors. Bonuses are based upon our performance, as
well as the executive's overall performance, contribution toward our
profitability, meeting corporate objectives and, in certain instances, meeting
specific corporate goals or completing specific programs or projects. The
compensation (salary and bonuses) of executive officers who are not members of
our board is determined by senior management utilizing similar subjective
criteria.
Historically we used stock options as the primary method of providing
long-term incentive compensation to key employees, including our executive
officers. Beginning in fiscal 2002, we also began issuing restricted stock
grants to provide long-term incentive to our key employees, including our
executive officers. Our board granted the restricted stock as part of the total
bonus payable to our key employees for fiscal 2002. Our board believes that
stock options and restricted stock foster the interest of key employees in
seeking our long-term growth, as well as linking their interests with the
overall interest
-14-
of stockholders. In determining when to grant options and restricted stock and
the size of the award to any particular executive, our board takes into
consideration factors such as the executive's position, level of responsibility,
value to us, objectives, accomplishments and performance, the incentive and
objectives intended to be provided, when the last prior option was granted to
the individual, the individual's other compensation and the recommendation of
senior management. No one factor is given special weight, but decisions are made
based on an overall assessment of each individual.
CHIEF EXECUTIVE OFFICER COMPENSATION. Our board, in determining the
fiscal 2002 annual compensation of Mr. Effress, our Chief Executive Officer,
determined to increase his base salary to $275,000 per year, increase his bonus
opportunity to a specified percentage of his base salary if we achieve certain
operational targets and grant him options to purchase 100,000 shares of common
stock, based upon Mr. Effress's leadership, experience, knowledge and reputation
in the industry in which we conduct business, subject to re-evaluation during
the year if circumstances warrant. Our board has determined that Mr. Effress's
compensation should remain at current levels in fiscal 2003, subject to
re-evaluation during the year if circumstances warrant.
CERTAIN TAX LEGISLATION. Section 162(m) of the Internal Revenue Code of
1986 ("Section 162(m)") precludes a public company from taking a federal income
tax deduction for annual compensation in excess of $1,000,000 paid to its chief
executive officer or any of its four other most highly compensated executive
officers. Certain "performance based compensation" is excluded from the
deduction limitation. We believe that all of the fiscal 2002 compensation of our
executive officers, including compensation resulting from the exercise of stock
options, is deductible.
Respectfully,
John Galiardo, Chairman
Joseph Ciffolillo
T. Michael Long
Carl S. Sloane
-15-
STOCKHOLDER RETURN PERFORMANCE GRAPH
Our common stock has been listed on the Nasdaq Stock Market's National
Market since March 27, 2002. The following graph compares the cumulative total
stockholder return to holders of our common stock with the Nasdaq National
Market and the Nasdaq Medical Equipment Index. The comparison assumes $100 was
invested on March 27, 2002 in our common stock and in each of the comparison
groups, and assumes reinvestment of dividends (we paid no dividends during the
periods):
-16-
Cumulative Total Return
-----------------------------------------------------------------
3/27/02 3/02 4/02 5/02 6/02
MEDSOURCE TECHNOLOGIES, INC. 100.00 108.00 108.25 98.92 102.08
NASDAQ STOCK MARKET (U.S.) 100.00 106.56 97.71 93.41 84.95
NASDAQ MEDICAL EQUIPMENT 100.00 103.47 103.14 100.70 94.67
Copyright 2002, Standard & Poor's, a division of The McGraw-Hill Companies, Inc. All rights reserved.
www.researchdatagroup.com/S&P.htm
-17-
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers and directors, and persons who beneficially own more than 10%
of our common stock, to file initial reports of ownership, and reports of
changes of ownership, of our equity securities with the Securities and Exchange
Commission and furnish copies of those reports to us. Based solely upon a review
of the copies of the reports furnished to us to date and representations that no
reports were required, we believe that all reports required to be filed by such
persons with respect to our fiscal year ended June 30, 2002 were timely filed,
except that the Initial Statement of Beneficial Ownership of Securities on Form
3 of Mr. Manire one of our directors, was filed eight days late (such report set
forth Mr. Manire's directorship and holdings of the registrant's securities as
of the effective date of the registrant's registration statement on Form S-1),
Mr. Sloane has not yet reported the acquisition of 6,000 shares of our common
stock in our initial public offering and that Messrs. Croteau and Snider have
not yet reported option grants that they received during our fiscal year ended
June 30, 2002.
-18-
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
TRANSACTIONS WITH RELATED PARTIES IN CONNECTION WITH OUR INITIAL PUBLIC OFFERING
We paid a portion of the proceeds from our initial public offering to
related parties as follows:
STOCKHOLDER AMOUNT OF PAYMENT PURPOSE
----------- ----------------- -------
o J.H. Whitney III, L.P. and Whitney o $4.3 million o Accrued and unpaid dividends on our
Strategic Partners III, L.P. Series B preferred stock
o J.H. Whitney Mezzanine Fund, L.P. o $16.0 million o Redemption (with premium) of our $15.0
million senior subordinated promissory
note
o Whitney Mezzanine Management o $$1.2 million o Accrued and unpaid fees due under, and
Company, LLC termination of, management agreement
o Ross Manire o $0.5 million o Redemption of our Series E preferred
stock issued to finance our acquisition
of HV Technologies, together with accrued
and unpaid dividends thereon
o Carl S. Sloane o $0.3 million o Redemption of our Series E preferred
stock issued to finance our acquisition
of HV Technologies, together with accrued
and unpaid dividends thereon
o Kidd & Company, LLC o $2.5 million o Accrued and unpaid fees due under, and
termination of, management agreement
o William J. Kidd, Carla G. Kidd and various o $1.3 million o Redemption of our Series E preferred
trusts for the benefit of their children stock issued to finance our acquisition
of HV Technologies, together with accrued
and unpaid dividends thereon
SERIES E PREFERRED STOCK ISSUED TO RELATED PARTIES
In connection without our issuance during December 2001 of an aggregate
of 6,000 shares of our Series E preferred stock, together with warrants to
purchase an aggregate of 200,000 shares of our common stock at $0.01 per share,
we issued the following securities:
STOCKHOLDER AGGREGATE INVESTMENT SECURITIES RECEIVED
----------- -------------------- -------------------
o Ross Manire o $0.5 million o 500 shares of our Series E preferred
stock, together with warrants to purchase
an aggregate of 16,667 shares of our
common stock at $0.01 per share
o Carl S. Sloane o $0.3 million o 250 shares of our Series E preferred
stock, together with warrants to purchase
an aggregate of 8,333 shares of our
common stock at $0.01 per share
-19-
STOCKHOLDER AGGREGATE INVESTMENT SECURITIES RECEIVED
----------- -------------------- -------------------
o William J. Kidd, Carla G. Kidd and various o $1.2 million o 1,185 shares of our Series E preferred
trusts for the benefit of their children stock, together with warrants to purchase
an aggregate of 39,500 shares of our
common stock at $0.01 per share
We used the proceeds of the issuance of our Series E preferred stock
and warrants to finance our acquisition of HV Technologies.
At the same time we issued our Series E preferred stock, we obtained
the consent of certain affiliates of Whitney & Co., a 5% stockholder, to
complete our acquisition of HV Technologies, amended certain of the financial
covenants to which we were subject under an agreement we had with those
affiliates in order to make the covenants less restrictive and agreed to
register one-half of the Series Z preferred stock owned by Whitney Mezzanine
Fund in our initial public offering for sale upon exercise, if any, of the
underwriters' over-allotment option in our initial public offering. In
connection with that consent, we paid Whitney Mezzanine Fund a fee of $37,500,
and we increased by $0.8 million the amount payable by us to Whitney Mezzanine
Fund upon redemption of our 12.5% senior subordinated notes assuming that we
redeem these notes by March 30, 2002.
The underwriters in our initial public offering exercised the
over-allotment option in our initial public and, as a result, Whitney Mezzanine
Fund sold 243,750 shares of our common stock and received gross proceeds of
$2,925,000.
CERTAIN SERVICES PROVIDED TO US BY RELATED PARTIES
When we began our options during March 1999, Kidd & Company agreed to
perform management and acquisition-related services for us until March 2006. In
exchange for these services, we agreed, among other things, to pay an annual fee
equal to $1.0 million plus a percentage of the aggregate consideration paid by
us in future acquisitions. We also agreed to reimburse Kidd & Company for the
reasonable out-of-pocket costs and expenses that it incurred, and to indemnify
Kidd & Company and its agents for damages that they suffer, in connection with
providing these services. We paid Kidd & Company fees of $1.0 million under
these agreements for the period during the year ended June 30, 2002.
When we began our options during March 1999, Whitney Mezzanine
Management Company, LLC, an affiliate of Whitney & Co., also agreed to perform
management services for us until March 2006. In exchange for these services, we
agreed, among other things, to pay Whitney Mezzanine Management Company an
annual fee equal to $0.4 million plus a percentage of the aggregate
consideration paid by us in connection with future acquisitions. We also agreed
to reimburse Whitney Mezzanine Management Company for the reasonable
out-of-pocket costs and expenses that it incurred, and to indemnify Whitney
Mezzanine Management Company and its agents for damages that they suffer, in
connection with providing these services. We paid Whitney Mezzanine Management
Company fees of $0.8 during the year ended June 30, 2002.
At the time, we entered into the agreements with Kidd & Company and
Whitney Mezzanine Management Company we had a limited amount of management
support and relatively few staff to help us with matters such as budgeting,
financial planning, implementation of our business plan and identification of
candidates for senior management positions. By the time of our initial public
offering, we had developed sufficient internal resources to enable us to
determine the services that Kidd & Company and Whitney Mezzanine Management
Company had agreed to perform for us were either performed in-house or were not
required. As a result, Kidd & Company agreed to terminate these
-20-
agreements in exchange for a cash payment of $2.0 million upon completion of our
initial public offering, and Whitney Mezzanine Management Company agreed to
terminate this agreement in exchange for a cash payment of $0.9 million upon
completion of our initial public offering.
OTHER TRANSACTIONS WITH RELATED PARTIES
Until March 2002, we leased real property in Brooklyn Park, Minnesota
from a partnership controlled by the father of Wayne Kelly, a former director,
under two different leases that we entered into during March 1999. During May
2002, the property containing our Brooklyn Park facility was sold to an
unaffiliated third party. We continue to lease additional property from the
partnership controlled by Mr. Kelly's father. For the period from March 30, 1999
(inception) through July 3, 1999 and years ended July 1, 2000, June 30, 2001,
and June 30, 2002, our rent payments under the two leases to the partnership
controlled by Mr. Kelly's father were approximately $0.1 million, $0.4 million,
$0.4 million and $0.4 million, respectively. The remaining lease with the
partnership controlled by Mr. Kelly's father expires at the end of March 2009
and provides for aggregate annual payments of $30,000 per year through March
2009.
Whitney & Co. and The 1818 Fund III each have the right to require us
to register their shares under the Securities Act after September 23, 2002,
subject to the right of the underwriters in an underwritten public offering to
decrease the number of shares offered by them due to market conditions.. If
either of them makes such a request, then Messrs. Effress, Galiardo, Kidd,
Kelly, Manire and Sloane, and other stockholders have the right to require us to
register their shares under the Securities Act, subject to the right of the
underwriters in an underwritten public offering to decrease the number of shares
offered by them due to market conditions.
-21-
RATIFICATION OF SELECTION OF AUDITORS
Our board has, subject to stockholder ratification, selected Ernst &
Young as the independent auditors to audit our financial statements for the
fiscal year ending June 30, 2003.
AUDIT FEES
Audit fees billed and expected to be billed by Ernst & Young for its
audits of the annual financial statements of the Company and its subsidiaries
for the year ended June 30, 2002 and for its reviews of the financial statements
included in Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission for that year were $159,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
We did not engage Ernst & Young to provide advice regarding financial
information systems design or implementation during the fiscal year ended June
30, 2002.
ALL OTHER FEES
Fees billed and expected to be billed by Ernst & Young for all other
services rendered to us during our year ended June 30, 2002 were $532,400,
including audit related services of $379,700 and non-audit related services of
$152,700. Audit related services principally include fees for assistance with
our initial public offering and assistance with due diligence in our acquisition
of HV Technologies. Non-audit related fees consist primarily of tax related
services. Ernst & Young did not render consulting services to us during our year
ended June 30, 2002.
In connection with the standards for independence of our independent
public accountants promulgated by the Securities and Exchange Commission, our
audit committee has considered whether the provision of such services is
compatible with maintaining the independence of Ernst & Young.
ANTICIPATED ATTENDANCE BY ERNST & YOUNG AT THE ANNUAL MEETING
Ernst & Young has indicated to us that it intends to have a
representative present at our annual meeting who will be available to respond to
appropriate questions. This representative will have the opportunity to make a
statement if he or she so desires.
REQUIRED VOTE
A resolution will be submitted to stockholders at our annual meeting
for the ratification of our board's selection of Ernst & Young as the
independent auditors to audit our financial statements for the fiscal year
ending June 30, 2003. The affirmative vote of a majority of the votes cast at
our annual meeting in person or by proxy will be required to adopt this
resolution. Our board recommends a vote "FOR" this resolution. Abstentions and
broker non-votes will have no effect on the outcome of the vote on this
proposal.
If the resolution selecting Ernst & Young as independent public
accountants is adopted by our stockholders, our board nevertheless retains the
discretion to select different auditors should it then deem it in our best
interests. Any such future selection need not be submitted to a vote of
stockholders.
-22-
MISCELLANEOUS
COST OF SOLICITING PROXIES
We will pay the cost of solicitation of proxies, including the cost of
reimbursing banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding proxy soliciting
material to beneficial owners of our common stock. Proxies may be solicited
without extra compensation by certain of our officers and regular employees by
mail and, if determined to be necessary, by telephone, telegraph or personal
interviews.
STOCKHOLDER PROPOSALS
From time to time stockholders may present for consideration at
meetings of stockholders proposals that may be proper subjects for inclusion in
the proxy statement and form of proxy distributed in connection with those
meetings. In order to be so included, such proposals must be submitted in
writing on a timely basis. Stockholder proposals intended to be included in our
proxy statement and form of proxy to be used in connection with our 2003 annual
meeting of stockholders, which we expect to be held on or about November 4,
2003, must be received by us by June 1, 2003. Any such proposals, as well as any
questions relating thereto, should be directed to MedSource Technologies, Inc.,
110 Cheshire Lane, Suite 100, Minneapolis, Minnesota 55305, Attention: Corporate
Secretary.
Our certificate of incorporation and bylaws, as presently in effect,
require stockholders who intend to nominate directors or propose business at any
annual meeting to provide timely notice of such intended action, as well as
certain additional information, to us. To be timely, such notice and information
must be received by our Corporate Secretary at 110 Cheshire Lane, Suite 100,
Minneapolis, Minnesota 55305 not less than 90 nor more than 120 days prior to
date of the annual meeting. However, in the event less than 100 days' notice or
prior public disclosure of the date of the annual meeting is given or made to
stockholders, advance notice of nominations or business proposed by a
stockholder to be timely must be received by us not later than the close of
business on the tenth calendar day following the date on which such notice or
public disclosure of the date of the annual meeting was mailed or such public
disclosure was made. Copies of our bylaws are available upon request made to our
Corporate Secretary.
By Order of the Board of Directors
Joseph J. Caffarelli, Secretary
Minneapolis, Minnesota
September 30, 2002
-23-
APPENDIX A
----------
MEDSOURCE TECHNOLOGIES, INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee
("committee"). The committee shall be appointed by the Board of Directors
("Board") and shall comprise at least three directors including one director
designated to serve as chairperson. Each member of the committee is to be
independent of management and the Company. Members of the committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Company. All committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the committee, and at
least one member shall have accounting or related financial management
expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors
in fulfilling its oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the board. In so doing, the committee is
responsible for maintaining free and open communication between the committee,
independent auditors, and management of the Company. In discharging its
oversight role, the committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and personnel
of the Company and the power to retain outside counsel or other experts for this
purpose.
RESPONSIBILITIES
The primary responsibility of the audit committee is to oversee the
Company's financial reporting process on behalf of the board and report the
results of its activities to the board. Management is responsible for preparing
the Company's financial statements, and the independent auditors are responsible
for auditing those financial statements. In carrying out its responsibilities,
the committee's policies and procedures should remain flexible in order to best
react to changing conditions and circumstances. The committee should take the
appropriate actions to set the overall corporate expectation for quality
financial reporting, sound business risk practices, and ethical behavior.
PROCESSES
The principal recurring processes of the audit committee for carrying
out its oversight responsibilities are detailed in the following paragraphs.
The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately accountable to
the Board and the committee as representatives of the Company's shareholders.
The committee shall have the ultimate authority and responsibility to evaluate
and, where appropriate, recommend the replacement of the independent auditors.
The committee shall discuss with the auditors their independence from management
and the Company including the matters in the written disclosures required by the
Independence Standards Board and shall consider the compatibility of
nonaudit services with the auditors' independence. Annually, the committee shall
review and recommend to the board the selection of the Company's independent
auditors, subject to shareholders' approval.
The committee shall discuss with the independent auditors the overall
scope and plans for their audit(s) including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the accounting and
financial controls, including the company's system to monitor and manage
business risk, and legal and ethical compliance programs. In addition, the
committee is responsible for overseeing the process of monitoring compliance to
the company's code of business conduct as well as reviewing any cases of
noncompliance to the code. The committee shall meet separately with the
independent auditors, with and without management present, to discuss the
results of their examinations.
The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the Company's
Quarterly Reports on form 10-Q. Also, the committee shall discuss the results of
quarterly reviews and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee for the
purposes of this review.
The committee shall review with management and the independent auditors
the financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the filing of
Form 10-K), including their judgment about the quality, not just acceptability,
of accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the committee
shall discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent auditors under generally
accepted auditing standards.
Lastly, the committee will review its charter at least annually and
modify as appropriate.
The above reference processes are set forth as guidelines with the
mandate that the committee supplement them as appropriate to properly execute
its duties and responsibilities.
A-2
PROXY MEDSOURCE TECHNOLOGIES, INC. PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 5, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints, as proxies for the undersigned,
RICHARD J. EFFRESS and JOSEPH J. CAFFARELLI, or either of them, with full power
of substitution, to vote all shares of the capital stock of MEDSOURCE
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), that the undersigned
is entitled to vote at the Company's annual meeting of stockholders to be held
on Tuesday, November 5, 2002, at 2:00 p.m., New York time, at the offices of
Jenkens & Gilchrist Parker Chapin LLP, 405 Lexington Avenue, New York, New York
10174, receipt of notice of which meeting and the proxy statement accompanying
the same being hereby acknowledged by the undersigned, and at any adjournments
or postponements thereof, upon the matters described in the notice of meeting
and proxy statement and upon such other business as may properly come before the
meeting or any adjournments or postponements thereof, hereby revoking any
proxies heretofore given.
Each properly executed proxy will be voted in accordance with the
specifications made below and in the discretion of the proxies on any other
matter that may come before the meeting. Where no choice is specified, this
proxy will be voted FOR all listed nominees to serve as directors and FOR each
of the proposals set forth below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL LISTED NOMINEES AND FOR
PROPOSAL 2
1. Election of three directors |_| FOR all nominees listed |_| WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for all listed nominees
Nominees: Richard J. Effress, William J. Kidd and T. Michael Long
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, CIRCLE
THAT NOMINEE'S NAME IN THE LIST PROVIDED ABOVE.)
2. Proposal to ratify and approve the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending June 30, 2003.
|_| FOR |_| AGAINST |_| ABSTAIN
PLEASE MARK THIS PROXY ON THIS SIDE AND DATE AND SIGN THIS PROXY ON THE REVERSE
SIDE
The shares represented by this proxy will be
voted in the manner directed. In the absence
of any direction, the shares will be voted
FOR each nominee named in Proposal 1 and FOR
Proposal 2 and in accordance with their
discretion on such other matters as may
properly come before the meeting.
Dated: ______________________________, 2002
--------------------------------------------
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Signature(s)
(Signature(s) should conform to names as
registered. For jointly owned shares, each
owner should sign. When signing as attorney,
executor, administrator, trustee, guardian
or officer of a corporation, please give
full title).
PLEASE MARK THIS PROXY ON THE REVERSE SIDE AND DATE AND SIGN THIS PROXY ON THIS
SIDE
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