SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Rule 14a-11(c) or Rule 14a-12
IPSWICH BANCSHARES, INC.
----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Not Applicable
---------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
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(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement no.:
3) Filing Party:
4) Date Filed:
* * * * *
March 28, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Ipswich Bancshares, Inc., to be held on Wednesday, April 25, 2001 at 4:00 p.m.,
local time, at the Ipswich Country Club, 148 Country Club Way, Ipswich,
Massachusetts.
At the Annual Meeting you will be asked to consider and vote upon the
election of two directors to the Board of Directors of the Company.
The Board of Directors has fixed the close of business on Monday, March 5,
2001 as the record date for determining stockholders entitled to notice of and
to vote at the Annual Meeting.
The officers and directors look forward to greeting you personally at the
Annual Meeting. However, whether or not you plan to attend personally and
regardless of the number of shares you own, it is important that your shares be
represented.
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE.
Very truly yours,
/s/ David L. Grey
David L. Grey
President and Chief Executive Officer
IPSWICH BANCSHARES, INC.
23 Market Street
Ipswich, Massachusetts 01938
(978) 356-7777
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on April 25, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Ipswich
Bancshares, Inc. (the "Company") will be held on Wednesday, April 25, 2001 at
4:00 p.m., local time, at the Ipswich Country Club, 148 Country Club Way,
Ipswich, Massachusetts, for the following purposes:
1. To elect two Directors of the Company.
2. To transact such other business as may properly come before the
meeting and any adjournment or postponements thereof.
The Board of Directors has fixed the close of business on Monday, March 5,
2001 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting. Accordingly, only stockholders of record
at the close of business on that date will be entitled to vote at the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
/s/ Mariell Lyons
Mariell Lyons, Clerk
Ipswich, Massachusetts
March 28, 2001
Whether or not you plan to attend the Annual Meeting in person, please
complete and sign the enclosed proxy and return it promptly in the enclosed
envelope, which requires no postage if mailed in the United States. If you
attend the Annual Meeting and desire to withdraw your proxy and vote in person,
you may do so.
IPSWICH BANCSHARES, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To be held on Wednesday, April 25, 2001
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Ipswich Bancshares, Inc. (the "Company")
for use at the Annual Meeting of Stockholders to be held at the Ipswich Country
Club, 148 Country Club Way, Ipswich, Massachusetts, on Wednesday, April 25, 2001
at 4:00 p.m., local time, and at any adjournments thereof.
VOTING, REVOCATION, AND SOLICITATION OF PROXIES
Record Date
This Proxy Statement and the accompanying Notice and Proxy are first being
mailed to stockholders of the Company on or about March 28, 2001 in connection
with the solicitation of proxies for the Annual Meeting. The Board of Directors
has fixed the close of business on Monday, March 5, 2001 as the record date for
the determination of stockholders entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof (the "Record Date"). As of the
Record Date, there were 2,038,902 shares of common stock, par value $.10 per
share (the "Common Stock"), issued, outstanding, and entitled to vote at the
Annual Meeting. The holders of the Common Stock outstanding at the close of
business on the Record Date will be entitled to one vote for each share held of
record upon each matter properly submitted to the Annual Meeting or any
adjournments thereof.
Quorum; Stockholder Vote Required
The presence, in person or by proxy, of at least a majority in interest of
all Common Stock issued, outstanding, and entitled to vote is necessary to
constitute a quorum for the transaction of business at the Annual Meeting. The
affirmative vote of a plurality of the shares present and voting is necessary to
elect each director.
Votes withheld from any nominee and abstentions and broker non-votes are
counted as present or represented for purposes of determining the presence or
absence of a quorum. A "non-vote" occurs when a broker holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because the broker does not have discretionary voting power and has not received
instructions from the beneficial owner. Brokers have discretionary voting power
with respect to the election of directors. Abstentions and broker non-votes will
have no effect on the outcome of the election of directors. Votes will be
tabulated by Francis Kenney, Senior Vice President, Chief Financial Officer and
Treasurer of the Company. The vote on each matter submitted to stockholders will
be tabulated separately.
Proxies
Stockholders of the Company are requested to complete, date, sign, and
promptly return the accompanying form of proxy in the enclosed envelope. Common
Stock represented by properly executed proxies received by the Company and not
revoked will be voted at the Annual Meeting in accordance with the instructions
contained therein. If instructions are not given therein, properly executed
proxies will be voted FOR the election as directors of the two persons
identified in this Proxy Statement.
Any properly completed proxy may be revoked at any time before the
commencement of voting on any matter at the Annual Meeting or any adjournment
thereof by giving written notice of revocation to the Clerk of the Company, or
by signing and duly delivering a proxy bearing a later date, or by attending the
Annual Meeting and voting in person. Attendance at the Annual Meeting will not
in and of itself constitute revocation of a proxy.
ANNUAL REPORT TO STOCKHOLDERS; OTHER INFORMATION
The Company's Annual Report to Stockholders, including the audited
consolidated balance sheets of the Company as of December 31, 2000 and 1999 and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 2000, accompanies this Proxy Statement. The Company's Annual Report to
Stockholders includes the Company's Annual Report on Form 10-K for the year
ended December 31, 2000 (excluding exhibits), as filed with the SEC.
GENERAL
Ipswich Bancshares, Inc. is the holding company for Ipswich Savings Bank (the
"Bank").
ELECTION OF DIRECTORS
The Company is governed by a Board of Directors, currently consisting of
seven members. The Board is divided into three classes, as nearly equal in
number as possible, with the directors in each class generally serving a term of
three years and until their successors are elected and qualified. As the term of
one class expires, a successor class is elected by the stockholders at the
annual meeting for that year. In addition, up to two directors may be elected by
vote of a majority of directors then in office.
The Board of Directors acts as a nominating committee for the selection of
nominees for election as directors. The Board has nominated Thomas A. Ellsworth
and William J. Tinti to serve as directors for a three-year term. Messrs.
Ellsworth and Tinti currently serve as directors of the Company.
Unless authority is withheld, proxies in the accompanying form will be
voted FOR the election of the two nominees, to hold office until the 2004 annual
meeting of stockholders or special meeting in lieu thereof and until their
respective successors are elected and qualified. If the proxy withholds
authority to vote for one or more nominees for director, the stockholder's
instructions will be followed.
The Company has no reason to believe that any of the nominees will not be
able to serve. In the event that any nominee is unable to serve at the time of
the election, the shares represented by the proxy will be voted for the other
nominees and may be voted for a substitute for that nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE TWO NOMINEES FOR
DIRECTOR SET FORTH ABOVE.
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Information Regarding Directors and Nominees
The following table sets forth certain information (as of March 28, 2001)
regarding the current directors of the Company and the nominees for director.
Name Age Director Since* Expiration of Term
---- --- -------------- ------------------
William M. Craft 59 1992 2003
** Thomas A. Ellsworth 62 1992 2001
William E. George 68 1991 2002
David L. Grey 47 1989 2003
John H. Morrow 68 1990 2003
Lawrence J. Pszenny 57 1991 2002
** William J. Tinti 61 1998 2001
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* Includes service as a trustee of the Bank prior to its conversion from the
mutual to stock form of ownership on May 25, 1993 (the "Conversion") and as a
director of the Bank from the date of the Conversion to the establishment of the
Company as the holding company of the Bank on July 1, 1999. All directors of the
Company are also directors of the Bank.
** Nominees
The principal occupation of each director and nominee for director for at
least the past five years is set forth below.
William M. Craft is Senior Partner at the Eaton Cummings Group, a strategic
planning and management consulting group. From 1973 until 1998, Dr. Craft was
associated with Bunker Hill Community College (Boston, Massachusetts), where he
served as the Vice President for Planning and Development from 1990 until 1998.
Dr. Craft has been a member of the Town of Ipswich Finance Committee since 1976
and served as Chairman from 1986 to 1992. Since April 1996, Dr. Craft has served
as a consultant to the American Management Association. He is also a former
director of the Ipswich Historical Society.
Thomas A. Ellsworth was with ITT Sheraton Corporation (Boston,
Massachusetts) from 1965 until 1992, serving from 1980 as Senior Vice President
and Director of Real Estate. Currently he is a principal of PKF Hospitality
Investments (Essex, Massachusetts), a consulting and brokerage firm specializing
in hotels and resort real estate. He serves on the Chairman's Committee of the
Trustees of Reservations and the Board of Directors of the Essex County
Greenbelt and is a Trustee of the Massachusetts Land Conservation Trust.
William E. George held executive sales and marketing positions throughout
his 37-year career in the metal distribution industry. The most extensive part
of this service was with the Zurbach Steel Corp. (Salem, New Hampshire), where
he served as President and a member of the Board of Directors from 1985 until
1987, when the company was sold. He then served in an advisory and sales
capacity both for Zurbach Steel and later for Edgcomb Metals (Nashua, New
Hampshire) until his retirement in 1992. Mr. George has been and continues to be
involved in many civic activities, both public and private. In 1997, he chose
not to run for re-election and retired from the Ipswich Board of Selectmen after
15 years of service, including three years as Chairman of the Board.
- 3 -
David L. Grey has served as President and Chief Executive Officer of the
Company since its formation on February 12, 1999 and of the Bank since November
1989. He joined the Bank as Executive Vice President and Chief Financial Officer
in April 1986 and held that position until elected to his current positions.
Previously, Mr. Grey had been employed at First Colonial Bank (Lynn,
Massachusetts) from 1982 until 1986, where he served as Vice President,
Treasurer and Chief Financial Officer from 1984 to 1986. Mr. Grey is a
Corporator with the Boy's Club (Lynn, Massachusetts) and President of the
Ipswich Savings Bank Educational Foundation.
John H. Morrow has been Vice President of Hastings-Tapley Insurance Agency
(Cambridge, Massachusetts) since 1984. Mr. Morrow is a past President of the
Rotary Club of Ipswich, and has participated in many community activities
throughout his career.
Lawrence J. Pszenny has been the Senior Vice President - Finance for
Bickford's Family Restaurants (Boston, Massachusetts) since April 1993. Prior to
that date, he was Vice President - Finance and Treasurer since 1976. Prior to
1976, Mr. Pszenny practiced as a Certified Public Accountant. Mr. Pszenny's
civic and community activities include President, Board of Trustees, Stephen
Caldwell Memorial Convalescent Home; Secretary, Board of Trustees, Friends of
Caldwell Nursing Home; member, Board of Trustees, Ipswich Public Library; and
former member and Chairman, Town of Ipswich Finance Committee. He was also a
member of the Town of Ipswich Board of Selectmen from 1979 through 1987.
William J. Tinti has been President of the law firm of Tinti, Quinn, Grover
& Frey P.C. (Salem, Massachusetts) since 1982. Prior to that date, Mr. Tinti
served as a legislative assistant to Congressman Michael J. Harrington; served
as City Solicitor of the City of Salem for nine years; and served as
Commissioner of the Massachusetts Historical Commission for six years. Mr.
Tinti's civic activities include service on the Board of Overseers of the
Peabody-Essex Museum; as Clerk of the Essex National Heritage Commission, Inc.;
as Vice President of the Brookhouse Home; on the Executive Committee and Board
of Directors of the Salem Partnership; on the Board of Trustees of the North
Shore Music Theatre; as Co-Chairman of the North of Boston Regional Center at
Salem State College; and on the Steering Committee for North Shore
Transportation Corridor Major Investment Study.
Committees and Meetings of the Board of Directors
The business of the Board of Directors of the Company is conducted through
regular meetings as well as through committees. The Board of Directors of the
Company met ten times and the Board of Directors of the Bank met 14 times during
2000. Each incumbent director attended at least 75% of all meetings of the
Company's Board and of the Bank's Board and any committees of the Board of which
he was a member. The Board of Directors has an Executive Committee, an Audit
Committee, a Compensation Committee, a Strategic Planning Committee and an
Asset/Liability Management Committee. Each of these committees also serves as a
committee of the Bank. The Board of Directors acts as the Company's nominating
committee. Set forth below is a description of the committees of the Board.
The Executive Committee exercises general control and supervision of all
matters pertaining to the Company, subject to the direction of the Board of
Directors. The Executive Committee, which meets a minimum of twice each month,
consists of directors Pszenny (Chairman), Grey and George. The Executive
Committee met 24 times during 2000.
The Audit Committee reviews internal financial reports prepared by
management and financial and auditing reports of the independent auditor. This
committee consists of directors Morrow
(Chairman), Ellsworth and Pszenny. This committee meets a minimum of four times
per year. The Audit Committee met four times during 2000.
The Compensation Committee reviews compensation issues and also administers
the Company's stock option plans and recommends the granting of stock options
and other awards to persons eligible thereunder. The committee consists of
directors Pszenny (Chairman), Grey, Morrow and George. This committee met twice
during 2000.
The Strategic Planning Committee reviews the strategic direction of the
Company, analyzing entry into business lines and branch locations. The committee
assesses the financial impact of strategic decisions and reviews the impact in
the capital markets. The committee consists of directors Craft (Chairman), Grey,
Pszenny and George and Francis Kenney, Senior Vice President, Treasurer and
Chief Financial Officer of the Company, and Thomas R. Girard, Senior Vice
President/Mortgage Originations of the Bank. It met four times in 2000.
The Asset/Liability Management Committee directs the overall acquisition
and use of the Company's funds, with the goal of maximizing net interest margins
while maintaining reasonable levels of risk. The committee's members are
directors Grey and Craft and Messrs. Kenney (Chairman) and Girard. This
committee met four times during 2000.
The Board of Directors of the Company nominates candidates for election as
Directors. In accordance with the Company's By-laws, the Board will consider
nominees recommended by a stockholder of the Company, provided that the
stockholder notifies the Clerk of the Company of the proposed nominee in
writing, setting forth certain required information regarding the nominee. Such
notification must be made in a timely manner, as set forth in the By-laws. To be
timely, such notice must be received by the Company not less than 60 nor more
than 150 days prior to the scheduled date of the annual meeting of stockholders,
or, if less than 70 days' notice or prior public disclosure of the date of the
meeting is given or made, within 10 days of public disclosure of the date of the
annual meeting. The Board may reject any stockholder nomination that is not
timely made or does not otherwise satisfy the requirements of the Company's
By-laws.
Compensation of Directors
Each director receives a retainer of $2,400 per year, payable monthly, and
$300 for each Board meeting attended. Directors do not receive additional fees
for attendance at meetings of the Company's Board that are held immediately
prior to or after a Bank Board meeting. The Executive Committee meets a minimum
of twice each month and each member receives a retainer of $11,000 per year (in
the case of the Chairman, $13,750), payable monthly, and $375 for each meeting
attended. Members of the Audit, Compensation, Strategic Planning and
Asset/Liability Management Committees receive $350 for each meeting attended.
The Company has a deferred compensation plan pursuant to which directors may
defer all or a portion of the fees that they receive as committee or Board
members. Directors who are employees of the Company or the Bank do not receive
compensation for their services as directors.
On January 24, 2001, the Company granted options to directors at an
exercise price equal to the fair market value of the Common Stock on the date of
grant, to replace an equal number of previously granted options that were
cancelled by the Company on July 21, 2000.
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MANAGEMENT
Executive Officers
The names, ages (as of March 28, 2001) and business experience during at
least the last five years of each of the executive officers of the Company and
the Bank is set forth below.
David L. Grey, age 47, is President and Chief Executive Officer and a
director of both the Company and the Bank. For biographical information
concerning Mr. Grey, see "Election of Directors - Information Regarding
Directors and Nominees" above.
Michael Allard, age 39, has held the position of Senior Vice President of
the Bank since December 2000. He joined the Bank in April of 2000 as Vice
President of Sales and Marketing. Prior to joining the Bank, Mr. Allard was
Director of Retail Marketing/North Shore at U.S. Trust. Mr. Allard is a member
of the Ipswich Business Association.
Mark E. Foley, age 46, has held the position of Senior Vice President of
Commercial Lending of the Bank since December 2000. He joined the Bank in August
of 2000 as Vice President and Senior Commercial Lender. Prior to joining the
Bank, Mr. Foley served as Vice President and regional commercial lender of Maine
Bank & Trust Company from 1998 to 2000. Prior to that time, he was Vice
President/Small Business Specialist with KeyBank National Association (successor
to Casco Northern Bank) from 1992 to 1998. Mr. Foley serves on the Board of the
Ipswich Partnership.
Thomas R. Girard, age 39, has been Senior Vice President/Mortgage
Originations of the Bank since November 1997. He served as Vice
President/Mortgage Originations of the Bank from January 1993 to October 1997
and as Special Assets Manager from January 1991 to December 1992. Mr. Girard
currently serves as a director of the North Andover Educational Foundation.
Francis Kenney, age 42, has held the positions of Senior Vice President,
Chief Financial Officer and Treasurer of the Company since its formation on
February 12, 1999. He has been Senior Vice President and Chief Financial Officer
of the Bank since February 1995 and Treasurer since December 1994. Prior to the
latter date, he served as Assistant Vice President and Controller from November
1993 to November 1994. Mr. Kenney is a member of the Boston Chapter of the
Institute of Management Accountants. Mr. Kenney currently serves as a director
of the Ipswich Savings Bank Educational Foundation.
All executive officers hold office until the first meeting of the Board of
Directors following the annual meeting of stockholders or special meeting in
lieu thereof and until their successors are chosen and qualified, unless, with
respect to executive officers other than the President and Treasurer, a shorter
term is specified in the vote appointing them.
- 6 -
Executive Compensation
Summary Compensation Table. The following Summary Compensation Table sets
forth certain information regarding compensation paid or accrued by the Company
and the Bank with respect to the Chief Executive Officer and the Company's and
the Bank's most highly compensated officers other than the Chief Executive
Officer who served as officers at the end of fiscal 2000 and whose annual
compensation exceeded $100,000 for fiscal 2000.
SUMMARY COMPENSATION TABLE
Long-Term All Other
Annual Compensation Compensation Compensation (1)
--------------------------------------------- --------------------- -------------------
Name and Other Annual Securities
Principal Position Year Salary Bonus (2) Compensation (3) Underlying Options
- ------------------ ---- ------ ----- ------------ ------------------
David L. Grey 2000 $ 230,000 $ 67,620 -- -- $ 71,564
President and Chief 1999 212,000 84,000 -- 50,000 71,564
Executive Officer 1998 200,000 80,000 -- -- 69,614
of the Company
and the Bank
Thomas R. Girard 2000 254,165(4) -- -- -- 5,000
Senior Vice 1999 242,344(4) 5,500 -- 10,000 5,000
President of the 1998 300,357(4) 1,500 -- -- 3,804
Bank
Francis Kenney 2000 95,000 13,965 -- -- 12,956
Senior Vice 1999 86,500 17,300 -- 10,000 3,075
President, Chief 1998 80,000 16,000 -- 2,790
Financial Officer
and Treasurer of
the Company and
the Bank
- -------------
(1) For Mr. Grey in 2000, includes premium on a variable life insurance policy
on Mr. Grey's life in the amount of $60,000 (see description under
"Retirement Benefit"), payment of life insurance premiums in the amount of
$1,680, the Bank's contribution to Mr. Grey's 401(k) retirement plan in the
amount of $5,000 and payment of supplemental disability insurance premiums
in the amount of $4,884. For Mr. Girard in 2000, represents the Bank's
contribution to his 401(k) retirement plan. For Mr. Kenney in 2000,
includes premium on a variable life insurance policy on Mr. Kenney's life
in the amount of $10,000 and the Bank's contribution to Mr. Kenney's 401(k)
retirement plan in the amount of $2,956. The Bank purchased the life
insurance policy in anticipation of the Board's consideration and approval
of a split dollar agreement that would provide a benefit to Mr. Kenney's
beneficiary in the event of his death. The Board is expected to consider
the split dollar agreement at its March 28 Board meeting.
(2) Bonuses reported for 1998 were earned in the year reported, but paid in the
following year. The bonus reported for Mr. Girard in 1999 includes $4,000
earned in 1998 but paid in 1999.
(3) Omitted since amounts are below the threshold required to be disclosed.
(4) Represents an annual base salary of $30,000 and $12,000 in 2000 and 1999,
respectively, and commissions paid to Mr. Girard based on his own loan
originations and the originations of the Bank's mortgage sales force.
Option Grants. No options were granted to the executive officers named in
the Summary Compensation Table in 2000. However, as shown in the table set forth
below under the caption "Ten-Year Option/SAR Repricing" and as described under
the caption "Compensation Committee Report --
- 7 -
Report on Repricing of Options," on July 19, 2000, the Company agreed to grant
options to the executive officers named in the Summary Compensation Table at an
exercise price equal to the fair market value of the Common Stock on the date of
grant (110% of fair market value in the case of Mr. Grey, who owns in excess of
10% of the Company's Common Stock). The grant was conditioned upon the executive
officers' entering into an agreement no later than July 21, 2000 to cancel the
same number of previously granted options. Each such officer entered into such
an agreement and the options were re-granted on January 24, 2001.
Fiscal Year-End Option Table. The following Fiscal Year-End Option Table
sets forth certain information regarding stock options exercised during the
fiscal year ended December 31, 2000 and stock options held as of December 31,
2000 by the executive officers named in the Summary Compensation Table:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired Options at Fiscal Year-End at Fiscal Year-End(1)
on Value ---------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
David L. Grey 0 0 70,000 0 $ 67,500 --
Thomas R. Girard 0 0 7,126 5,000 10,835 --
Francis Kenney 0 0 11,000 5,000 20,250 --
- --------------
(1) Value is based on the last sales price of Common Stock ($9.125) on December
31, 2000 as reported by the Nasdaq National Market, less the applicable
option exercise price. These values have not been and may never be
realized. Actual gains, if any, on exercise will depend on the value of the
Common Stock on the date of the sale of the shares.
TEN-YEAR OPTION/SAR REPRICING (1)
Length of
Number of Market Exercise Original
Securities Value at Price at Option Term
Underlying Time of Time of Remaining
Options/SARs Repricing Repricing New at Date of
Repriced or or or Exercise Repricing or
Name Date Amended Amendment Amendment Price Amendment
- ---- ---- ------------- --------- --------- ----------- ----------
David L. Grey January 24, 2001 30,000 9.625 12.50 10.5875 6 years, 10 months
Thomas R. Girard January 24, 2001 5,000 9.625 12.50 9.625 6 years, 10 months
Francis Kenney January 24, 2001 5,000 9.625 12.50 9.625 6 years, 10 months
- -------------
(1) See discussion under captions "Option Grants" and "Compensation Committee
Report -- Report on Repricing of Options."
- 8 -
Compensation Committee Report
Set forth below is a report that reflects the work of the Compensation
Committee, a committee comprised of members of the Board of Directors of the
Company. The Company's Executive Compensation Program and its stock option plans
are administered by the Committee, which is composed of David L. Grey, Lawrence
J. Pszenny (Chairman), John H. Morrow and William E. George.
Executive Compensation Philosophy
The Committee's philosophy of executive compensation is (i) to provide
competitive levels of compensation that integrate pay with the individual
executive's performance and the Company's annual and long-term performance
goals; (ii) to motivate key executives to achieve strategic business initiatives
and reward them for their achievement; (iii) to provide compensation
opportunities and benefits which are comparable to those offered by other
financial institutions, thus allowing the Company to compete for and retain
talented executives, who are critical to the Company's long-term success; and
(iv) to align the interests of key executives with the long-term interests of
shareholders in the enhancement of shareholder value through stock option awards
that can result in the ownership of Common Stock.
At present, compensation of the Company's Chief Executive Officer (Mr.
Grey) and its other executive officers (other than Mr. Girard) is composed of
the following elements: annual base salary, annual performance incentives in the
form of cash bonuses and long-term performance incentives in the form of stock
option awards under the Company's stock option plans. Compensation of the Senior
Vice President/Originations (Mr. Girard) is composed of a small annual base
salary and commissions on his own originations and the originations of the
Bank's mortgage sales force. This executive is also eligible for annual
performance incentives in the form of cash bonuses and long-term performance
incentives such as stock option awards.
Each year the Committee reviews the performance of the Chief Executive
Officer and each other executive officer in light of the individual's and the
Company's overall performance. The specific measure of corporate performance
that was evaluated by the Committee in making compensation awards for fiscal
2000 for Messrs. Grey and Kenney was the Company's return on stockholders'
equity as measured against all publicly held Massachusetts thrifts, including
thrifts held in the holding company form of organization (75% of Mr. Grey's cash
bonus and 50% of Mr. Kenney's cash bonus is dependent on this measure). Payment
of the remaining amount of the bonus is measured against written performance
objectives established by the Committee for each individual officer at the
beginning of each year. Mr. Girard's bonus is based on meeting certain market
share goals for mortgage originations in Essex County.
Annual Salaries
The annual base salaries for executives are intended to be competitive with
other Massachusetts financial institutions. The Committee reviews management's
recommendations regarding annual salary, annual bonuses, and other benefits and
incentives as part of its overall planning. With respect to salaries and awards
for executive officers, the Committee also consults with the Chief Executive
Officer.
Incentive Programs
The Company's incentive compensation programs combine short-term incentives
in the form of cash bonuses and stock-based long-term incentives in the form of
awards of stock options. Annual bonuses are intended to recognize and reward
individual contributions. Stock options align the interests of executives and
shareholders by providing value to the executive when the Company's stock price
- 9 -
increases. Thus, stock option grants provide an incentive for the executive to
manage the Company from the perspective of an owner with an equity stake in the
business. Stock options are intended to reward officers for long-term
appreciation in the value of the Company's stock. Individual stock option awards
are primarily based upon the recipient's individual performance.
Compensation of the Chief Executive Officer
Mr. Grey's compensation for fiscal year 2000 consisted of his annual base
salary and a cash bonus. Seventy-five percent of Mr. Grey's cash bonus was based
on the Company's return on equity as measured against all other publicly-held
Massachusetts thrifts (including those held in the holding company form of
organization). Mr. Grey's overall compensation was also compared to that of the
chief executive officers of similarly sized institutions.
The Committee received assistance in formulating Mr. Grey's compensation
plan by an outside compensation consultant. Based upon a review of compensation
at numerous peer institutions and a recommendation by the Company's compensation
consultant, it was determined that it was appropriate that Mr. Grey continue to
be provided with supplemental pension benefits to help replace the defined
pension plan that was terminated during 1991 in order to further the
recapitalization of the Bank.
Compensation of Other Executive Officers
The 2000 compensation of the Company's and the Bank's other executive
officers was based upon the achievement of both the Company and individual
performance goals. As Senior Vice President, Chief Financial Officer and
Treasurer, Mr. Kenney's compensation was based on overall management of the
financial function at the Company, including management of the Company's
interest rate risk. Senior Vice President Girard's compensation was based upon
the origination of residential mortgage loans and management of the Bank's
mortgage loan sales force.
Report on Repricing of Options.
On July 19, 2000, based on the recommendation of the Compensation
Committee, the Board of Directors agreed to grant options to the executive
officers named in the Summary Compensation Table (as well as to certain other
employees, officers and Directors) at an exercise price equal to the fair market
value of the Common Stock (110% in the case of Mr. Grey, who owns in excess of
10% of the Company's Common Stock) on the date of grant. The grant was
conditioned upon the executive officers' entering into an agreement no later
than July 21, 2000 to cancel the same number of previously granted options
which, on the date of cancellation, had an exercise price in excess of the fair
market value of the Company's Common Stock. Each such officer entered into such
an agreement and the Board of Directors approved the re-grant of options on
January 24, 2001. The Compensation Committee and the Board determined that the
cancellation and re-grant would provide a continuing incentive for employees,
including executive officers, to provide service to the Company.
Compensation Committee: Lawrence J. Pszenny, Chairman
David L. Grey
John H. Morrow
William E. George
- 10 -
Compensation Committee Interlocks and Insider Participation
William E. George, David L. Grey, John H. Morrow and Lawrence J. Pszenny
served as members of the Company's Compensation Committee during 2000. Messrs.
George and Pszenny have no relationships with the Company other than their
relationship to the Company as Directors entitled to the receipt of standard
compensation as Directors and members of certain committees of the Board and
their relationship to the Company as stockholders. Mr. Morrow is a Vice
President of an insurance agency through with the Company purchases some of its
insurance. See discussion under caption "Certain Transactions with Management
and Others." Mr. Grey is the President and Chief Executive Officer of the
Company and the Bank. He does not participate in deliberations involving his own
compensation, including the grant of options and other benefits. No person
serving on the Compensation Committee or on the Board of Directors is an
executive officer of another entity for which an executive officer of the
Company serves on the board of directors or on that entity's compensation
committee.
Audit Committee Report
The Audit Committee's general role is to assist the Board of Directors in
fulfilling its responsibility of reviewing the Company's financial reporting
process. The Audit Committee is governed by a charter which specifies, among
other things, the scope of its responsibilities and how those responsibilities
are performed. A copy of the charter is included in this Proxy Statement as
Appendix A. The Audit Committee members are "independent" as defined by NASDAQ,
the listing standard applicable to the Company.
In the performance of its obligations, the Audit Committee has reviewed and
discussed the audited financial statements with management and its independent
auditors, Baker Newman & Noyes LLC, and discussed with its independent auditors
the matters required to be discussed by Statement on Auditing Standards No. 61,
as amended, "Communication with Audit Committees." In addition, the Audit
Committee received from the auditors disclosures regarding the auditors'
independence required by Independence Standard No. 1, "Independence Discussions
with Audit Committees," and discussed with Baker Newman & Noyes LLC its
independence.
Based on the above-mentioned review and discussions, the Audit Committee
recommended to the Company's Board of Directors that the audited financial be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, for filing with the SEC.
Audit Committee: John H. Morrow, Chairman
Thomas A. Ellsworth
Lawrence J. Pszenny
- 11 -
Performance Graph
The following Performance Graph compares the performance of the Company's
cumulative stockholder return with that of a broad market index (the S&P 500)
and a published industry index (the SNL Securities Thrift Index) for each of the
most recent five fiscal years. The cumulative stockholder return for shares of
Common Stock and each of the indices is calculated assuming that $100 was
invested on January 1, 1996. The performance of the indices is shown on a total
return (dividends reinvested) basis. The graph lines merely connect three-month
end dates and do not reflect fluctuations between those dates.
[PERFORMANCE GRAPH APPEARS HERE]
- 12 -
Employment and Severance Agreements with Named Executive Officers
On June 18, 1997, the Bank entered into a new employment agreement with
David L. Grey, which amended and restated his previous employment and severance
agreement with the Bank dated November 13, 1989, as amended September 23, 1992.
The agreement was amended and restated as of June 17, 1998 to make certain minor
changes and again on May 18, 1999, to reflect the formation of the Company as
the holding company of the Bank, among other things. The initial term of the
agreement is three years, with the term automatically extended by one day for
each day that Mr. Grey is employed by the Company and the Bank. The agreement
provides for an annual base salary that was initially set at $145,000, but is
subject to increase from time to time (which increased amount becomes a floor
below which Mr. Grey's annual base salary may not fall during the term of the
agreement), and certain other benefits, including an automobile allowance and
payment of the annual premiums on certain life insurance and supplemental
disability insurance policies ("Additional Benefits"). If Mr. Grey terminates
his employment for Good Reason (as defined below) or if the Company or the Bank
terminates his employment without cause, Mr. Grey will be entitled to a
severance benefit equal to three times the sum of (i) Mr. Grey's then current
annual base salary, (ii) the highest annual bonus paid to him during the three
fiscal years preceding the termination of employment, and (iii) the highest
annual payments that the Bank made to Mr. Grey for Additional Benefits during
the three fiscal years preceding the termination of employment. As of November
13, 2000, Mr. Grey's annual base salary is $239,200.
"Good Reason" is defined in Mr. Grey's employment agreement to include
failure of the Boards of Directors of the Company and the Bank to elect Mr. Grey
to the office of President and Chief Executive Officer of the Company and the
Bank, respectively, diminution of Mr. Grey's annual base salary, a significant
change in the nature or scope of Mr. Grey's responsibilities or an uncured
breach by the Bank of any of the provisions of the agreement. It also includes
the following events if they occur within two years following a change in
control (as defined in the agreement): failure by the Bank to continue to
provide Mr. Grey with benefits substantially similar to those available to him
prior to the change in control; a reasonable determination by Mr. Grey that, as
a result of a change in control, he is unable to exercise the responsibilities
exercised by him immediately prior to the change in control or that his working
conditions have significantly worsened; or the failure of the Bank to obtain a
satisfactory agreement from any successor to assume and agree to perform this
agreement.
The Bank entered into a severance agreement with Thomas R. Girard on June
18, 1997, which was amended and restated on May 18, 1999, to reflect the
formation of the Company as the holding company of the Bank, among other things.
The agreement provides that if, within three months following a change in
control (as defined in the agreement), (I) Mr. Girard terminates his employment
following a reduction in his commission schedule (other than a reduction based
on the Bank's financial performance) or (ii) Mr. Girard's employment is
terminated by the Bank without "cause", Mr. Girard would be entitled to receive
a lump-sum payment equal to the lesser of his compensation during the fiscal
year preceding the date of termination of his employment or $150,000.
The Bank entered into an employment agreement with Francis Kenney on June
18, 1997, which was amended and restated on June 17, 1998 and again on May 18,
1999, to reflect the formation of the Company as the holding company of the
Bank, among other things. The initial term of the agreement is 18 months, with
the term automatically extended by one day for each day that Mr. Kenney is
employed by the Company and the Bank. The agreement provides for an annual base
salary that was initially set at $65,000, but is subject to increase from time
to time (which increased amount becomes a floor below which Mr. Kenney's annual
base salary may not fall during the term of the agreement), and certain other
benefits in effect for other senior executive officers. If Mr. Kenney terminates
his employment for Good Reason or if the Company or the Bank terminates his
employment without cause, Mr. Kenney will be entitled to a severance benefit
equal to 150% of the sum of (i) the annual bonus paid to him during the
- 13 -
fiscal year preceding the termination of employment and (ii) Mr. Kenney's then
current annual base salary. Good Reason has substantially the same meaning in
Mr. Kenney's agreement as in Mr. Grey's. As of January 1, 2001, Mr. Kenney's
annual base salary is $98,600.
Retirement Benefit
The Bank has entered into a Split Dollar Agreement (the "Agreement") with
David L. Grey and has established a related insurance trust (the "Trust") for
the purpose of providing a retirement benefit to Mr. Grey. The Agreement was
entered into in light of the Bank's discontinuance of its qualified pension plan
as part of its recapitalization efforts in 1991. Pursuant to the Agreement, the
Bank has purchased a variable life insurance policy on the life of Mr. Grey,
with Mr. Grey as the owner and the beneficiary (the "Policy"). The Agreement
generally provides that the Bank will contribute $60,000 to the Trust each year
until 2020, an amount necessary to permit the Trust to pay the premiums due
under the Policy.
Although Mr. Grey is the owner of the Policy, the Trust has the right to
receive reimbursement, under certain circumstances, of all or a portion of the
premiums paid under the Policy, or, if less, the cash surrender value of the
Policy (the "Premium Reimbursement"). Mr. Grey has granted to the Trust a
collateral assignment in the Policy for purposes of such reimbursement. The
circumstances under which the Trust would be entitled to receive all of the
Premium Reimbursement include (i) termination of Mr. Grey's employment for
"cause"; and (ii) appointment of a conservator or a receiver for the Bank.
"Cause" is defined to include termination only as a result of Mr. Grey's
deliberate dishonesty with respect to the Bank that results in his conviction of
a crime. The Trust is obligated to pay over to the Bank any Premium
Reimbursement amounts it receives.
In the event of termination of Mr. Grey's employment upon retirement or for
any other reason except for "cause," the Bank's obligation to pay premiums shall
cease, and the Trust is required to release the collateral assignment to Mr.
Grey (subject to the Trust's right, if any, to receive a Premium Reimbursement
payment as described above). Following such release, Mr. Grey will own the
Policy free of any lien or encumbrance. In the event of Mr. Grey's death, his
beneficiaries would be entitled to receive a death benefit under the Policy of
approximately $1,500,000, subject to the Trust's right to receive the portion of
the Premium Reimbursement, if any, that it would otherwise be entitled to
receive.
Retirement Plan
The Bank maintains a 401(k) retirement plan with the Savings Bank Employees
Retirement Association of Massachusetts. Any employee of the Bank who has
attained the age of 21 and has worked for the Bank for ninety continuous days
may join the plan. A participant may contribute up to 15% of salary, subject to
an annual dollar limitation which is adjusted yearly. Contributions by highly
compensated employees as defined under the plan are subject to other limits
under Federal law. The Bank will match 50% of any participant's contribution to
a maximum of 3% of such participant's salary after one continuous year of
service.
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
Some of the directors and principal officers of the Company and the Bank,
as well as members of their immediate families and companies, organizations,
trusts and other entities with which they are associated are, or during 2000
were, customers of the Bank in the ordinary course of business or had loans
outstanding from the Bank during 2000, including loans of $60,000 or more. It is
anticipated that such persons and their associates will continue to be customers
of and indebted to the Bank in the future. All such loans were made in the
ordinary course of business, did not involve more than normal risk of
collectibility or present other unfavorable features, were made on substantially
the same terms, including
- 14 -
interest rates and collateral, as prevailed at the same time for comparable
transactions with unaffiliated persons and, when required by law, were approved
by the Board of Directors prior to closing. All loans to directors, executive
officers or their associates at December 31, 2000 have performed in accordance
with their original terms.
The Bank employs the law firm of Tinti, Quinn, Grover & Frey P.C. for real
estate conveyancing and other legal work. William Tinti, a director of the
Company and the Bank, is President of the law firm. Mr. Tinti has estimated
that, in 2000, the firm received legal fees of approximately $152,665 in
connection with legal work it handled for the Bank, including fees paid directly
by the Bank and fees paid by borrowers in connection with real estate closings.
The Company purchases some of its insurance through Hastings Tapley
Insurance Agency, of which John Morrow, a director of the Company, is a Vice
President. The Company paid approximately $61,192 to the insurance agency in
2000 for insurance premiums for a three-year period.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 5, 2001
regarding (i) each person known by the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each director and each nominee for director,
(iii) the executive officers named in the Summary Compensation Table, and (iv)
all directors and executive officers of the Company as a group. Except as
otherwise indicated in the footnotes to the table, the beneficial owners have
sole voting and investment power as to all shares beneficially owned by them.
Amount and Nature Percent
Of Beneficial of
Name and Address Ownership (1) Class
- ---------------- ----------------- -------
David L. Grey 357,419 (2) 16.7%
c/o Ipswich Savings Bank
23 Market Street
Ipswich, Massachusetts 01938
Polaris Capital Management, Inc. 126,500 (3) 6.2
125 Summer Street
Boston, Massachusetts 02110
William M. Craft 29,825 (4) 1.5
Thomas A. Ellsworth 8,000 (5) 0.4
William E. George 65,300 (6) 3.2
Thomas R. Girard 16,460 (7) 0.8
Francis Kenney 29,482 (8) 1.4
John H. Morrow 7,720 (10) 0.4
Lawrence J. Pszenny 72,500 (11) 3.5
William J. Tinti 30,000 (12) 1.5
All executive offers and 617,624 (13) 27.8
directors as a group (11 persons)
- 15 -
- -------------------
(1) For purposes of this table, a person is deemed to be the beneficial owner
of any shares of Common Stock if he has or shares voting power or
investment power with respect to such shares, or has the right to acquire
beneficial ownership of such shares at any time within 60 days of the date
of this table.
(2) Includes 34,538 shares held by Mr. Grey's IRA, 125,808 shares held jointly
with his wife, 50,740 shares held by his wife, 24,881 shares held by his
wife in her IRA, 1,350 shares held by his wife as custodian for their two
daughters, 20,102 shares held in his 401(k) retirement plan, and 100,000
shares subject to currently exercisable options.
(3) The Company has received a Schedule 13G, dated March 4, 1999, which states
that Polaris Capital Management, Inc., a registered investment adviser,
beneficially owns 142,500 shares of Common Stock in its capacity as
investment advisor to certain institutional and individual investors who
have purchased the shares. The Schedule 13G states that Polaris Capital
Management, Inc. has sole voting and dispositive power over these shares.
The Company has been advised that Polaris Capital sold 16,000 shares of
Common Stock on January 24, 2001.
(4) Includes 10,325 shares held by Dr. Craft's IRA, 8,500 shares owned jointly
with his wife, and 2,000 shares held jointly with each of two sons (4,000
shares total) and 7,000 shares subject to currently exercisable options.
(5) Includes 7,000 shares subject to currently exercisable options. Does not
include 2,149 stock units allocated to Mr. Ellsworth's account pursuant to
the Company's deferred compensation plan for directors.
(6) Includes 50,000 shares held by Mr. George's IRA, 300 shares owned by his
wife and 15,000 shares subject to currently exercisable options.
(7) Includes 5,000 shares owned jointly by Mr. Girard and family members, 2,849
shares held in Mr. Girard's 401(k) retirement plan and 8,376 shares subject
to currently exercisable options.
(8) Includes 11,150 shares owned jointly by Mr. Kenney with his wife, 2,332
shares held in Mr. Kenney's 401(k) retirement plan and 16,000 shares
subject to currently exercisable options.
(9) Includes 720 shares owned jointly by Mr. Morrow with his wife and 7,000
shares subject to currently exercisable options. Does not include 2,190
stock units allocated to Mr. Morrow's account pursuant to the Company's
deferred compensation plan for directors.
(10) Includes 35,500 shares owned jointly by Mr. Pszenny with his wife, 3,000
shares held by his IRA, 1,000 shares held by his wife, 1,000 shares held as
custodian for his minor child, 2,000 shares owned by his children as to
which shares Mr. Pszenny disclaims beneficial ownership and 15,000 shares
subject to currently exercisable options. Does not include 2,270 stock
units allocated to his account pursuant to the Company's deferred
compensation plan for directors.
(11) Includes 25,000 shares held by Mr. Tinti's IRA and 5,000 shares subject to
currently exercisable options.
(12) Includes 181,294 shares subject to currently exercisable options held by
all directors and executive officers as a group.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors, and
greater-than-10% shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
- 16 -
Based solely on review of copies of such forms furnished to the Company,
the Company believes that during 2000 all Section 16(a) filing requirements
applicable to its officers, directors, and greater-than-10% beneficial owners
were complied with, except that the Form 3s filed by Michael Allard and Mark
Foley were not timely filed.
INFORMATION CONCERNING AUDITORS
The Board of Directors has not yet selected an independent accountant to
audit the Company's financial statements for the current fiscal year. The Audit
Committee intends to meet in May 2001 to recommend to the Board the selection of
the Company's independent auditor for the 2001 fiscal year.
The firm of Baker Newman & Noyes LLC served as the Company's auditors
during the past fiscal year. A representative of Baker Newman & Noyes LLC is
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if he or she desires to do so and will be available to respond
to appropriate questions.
Audit Fees
The aggregate fees billed by Baker, Newman & Noyes LLC for professional
services rendered for the audit of the Company's annual financial statements for
the fiscal year ended December 31, 2000 and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for that
fiscal year were $62,895.
Financial Information Systems Design And Implementation Fees
Baker Newman & Noyes LLC billed no fees for professional services rendered
to the Company for information technology services relating to financial
information systems design and implementation for the fiscal year ended December
31, 2000.
All Other Fees
The aggregate fees billed by Baker Newman & Noyes LLC for services rendered
to the Company during the fiscal year ended December 31, 2000 other than for the
services described above under "Audit Fees" were $14,715. The Audit Committee
has determined that the provision of such services is compatible with
maintaining the independence of Baker Newman & Noyes LLC.
SOLICITATION
The cost of solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, the directors, officers and
employees of the Company may also solicit proxies personally or by telephone,
telecopier or similar means. The Company will also request persons, firms and
corporations holding shares which are beneficially owned by others to send proxy
materials to and obtain proxy instructions from such beneficial owners. The
Company will reimburse those holders for their reasonable expenses.
- 17 -
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
In order to be included in proxy materials for the 2002 annual meeting of
stockholders or special meeting in lieu thereof, qualifying stockholder
proposals must be delivered to the Company at its principal executive offices on
or before November 29, 2001. Any such proposals should be mailed to: Clerk,
Ipswich Bancshares, Inc., 23 Market Street, Ipswich, Massachusetts 01938.
In addition, Section 2 of Article II of the Company's by-laws requires that
a stockholder who wishes to propose an item of business for consideration at the
annual meeting must provide notice of such item of business to the Company at
its principal executive offices not less than 60 days nor more than 150 days
before the date for such meeting. For next year's scheduled annual meeting, the
deadline for submission of notice is February 23, 2002. Section 3 of Article III
of the by-laws imposes the same deadline on the nomination by a stockholder of a
candidate for election to the Board of Directors. Any proposal or nomination
submitted after February 23, 2002 will be untimely. The by-laws contain a number
of other substantive and procedural requirements which should be reviewed by any
interested stockholder. A copy of the Company's By-Laws will be provided to any
stockholder of the Company at no cost upon written request to the Clerk of the
Company.
At the 2002 annual meeting of stockholders or special meeting in lieu
thereof, the persons named as proxies in the Company's proxy for the meeting may
vote the proxy in their discretion on any proposal received by the Company after
February 12, 2002.
MISCELLANEOUS
The Board was not aware, a reasonable time before mailing this Proxy
Statement to stockholders, of any business that may properly be presented at the
Annual Meeting, other than the matters specifically listed in the Notice of
Annual Meeting of Stockholders. No stockholder proposals or stockholder nominee
was submitted timely to the Company. However, if any other business is properly
presented, the persons present will have discretionary authority to vote the
shares they own or represent by proxy in accordance with their judgment.
- 18 -
Appendix A
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in
monitoring the (1) integrity of the financial statements of the Company, (2)
compliance by the Company with legal and regulatory requirements and (3)
independence and performance of the Company's internal and external auditors.
The members of the Audit Committee shall meet the independence and
experience requirements of the Nasdaq National Market. The members of the Audit
Committee shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal,
accounting or other consultants to advise the Committee. The Audit Committee may
request any officer or employee of the Company or the Company's outside counsel
or independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall --
1. Review and reassess the adequacy of this Charter annually and submit
it to the Board for approval.
2. Review the annual audited financial statements with management,
including major issues regarding accounting and auditing principles
and practices, as well as the adequacy of internal controls that could
significantly affect the Company's financial statements.
3. Review an analysis prepared by management and the independent auditor
of significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial statements.
4. Review with management and the independent auditor, the Company's
quarterly financial statements prior to the release of the quarterly
Form 10-Q.
5. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to monitor
and control such exposures.
6. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management.
7. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Audit Committee and the
Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, and if
so determined by the Audit Committee, recommend that the Board take
appropriate action to insure the independence of the auditor.
10. Evaluate the performance of the independent auditor and, if so
determined by the Audit Committee, recommend that the Board replace
the independent auditor.
A-1
11. Review the appointment and replacement of the internal auditing
outsourcing firm.
12. Review significant reports to management prepared by the internal
auditing function and management's responses.
13. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit.
14. Obtain from the independent auditor assurance that Section 10A of the
Private Securities Litigation Reform Act of 1995 has not been
implicated.
15. Obtain reports from management, the Company's internal auditing firm
and the independent auditor that the Company's subsidiaries are in
conformity with applicable legal requirements and the Company's Code
of Conduct.
16. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit.
17. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by the
auditor and the Company's response to that letter. Such review should
include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access
to required information.
(b) Any changes required in the planned scope of the internal audit.
(c) The internal audit department responsibilities, budget and
staffing.
18. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement.
19. Advise the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations and with the
Company's Code of Conduct.
20. Review with legal counsel legal matters that may have a material
impact on the financial statements, the Company's compliance policies
and any material reports or inquiries received from regulators or
governmental agencies.
21. Review all regulatory reports and management's responses to such for
adequacy.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of conduct.
A-2
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