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 (AMENDMENT NO. __)
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
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Human Pheromone Sciences, Inc.
----------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions 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.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act 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:
HUMAN PHEROMONE SCIENCES, INC.
Notice of Annual Meeting of Shareholders
to be held September 19, 2001
------------------------------------
To the Shareholders of Human Pheromone Sciences, Inc.:
The annual meeting of shareholders (the "Annual Meeting") of Human
Pheromone Sciences, Inc. (the "Company") will be held at the offices of Heller
Ehrman White & Mc Auliffe LLP, 275 Middlefield Road, Menlo Park, California, on
September 19, 2001, at 10:00 a.m. local time, for the following purposes:
(1) To elect five Directors to hold office until the next annual
meeting;
(2) To act upon such other business as may properly come before the
meeting.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only shareholders of record at the close of business on July 23, 2001
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof.
All shareholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please mark, sign, date
and return the enclosed proxy card as soon as possible in the postage-prepaid
envelope enclosed for that purpose. Any shareholder attending the meeting may
vote in person even if the shareholder has returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Julian N. Stern, Secretary
San Jose, California
July 27, 2001
================================================================================
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE SIGN
AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTPAID
ENVELOPE. THANK YOU FOR ACTING PROMPTLY.
================================================================================
HUMAN PHEROMONE SCIENCES, INC.
84 West Santa Clara Street, Suite 720
San Jose, California 95113
Telephone: (408) 938-3030
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PROXY STATEMENT
-----------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board") of Human Pheromone Sciences, Inc., a California corporation (the
"Company"). The proxy is solicited for use at the annual meeting of shareholders
(the "Annual Meeting") to be held at 10:00 a.m. local time on September 19,
2001, at the offices of Heller Ehrman White & Mc Auliffe LLP, 275 Middlefield
Road, Menlo Park, California. The approximate date on which this proxy statement
and accompanying notice and proxy are being mailed to shareholders is July 30,
2001.
Record Date and Shares Outstanding
Only shareholders of record at the close of business on July 23, 2001
are entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof. At the close of business on that date,
the Company had outstanding 3,429,839 shares of common stock, 1,433,333 shares
of Series AA preferred stock and 17,448 shares of Series BB preferred stock.
Holders of a majority of the outstanding shares of common and the outstanding
shares of preferred stock of the Company, either present in person or by proxy,
will constitute a quorum for the transaction of business at the Annual Meeting.
Revocability of Proxies
Any shareholder giving a proxy in the form accompanying this proxy
statement has the power to revoke the proxy prior to its exercise. A proxy can
be revoked by an instrument of revocation delivered prior to the Annual Meeting
to the Secretary of the Company, by a duly executed proxy bearing a later date
or time than the date or time of the proxy being revoked, or at the Annual
Meeting if the shareholder is present and elects to vote in person. Mere
attendance at the Annual Meeting will not serve to revoke a proxy.
Voting and Solicitation
On all matters that come before the Annual Meeting, holders of the
Series BB Preferred Stock are entitled to 33 votes for each share held; all
other shareholders are entitled to one vote for each share held. In the election
of Directors, the holders of Series AA Preferred Stock are entitled to elect one
director, and all shareholders voting together as a single class elect the
remaining four directors. Mr. Kaufman has been nominated for election by the
holders of the Series AA Preferred Stock, and the other four nominees have been
nominated for election by all shareholders.
A shareholder has the right to request cumulative voting for the
election of directors by giving notice of such shareholder's intention to
cumulate votes at the meeting prior to the voting. Cumulative voting allows a
shareholder to cast that number of votes which equals the number of directors to
be elected multiplied by the number of votes the Shares held by such shareholder
are entitled to and to distribute those votes among the nominees as the
shareholder may choose. However, no shareholder shall be entitled to vote for
more than one candidate to be elected by the Series AA Preferred Stock or more
than four candidates to be elected by all the shareholders, and votes may not be
cast in favor of a candidate unless the candidate's name has been placed in
nomination prior to the voting. In the election of Directors, the candidate
receiving the highest number of affirmative votes of the Series AA Preferred
Stock and the four other candidates receiving the highest number of affirmative
votes of all shares represented and voting at the Annual Meeting will be elected
directors.
-2-
Abstentions and broker non-votes will be counted in determining whether
a quorum is present at the Annual Meeting. Generally, abstentions are counted as
votes against a proposal for purpose of determining whether or not a proposal
has been approved, whereas broker non-votes are not counted for such purpose.
The Company will bear the entire cost of solicitation, including
preparation, assembling and mailing this proxy statement, the proxies and any
additional material which may be furnished to shareholders. The Company will,
upon request, reimburse the reasonable charges and expenses of brokerage houses
or other nominees or fiduciaries for forwarding proxy materials to, and
obtaining authority to execute proxies from, beneficial owners for whose
accounts they hold shares of common stock. The original solicitation of proxies
by mail may be supplemented by telephone, telegram and/or personal solicitation
by directors, officers or employees of the Company. No additional compensation
will be paid for such services.
-3-
PROPOSAL 1 -- ELECTION OF DIRECTORS
Each of the five directors to be elected will hold office until the
next annual meeting of the shareholders or until a successor shall be elected
and qualified. The following individuals are proposed for election:
Name Age Principal Occupation
- ---- --- --------------------
William P. Horgan* 53 Chairman of the Board of Directors,
Chief Executive Officer and Director
Bernard I. Grosser, MD* 72 Director
Michael D. Kaufman** 60 Director
Helen C. Leong* 73 Director
Robert Marx* 70 Director
--------------------
* Nominee to be voted on by all shareholders.
** Nominee to be voted on by the holders of the Series AA Preferred Stock.
William P. Horgan was appointed Chairman of the Board in November 1996
after serving as President, Chief Executive Officer and Director since January
1994, when he joined the Company. From May 1992 to January 1994, he served as
Chief Financial and Administrative Officer of Geobiotics, Inc., a
biotechnology-based development stage company.
Bernard I. Grosser, MD has served as a Director since March 1992. Dr.
Grosser is Chairman of the Department of Psychiatry at the University of Utah
and has served in that capacity since 1982. Dr. Grosser has conducted extensive
research related to hormonal target areas of the brain.
Michael D. Kaufman, a Director since August 1997, is Managing General
Partner of MK Global Ventures, a firm he founded in 1987. Prior to 1987, Mr.
Kaufman spent six years as a General Partner of Oak Investment Partners, where
he was involved in the formation of numerous technology companies. He has served
as founding investor and director of Businessland, Davox, Katun, Easel, Ekco,
Interlan and Zycad, among others. Prior to becoming a Partner of Oak Investment
Partners, Mr. Kaufman was President and COO of Centronics Data Corporation, a
$150 million NYSE-listed manufacturer of computer-related printing devices.
Helen C. Leong has served as a Director since April 1993. Mrs. Leong is
and has been for more than five years the managing partner of Leong Ventures,
which makes investments in the areas of biogenetics and health-oriented
technologies. She is a general partner of CLW Associates, which specializes in
real estate and start-up businesses in consumer fields. Mrs. Leong is also a
founder of Mid-Peninsula Bank of Palo Alto where she has served as a director
since 1988.
Robert Marx has served as a Director since October 1994. Mr. Marx was
the founder and Co-Chief Executive Officer of Gildamarx Incorporated, a firm
specializing in designing and manufacturing exercise apparel and products for
active lifestyles from 1979 until the sale of the company in 1996. He is an
Executive Committee member of the Board of Directors of The City of Hope
National Medical Center.
There are no family relationships among directors or executive officers
of the Company.
-4-
Required Vote
The nominee receiving the highest number of affirmative votes of the
Series AA Preferred Stock and the four other nominees receiving the highest
number of affirmative votes of all shares present or represented and entitled to
be voted for them will be elected as directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION
OF THE NOMINEES.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June 30, 2001 by: (i)
each person who is known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's executive
officers named in the Summary Compensation Table; (iii) each of the Company's
directors; and (iv) by all directors and executive officers as a group. In
computing the number of Shares beneficially owned by a person and the percentage
of ownership of that person, shares of Common Stock subject to options held by
that person that are currently exercisable or exercisable within 60 days of June
30, 2001 (see notes (1) and (6) for exceptions) are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of each other person. The percentage of beneficial
ownership is based on 3,686,504 shares of Common Stock outstanding as of June
30, 2001. Except as otherwise indicated, the Company believes that the
beneficial owners of the securities listed below, based on information furnished
by such owners, have sole investment and voting power with respect to the Common
Stock shown as being beneficially owned by them:
Directors, Nominees, Officers And 5% Stockholders Shares Beneficially Owned Percent Of Class
------------------------------------------------- ------------------------- ----------------
William P. Horgan(1) 158,663 4.5%
Bernard I. Grosser, M.D.(2) 107,736 3.1
Helen C. Leong(3) 103,872 3.0
Michael D. Kaufman(4) 392,886 11.3
Robert Marx(5) 81,905 2.4
All executive officers and directors as a group (5 persons)(6) 845,062 22.9
<FN>
(1) Includes 151,330 shares issuable on exercise of outstanding options, of
which 62,829 are exercisable
(2) Includes 52,219 shares issuable on exercise of outstanding options.
(3) Includes 52,219 shares issuable on exercise of outstanding options.
(4) Includes 279,166 shares held in the name of partnerships and 38,887 shares
issuable on exercise of outstanding options.
(5) Includes 48,886 shares issuable on exercise of outstanding options
(6) Includes 343,541 shares issuable on exercise of outstanding options.
</FN>
-5-
Board Compensation
Directors currently are not compensated for attending Board meetings,
but are reimbursed for their reasonable expenses incurred in attendance. The
Company's Non-Employee Directors' Stock Option Plan (the "Directors' Plan")
provides for the automatic grant of 8,333 shares of common stock if a person who
is neither an officer nor an employee of the Company and who has not previously
been a member of the Board is elected or appointed director. Each such option
will become exercisable at the rate of one-twelfth of the number of shares
covered by the option each month following the grant date, so long as the
individual is serving as a director, with full vesting over one year. In
addition, in June of each year, the Company is required to grant to each
non-employee director a 10-year Non-Qualified Option to purchase 3,333 shares of
the Company's common stock at an exercise price equal to the fair market value
of common stock on the date of the grant. These options will vest one-twelfth
per month after the date of grant, as long as the individual is serving as a
director, with full vesting over one year. The exercise price of all options
granted pursuant to the Directors' Plan is the fair market value of the
Company's common stock at the time of grant. A total of 145,000 shares are
reserved for issuance under the Directors' Plan.
In September 2000, the independent directors received a grant of 20,000
options under the Company's Stock Option Plan at an exercise price of $1.03 per
share, the fair market value at date of grant. The options vest one-twelfth per
month after the date of grant, as long as the individual is serving as a
director, with full vesting over one year.
Board Meetings and Committees of the Board
The Board of Directors met six times in 2000. Each director
participated in at least 75% of the meetings of the Board.
The Board of Directors has an Audit Committee and a Compensation and
Stock Option Committee.
The Audit Committee of the Board of Directors, whose members are Mr.
Kaufman, Dr. Grosser, and Mr. Marx, held one meeting during 2000, with all
director members in attendance at such meeting. The Audit Committee's purpose is
to consult with the Company's independent auditors concerning their audit plans,
the results of the audit, the Company's accounting principles and the adequacy
of the Company's general accounting controls.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of Human Pheromone
Sciences, Inc. serves as the representative of the Board of Directors for
general oversight of the Company's financial accounting and reporting process,
system of internal controls, audit process, and process for monitoring
compliance with laws and regulations. Each of the members of the Audit Committee
is independent, as defined under the listing standards of NASDAQ. The committee
operates under a written charter adopted by the Board of Directors and attached
to this Proxy Statement as Appendix A. HPS management has primary responsibility
for preparing the Company's financial statements and for the Company's financial
reporting process. HPS independent auditors, BDO Seidman LLP, are responsible
for expressing an opinion on the conformity of the Company's audited
consolidated financial statements to accounting principles generally accepted in
the U.S.
In this context and in connection with the audited consolidated
financial statements contained in the Company's Annual Report on Form 10KSB, the
Audit Committee:
o reviewed the audited consolidated financial statements with the
Company's management;
o discussed with BDO Seidman LLP, the Company's independent auditors,
certain matters related to the conduct of the audit, as required by
Statement of Auditing Standards No. 61, Communications with Audit
Committees;
-6-
o met with the independent auditors, with and without management present,
to discuss the results of their examination, their evaluations of the
Company's internal controls, and the overall quality of the Company's
financial reporting;
o reviewed the written disclosures required by Independence Standard
Board Standard No.1, "Independence Discussions with Audit Committees,"
discussed with the auditors their independence from the Company, and
concluded that the non-audit services performed by BDO Seidman LLP are
compatible with maintaining their independence; and
o instructed the independent auditors that the Committee expects to be
advised if there are any subjects that require special attention.
Relationship with Independent Accountants
BDO Seidman LLP has acted as the Company's independent auditors for the
past two years. In accordance with standard policy, BDO Seidman LLP periodically
changes the individuals who are responsible for the Company's audit.
In addition to performing the audit of the Company's consolidated
financial statements for the year 2000, BDO Seidman LLP provided various other
services during the year. The aggregate fees billed for 2000 are as follows:
Audit Fees (2000 audit) $62,390.00
All Other Fees
Comprising: Audit-related services $12,665.00
Non-audit services
Audit-related services include review of SEC registration statements,
issuance of comfort letters and consents, consultations regarding the effects of
various accounting transactions and changes in professional standards. Non-audit
services include tax consultations and preparation of Federal and State Tax
Returns. BDO Seidman LLP did not provide any services related to financial
information systems design and implementation during 2000.
As reported on Form 8-K, dated June 15, 2001, the Audit Committee of
the Company authorized the termination of BDO Seidman LLP as auditors of the
Company effective June 15, 2001. The reports of BDO Seidman LLP on the Company's
financial statements for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 2000, and in the subsequent
interim period through the date hereof, there were no disagreements with BDO
Seidman LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of BDO Seidman LLP would have caused BDO Seidman LLP to make
reference to the matter in their report.
As reported on Form 8-K, dated June 29, 2001, the Company engaged
Singer, Lewak, Greenbaum & Goldstein, LLP as the Company's independent auditors
to replace BDO Seidman LLP.
The Company does not anticipate that representatives from these firms
will be present at the Annual Meeting.
-7-
The Compensation and Stock Option Committee of the Board of Directors,
whose members are Mrs. Leong, Dr. Grosser and Mr. Marx, held two meetings during
1999, with all director members in attendance at such meetings. The Compensation
Committee is responsible for determining salaries, incentives and other forms of
compensation for officers and other employees of the Company and administers
various benefit plans.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation for 2000, 1999
and 1998 of the Chief Executive Officer and each of the other executive officers
of the Company whose total salary and bonus for 2000 exceeded $100,000 (the
"Named Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
Award
-----
Securities
Underlying Other
Name and Principal Position Year Salary Options (#) Compensation
--------------------------- ---- ------ ----------- ------------
William P. Horgan 2000 $193,000 118,000 $18,000 (A)
Chairman of the Board and Chief 1999 $193,000 -- 4,500 (A)
Executive Officer 1998 $193,000 --
<FN>
(A) Mr. Horgan was granted an
automobile allowance of $18,000 per
year, payable semimonthly, in October
1999.
</FN>
Stock Options Granted in the Fiscal Year Ended December 31, 2000
The following table sets forth information with respect to stock
options granted during the fiscal year ended December 31, 2000 to each of the
named executive officers. All options were granted under EROX Corporation Stock
Option Plan. Options granted under the Plan are exercisable over periods not to
exceed four years and expire not more than 10 years from date of grant.
The percentage of options granted is based on an aggregate of 128,000
options granted by the Company during the fiscal year ended December 31, 2000 to
two employees, including the named executive officer.
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise
Options in Fiscal Price Per Expiration
Name Granted Year Share Date
----------------------- ---------- ----------- --------- ----------
William P. Horgan 118,000 92% $1.03 9/18/06
-8-
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information concerning the
number of unexercised options held as of December 31, 2000 by the Named
Officers.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options at
December 31, 2000 December 31, 2000
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
(#) ($)(1)
--- ------
William P. Horgan 62,829/88,501 $ 0 / $ 0
- --------------------------------------------------------------------------------
(1) Assuming a stock price of $.25 per share, which was the closing price of a
Share of Common Stock reported on the NASDAQ National Market on December 31,
2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1991, the Company transferred to Pherin Corporation
("Pherin"), a newly formed California corporation, all of the Company's
rights to its human pheromone technology for use other than in the
consumer products field, together with $2 million in cash, in exchange
for all of the stock of Pherin. Upon approval by its shareholders at
the Annual Meeting held in August 1991, the Company distributed to its
shareholders all of the stock of Pherin. Certain stockholders
identified under "Principal Stockholders" above are also stockholders
of Pherin.
The Company and Pherin have been parties to a research and
development agreement and a supply agreement since 1996. In 2000 under
the R & D agreement, the Company paid to Pherin $250,000 for research
and development services. As a result of the initial third party supply
agreement entered into in December 1998, the Company required
significantly more production of the synthesized human pheromones than
were needed in the past. In January 1999, the Company and Pherin
contracted with two independent laboratories to manufacture kilogram
quantities of the synthesized human pheromones under the direction of
scientists working on behalf of the Company and Pherin. One of these
laboratories was capable of supplying all of the pheromone needs of the
Company in the year 2000.
In May 1999, the Company entered into a marketing and business
consulting agreement with Robert Marx, one of its directors. The
agreement provided for a payment of $2,000 per week for the development
of a new line of products to be introduced on the Internet, the
development of the Internet site and arranging for potential celebrity
endorsement of the new product line. Under this agreement, which is
cancelable by the Company with two weeks notice, Mr. Marx received
$48,000 during 2000. The product line was completed in 2000 and the
agreement with Mr. Marx was terminated in July 2000.
-9-
SECTION 16(a) BENEFICIAL OWNERSHIP
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the outstanding shares of the Company's Common Stock, to file
with the Securities and Exchange Commission initial reports of ownership (Form
3) and changes in ownership of such stock (Forms 4 and 5).
To the Company's knowledge, based solely upon review of the copies of
such reports and certain representations furnished to it, all Section 16(a)
filing requirements applicable to its executive officers and directors were
complied with during the year ended December 31, 2000.
OTHER BUSINESS
The Board of Directors knows of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
Meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their best
judgment.
SHAREHOLDER PROPOSAL
Under the rules of the Securities and Exchange Commission, shareholders
who wish to submit proposals for inclusion in the Proxy Statement for the Annual
Meeting of Shareholders to be held in 2002 must submit such proposals so as to
be received by the Company at 84 West Santa Clara Street, Suite 720, San Jose,
California 95113 not later than March 29, 2002.
BY ORDER OF THE BOARD OF DIRECTORS
Julian N. Stern, Secretary
San Jose, California
July 27, 2001
IMPORTANT
You are cordially invited to attend the meeting in person. Whether or
not you plan to attend the meeting, you are earnestly requested to sign and
return the accompanying proxy in the enclosed envelope.
-10-
Appendix A
- ----------
AUDIT COMMITTEE CHARTER
Adopted by the Board of Directors of
Human Pheromone Sciences, Inc.
Composition:
The audit committee shall be composed of three or more directors, as determined
by the board of directors, who shall meet the independence and financial
literacy requirements of NASDAQ, and at least one of whom shall have past
employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
Unless a chair is designated by the board of directors, the committee members
may appoint their own chair by majority vote.
Responsibilities
1. Recommend to the board of directors the selection of the independent auditor,
evaluate the performance of the independent auditor and, if so determined by the
audit committee, recommend to the board of directors replacement of the
independent auditor; it being acknowledged that the independent auditor is
ultimately accountable to the board of directors and the audit committee, as
representatives of the stockholders.
2. Ensure the receipt of, and evaluate, the written disclosures and the letter
that the independent auditor submits to the audit committee regarding the
auditor's independence in accordance with Independence Standards Board Standard
No. 1, discuss such reports with the auditor and, if so determined by the audit
committee in response to such reports, recommend that the board of directors
take appropriate action to address issues raised by such evaluation.
3. Discuss with the independent auditor the matters required to be discussed by
SAS 61, as it may be modified or supplemented.
4. Instruct the independent auditor and the internal auditor, if any, that the
Committee expects to be advised if there are any subjects that require special
attention.
5. Meet with management and the independent auditor to discuss the annual
financial statements and the report of the independent auditor thereon, and to
discuss significant
issues encountered in the course of the audit work, including restrictions on
the scope of activities, access to required information and the adequacy of
internal financial controls.
6. Review the management letter delivered by the independent auditor in
connection with the audit.
7. Following such review and discussions, if so determined by the audit
committee, recommend to the board of directors that the annual financial
statements be included in the company's annual report.
8. Meet quarterly with management and the independent auditor to discuss the
quarterly financial statements prior to the filing of the Form 10Q; provided
that this responsibility may be delegated to the chairman of the audit
committee.
9. Meet at least once each year in separate executive sessions with management,
the internal auditor, if any, and the independent auditor to discuss matters
that any of them or the committee believes could significantly affect the
financial statements and should be discussed privately.
10. Have such meetings with management, the independent auditor and the internal
auditor, if any, as the audit committee deems appropriate to discuss the concept
and design of the company's information and reporting systems and the steps
management has taken to address significant issues concerning those matters, and
to discuss significant financial risk exposures facing the company and the steps
management has taken to monitor and control such exposures.
11. Review significant changes to the company's accounting principles and
practices proposed by the independent auditor, the internal auditor, if any, or
management.
12. Review the scope and results of internal audits.
13. Evaluate the performance of the internal auditor, if any, and, if so
determined by the audit committee, recommend replacement of the internal
auditor, if any.
14. Conduct or authorize such inquiries into matters within the committee's
scope of responsibility as the committee deems appropriate. The committee shall
be empowered to retain independent counsel and other professionals to assist in
the conduct of any such inquiries.
15. Provide minutes of audit committee meetings to the board of directors, and
report to the board of directors on any significant matters arising from the
committee's work.
16. At least annually, review and reassess this charter and, if appropriate,
recommend proposed changes to the board of directors.
2
17. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the company's annual proxy statement at such time
as the Company may become subject to such rules.
18. In the performance of its responsibilities, the Audit Committee is the
representative of the shareholders. However, it is not the responsibility of the
Audit Committee to plan or conduct audits, or to determine whether the company's
financial statements are complete and accurate or in accordance with generally
accepted accounting principles.
3