UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Pursuant to
[_] Confidential, For Use of the SS.240.14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
Intermagnetics General Corporation
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
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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
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[_] Check box if any part of the fee is offset as provided by Exchange Act
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was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
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LOGO
INTERMAGNETICS GENERAL CORPORATION
Notice of Annual Meeting of Shareholders
November 12, 2002
TO THE SHAREHOLDERS OF
INTERMAGNETICS GENERAL CORPORATION:
Notice is hereby given that the annual meeting of shareholders of INTERMAGNETICS
GENERAL CORPORATION (the "Company") will be held at our principal executive
offices located at 450 Old Niskayuna Road, Latham, New York 12110 on November
12, 2002 at 2:00 p.m. local time, for the following purposes:
1. To elect four directors;
2. To approve certain amendments to the 2000 Stock Option and Stock Award
Plan; and
3. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record as of the close of business on September 27, 2002
are entitled to notice of the annual meeting and to vote at the annual meeting
and any adjournments thereof.
By order of the Board of Directors,
KATHERINE M. SHEEHAN
Corporate Secretary
Latham, New York
September 23, 2002
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE
MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
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INTERMAGNETICS GENERAL CORPORATION
450 Old Niskayuna Road
P.O. Box 461
Latham, New York 12110
PROXY STATEMENT
2002 Annual Meeting of Shareholders
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Intermagnetics General Corporation (the
"Company", "we", "our" or "us") for use at the 2002 annual meeting of
shareholders, and at any adjournments thereof. The annual meeting is scheduled
to be held at our principal executive offices located at 450 Old Niskayuna
Road, Latham, New York 12110 on November 12, 2002 at 2:00 p.m. local time. This
proxy statement and the accompanying proxy will be distributed to shareholders
on or about October 7, 2002.
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited by telephone by our
officers and directors and a small number of regular employees who will not be
specially compensated for such services. Georgeson Shareholder has been engaged
by the Company to assist in the solicitation of proxies for a fee of $8,500 plus
their costs and expenses. We will also request banks and brokers to solicit
proxies from their customers, where appropriate, and will reimburse such persons
for reasonable expenses incurred in that regard.
Our annual report on Form 10-K (excluding exhibits) for the fiscal year
ended May 26, 2002, was mailed with this proxy statement but does not constitute
a part of this proxy statement.
On February 7, 2000, we appointed PricewaterhouseCoopers LLP as our
independent accountants. We expect PricewaterhouseCoopers will continue to serve
as our independent accountants during the current fiscal year. We have asked
that a representative of PricewaterhouseCoopers attend the 2002 annual meeting
of shareholders. This representative will have an opportunity to make a
statement, if he or she desires, and will be available to respond to appropriate
shareholder questions.
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VOTING AT THE MEETING
Common Stock holders of record at the close of business on September
27, 2002 are entitled to vote at the meeting. As of September 13, 2002, there
were 16,429,317 shares of Common Stock outstanding.
The Company presently has no other class of stock outstanding and
entitled to be voted at the meeting. The attendance in person or by proxy of
shareholders holding one-third of all votes entitled to be cast will constitute
a quorum.
Shares cannot be voted at the meeting unless the holder of record is
present in person or by proxy. You may use the enclosed proxy to authorize the
voting of your shares at the meeting. The shares of Common Stock represented by
each properly executed proxy will be voted at the meeting in accordance with
each shareholder's directions. If any other matters are properly presented to
the meeting for action, the proxy holders will vote the proxies (which confer
discretionary authority to vote on such matters) in accordance with their best
judgment.
Four directors will be elected through cumulative voting by a plurality
of the votes cast. Accordingly, you may multiply the number of shares held by
you as of September 27, 2002 by four and cast all votes for a single director or
distribute your votes among the four directors standing for election. On all
other matters to be voted upon by the shareholders, each share outstanding on
September 27, 2002 entitles its holder of record on that date to one vote.
Under rules promulgated by the Securities and Exchange Commission (the
"SEC"), boxes and a designated blank space are provided on the proxy card for
shareholders to mark if they wish to withhold authority to vote for one or more
nominees for director. Votes withheld in connection with the election of one or
more of the nominees for director will not be counted as votes cast for such
individuals.
Please specify your choice(s) by marking the appropriate boxes on the
enclosed proxy card. If you submit a proxy with no choice specified, the shares
will be voted as recommended by the Board of Directors. Brokerage firms that are
members of the New York Stock Exchange or the American Stock Exchange and hold
shares in street name for customers have the authority under the exchange rules
to vote in their discretion on behalf of their clients on matters which the
exchanges determine to be routine, provided their clients have not furnished
voting instructions within ten days of the shareholders' meeting.
Execution of the accompanying proxy will not affect your right to
attend the meeting and vote in person. You may revoke your proxy by giving
written or oral notice of revocation to our Corporate Secretary, or by
delivering a subsequently executed proxy, at any time before the proxy is voted.
Special Note
Your proxy vote is important. Accordingly, you are asked to complete,
sign and return the accompanying proxy card whether or not you plan to attend
the meeting. If you plan to attend the meeting to vote in person and your shares
are registered with the Company's transfer agent in the name of your broker or
bank, you must secure a legal proxy from your broker or bank assigning voting
rights to you for your shares.
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PROPOSAL 1
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ELECTION OF DIRECTORS
Our Restated Certificate of Incorporation classifies the Board of
Directors into two (2) classes having staggered terms of two (2) years each. The
Board of Directors fixes the number of directors that will serve on the Board
through a majority vote of the then existing directors. The Board currently
consists of seven (7) members.
The Board has nominated the following individuals to serve as directors
for a two-year term ending in 2004: John M. Albertine, Glenn H. Epstein, Larry
G. Garberding and James S. Hyde. Messrs. Albertine, Epstein, Garberding and Hyde
currently serve as directors of the Company. The Board unanimously elected Mr.
Garberding as a Director on April 11, 2002. Mr. Epstein is Chairman of the
Board.
The nominees have consented to be named and to serve if elected. Unless
otherwise indicated on the proxy card, proxies received will be voted for the
election of the nominees. The Board believes all nominees will be able to serve
as directors. If this should not be the case, however, the proxies may be voted
for a substitute nominee to be designated by the Board of Directors.
Shareholders may vote cumulatively for any or all of the nominees or their
substitutes. It is the Company's intention to have the proxy holders exercise
cumulative voting rights to elect the maximum number of the nominees or their
substitutes. Your Board of Directors unanimously recommends a vote FOR each
nominee.
Requirements for Advance Notification of Nominations
Under the Company's Restated Certificate of Incorporation (Article
SIXTH), a director may not be elected unless the name of the nominee, the
nominee's consent, and information concerning the nominee's present and prior
occupations and transactions with the Company or its subsidiaries are filed with
our Corporate Secretary no later than the time fixed in the by-laws.
Section 2.03(b) of our by-laws provides that any shareholder entitled
to vote for the election of directors at a meeting may nominate a director for
election if written notice of the nomination is received by the Company's
Corporate Secretary not less than fourteen (14) days nor more than fifty (50)
days prior to any meeting of the shareholders called for the election of
directors, with certain exceptions. This section does not apply to nominations
for which proxies are solicited under applicable regulations adopted by the SEC
under the Securities Exchange Act of 1934 (the "Exchange Act"). The notice must
contain, or be accompanied by, the following:
(a) the name and address of the shareholder who intends to make the
nomination;
(b) a representation that the shareholder is a holder of record of
the Company's voting stock and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified
in the notice;
(c) such information regarding each nominee as would be required in
a proxy statement filed pursuant to the SEC's proxy rules had
proxies been solicited with respect to the nominee by the
Company's Board of Directors;
(d) a description of all arrangements or understandings among the
shareholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination
or nominations are to be made by the shareholder; and
(e) the consent of each nominee to serve as director of the Company
if so elected.
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Pursuant to the above requirements, our Corporate Secretary must
receive appropriate notices for nominations of directors for consideration at
the 2002 annual meeting no later than October 29, 2002.
Information Regarding Nominees for Election as Directors
and Regarding Continuing Directors
NOMINEES FOR ELECTION FOR TERMS EXPIRING IN 2004
Principal Occupations During Year First
the Past Five Years and Became
Name of Director Age Certain Directorships Director
- ---------------- --- --------------------- --------
John M. Albertine 58 Chairman and CEO of Albertine Enterprises, Inc. 1996
(an economic forecasting and public policy firm)
and Chairman of Albertine Industries (a merchant
banking firm), since 1990; Director of Semco
Energy Inc. and Kadant Inc. (formerly, Thermo
Fibertek, Inc.).
Glenn H. Epstein 44 Chairman and Chief Executive Officer of the 1998
Company; prior to joining Intermagnetics as
President in 1997, Mr. Epstein worked for Oxford
Instruments Group, plc as President of Nuclear
Measurements Group, Inc. (a wholly-owned
subsidiary of Oxford Instruments, plc).
Larry G. Garberding 63 Executive Vice President, CFO and Director of DTE 2002
Energy Company (1990 - 2001); Director of Plug
Power, Inc. and Intermap Technologies Corporation.
James S. Hyde 70 Professor of Biophysics at the Medical College of 1997
Wisconsin since 1975.
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CONTINUING DIRECTORS SERVING TERMS EXPIRING IN 2003
Principal Occupations During Year First
the Past Five Years and Became
Name of Director Age Certain Directorships Director
- ---------------- --- --------------------- --------
Michael E. Hoffman 43 Friedman, Billings, Ramsey Co., Managing Director, 2001
Equity Research; Credit Suisse First
Boston, Global Head of Value Based
Research Group from 1999-2001 and
Director, Business and Environmental
Services from 1993-1999.
Thomas L. Kempner 75 Chairman and CEO Loeb Partners Corporation; 1988
Director of Alcide Corporation, CCC Information
Services Group, Inc., Dyax Corp., FuelCell Energy,
Inc., IGENE Biotechnology, Inc., Insight
Communications Company, Inc., Northwest Airlines,
Inc. (Emeritus).
Sheldon E. Weinig 74 Adjunct Professor of Columbia University and State 1993
University of New York at Stony Brook,
NY; former Vice Chairman of Sony
Engineering & Manufacturing of America;
Director of Insituform Technology Inc.
General Information Concerning the Board of Directors and its Committees
The Board of Directors met on nine (9) occasions in the fiscal year
ended May 26, 2002. Our by-laws provide that the Board, by resolution adopted by
a majority of the entire Board, may designate an Executive Committee or other
committees, each of which shall consist of three (3) or more directors. The
Board of Directors annually elects from its members the Governance,
Compensation, Audit, Nominating, Executive and Business Development Committees.
During the last fiscal year, each director attended at least 75% of the
aggregate of the meetings of the Board of Directors and the committee or
committees on which he served.
Governance Committee. The Governance Committee is presently composed of
Messrs. Albertine, Garberding, Hyde, Kempner, Weinig and Hoffman (Committee
Chairman). The role of the Governance Committee is to ensure that the Company's
Board of Directors, its Articles of Incorporation and its Bylaws are structured
in a way that best serves the corporation and its shareholders. In addition, the
committee reviews changes in legislation, regulations and other developments
impacting corporate governance and makes recommendations to the full Board with
respect to these matters. This Committee was created in January 2002 and met
twice during fiscal year 2002.
Compensation Committee. The Compensation Committee is presently
composed of Messrs. Garberding, Kempner, Weinig and Hyde (Committee Chairman).
The Compensation Committee reviews and approves the recommendations of the
Company's Chief Executive Officer as to the appropriate level of compensation
for the Company's principal executive officers and certain other key personnel
and recommends to the Board of Directors the compensation of the Chief Executive
Officer. The Compensation Committee also oversees the Company's Incentive Bonus
Program and grants options under the Company's stock option plan. (See
"Executive Compensation.") This Committee met six (6) times during fiscal year
2002.
Audit Committee. The Audit Committee is presently composed of Messrs.
Garberding, Hoffman, Hyde, Kempner and Weinig (Committee Chairman), all of whom
are independent as defined in the applicable rules of the Nasdaq National
Market. This Committee meets with the Company's independent accountants to
review the scope of auditing procedures and the Company's accounting procedures
and internal controls, and considers any non-audit functions to be performed by
our independent auditors. The Committee also provides general oversight with
respect to the accounting principles employed in the Company's financial
reporting. The Audit Committee met three (3) times during fiscal year 2002.
6
Nominating Committee. The Nominating Committee is presently composed of
Messrs. Garberding, Hyde and Albertine (Committee Chairman). This Committee, in
addition to the entire Board of Directors, considers candidates for director of
the Company. The Nominating Committee also considers nominees recommended by
shareholders. Shareholders desiring to submit the name of, and any pertinent
data with respect to, a nominee should send this information in writing to the
Chairman of the Nominating Committee, in care of the Company. The Nominating
Committee met twice during fiscal year 2002.
Executive Committee. The Executive Committee is presently composed of
Messrs. Albertine, Hoffman, Kempner and Epstein (Committee Chairman). This
Committee meets at the direction of the Board to act on special matters in
accordance with the Bylaws of the Company. The Executive Committee met four (4)
times during fiscal year 2002.
Business Development Committee. The Business Development Committee is
presently composed of Messrs. Hoffman, Hyde, Garberding and Epstein (Committee
Chairman). This Committee meets to discuss developments and opportunities
related to the Company's business and provides oversight for the Company's
strategic planning. The Business Development Committee met twice during fiscal
year 2002.
Director Remuneration
Under a plan adopted by the Board of Directors on January 26, 2000,
each of the Company's non-employee Directors may elect each calendar year to be
paid with 2,626 shares of Company Common Stock or in cash. The plan has a
five-year term and a director must retain 75% of the stock he receives under the
plan until (a) expiration of his term as a director, or (b) expiration of the
plan. For calendar year 2002 each non-employee director elected to be paid in
stock.
Pursuant to the Company's 2000 Stock Option and Stock Award Plan (the
"2000 Plan"), each non-employee director receives, without the exercise of any
discretion by any person, non-qualified stock options to purchase 2,349 shares
of Common Stock as of the first business day of each calendar quarter for each
year that the 2000 Plan remains in existence. All options granted to
non-employee directors have a term of ten (10) years and become exercisable in
three (3) annual installments following the date of grant. The option exercise
price per share is equal to the fair market value of a share of Common Stock on
the date of grant.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information with respect to
shares of Common Stock beneficially owned by each director and nominee for
director, by each of the executive officers named in the Summary Compensation
Table, by all directors and executive officers as a group, and by persons to our
knowledge who own 5% or more of our Common Stock. This information has been
provided by each of the directors and executive officers as of September 13,
2002. This information includes shares subject to stock options and similar
rights held by each individual or group to the extent such rights are
exercisable within sixty (60) days of the date as to which information is
provided.
Number of Shares Percentage of
Beneficial Owner Beneficially Owned(1) Class(2)
- ---------------- ------------------ -----
Glenn H. Epstein(3) 542,102 3%
James S. Hyde(4) 124,972 1%
Leo Blecher(5) 115,192 1%
Thomas L. Kempner(6) 104,869 1%
Sheldon E. Weinig(7) 51,921 *
Philip J. Pellegrino(8) 37,196 *
Michael K. Burke 34,073 *
David E. Thielman 27,734 *
John M. Albertine(9) 18,284 *
Michael E. Hoffman 4,258 *
Larry G. Garberding 2,626 *
All executive officers and directors as a 1,062,071 6.3%
group (11 persons)(10)
(1) Nature of ownership consists of sole voting and investment power unless
otherwise indicated.
(2) The percentage for each individual or group is based on the aggregate
of the shares outstanding as of September 13, 2002, which was
16,429,317, and all shares issuable to such individual or group upon
the exercise of outstanding stock options or similar rights to the
extent such rights are exercisable within sixty (60) days of such date.
(3) Includes presently exercisable options to purchase 432,897 shares.
(4) Includes presently exercisable options to purchase 16,443 shares.
(5) Includes presently exercisable options to purchase 53,021 shares.
(6) Includes 34,778 shares held by trusts of which Mr. Kempner is a
trustee. Mr. Kempner disclaims beneficial ownership as to 18,120 of
such shares. Also includes presently exercisable options to purchase
30,537 shares.
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(7) Includes presently exercisable options to purchase 30,537 shares.
(8) Includes presently exercisable options to purchase 5,000 shares and 500
shares of restricted stock.
(9) Includes presently exercisable options to purchase 7,830 shares.
(10) Includes presently exercisable options to purchase 611,043 shares, and
includes certain shares as to which beneficial ownership is disclaimed.
PROPOSALS TWO AND THREE
-----------------------
APPROVAL OF AMENDMENTS TO THE INTERMAGNETICS GENERAL
CORPORATION 2000 STOCK OPTION AND STOCK AWARD PLAN
Proposed Amendments
On November 14, 2000, our shareholders approved the Intermagnetics
General Corporation 2000 Stock Option and Stock Award Plan (the "2000 Plan").
Initially, 700,000 shares of our Common Stock were reserved for issuance under
the 2000 Plan. The 2000 Plan provides our employees, consultants and
non-employee directors with the opportunity to receive grants of stock options
and stock awards.
The 2000 Plan replaced the Company's 1990 Stock Option Plan, which
expired on December 14, 2000. Approximately 1,090,000 shares remain outstanding
under the 1990 Plan, but no new options may be granted. The Company has not
granted any options or other form of stock compensation involving the Company's
Common Stock outside the Company's shareholder approved plans.
During the last fiscal year, the Company hired four (4) new key
executives, including a new Chief Financial Officer and a new Sector President
for the Energy Technology Segment. In order to attract appropriately experienced
and talented executives, the Board of Directors authorized that certain stock
options be granted to these individuals. These grants, together with regular
grants made to retain a broad base of key employees, and quarterly grants
previously authorized by the shareholders for the Company's Directors, have
resulted in the need for additional shares in the 2000 Plan.
At the Annual Meeting, we are asking shareholders to approve and ratify
an amendment to Section 3 of the 2000 Plan increasing the number of shares of
Common Stock of the Company available for issuance under the 2000 Plan by
820,000 shares. In addition, we are asking shareholders to approve and ratify an
amendment to Section 3 of the 2000 Plan to increase the maximum number of shares
for which any individual may receive grants under the Plan during any calendar
year from 350,000 shares to 500,000 shares. The Board of Directors approved the
amendments. We believe these amendments are critical for the Company to attract
and retain qualified executives, managers, and key technical personnel.
Vote Required for Approval
The vote of a majority of the shares of the Common Stock represented at
the annual meeting and entitled to vote, in person or by proxy, is required to
approve the amendments to the 2000 Plan. Abstentions may be specified on the
proposal and will be considered present at the meeting, but will not be counted
as affirmative votes. Abstentions, therefore, will have the practical effect of
voting against the proposal because the affirmative vote of a majority of the
shares present at the meeting and entitled to vote with respect to this matter
is required to approve the proposal.
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Description of the 2000 Plan
The following description of the 2000 Plan is qualified in its entirety
by reference to the 2000 Plan document, attached as Exhibit 1 to this Proxy
Statement.
The 2000 Plan has a ten (10) year term. The number of shares of Common
Stock authorized for issuance under the 2000 Plan is currently 714,000 shares.
Shares subject to options granted under the 2000 Plan that expire or are
canceled, surrendered or terminated for any reason are available for new grants
under the 2000 Plan. The 2000 Plan limits the aggregate number of shares for
which options or stock awards may be granted to any person during any calendar
year to 350,000 shares. We are asking that this be increased to 500,000 shares.
The Compensation Committee may adjust these limits, as well as the number of
shares covered by outstanding grants, and the price per share of outstanding
grants if there is any change in the number or class of our shares because of a
stock dividend, stock split, merger, reclassification, or other similar changes
in our stock.
Employees and consultants of Intermagnetics and our subsidiaries,
including employees who are officers or members of our Board, and our
non-employee directors are eligible to receive grants under the 2000 Plan. There
are approximately five hundred employees (including five (5) executive officers)
and six (6) non-employee directors eligible to receive grants under the Plan.
The 2000 Plan provides for automatic grants to our non-employee
directors, unless the Board determines otherwise. Each calendar quarter, each
non-employee director will automatically receive, subject to availability of
shares under the 2000 Plan, options to purchase 2,349 shares of our stock. These
options will have an exercise price equal to the fair market value of the shares
on the date of grant. They will become exercisable in three (3) equal
installments on the first, second and third anniversaries of the date of grant
and will have a ten-year term. These options will become fully exercisable upon
a change in control (as defined below).
The Compensation Committee administers the 2000 Plan. The 2000 Plan
gives the Compensation Committee the authority to interpret the 2000 Plan, to
prescribe, amend and rescind rules and regulations relating to the 2000 Plan, to
determine the terms and provisions of grant instruments under the 2000 Plan and
to make all other determinations necessary or advisable for the administration
of the 2000 Plan. The 2000 Plan confers discretion on the Compensation Committee
to select employees and consultants to receive options and to determine whether
non-employee directors will receive grants instead of or in addition to the
automatic grants.
The 2000 Plan permits grants of incentive stock options, nonqualified
stock options and stock awards. Incentive stock options may be granted only to
employees. Nonqualified stock options may be granted to employees, consultants
and non-employee directors. The Compensation Committee will determine the
exercise price underlying each option. The exercise price for nonqualified stock
options may not be less than 85% of the fair market value of our shares on the
date of grant. The exercise price for incentive stock options may not be less
than 100% of the fair market value of our shares on the date of grant and the
exercise price of an incentive stock option granted to a 10% shareholder may not
be less than 110% of the fair market value of our shares on the date of grant.
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Options will become exercisable according to the number of installments
and the installment dates determined by the Compensation Committee and specified
in the grant instrument. The Compensation Committee determines the term of each
option, up to a maximum ten-year term. The term of an incentive stock option
granted to an employee who owns more than 10% of our stock may not exceed five
(5) years from the date of grant. Options may be exercised while the grantee is
an employee, consultant or non-employee director or within a specified period
after the grantee's termination of employment or service.
Grantees may pay the exercise price of an option (i) in cash, (ii) if
permitted in the grant instrument, by surrender of shares of our stock owned by
the grantee, or (iii) by payment through a broker pursuant to procedures
permitted by regulation T of the Federal Reserve Board and Section 402 of the
Sarbanes-Oxley Act of 2002.
The Compensation Committee may issue shares of our stock as stock
awards to employees, consultants and non-employee directors, subject to
restrictions or no restrictions. Unless the Compensation Committee determines
otherwise, during the restriction period, grantees will have the right to vote
shares of stock awards and to receive dividends or other distributions paid on
the shares. Unless the Compensation Committee determines otherwise, if a
grantee's employment or service terminates during the restriction period or if
any other conditions are not met, the stock awards will terminate as to all
shares on which restrictions are still applicable, and the shares must be
immediately returned to us. To date, 11,000 shares of restricted stock have been
granted to executives subject to restriction periods.
The Compensation Committee may determine that stock awards granted to
an employee will be considered performance-based compensation (see "Tax
Deductibility under Section 162(m)" below). If an employee is granted a stock
award that is intended to be performance-based compensation, the grant or
vesting of the stock award will be contingent on our achieving performance goals
designated by the Compensation Committee.
The Compensation Committee will establish the performance goals, the
performance period during which the goals must be met, the threshold, target and
maximum amounts that may be paid if the performance goals are met, and any other
conditions the Compensation Committee deems appropriate. The performance goals
will be established in writing at the beginning of the performance period and
will be based on one or more of the following objective criteria: stock price,
earnings per share, net earnings, operating earnings, return on assets,
shareholder return, return on equity, growth in assets, unit volume, sales,
market share or strategic business criteria consisting of one or more objectives
based on meeting specified revenue goals, market penetration goals, geographic
business expansion goals, cost targets or goals relating to acquisitions or
divestitures.
The performance goals may relate to the grantee's business unit or the
performance of Intermagnetics and our subsidiaries as a whole, or any
combination. If the performance goals for a performance period are not met, the
grants subject to the performance goals will not be made or will be forfeited.
The Compensation Committee may provide for the accelerated vesting or grant of
stock awards in the event of death, disability, or other circumstances. To date,
no performance based stock awards have been granted under the 2000 Plan.
11
All options granted under the 2000 Plan become fully exercisable upon a
"change in control." The 2000 Plan defines change in control to mean the
occurrence of any of the following: (i) any person is or becomes a beneficial
owner, directly or indirectly, of securities representing 30% or more of the
voting power of our then outstanding securities; (ii) during any period of two
(2) consecutive calendar years, there is a change of 25% or more in the
composition of our Board in office at the beginning of the period, except for
changes approved by at least two-thirds of the directors then in office who were
directors at the beginning of the period; or (iii) our shareholders approve a
merger or consolidation with another corporation (other than a merger with a
subsidiary or a merger in which we survive and our outstanding voting stock is
not converted or our shareholders have substantially the same proportionate
interest in the voting stock of the surviving corporation or its parent as they
did immediately prior to the merger), a disposition of substantially all of our
assets, or a liquidation or dissolution. As long as a change in control within
the meaning of clause (ii) has not occurred, the Board may determine, by a
two-thirds vote of the continuing directors, that an event described in items
(i) or (iii) shall not constitute a change in control.
Grants under the 2000 Plan may not be transferred except upon the
grantee's death, or, in the case of a nonqualified stock option, to a grantee's
family members or to a trust that benefits the grantee's family members.
The Board may amend or terminate the 2000 Plan at any time. However,
the Board may not make any amendment without shareholder approval if approval is
required under the applicable provisions of the Internal Revenue Code or other
applicable laws or regulations. If stock awards are designated as
performance-based compensation, the shareholders must re-approve the 2000 Plan
not later than the first shareholders meeting following the fourth anniversary
of the shareholders' approval of the 2000 Plan. The 2000 Plan will terminate on
July 26, 2010, unless the Board terminates the 2000 Plan earlier.
Federal Income Tax Consequences
The current federal income tax consequences of grants under the 2000
Plan are generally described below. This description of tax consequences is not
a complete description, and is based on the Internal Revenue Code as presently
in effect, which is subject to change, and does not purport to be a complete
description of the federal income tax aspects of the options and stock awards
under the 2000 Plan.
Incentive Stock Options. An optionee who receives incentive stock
options generally incurs no federal income tax liability at the time of the
grant or upon the exercise of the options. However, the difference between the
value of our stock at the date of exercise and the exercise price will be an
item of tax preference that may give rise to alternative minimum tax liability
at the time of exercise. If the optionee does not dispose of the shares before
the date that is two (2) years from the date of grant and one (1) year from the
date of exercise, the difference between the exercise price and the amount
realized upon disposition of the shares will constitute long term capital gain
or loss, as the case may be. Assuming both holding periods are satisfied, no
deduction will be allowable to us for federal income tax purposes in connection
with the option. If, within two (2) years from the date of grant or within one
(1) year from the date of exercise, the holder of shares acquired upon exercise
of an incentive stock option disposes of the shares, the optionee will generally
realize ordinary compensation income at the time of the disposition equal to the
difference between the exercise price and lesser of the fair market value of the
shares on the date of exercise or the amount realized on the disposition. The
amount realized upon such a disposition will generally be deductible by us for
federal income tax purposes.
Nonqualified Stock Options. An optionee will not be subject to federal
income tax upon the grant of a nonqualified stock option. Upon the exercise of a
nonqualified stock option, the optionee will recognize ordinary compensation
income in an amount equal to the excess, if any, of the then fair market value
of the shares acquired over the exercise price. We will generally be able to
take a deduction with respect to this compensation income for federal income tax
purposes. The optionee's tax basis in the shares acquired will equal the
exercise price plus the amount taxable as compensation to the optionee. Upon a
sale of the shares acquired upon exercise, any gain or loss is generally
long-term or short-term capital gain or loss, depending on how long the shares
are held. The required holding period for long-term capital gain is presently
more than one year. The optionee's holding period for shares acquired upon
exercise will begin on the date of exercise.
12
Stock Awards. If a grantee receives an unrestricted stock award, the
grantee will recognize compensation income upon the grant of the stock award. If
a grantee receives a restricted stock award, the grantee normally will not
recognize taxable income until the stock is transferable by the grantee or no
longer subject to a substantial risk of forfeiture, whichever occurs earlier.
When the stock is either transferable or no longer subject to a substantial risk
of forfeiture, the grantee will recognize compensation income in an amount equal
to the fair market value of the shares (less any amount paid for such shares) at
that time. A grantee may, however, elect to recognize ordinary compensation
income in the year a restricted stock award is granted in an amount equal to the
fair market value of the shares (less any amount paid for the shares) at that
time, determined without regard to the restrictions. We will generally be
entitled to a corresponding deduction at the same time, and in the same amount,
as the grantee recognizes compensation income with respect to the stock award.
Any gain or loss recognized by the grantee upon the subsequent disposition of
the shares will be capital gain or loss.
Tax Deductibility Under Section 162(m). Section 162(m) of the Internal
Revenue Code disallows a public company's deductions for employee compensation
exceeding $1,000,000 per year for the chief executive officer and the four other
most highly compensated executive officers. Section 162(m) contains an exception
for performance-based compensation that meets specific requirements. The 2000
Plan is intended to permit stock options granted under the Plan, and stock
awards that are designated as performance based compensation, to qualify as
performance-based compensation and be exempt from the $1,000,000 deduction
limit.
Withholding. We have the right to deduct from all grants paid in cash
or other compensation any taxes required to be withheld with respect to grants
to employees under the 2000 Plan, or we may require that the grantee make other
provisions to satisfy our withholding obligation. An employee grantee may elect
to have withheld from the shares issuable with respect to an option or stock
award, shares with a value equal to the minimum required withholding amount, or
may elect to tender previously owned shares with a value equal to the required
tax withholding amount.
Accounting Consequences
With respect to accounting considerations, there is a charge to
earnings in connection with the grant of an option to a consultant. Generally,
there is no charge to earnings in connection with the grant of an option to an
employee or a non-employee director if the exercise price of the option is at
least equal to the fair market value of the shares at the date of the grant and
other requirements are met. If, however, the exercise price of the option is
less than the fair market value of the shares on the date of grant or if the
grant is variable, there will be a charge to earnings as the option becomes
exercisable. Generally, the acceleration of option vesting, grants of stock
awards and performance-based stock compensation would result in a charge to
earnings. The Company reviews its accounting treatment of options regularly and
will comply with any changes that may be required by law or U.S. generally
accepted accounting principles.
The calculation of fully diluted earnings per share will be affected by
options granted under the 2000 Plan as a result of the increase in the number of
outstanding shares of our stock. This calculation reflects the potential
dilutive effect, using the treasury stock method, of outstanding stock options
even though the stock options have not yet been exercised.
13
Grants Under the Plan
Since the 2000 Plan was adopted by the Company, the following persons
and groups have received options to purchase the aggregate number of shares
indicated: Glenn H. Epstein (Chairman and Chief Executive Officer; 75,500
shares); Michael K. Burke (Executive Vice President and Chief Financial Officer;
75,000 shares and 4,000 shares of restricted stock); Leo Blecher (Sector
President, MRI Segment; 30,200 shares); Philip J. Pellegrino (Sector President,
Energy Technology Segment; 25,000 shares and 1,000 shares of restricted stock);
David Thielman (Vice President and General Manager, IGC-Polycold Systems Inc.;
25,000 shares); all outside directors as a group (75,168 shares); John M.
Albertine (director nominee; 16,443 shares); Larry G. Garberding (director
nominee; 2,349 shares); James S. Hyde (director nominee; 16,443 shares); and all
non-executive officer employees as a group (307,303 shares and 6,000 shares of
restricted stock). No options have been granted to associates of any directors,
executive officers or nominees, nor have any other persons received five percent
of such options.
As of September 20, 2000, the last reported price of our stock as
reported on Nasdaq was $15.42. The information in the table below is as of May
26, 2002.
Equity Compensation Plan Information
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
outstanding options, options, warrants and future issuance under
warrants and rights rights equity compensation plans
(excluding securities
reflected in column (a))
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans 1,781,515 $ 13.4062 89,829
approved by security holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not _ _ _
approved by security holders
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 1,781,515 $ 13.4062 89,829
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Contingent Stock Option Grants
No options have been granted under the 2000 Plan subject to shareholder
approval of this proposal. Accordingly, future benefits to be received by our
Chief Executive Officer, all current executive officers as a group and all
employees who are not executive officers as a group are not determinable. Each
Non-Employee Director is entitled to a grant of 2,349 shares on the first
business day of each calendar quarter, which will not be granted if shares are
not available under the 2000 Plan. In addition, the Compensation Committee would
be unable to grant new options to executive officers, employees or consultants
in excess of those shares presently available for grant (approximately 78,000)
unless additional shares become available under the 2000 Plan.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENTS TO
THE 2000 STOCK OPTION AND STOCK AWARD PLAN.
14
EXECUTIVE COMPENSATION
The following table summarizes for the past three (3) years the annual
and long-term compensation of those persons who were, on May 26, 2002, the
Company's Chief Executive Officer, the other four most highly compensated
executive officers and two executive officers who would have been among the four
most highly compensated if they had been employed on the last day of the fiscal
year.
SUMMARY COMPENSATION TABLE
Annual Long Term
--------------------------------------------------------------------------------------------------
Annual Extraordinary Restricted Award of
Fiscal Incentive Incentive Stock Stock All Other
Position Year Salary Bonus(1) Bonus Awards Options Compensation
- --------------------------------------------------------------------------------------------------------------------------
Glenn H. Epstein 2002 $410,171 $422,000 $526,831(2) - 50,000 $68,524(3)
President and 2001 350,000 245,000 - - 25,500 62,099(3)
Chief Executive 2000 258,653 60,416 - - 500,000 54,133(3)
Officer
Michael K. Burke 2002(4) $ 94,551 $ 64,501 - (5) $101,120(6) 75,000 $17,172(7)
Chief Financial 2001(4) - - - - - -
Officer and 2000(4) - - - - - -
Executive Vice
President
Leo Blecher 2002 $211,030 $118,125 $132,776(8) - 20,000 $20,519(9)
Sector President, 2001 188,122 76,500 - - 10,000 21,498(9)
MRI Segment 2000 165,255 40,000 - - 100,000 6,653(9)
Philip J. Pellegrino 2002(10) $130,152 $ 30,625 $ 28,300(11) 25,000 $ 1,362(12)
Sector President, 2001(10) - - - - - -
Energy Technology 2000(10) - - - - - -
Segment
David E. Thielman 2002(13) $ 87,308 $ 14,427 - - 25,000 $19,039(14)
Vice President and 2001(13) - - - - -
General Manager, 2000(13) - - - - -
IGC-Polycold Inc.
Michael C. Zeigler 2002(15) $176,620 $ 45,770 $106,209(16) - - $38,146(17)
Chief Financial 2001 179,862 70,125 - - 5,000 29,812(17)
Officer and Senior 2000 174,803 30,666 - - 7,500 11,763(17)
Vice President -
Finance
David W. Dedman 2002(18) $137,998 - $175,000(19) - - $13,276(20)
Vice President and 2001 186,709 51,150 - - 7,500 12,948(20)
General Manager - 2000 163,423 35,000 - - 7,500 1,420(20)
IGC-APD
Cryogenics Inc. and
IGC-Polycold Inc.
(1) All bonuses were earned by the Executives as incentive compensation
bonuses for fiscal years 2002, 2001 and 2000 performance, respectively,
and paid in fiscal years 2003, 2002 and 2001, respectively.
15
(2) Includes extraordinary bonuses of $150,000 and $220,000 paid in
connection with the divestitures of IGC-Advanced Superconductors and
IGC-APD Cryogenics Inc., respectively, and payment of $156,831 from Mr.
Epstein's bonus bank earned in fiscal year 2001 under the Company's
Incentive Bonus Program. Mr. Epstein's current remaining bank under the
program is $529,645, payable over the next three (3) fiscal years
subject to certain conditions.
(3) Includes the Company's share of contributions on behalf of Mr. Epstein
to the IGC Savings Plan (401(k)) in the amount of $9,308, $9,299 and
$7,294 for fiscal years 2002, 2001 and 2000, respectively, and payments
of $3,216, $3,800 and $1,839 by the Company for a life insurance policy
for the benefit of Mr. Epstein in fiscal years 2002, 2001 and 2000,
respectively. Also includes $56,000, $49,000 and $45,000 paid to Mr.
Epstein in fiscal years 2002, 2001 and 2000, respectively, for which
the intent is to compensate for caps imposed by U.S. Government tax
regulations on the Company's qualified retirement and savings programs
and which is paid in lieu of inclusion in any other of the Company's
non-qualified retirement programs.
(4) Mr. Burke joined the Company on December 14, 2001. Therefore, he
received compensation from the Company for approximately five (5)
months in fiscal year 2002, and no compensation from the Company in
fiscal years 2001 and 2000.
(5) Mr. Burke did not receive any extraordinary bonus in fiscal year 2002,
but he earned a bonus bank under the Incentive Bonus Program of
$31,255, payable over the next three (3) fiscal years subject to
certain conditions.
(6) Upon his employment with the Company, Mr. Burke received a restricted
stock grant of 4,000 shares that vests over three (3) years according
to the following schedule: 500 shares on December 14, 2003; 1,500
shares on December 14, 2004; and 2,000 shares on December 14, 2005.
(7) Consists of relocation reimbursement to Mr. Burke of $17,172 paid in
fiscal year 2002.
(8) Includes extraordinary bonuses of $60,000 and $50,000 paid in
connection with the divestitures of IGC-Advanced Superconductors and
IGC-APD Cryogenics Inc., respectively, and payment of $22,776 from Mr.
Blecher's bonus bank earned in fiscal year 2001 under the Company's
Incentive Bonus Program. Mr. Blecher's current remaining bank under the
program is $101,194, payable over the next three (3) fiscal years
subject to certain conditions.
(9) Includes the Company's share of contributions on behalf of Mr. Blecher
to the IGC Savings Plan (401(k)) in the amounts of $7,662, $8,641 and
$4,629 for fiscal years 2002, 2001 and 2000, respectively, payment of a
supplemental frozen pension contribution of $4,857 and a supplemental
retirement contribution of $8,000 to the IGC Deferred Compensation Plan
in each of fiscal years 2002 and 2001, and payment of a supplemental
frozen pension contribution of $2,024 to the IGC Deferred Compensation
Plan in fiscal year 2000.
(10) Mr. Pellegrino joined the Company on October 18, 2001. Therefore, he
received compensation from the Company for approximately seven (7)
months in fiscal year 2002, and no compensation from the Company in
fiscal years 2001 and 2000. His salary in 2002 includes $2,000 per
month in living expenses to which he is entitled under the terms of his
employment agreement.
(11) Upon his employment with the Company, Mr. Pellegrino received a
restricted stock grant of 1,000 shares that vests over two (2)years
according to the following schedule: 500 shares on October 18, 2003 and
500 shares on October 18, 2004.
(12) Consists of the Company's share of contributions on behalf of Mr.
Pellegrino to the IGC Savings Plan (401(k)) of $1,362.
16
(13) Mr. Thielman joined the Company on December 10, 2001. Therefore, he
received compensation from the Company for approximately five (5)
months in fiscal year 2002, and no compensation from the Company in
fiscal years 2001 and 2000.
(14) Consists of relocation reimbursement to Mr. Thielman of $19,039 paid in
fiscal year 2002.
(15) Mr. Zeigler retired from the Company on March 15, 2002. Therefore, he
received compensation from the Company for approximately nine (9)
months in fiscal year 2002. His salary for fiscal year 2002 includes
$23,052 for accrued but unused vacation that was paid upon his
retirement in accordance with Company policy.
(16) Includes extraordinary bonuses of $35,000 and $25,000 paid in
connection with the divestitures of IGC-Advanced Superconductors and
IGC-APD Cryogenics Inc., respectively, and payment of $46,209 from Mr.
Zeigler's bonus bank earned in fiscal year 2001 under the Company's
Incentive Bonus Program. Mr. Zeigler's current remaining bank under the
program is $114,782, payable over the next two (2) fiscal years subject
to certain conditions.
(17) Includes retirement benefits of $7,500 paid in fiscal year 2002, the
Company's share of contributions on behalf of Mr. Zeigler to the IGC
Savings Plan (401(k)) in the amounts of $10,241, $9,279 and $5,203 for
fiscal years 2002, 2001 and 2000, respectively, payments under the
Company's Supplemental Income Plan and Supplemental Retirement Plan in
the amounts of $15,609, $15,737 and $4,562, for fiscal years 2002, 2001
and 2000, respectively, and payments of supplemental frozen pension
contributions of $4,796, $4,796 and $1,998 to the IGC Deferred
Compensation Plan in fiscal years 2002, 2001 and 2000, respectively.
(18) Mr. Dedman resigned from the Company on February 2, 2002 as a result of
the divestiture of IGC-APD Cryogenics Inc. Therefore, he received
compensation from the Company for approximately eight (8) months in
fiscal year 2002.
(19) Consists of an extraordinary bonus of $175,000 paid to Mr. Dedman in
connection with the divestiture of IGC-APD Cryogenics, Inc.
(20) Consists of the Company's share of contributions on behalf of Mr.
Dedman to the IGC Savings Plan (401(k)) in the amounts of $5,276,
$4,984 and $1,420 for fiscal years 2002, 2001 and 2000, respectively,
and payment of a supplemental retirement contribution of $8,000 to the
IGC Deferred Compensation Plan in each of fiscal years 2002 and 2001.
17
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes stock options granted during the fiscal
year ended May 26, 2002 to the persons named in the Summary Compensation Table.
No stock appreciation rights have been granted by the Company nor is the grant
of such rights currently provided for in the Company's 2000 Stock Option and
Stock Award Plan.
Individual Grants
-----------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Number of Percentage of Term(1)
Shares Total Options
Underlying Granted to Exercise
Options Employees in Price
Name Granted Fiscal 2002 (per share) Expiration Date 5% 10%
- ---------------------------------------------------------------------------------------------------------------------
Glenn H. Epstein 40,349(2) 10.3% $ 23.48 01/30/12 $ 595,811 $ 1,509,903
9,651(3) 2.5% 23.48 01/30/12 142,511 361,151
Michael K. Burke 55,225(4) 14.5% 25.28 12/14/11 871,992 2,225,005
19,775(5) 5% 25.28 12/14/11 314,392 796,731
Leo Blecher 7,560(2) 1.9% 23.48 01/30/12 111,634 282,903
12,440(3) 3.2% 23.48 01/30/12 183,695 465,518
Philip J. Pellegrino 25,000(6) 6.4% 28.30 10/19/11 444,943 1,127,573
David E. Thielman 6,235(7) 1.6% 26.64 12/12/11 104,460 264,721
18,765(8) 4.8% 26.64 12/12/11 314,384 796,711
Michael C. Zeigler - - - - - -
David W. Dedman - - - - - -
(1) Potential Realizable Values are based on an assumption that the stock
price of the Common Stock starts equal to the exercise price shown for
each particular option grant and appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the
option term. These amounts are reported net of the option exercise
price (which may be paid by delivery of already-owned shares of Common
Stock), but before any taxes associated with the exercise or subsequent
sale of the underlying stock. The actual value, if any, an optionholder
may realize will be a function of the extent to which the stock price
exceeds the exercise price on the date the option is exercised and also
will depend on the optionholder's continued employment through the
vesting period. The actual value to be realized by the optionholder may
be greater or less than the values estimated in this table.
(2) Options vest in three (3) equal annual installments beginning on first
anniversary date. Options were granted on January 30, 2001.
(3) Options vest in five (5) equal annual installments beginning on first
anniversary date. Options were granted on January 30, 2001.
(4) Options vest in three (3) equal annual installments beginning on second
anniversary date. Options were granted on December 14, 2001.
(5) Options vest in five (5) equal annual installments beginning on first
anniversary date. Options were granted on December 14, 2001.
18
(6) Options vest in five (5) equal annual installments beginning on first
anniversary date. Options were granted on October 19, 2001.
(7) Options vest in three (3) equal annual installments beginning on second
anniversary date. Options were granted on December 12, 2001.
(8) Options vest in five (5) equal annual installments beginning on first
anniversary date. Options were granted on December 12, 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
The following table summarizes option exercises during the fiscal year
ended May 26, 2002, and the value of vested and unvested options, for the
persons named in the Summary Compensation Table at May 26, 2002.
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at May 26, 2002 May 26, 2002(1)
Acquired
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------
Glenn H. Epstein 141,715 $2,962,611 257,797 256,696 $4,294,664 $3,317,372
Michael K. Burke - - - 75,000 - -
Leo Blecher - - 53,021 68,455 740,103 681,002
Philip J. Pellegrino - - - 25,000 - -
David E. Thielman - - - 25,000 - -
Michael C. Zeigler 8,489 141,557 - - - -
David W. Dedman 73,313 1,291,536 - - - -
(1) Based on the closing price of the Common Stock as reported on Nasdaq on May
24, 2002 ($24.26), net of the option exercise price.
BENEFIT PLANS
Pension Plan. In fiscal 1999 the Company froze all pension benefits
under its qualified, defined benefit pension plan (the "Pension Plan") as of
December 31, 1998 (with the exception of approximately fifty (50) bargaining
unit members at a subsidiary, IGC-APD Cryogenics Inc.). Therefore, no additional
benefits were accrued after that date. Prior to freezing the Pension Plan, all
employees 21 years of age and older who had completed one (1)year of credited
service participated in the Pension Plan. Participating employees received
certain defined benefits under the Pension Plan upon their normal or early
retirement from the Company's employ or upon death.
19
The Company terminated the Pension Plan in accordance with statutory
requirements in fiscal year 2001. As a result of the termination, Messrs.
Epstein, Blecher and Zeigler received a lump sum payment of approximately
$2,906, $82,488 and $119,104 respectively, representing the present value of
their accrued benefits plus their pro-rated portion of the residual assets.
These amounts were deposited into an individual retirement arrangement (IRA) or
other employer tax-qualified plan that accepts rollovers. The remaining named
executive officers were not participants in the Pension Plan. As a result of
freezing the Pension Plan, the Company makes a supplemental frozen pension plan
contribution to participants in the Pension Plan for whom the projected lump sum
value of his or her accrued benefit determined at December 1, 1997 under the
Pension Plan would exceed his or her projected benefit derived from the
Company's 2% non-elective contribution under the IGC Savings Plan (401(k)), as
determined in the sole discretion of the Pension Plan Administrator using
certain assumptions. Messrs. Zeigler and Blecher received such a contribution as
disclosed in the notes to the Summary Compensation Table.
Supplemental Retirement Plan. The Company's Supplemental Retirement
Plan, adopted in 1985, provides additional retirement benefits to selected
executives of the Company. Under the plan, on retirement at age 65, the
participant will receive additional retirement benefits payable in equal monthly
installments over 180 months. For a participant who elects to retire after age
55 but before age 65, the amount of the retirement benefits are actuarially
reduced.
No current executives participate in this plan. The current annual
retirement benefit paid to the Company's former Chairman, Carl H. Rosner, under
this plan is $80,000 and the current annual retirement benefit paid to Mr.
Zeigler under this plan is $45,000.
Enhanced Benefit Plan. On January 26, 2000, the Board of Directors
approved the Intermagnetics General Corporation Enhanced Benefit Plan (the
"Enhanced Benefit Plan") aimed at attracting, motivating and retaining certain
top level Executives. Currently, only individuals with the title "Sector
President" or "Vice President" (the "Participants") participate in the Enhanced
Benefit Plan. The Enhanced Benefit Plan is not an employment contract, but it
does supersede any pre-existing employment contracts between the Company and the
Participants. Under the Enhanced Benefit Plan, Participants are entitled to (a)
life insurance benefits equal to two (2) times their base salary and (b) a
contribution made by the Company on Participant's behalf to the Company's
Deferred Compensation Plan. The contribution level is set each year by the
Compensation Committee of the Board of Directors and placed in a separate
retirement account for each Participant within the Deferred Compensation Plan.
The contribution level for fiscal year 2003 (which will be paid in fiscal year
2004) has been set at $10,000 for each Participant. The contribution level for
fiscal years 2002 and 2001 was $8,000 for each Participant. No contribution was
made in fiscal year 2000. This account vests only upon Participant's retirement
or upon a change in control (as those terms are defined in the Deferred
Compensation Plan). In addition, the Enhanced Benefit Plan provides a lump sum
severance equal to between six (6) months and eighteen (18) months of
Participant's salary upon (a) termination without "cause" (as that term is
defined in the Enhanced Benefit Plan), or (b) Participant's resignation under
certain circumstances after a change in control. The amount of severance is tied
to years of service.
20
CERTAIN EMPLOYMENT ARRANGEMENTS
o Epstein Agreement
-----------------
Effective June 1, 2002, the Company amended and restated its employment
agreement with Mr. Epstein. Under the 2002 Agreement, Mr. Epstein has agreed to
serve as the Company's Chief Executive Officer through at least May 31, 2007. In
addition, if neither party provides written notice to the other party prior to
June 1, 2003 of its or his desire to terminate Mr. Epstein's employment, the
2002 Agreement shall be extended automatically for one additional year, until
May 31, 2008. On each successive June 1st following June 1, 2003 (the
"Anniversary Date"), the employment term will be automatically extended from
year to year for an additional one (1) year period (for example, on June 1,
2004, the term shall extend to May 31, 2009), unless either party provides
written notice to the other prior to the Anniversary Date of its or his desire
to terminate Mr. Epstein's employment. The 2002 Agreement provided for a base
salary in fiscal year 2003 of $420,000. Under the terms of the 2002 Agreement,
Mr. Epstein's base salary is adjusted annually. The 2002 Agreement also provides
that Mr. Epstein may participate in the Company's Incentive Bonus Program
("IBP") at a target level bonus of 100% of base salary, with actual bonus earned
pursuant to the overall terms of the Company's IBP. In addition, the Company
provides Mr. Epstein with a lump sum payment of $56,700 (adjusted annually) to
be used by Mr. Epstein to select either a non-qualified Supplemental Executive
Benefit Plan or other similar program for which the intent is to compensate for
caps imposed by US Government tax regulations on the Company's qualified
retirement and savings programs. This lump sum is paid in lieu of Mr. Epstein's
inclusion in any of the Company's non-qualified retirement programs. If Mr.
Epstein is terminated without cause or resigns for good reason (as defined in
the 2002 Agreement) during term of the 2002 Agreement, or any renewal thereof,
or if the Board provides notice that it will not extend the term, he would be
entitled to receive an amount equal to his then-base annual salary multiplied by
the number of months remaining on the term of the 2002 Agreement. The 2002
Agreement also provides that if Mr. Epstein is terminated or resigns as an
employee under certain circumstances after a change in control event (as
described in the Epstein Agreement), he would be entitled to receive an amount
equal to the sum of three (3) times his annual salary and certain other
extraordinary payments.
o Pellegrino Agreement
--------------------
The Company entered into a three (3) year employment agreement with
Philip J. Pellegrino, Sector President of the Energy Technology Segment (the
"Pellegrino Agreement"). The Pellegrino Agreement incorporates the terms of the
Enhanced Benefit Plan, but also provides that Mr. Pellegrino will have a base
salary of not less than $200,000. In addition to the stock option and restricted
stock awards described in the Summary Compensation Table, Mr. Pellegrino is also
eligible to receive 5% of the equity in SuperPower, Inc., a wholly-owned
subsidiary of Intermagnetics that currently is not publicly traded. This equity
will be provided in the form of stock options that will be priced at fair market
value on the date of the grant. If Mr. Pellegrino is terminated without cause or
resigns for good cause during term of the Pellegrino Agreement, he will be
entitled to twelve (12) months of severance and his outstanding options will
automatically vest. If he is terminated or resigns under certain circumstances
after a change in control event (as described in the Agreement), his severance
would equal two (2) times his salary and bonus for the prior year.
o Rosner Agreement
----------------
Mr. Rosner retired as Chief Executive Officer of the Company effective
May 31, 1999 pursuant to the terms of an employment agreement between the
Company and Mr. Rosner (the "Rosner Agreement"). The Rosner Agreement includes a
provision requiring Mr. Rosner to serve as a consultant for five (5) fiscal
years after his retirement (the "Consulting Term"). On April 11, 2002 the
parties signed an addendum to the Rosner Agreement. The addendum provides for an
acceleration of certain consulting fees payable to Mr. Rosner under the Rosner
Agreement. Mr. Rosner retired as Chairman of the Board of Directors effective
May 26, 2002. Pursuant to the terms of the Company's stock option plans, all of
his outstanding options vested upon his retirement and will terminate on the
earlier of the expiration of the original grant or May 26, 2004. Under the
Rosner Agreement, the Company paid Mr. Rosner $292,500 in consulting fees in
fiscal year 2002, including the lump sum payment due pursuant to the addendum to
the Rosner Agreement, $180,000 in fiscal year 2001, and $172,500 in fiscal year
2000. In addition, Mr. Rosner earned a bonus of $74,445 in fiscal year 2002 that
was paid to him in fiscal year 2003, $90,145 in fiscal year 2001 that was paid
to him in fiscal year 2002 and $52,530 in fiscal year 2000 that was paid to him
in fiscal year 2001.
21
TRANSACTIONS WITH MANAGEMENT
In fiscal year 2000, we adopted Stock Ownership Guidelines for our
executive officers and certain top-level management employees. Executive
officers and certain key employees that report directly to the Chief Executive
Officer are expected to own between one and two times their base salary in
Common Stock. Top-level management employees are expected to own not less than
two-thirds of their base salary in Common Stock.
In order to assist and encourage individuals to reach the ownership
guidelines as soon as possible, we created the 1999 Executive Stock Purchase
Plan. Under this plan, which was approved by our shareholders in November, 2000,
the Company may provide loans directly to participants, or may arrange for a
participant to obtain a loan from a bank, for the purpose of purchasing Common
Stock on the open market. Interest on the loan is charged annually at the
Company's base rate of borrowing under its line of credit, or at the rate
charged by the bank if the loan is secured through a bank. The term of the loan
is five (5) years after which it must be repaid in full. Employees are expected
to retain two-thirds of the stock purchased with loan proceeds for the entire
term of the loan and are expected to retain ownership levels within the Stock
Ownership Guidelines during the term of the 1999 Executive Stock Purchase Plan.
As a result of the Sarbanes-Oxley Act adopted in July 2002, new loans will no
longer be issued to corporate officers under this plan.
Messrs. Epstein, Burke, Blecher, Pellegrino and Thielman have secured
loans totaling $800,000, $430,000, $220,000, $400,000 and $350,000,
respectively, to purchase Common Stock. All other participant loans currently
outstanding total $1,524,720. Messrs. Zeigler and Dedman repaid their loans in
full in fiscal years 2001 and 2002, respectively. There have been no events of
loan forgiveness or default with respect to the loans.
AUDIT COMMITTEE AND INDEPENDENCE OF AUDITORS
Audit Committee Report
The Audit Committee of the Board of Directors (the "Committee") is
comprised of five (5) Directors. All members of the Committee are independent
directors as defined by the rules of the American Stock Exchange and Nasdaq. The
Committee has adopted a written charter. This charter was approved by the Board
of Directors and is set forth in Appendix A of this Proxy Statement. The
Committee has reviewed and discussed the Company's audited financial statements
with management, which has primary responsibility for the financial statements.
PricewaterhouseCoopers, LLP, the Company's independent auditor for fiscal year
2002, is responsible for expressing an opinion on the conformity of the
Company's audited financial statements with U.S. generally accepted accounting
principles. The Committee has discussed with PricewaterhouseCoopers the matters
that are required to be discussed by the Statement on Auditing Standards No. 61
(Communication with Audit Committees). PricewaterhouseCoopers has provided the
Committee with the written disclosures and the letter required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Committee discussed the firm's independence with PricewaterhouseCoopers.
The Committee also considered whether PricewaterhouseCoopers' provision of
non-audit services to the Company is compatible with the firm's independence.
22
Based on the considerations referred to above, the Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company's Annual Report on Form 10-K for fiscal year 2002. The
Committee also authorized PricewaterhouseCoopers to continue as the Company's
independent auditors for fiscal year 2003.
AUDIT COMMITTEE OF THE BOARD OF
DIRECTORS OF INTERMAGNETICS
GENERAL CORPORATION
Sheldon E. Weinig (Chairman)
Larry G. Garberding
Michael E. Hoffman
James S. Hyde
Thomas L. Kempner
Independent Auditors Fees
In addition to retaining PricewaterhouseCoopers to audit the
consolidated financial statements for 2002, the Company retained
PricewaterhouseCoopers, as well as other consulting firms, to provide various
consulting services in fiscal year 2002. The aggregate fees and expenses billed
for professional services by PricewaterhouseCoopers over the past twelve (12)
months for these various services were:
Audit Fees: $152,500 for services rendered for the annual audit of the
Company's consolidated financial statements and the quarterly reviews
of the financial statements included in the Company's Forms 10-Q;
All Other Fees: $295,000 for tax, special audit and consulting
services.
No fees were paid to PricewaterhouseCoopers for financial information
systems design and implementation.
23
REPORT OF COMPENSATION COMMITTEE
The following report shall not be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that Intermagnetics General Corporation specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
The Compensation Committee of the Board of Directors sets the
compensation policies for the executive officers of the Company, recommends the
annual base salary, annual incentive compensation and grant of long term
incentive compensation for the Company's chief executive officer, and approves
the annual base salary, annual incentive compensation and grant of long term
incentive compensation for all other executive officers of the Company. In
fulfilling this duty, the Compensation Committee has sought to establish a
policy that enables the Company to attract, retain and reward executive officers
who contribute substantially to the success of the Company, and aligns executive
compensation with the creation of long-term value for the Company's
shareholders.
The Compensation Committee views executive compensation as comprised of
three (3) essential components: long-term incentive compensation, annual base
salary and annual incentive compensation.
Long Term Incentive Compensation. The Compensation Committee views
long-term incentive compensation as the cornerstone of executive compensation.
The Compensation Committee believes that long-term executive compensation should
be linked closely to the creation of shareholder value. In this regard, the
Compensation Committee believes that the grant of stock options to the Company's
executive officers under the Company's stock option plans focuses the attention
of the Company's executives on the important task of creating long-term
shareholder value. In awarding stock options to the executive officers of the
Company, the Compensation Committee generally considers a variety of factors,
including the potential impact of an executive officer on shareholder value and
industry practice with respect to such awards. Options are typically granted at
the market price on the date of grant. Because vesting generally ceases should
the executive leave the Company's employment, the Compensation Committee
believes that the stock options also serve to retain the Company's executive
officers.
Annual Base Salary. In establishing executive annual base salaries, the
Compensation Committee has established a policy of setting payments
competitively. In determining the competitiveness of individual salaries, the
Compensation Committee periodically gathers information regarding the base
salaries paid to other individuals with comparable responsibilities in related
industries, particularly those with a focus on technology. In connection with
establishing base salaries in light of the competitive ranges, the Compensation
Committee weighs the allocation of responsibilities among the executive officers
within the Company and the relevant experience of each such executive officer.
Annual Incentive Compensation. The Compensation Committee believes that
an important component of annual compensation is incentive compensation. In July
1999, the Compensation Committee established a new annual incentive compensation
program (the "Incentive Bonus Program") pursuant to which cash bonuses are
earned by officers and employees of the Company. The size and availability of a
cash award under the Program is linked to quantitative and qualitative goals
that are established for each eligible participant at the beginning of the
Company's fiscal year. The Board of Directors sets the quantitative goals for
the financial performance of the Company and its subsidiaries and divisions. The
Compensation Committee sets qualitative goals for the Chief Executive Officer.
Qualitative goals for other officers and employees are approved by the executive
officer to whom he or she reports. Under the program, bonuses earned in any
fiscal year are paid to executives and eligible employees in the first quarter
of the following fiscal year.
24
Participants in the Incentive Bonus Program are eligible to earn a
bonus equal to a set percentage of their base salary (their "Bonus Target").
Employees can achieve a bonus above their Bonus Target if they exceed their
quantitative and/or qualitative goals. The program provides for "banking" of
bonuses earned in excess of 150% of the participant's target. This "bank" is
paid out over a three (3) year period, provided the participant remains employed
with the Company, but is subject to reduction if participant fails to meet his
or her quantitative goals during the three (3) year payout period. The total
amount earned in any year (including any banked portion) by all participants
under the Program cannot exceed 10% of consolidated operating income (as
adjusted for significant non-recurring items including gains or losses from
Board approved restructuring activities and approved increases in the Company's
ongoing investment in Energy Technology). This program will continue to apply to
the officers and employees of the Company for fiscal year 2003 performance.
Section 162(m) Considerations. The Company expects that the salary and
bonus compensation paid to executive officers will qualify for income tax
deductibility under Section 162(m) of the Internal Revenue Code. In addition, we
have awarded stock options to executive officers only pursuant to plans that we
believe will satisfy the requirements of Section 162(m).
The Compensation Committee believes that the compensation earned by
each of the five (5) highest paid executive officers of the Company for its
fiscal year 2002 was reasonable in view of the Company's consolidated
performance and the contribution of those officers to that performance.
In particular, the Compensation Committee believes that Mr. Epstein's
compensation during fiscal year 2002 reflected his very strong contribution to
the Company's strategic goals and overall financial and operational performance.
Consistent with the requirements of the Epstein Agreement, Mr. Epstein received
a base salary of $400,000. Mr. Epstein was also paid an annual bonus of $422,000
for fiscal year 2002 performance in accordance with our Incentive Bonus Program.
In addition, Mr. Epstein received a portion of his "banked" bonus in the amount
of $156,831. His current "bank" consists of $529,645 of additional bonus amounts
for which he will be eligible over a three (3) year period, provided certain
criteria are met. Mr. Epstein's target bonus for fiscal year 2003 will be 100%
of his base salary and the target bonuses for all other executive officers will
range from 35-50% of base salary.
The Compensation Committee notes that Mr. Epstein's salary falls within
competitive ranges established for the position of Chief Executive Officer for
technology companies with similar characteristics such as size, growth and
profitability.
COMPENSATION COMMITTEE OF THE BOARD
OF DIRECTORS OF INTERMAGNETICS
GENERAL CORPORATION
James S. Hyde (Committee Chairman)
Larry G. Garberding
Thomas L. Kempner
Sheldon E. Weinig
25
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
the Company's Common Stock for the past five (5) fiscal years with similar
returns for (i) the Nasdaq composite index and (ii) a peer group of companies we
selected for purposes of the comparison and described more fully below (the
"Peer Group"). Dividend reinvestment has been assumed and, with respect to
companies in the Peer Group, the returns of each such company have been weighted
at each measurement point to reflect relative stock market capitalization. There
can be no assurance that the performance of the Company's Common Stock will
continue in a manner similar to the trend depicted on the graph.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG INTERMAGNETICS GENERAL CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE AMEX COMPOSITE INDEX AND A PEER GROUP
Cumulative Total Return
-------------------------------------------------------------------
5/25/97 5/31/98 5/30/99 5/28/00 5/27/01 5/26/02
INTERMAGNETICS GENERAL CORPORATION 100.00 87.00 68.51 95.36 268.93 223.78
NASDAQ STOCK MARKET (U.S.) 100.00 127.94 180.44 233.08 163.74 121.41
AMEX COMPOSITE 100.00 118.48 129.12 146.14 155.20 159.62
PEER GROUP 100.00 118.37 89.52 116.84 122.88 95.18
* $100 Invested on 5/25/97 in stock or index-
including reinvestment of dividends.
The selection of a peer group posed some difficulty because we do not
believe there are any publicly traded companies devoted exclusively or even
substantially to all of the same markets in which we compete. We believe that
many of our strongest competitors are either not publicly traded in the U.S., or
consist of subsidiaries or divisions of large corporations. Hence, we selected a
peer group consisting of publicly-traded high technology companies (including
those in the development stage) that (a) have less than $350 million in annual
revenues, and (b) either compete against the Company in one or more of our
several markets or otherwise participate in one or more of our several markets.
With respect to the medical diagnostic imaging market, we focused on selecting
other companies that, like Intermagnetics, design and sell systems and
components to medical products companies.
The companies in the Peer Group that compete against us in one or more
of our markets consist of Helix Technology Corporation and Chart Industries,
Inc., which participate in the instrumentation market, and American
Superconductor Corporation, a development stage company working with high
temperature superconductors in the energy technology market.
The companies in the Peer Group that otherwise participate in markets
in which we are active (but do not necessarily compete against the Company in
such markets) include Analogic Corporation and Hologic, Inc., both of which
manufacture products for the diagnostic imaging market, and SatCon Technology
Corporation, which participates in the energy technology market.
In providing the foregoing graph for informational purposes, the
Company notes that as a general rule, development stage companies do not have
meaningful revenues relative to their substantial product development expenses.
Hence, unlike the Company's Common Stock, the value of equity securities of
development stage companies are based primarily on speculation regarding the
potential success of such companies in bringing a novel product to market
successfully.
26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SuperPower, Inc., a wholly-owned subsidiary of the Company, retained
Albertine Enterprises, Inc. to perform certain government relations activities
for which fees and expenses were paid in the amount of $100,557 in fiscal year
2002. John M. Albertine is a Director of the Company and serves as Chairman and
Chief Executive Officer of Albertine Enterprises. We do not expect fees to
Albertine Enterprises to exceed $60,000 in fiscal year 2003.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING AND OTHER MATTERS
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of our
equity securities, to file initial reports of ownership and reports of changes
in ownership of our Common Stock and other equity securities with the Securities
and Exchange Commission. Officers, directors and greater than ten percent
shareholders must furnish us with copies of all Section 16(a) forms they file.
To the best of our knowledge, based solely on a review of the copies of
Section 16(a) reports furnished to us and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to our
officers, directors and more than ten-percent beneficial owners were complied
with during the fiscal year ended May 26, 2002.
The Board of Directors is not aware of any matters other than those
discussed in this Proxy Statement that may come before the meeting. If, however,
further business properly comes before the meeting, the persons named in the
proxies will vote the shares represented thereby in accordance with their
judgment.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for
shareholder action at annual meetings in accordance with regulations adopted by
the Securities and Exchange Commission. Under those regulations, shareholders
who intend to submit proposals for the 2003 Annual Meeting must ensure that our
Corporate Secretary receives such proposals not later than May 25, 2003 in order
to be considered for inclusion in the proxy statement and form of proxy relating
to the 2003 Annual Meeting.
ANNUAL REPORT
Our annual report on Form 10-K for the fiscal year ended May 26, 2002,
including the financial statements and schedules, but excluding exhibits, was
mailed with this Proxy statement. Upon written request of a shareholder, we will
furnish any exhibit to Form 10-K. Our annual report to shareholders will be
mailed under separate cover.
By order of the Board of Directors,
KATHERINE M. SHEEHAN
Corporate Secretary
27
APPENDIX A
INTERMAGNETICS GENERAL CORPORATION
AUDIT COMMITTEE CHARTER
1. Mission Statement
-----------------
The audit committee (the "Committee") will assist the Board of Directors
(the "Board") of Intermagnetics General Corporation (the "Company") in
fulfilling the Board's general oversight and monitoring of the independent
auditor's participation in the Company's financial reporting process, the
Company's process for financial reporting, its system of internal control,
audit process, and process for monitoring compliance with legal and
regulatory requirements. In performing its duties, the Committee will
maintain effective working relationships with the Board, management and the
Company's auditors. The primary objective of the Committee in fulfilling
its responsibilities is to promote and preserve the integrity of the
Company's financial statements and the independence and performance of the
Company's external auditors.
2. Organization
------------
2.1. Committee Composition: The Committee shall consist of not less than
three members who shall be appointed annually by the Board. The
Board shall designate one member of the Committee to serve as
Chair.
2.2. Member Qualifications: Each member should make a unique and
valuable contribution to the Committee. Members must have the
ability to: recognize the significance of the Committee; dedicate
the time and energy necessary to accomplish the Committee's role;
understand the Company's business, risks and controls; read and
understand fundamental financial statements; and offer new and
different perspectives and constructive suggestions. At least one
member of the Committee shall have accounting or related financial
management expertise. In addition, Committee members will satisfy
the qualification requirements for audit committee members set
forth in any rules, regulations or laws applicable to the Company.
2.3. Independence of Members: Members of the Committee shall be
independent. A member shall be considered independent if he or she
has no relationship with the Company that may interfere with his or
her independence from management, or if he or she is an
"independent director" as that term may be defined by applicable
rules, regulations or laws.
2.4. Meetings: The Committee shall schedule and hold regular meetings
with sufficient frequency to carry out its responsibilities.
Whenever possible, Committee meetings will be scheduled in
conjunction with meetings of the full Board. Committee meetings
shall, when appropriate, include the Company's external auditors
and appropriate management representatives (e.g., President, CFO).
3. Audit Committee Activities
--------------------------
The principal activities of the Audit Committee will generally include the
following:
3.1. Review of Charter: Review and reassess the adequacy of this Charter
annually and submit it to the Board for approval along with any
recommended changes.
3.2. Internal Control: The Committee shall review and evaluate corporate
policies and controls and ensure that the Company's external
auditors keep the Committee informed about fraud, illegal acts,
deficiencies in internal controls and other matters related to the
Company's financial processes.
1
3.3. Financial Reporting:
3.3.1. The Committee shall review the Company's audited financial
statements and annual audit process. Generally, the Committee
shall:
o review the overall audit plan with the independent auditor
and management responsible for maintaining the Company's
accounts and preparing the Company's financial statements
(the "Senior Accounting Executive").
o review and discuss with management and the independent
auditor:
(i) the Company's annual audited financial statements,
including any significant reporting issues that arose in
connection with the preparation of the statements;
(ii) the adequacy of the Company's internal financial
reporting controls; and
(iii) major changes in, and questions regarding,
accounting and auditing principles and procedures.
o review and discuss with the independent auditor (outside
the presence of management) how the independent auditor
plans to handle its responsibilities under the Private
Securities Litigation Reform Act of 1995.
o review and discuss with the independent auditor (outside
the presence of management) any problems or difficulties
the auditor may have with management or others including
any management letter provided by the auditor and the
Company's response to that letter. This review shall
include any difficulties encountered by the auditors in
the course of performing its audit, including any
restrictions on the scope of its activities or access to
information.
o review and discuss any major changes to the Company's
auditing and accounting principles and practices as may be
suggested by the independent auditor or management
o discuss with the independent auditor issues that may be
brought to the Committee's attention pursuant to any
applicable Statement on Auditing Standards (e.g. SAS No.
61).
o based on the Committee's review and discussions with
management and the independent auditors of the matters
outlined above, make a recommendation to the Board as to
whether the Company's audited financial statements should
be included in the Company's annual report on Form 10-K.
o prepare the Audit Committee Report required by Item 306 of
Schedule 14A of the Securities Exchange Act of 1934 (or
any successor provision) to be included in the Company's
annual proxy statement.
2
3.3.2. The Committee shall review and discuss with management and
the independent auditor the Company's quarterly financial
statements. Such review shall include discussions between the Chair
of the Committee, or the full Committee and the independent auditor
of such issues as may be brought to their attention pursuant to
Statement on Auditing Standards No. 71.
3.4. Selection, Performance and Independence of Independent Auditors:
The Committee shall:
3.4.1. recommend to the Board the appointment of the independent
auditor.
3.4.2. instruct the independent auditor that the auditor's
ultimate accountability is to the Board and the Committee as
representatives of the Company's shareholders.
3.4.3. evaluate on an annual basis the performance of the
auditor, and, if necessary in the judgment of the Committee,
recommend that the Board replace the independent auditor.
3.4.4. request that the independent auditor provide the Committee
with the written disclosures and letter required by Independence
Standards Board Standard No. 1, and review and discuss the
independence of the auditor with the Committee and the independent
auditor. The Committee shall recommend that the Board take
appropriate action, if necessary, to ensure the independence of the
auditor.
3.5. Investigations: The Board may request that the Committee review or
investigate on behalf of the Board activities of the Company or of
its employees, including compliance with applicable laws,
regulations or Company policy.
3.6. Other Oversight Functions: The Committee will perform such other
oversight functions as may be requested by the Board.
4. Scope of Responsibilities
-------------------------
4.1. In performing its responsibilities, the Committee shall be entitled
to rely upon advice and information it receives in its discussions
and communications with management and the independent auditors.
The Committee shall have the authority to retain special legal,
accounting or other professional advisors to the Committee. The
Committee shall also have the authority to request that any Company
officer or employee, outside legal counsel, independent auditor or
other professional retained by the Company to render advice, attend
meetings of the Committee or cooperate with any investigation
conducted by the Committee.
4.2. Notwithstanding the powers and responsibilities of the Committee as
set forth in this Charter, the Committee does not have the
responsibility of planning or conducting audits of the Company's
financial statements or determining whether the Company's financial
statements are complete, accurate and in accordance with generally
accepted accounting principles. Such responsibilities are the duty
of management and the independent auditor (to the extent consistent
with the independent auditor's scope of review). It is also not the
duty of the Committee to resolve disagreements, if any, between
management and the independent auditors or to ensure compliance
with laws, regulations or Company policies.
3