CAPITOL TRANSAMERICA CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 2001
TO THE SHAREHOLDERS OF CAPITOL TRANSAMERICA CORPORATION (CTC):
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Capitol
Transamerica Corporation (CTC) will be held at The Marriott Madison West, 1313
John Q. Hammons Drive, Middleton, WI on Monday, May 14, 2001 with registration
at 3:30 p.m. and the meeting at 4:00 p.m. central daylight time for the
following purposes:
1. To elect two directors for three year terms expiring in the year 2004;
2. To ratify the selection of Ernst & Young LLP, as the Company's
independent auditors for 2001; and
3. To transact such other business that may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 9, 2001 as the
record date for the determination of shareholders entitled to notice of and to
vote at the annual meeting or any adjournment thereof.
All shareholders are cordially invited to attend the annual meeting. Whether or
not you plan to attend the meeting, the BOARD OF DIRECTORS URGES YOU TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE in the
enclosed business reply envelope, which requires no postage if mailed in the
United States. You may revoke the proxy at any time prior to its exercise
provided that you comply with the procedures set forth in the proxy statement to
which this notice is attached. If you attend the annual meeting, you may if you
desire, withdraw your proxy at the registration desk and vote in person.
By order of the Board of Directors,
Virgiline M. Schulte
Corporate Secretary
Madison, Wisconsin
April 6, 2001
IMPORTANT: PLEASE PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS MAY 14, 2001
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CAPITOL TRANSAMERICA CORPORATION
4610 University Avenue Madison, Wisconsin 53705-0900
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 2001
SOLICITATION AND REVOCATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Capitol
Transamerica Corporation to be used at the Annual Meeting of Shareholders to be
held on May 14, 2001 or any adjournment thereof. Shares of stock may be voted at
the annual meeting only if the shareholder is represented by proxy or is present
in person. The proxy procedure is necessary in order to give all shareholders an
opportunity to vote, because many of our shareholders will be unable to attend
the annual meeting in person. The cost of soliciting proxies will be borne by
the Company. When the proxy is properly executed and returned, the shares it
represents will be voted at the meeting in accordance with the directions noted
thereon. If no choice is specified, the proxy will be voted in accordance with
the recommendations of the Board of Directors as set forth herein. Any
shareholder returning a proxy has the power to revoke it by written notice to
the Secretary of the Corporation at any time before it is voted, by a later
dated proxy, or by attending the meeting personally and voting. The Annual
Report of the Company is being mailed to all shareholders herewith. The proxy
materials were first mailed to all shareholders on or about April 6, 2001.
Capitol Transamerica Corporation is the parent company of Capitol Indemnity
Corporation, Capitol Specialty Insurance Corporation and Capitol Facilities
Corporation.
OUTSTANDING STOCK AND VOTING RIGHTS
As of the close of business on March 9, 2001, there were outstanding and
entitled to vote 11,328,034 shares of the Company's common stock. Shareholders
of record on March 9, 2001 will be entitled to one vote for each share of common
stock held. The Company has no other class of stock outstanding.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of March 9, 2001 with respect to
each person or entity known by the Company to be the beneficial owner (as
defined by the Securities and Exchange Commission) of more than 5% of the
Company's common voting stock:
AMOUNT & NATURE OF PERCENT
NAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS
------------------ -------------------- --------
George A. Fait (1) 1,812,853 (1) 14.92%
3100 Lake Mendota Drive
Madison, WI 53705
Robert E. Fait 676,919 5.98%
1399 Spring Valley Road
Burlington, WI 53105
Royce & Associates, Inc. 822,580 7.26%
1414 Avenue of the Americas
New York, NY 10019
-2-
(1) Includes 14,884 shares in a personal Keogh Retirement Plan; 28,578 shares
in the Company's ESOP and 9,279 shares in a personal IRA. This total also
includes 122,500 shares of stock issuable upon exercise of options granted
and outstanding under Capitol Transamerica Corporation's stock option plan
which are not included in the percent of class calculation.
PROPOSAL 1. ELECTION OF DIRECTORS
As permitted by Wisconsin law, the Board of Directors of the Company is divided
into three classes, each class having a term of three years. Each year the term
of office of one class expires. This year the terms of a class consisting of two
directors expires and it is the intention of the Board of Directors that the
shares represented by proxy, unless otherwise indicated thereon, will be voted
for the re-election of Larry Burcalow and Michael J. Larson to hold office for a
term of three years until the Annual Meeting of Shareholders in 2004. There is
no reason to believe that either of the nominees will be unable or unwilling to
serve as directors if elected, but if a nominee should be unable or unwilling to
serve, the shares represented by management proxies will be voted for the
election of such other person for the office of director as the Board of
Directors may recommend in place of such nominee.
Information with respect to the nominees and other directors is set forth below:
Company's Common Stock
NAME, AGE, PRINCIPAL OCCUPATION Original Date Owned as of 3/9/01
AND PUBLIC DIRECTORSHIPS (1) of Election Shares (2) Percent of Class (3)
- -------------------------- ------------- ---------- ----------------
CLASS OF 2004
(Terms will expire in 2004)
Larry Burcalow, Age 59, Waunakee, WI; 1997 7,200 0.05%
Owner and President, Yahara Materials, Inc.
Michael J. Larson, Age 59, Madison, WI; 1991 7,821 0.05%
Principal, Southwestern Financial Services.
CLASS OF 2003
(Terms will expire in 2003)
George A. Fait, Age 74, Madison, WI; 1965 1,812,853 14.92%
Chairman of the Board and President of the Company.
Kenneth P. Urso, Age 66, Madison, WI; 1997 9,700 0.08%
Principal, Urso Ventures; Director, First Business Bank.
CLASS OF 2002
(Terms will expire in 2002)
Paul J. Breitnauer, Age 61, Madison, WI; 1986 153,033 1.35%
Vice President and Treasurer of the Company.
Reinhart H. Postweiler, Age 71, Madison, WI; 1977 32,685 0.27%
Retired, formerly with Flad Affiliated Corporation.
-3-
<FN>
(1) All of the named directors and nominees are also directors of Capitol
Indemnity Corporation, Capitol Specialty Insurance Corporation and Capitol
Facilities Corporation, subsidiary companies. None of the above directors
are related and there are no arrangements or understandings between
directors since each is acting solely in their described capacity. There
have been no known events during the past five years which are material to
the evaluation of the ability or integrity of any director of the Company.
(2) Includes shares of stock issuable upon exercise of options granted and
outstanding under Capitol Transamerica Corporation's stock option plans:
122,500 shares for George A. Fait; 7,800 shares for Paul J. Breitnauer;
1,650 shares each for Michael J. Larson and Reinhart H. Postweiler and
1,200 shares each for Larry Burcalow and Kenneth P. Urso.
(3) Included in the percent of class calculation are 14,884 shares in a
personal Keogh Retirement Plan; 28,578 shares in the Company's ESOP and
9,279 shares in a personal IRA for George A. Fait and 11,728 shares in a
personal IRA and 8,513 shares in the the Company's ESOP for Paul J.
Breitnauer.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held four regular meetings during 2000. Each director
attended 100% of the meetings except Michael J. Larson who attended 75% of the
meetings.
Responsibilities of the various committees of the Board of Directors are as
follows:
The Company has an AUDIT COMMITTEE composed of independent directors for which
information regarding the functions performed by the Committee, its membership,
and the number of meetings held during the fiscal year, is set forth in the
"Report of the Audit Committee," included in this annual proxy statement. The
Audit Committee is governed by a written charter approved by the Board of
Directors. A copy of this charter is included as Appendix A. The committee
consists of Larry Burcalow, Michael J. Larson, Reinhart H. Postweiler and
Kenneth P. Urso.
The EXECUTIVE COMMITTEE is empowered by the By-Laws of the Company to act on
behalf of the Company during intervals between meetings of the Board of
Directors. The Executive Committee also functions as the EXECUTIVE COMPENSATION
COMMITTEE, which is responsible for establishing the criteria used to determine
the annual compensation of the Chairman of the Board and all other officers of
the Company. The Committee consists of Messrs. Fait, Larson and Postweiler. The
Executive Committee held four meetings during 2000 in conjunction with the
regular Board of Directors meetings.
The INVESTMENT COMMITTEE is responsible for the investment of the Company
assets. The Committee consists of Messrs. Burcalow, Fait and Larson. The
Investment Committee met four times during 2000 in conjunction with the regular
Board of Directors meetings.
The NOMINATING COMMITTEE makes recommendations to the Board of Directors
regarding nominees for election as directors. The Committee consists of Messrs.
Breitnauer, Postweiler and Urso. This Committee will also consider nominees
recommended by shareholders of the Company. Recommendations may be submitted in
writing to the Chairman of the Nominating Committee, Mr. Reinhart Postweiler, at
the Company's address. The Committee held one meeting during 2000.
-4-
The SALE & ACQUISITION COMMITTEE makes recommendations to the Board of Directors
concerning any prospective offer to purchase the Company or subsidiaries and/or
the possible acquisition of new companies or subsidiaries. The Committee
consists of Messrs. Burcalow, Fait, Larson and Urso. The Sale and Acquisition
Committee held four meetings during 2000 in conjunction with the regular Board
of Directors meetings.
The STOCK OPTION PLAN COMMITTEE is responsible for administering the Company
stock option plans. The Committee consists of Messrs. Breitnauer, Fait and Urso.
The Stock Option Plan Committee held four meetings during 2000.
COMPENSATION OF DIRECTORS
During the 2000 fiscal year Capitol Transamerica Corporation paid director's
fees of $1,000 per meeting to each director of Capitol Transamerica Corporation
and its wholly-owned subsidiaries, except for directors who were officers of the
companies who received no cash compensation for attendance at meetings. A
committee fee of $300 is paid to outside directors when meetings are not held in
conjunction with the regularly scheduled Board of Directors meetings. For fiscal
year 2000 Capitol Transamerica Corporation paid a total of $15,000 in director's
fees and each non-employee director received 300 incentive stock options for
serving on the boards.
REPORT OF THE AUDIT COMMITTEE
The AUDIT COMMITTEE oversees the Company's financial reporting process on behalf
of the Board of Directors. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Committee reviewed
the audited financial statements in the Annual Report with management including
a discussion of the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are responsible for
expressing an opinion on the conformity of those audited financial statements
with generally accepted accounting principles, their judgments as to the
quality, not just the acceptability, of the Company's accounting principles and
such other matters as are required to be discussed with the Committee under
generally accepted auditing standards. In addition, the Committee has discussed
with the independent auditors the auditors' independence from management and the
Company including the matters in the written disclosures required by the
Independence Standards Board and considered the compatibility of nonaudit
services with the auditors' independence.
The Committee discussed with the Company's independent auditors the overall
scope and plans for their respective audits. The Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examinations, the evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Committee held three meetings during fiscal year 2000.
-5-
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board has approved) that the
audited financial statements be included in the Annual Report on Form 10-K for
the year ended December 31, 2000 for filing with the Securities and Exchange
Commission. The Committee and the Board have also recommended, subject to
shareholder approval, the selection of the Company's independent auditors, Ernst
& Young LLP.
Kenneth P. Urso, Committee Chair
Larry Burcalow, Committee Member
Michael J. Larson, Committee Member
Reinhart H. Postweiler, Committee Member
REPORT ON EXECUTIVE COMPENSATION
The following Summary Compensation Table includes individual compensation
information on all Executive Officers earning $100,000 or more in the last three
fiscal years. Such table includes all compensation for services rendered in all
capacities during the fiscal years ended December 31, 2000, 1999 and 1998
respectively.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------- --------------------------------
ALL OTHER
NAME/TITLE YEAR SALARY BONUS COMPENSATION OPTIONS
($) ($) ($)(2) (# Awarded Shares)
---- ------- ------- ------------ ------------------
George A. Fait 2000 350,000 629,782 29,242 -0-
Chairman of the Board 1999 350,000 514,689 20,380 122,500
& President (1) 1998 350,000 740,856 17,484 10,000
Paul J. Breitnauer 2000 146,350 500 17,766 -0-
Vice President & 1999 123,820 500 12,734 9,000
Treasurer 1998 107,368 500 8,740 5,000
<FN>
(1) Mr. Fait's bonuses were calculated on the results of the prior year,
accrued at year-end, and paid in the first quarter of the following year.
The bonus calculation is 5% of the excess of gross profits after a 10%
return on beginning shareholders' equity.
(2) Includes net contributions to the Corporation's ESOP of $26,892 in 2000,
$18,130 in 1999 and $15,234 in 1998 for George A. Fait, and $15,516 in
2000, $10,484 in 1999 and $6,490 in 1998 for Paul J. Breitnauer and also
$2,250 annually, for each, to the Company's 401(k) Plan.
-6-
OPTIONS EXERCISED IN LAST FISCAL YEAR
The following table contains information for the Executive Officers listed below
concerning the exercise of options during 2000 and the value of unexercised
options at year-end for the Corporation's common stock.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND FY-END OPTION VALUES
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS OPTIONS AT 12/31/00 OPTIONS AT 12/31/00
ACQUIRED VALUE (#) ($)
NAME ON EXERCISE REALIZED -------------------------- --------------------------
---- (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- ----------- ------------- ----------- -------------
George A. Fait (1) -0- -0- 30,625 91,875 84,219 252,656
Paul J. Breitnauer (2) 600 1,462 1,650 6,750 4,538 18,562
<FN>
(1) Based on 12-31-00 market price of $12.43 less base cost of $9.68 for both the exercisable and unexercisable.
(2) Based on 12-15-00 market price of $12.13 less base cost of $9.68 for the exercised and 12-31-00 market price
of $12.43 less base cost of $9.68 for both the exercisable and unexercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Executive Compensation Committee for 2000 were
George A. Fait, Michael J. Larson and Reinhart H. Postweiler. There are no
interlocks or insider participation between members of the Executive
Compensation Committee.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Executive Compensation Committee of the Board of Directors is composed of
two independent outside directors and George A. Fait, Chairman of the Board and
President of the Company. The Committee is responsible for setting and
administering the annual compensation of the Chairman of the Board and all other
officers of the Company. In 1996 the Committee established a base annual salary
of $350,000 for the Chairman of the Board with a bonus based on 5% of the excess
of gross profits after a 10% return on beginning shareholders' equity. This plan
was confirmed and continued by the Executive Compensation Committee for the
calendar year 2000.
Executive Compensation Committee
George A. Fait, Michael J. Larson, Reinhart H. Postweiler
-7-
COMPARISON OF TEN YEAR CUMULATIVE TOTAL RETURN
The following graph demonstrates a ten year comparison of cumulative total
return for Capitol Transamerica Corporation, the Standard & Poor's 500 Index and
the Peer Group Index.
TEN-YEAR COMPARISON
CUMULATIVE RETURN TO SHAREHOLDERS
(PRICE APPRECIATION AND THE REINVESTMENT OF DIVIDENDS)
90 91 92 93 94 95 96 97 98 99 00
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
CATA $100 $242 $192 $227 $229 $313 $483 $510 $454 $250 $316
S&P 500 $100 $130 $140 $155 $157 $215 $265 $353 $454 $549 $499
Peer Group* $100 $134 $166 $179 $171 $246 $308 $439 $523 $503 $660
<FN>
* (P & C Commercial Peer Group)
COMPENSATION PLANS
STOCK OPTION PLANS
Capitol Transamerica Corporation has a stock option plan which was adopted by
the Board at the January 14, 1993 meeting and ratified by shareholders at the
1993 Annual Meeting. This plan replaced the 1981 Incentive Stock Option Plan.
The purpose of the Plan is to induce employees to remain in the employ of the
Company or its subsidiaries, to attract and retain qualified non-employee
directors and to encourage employees, key persons and non-employee directors to
secure or increase on reasonable terms their stock ownership in the Company. The
Board of the Company believes that the Plan will promote continuity of
management and increased incentive and personal interest in the welfare of the
Company by those who are primarily responsible for shaping and carrying out the
long-range plans of the Company and securing its continued growth and financial
success.
-8-
The table below summarizes certain information with respect to the Company's
stock option plans and sets forth all options exercised during the period
January 1, 2000 through March 9, 2001.
Options Options
Options Awarded (#) Exercised (#) Exercised (#) Options Options Available
1-1-00 to 12-31-00 1-1-00 to 12-31-00 1-1-00 to 3-09-00 Outstanding (#) For Award (#)
- ------------------------- ------------------- ------------------- ------------------ --------------- ------------------
1993 STOCK OPTION PLAN -0- 4,640 1,422 2,581 -0-
1981 INCENTIVE PLAN 6,400 15,157 600 231,752 721,011
All options under the stock option plans were issued at 100% (except for George
A. Fait at 110%) of the fair market value on the date of grant. The market value
on March 9, 2001 of the common stock of CTC was quoted in the over-the-counter
quotations of the National Association of Securities Dealers at 13.25 bid and
14.00 ask. There are currently 104 employees and directors that hold stock
options.
EMPLOYEE STOCK OWNERSHIP PLAN
An Employee Stock Ownership Plan (ESOP) was adopted in 1988 for the purpose of
inducing employees to remain in the employ of the Company, to attract new
employees and to provide such employees the opportunity to participate in the
ownership of the Corporation. All present and future employees of the Company
and its subsidiaries are eligible to participate in accordance with the terms of
the Plan. Presently there are 106,061 shares of the company stock in the Plan
which have been allocated to those employees who are eligible to participate.
There are currently 150 participants in the Plan. The market value of the Plan
at year end 2000 was $1,534,680.
EMPLOYEE 401(K) SAVINGS PLAN
The Company has an employer sponsored 401(k) Plan for all employees who have
been employed by the Company for 12 consecutive months, under which the Company
contributes an amount equal to 150% of each participant's eligible contribution
for the plan year that does not exceed 6% of compensation and is not greater
than $1,500 for each employee and $2,250 for the employer for a maximum combined
total of $3,750 for each plan year. The employee may contribute non-matching
funds not to exceed 10% of gross annual salary or $10,500, whichever is less.
Both the individual participant's contribution and the Company's contribution
are non-forfeitable, with no reversion to the Company. Currently there are 144
participants in the Plan.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive officers
and directors, and persons who beneficially own more than ten percent (10%) of
the Company's stock, to file reports of ownership with the Securities and
Exchange Commission (SEC) and the NASDAQ Stock Exchange. Executive officers,
directors and greater than ten percent (10%) beneficial owners are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors, the
Company believes that all Section 16(a) filing requirements applicable to its
executive officers, directors and greater than ten percent (10%) beneficial
owners were complied with in the year 2000.
-9-
PROPOSAL 2. RATIFICATION OF INDEPENDENT PUBLIC AUDITORS
Subject to ratification by the shareholders, the Board of Directors has
reappointed Ernst & Young LLP as independent auditors to audit the financial
statements of the company for the current fiscal year. Fees for the last annual
audit were $86,100 and audit-related fees were $20,200.
Representatives of the firm Ernst & Young LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
The Audit Committee and the Board of Directors recommend the shareholders vote
"FOR" such ratification.
SHAREHOLDER PROPOSALS
The Corporation has not received any shareholder proposals to be considered for
presentation at the 2001 Annual Meeting. If a shareholder desires to present a
proposal for inclusion in next year's Proxy Statement and to present such
proposal at the 2002 Annual Meeting, the shareholder must submit such proposal
in writing to Capitol Transamerica Corporation, 4610 University Avenue, Madison,
Wisconsin 53705, Attention: Corporate Secretary, not later than December 31,
2001.
OTHER BUSINESS
The meeting is being held for the purposes set forth in the Notice accompanying
this Proxy Statement. The Board of Directors of the Company does not know of any
other matters which may be presented at the meeting. In the event that any
matters other than those referred to in the accompanying Notice properly come
before the meeting or any adjournment thereof, it is anticipated that the
proxies will be voted according to the best judgment of the person acting by
authorization of these proxies.
CAPITOL TRANSAMERICA CORPORATION
Virgiline M. Schulte
Corporate Secretary
April 6, 2001
-10-
APPENDIX A
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be appointed by the board of directors
and shall be comprised of at least three directors, each of whom are independent
of management and the Company. Members of the committee shall be considered
independent if they have no relationship that may interfere with the exercise of
their independence from management and the company. All committee members shall
be financially literate, (or shall become financially literate within a
reasonable period of time after appointment to the committee,) and at least one
member shall have accounting or related financial management expertise.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Company's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the annual independent audit of the
Company's financial statements, and the legal compliance and ethics programs as
established by management and the board. In so doing, it is the responsibility
of the committee to maintain free and open communication between the committee,
independent auditors, and management of the Company. In discharging its
oversight role, the committee is empowered to investigate any matter brought to
its attention with full access to all books, records, facilities, and personnel
of the company and the power to retain outside counsel or other experts for this
purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the audit committee is to oversee the Company's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Company's financial statements, and the independent auditors are responsible for
auditing those financial statements. The committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
-11-
The following shall be the principal recurring processes of the audit committee
in carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the committee may supplement them as
appropriate:
(a) The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the audit committee, as representatives of the
Company's shareholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the independent
auditors. The committee shall discuss with the auditors their independence
from management and the Company and the matters included in the written
disclosures required by the Independence Standards Board. Annually, the
committee shall review and recommend to the board the selection of the
Company's independent auditors, subject to shareholders' approval.
(b) The committee shall discuss with the independent auditors the overall scope
and plans for their respective audits including the adequacy of staffing
and compensation. Also, the committee shall discuss with management, and
the independent auditors the adequacy and effectiveness of the accounting
and financial controls, including the company's system to monitor and
manage business risk, and legal and ethical compliance programs. Further,
the committee shall meet separately with the independent auditors, with and
without management present, to discuss the results of their examinations.
(c) The committee shall review the interim financial statements with management
and the independent auditors prior to the filing of the Company's Quarterly
Report on Form 10-Q. Also, the committee shall discuss the results of the
quarterly review and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards. The chair of the committee may represent the entire committee
---------------------------------------------------------------
for the purposes of this review.
------------------------------------
(d) The committee shall review with management and the independent auditors the
financial statements to be included in the Company's Annual Report on Form
10-K (or the annual report to shareholders if distributed prior to the
filing of Form 10-K), including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, and the clarity of the disclosures in the financial statements.
Also, the committee shall discuss the results of the annual audit and any
other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards.
(e) The committee shall review and reassess this charter annually and obtain
the approval of the board of directors.
-12-