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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ENTROPIN, INC.
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(Name of Registrant as Specified In Its Charter)
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ENTROPIN, INC.
45926 OASIS STREET
INDIO, CA 92201
November 10, 2003
Stockholder:
I am pleased to invite you to attend the Annual Meeting of Stockholders
of Entropin, Inc. (the "Company") on Wednesday, December 10, 2003 at 8:00 a.m.
Pacific Standard Time, at the offices of Heller Ehrman White & McAuliffe LLP,
4350 La Jolla Village Drive, 7th Floor, San Diego, California 92122.
The accompanying Notice of Meeting and Proxy Statement describe the
matters to be considered and voted upon at the Meeting.
Your vote is important. Whether or not you plan to attend the Annual
Meeting, we encourage you to read the Proxy Statement and submit your Proxy as
soon as possible. You may submit your Proxy for the Annual Meeting by
completing, signing, dating and returning your Proxy in the enclosed
pre-addressed envelope. If you decide to attend the Annual Meeting and wish to
change your Proxy vote, you may do so simply by voting in person at the Annual
Meeting.
Thank you for your ongoing support of and continued interest in
Entropin, Inc.
Sincerely,
/s/ HIGGINS D. BAILEY
Higgins D. Bailey
Chairman of the Board
ENTROPIN, INC.
45926 OASIS STREET
INDIO, CA 92201
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 2003
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November 10, 2003
To the Stockholders of Entropin, Inc.:
NOTICE is hereby given that the Annual Meeting of Stockholders of
Entropin, Inc., a Delaware corporation, will be held at the offices of Heller
Ehrman White & McAuliffe LLP, 4350 La Jolla Village Drive, 7th Floor, San Diego,
California 92122, on Wednesday, December 10, 2003 beginning at 8:00 a.m. Pacific
Standard Time, to consider and take action on the following matters:
1. To elect three directors to the Board of Directors, each to
serve three-year terms as provided by our certificate of
incorporation, or until their successors are duly elected and
qualified;
2. To ratify the selection of Deloitte & Touche LLP as
independent auditors for the year ending December 31, 2003;
and
3. To transact such other business as may properly come before
the Annual Meeting, or any postponements or adjournments
thereof.
The statement of the proposals set forth above is intended only as a
summary, and is qualified in its entirety by the information relating to the
proposals set forth in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 30,
2003, as the record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting and at any postponements or
adjournments thereof. A list of stockholders entitled to vote at the Annual
Meeting will be available for inspection at the executive offices of the Company
for ten days prior to the meeting.
All stockholders of record are cordially invited to attend the Annual
Meeting in person. Whether or not you plan to attend the Annual Meeting in
person, please sign, date and return the enclosed Proxy in the reply envelope
provided. Voting instructions are included with your Proxy. Should you receive
more than one Proxy because your shares are registered in different names and
addresses, each Proxy should be signed, dated and returned to assure that all of
your shares will be voted. You may revoke your Proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your Proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted. The prompt return of your Proxy will assist us in preparing for the
Annual Meeting.
By Order of the Board of Directors
/s/ HIGGINS D. BAILEY
Higgins D. Bailey
Chairman of the Board
ENTROPIN, INC.
45926 OASIS STREET
INDIO, CA 92201
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 10, 2003
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Entropin, Inc., a Delaware corporation, for use at our Annual Meeting of
stockholders to be held on Wednesday, December 10, 2003, beginning at 8:00 A.M.,
Pacific Standard Time, at the offices of Heller Ehrman White & McAuliffe LLP,
4350 La Jolla Village Drive, 7th Floor, San Diego, California 92122. This Proxy
Statement and the accompanying Proxy were first mailed to all stockholders
entitled to vote at the Annual Meeting on or about November 10, 2003.
VOTING SECURITIES
Stockholders of record at the close of business on October 30, 2003
will be entitled to vote at the Annual Meeting, and at any postponements and
adjournments thereof. On the record date there were approximately 11,545,341
shares of our common stock outstanding. Each stockholder is entitled to one vote
for each share of common stock held by such stockholder as of October 30, 2003.
We have no classes of voting securities other than our common stock. One-third
of the issued and outstanding shares of all classes of voting securities
entitled to vote, represented in person or by Proxy, constitutes a quorum at any
meeting of our stockholders. Broker non-votes and abstentions will be counted
for purposes of determining whether a quorum is present at the Annual Meeting;
however, they will not be counted as votes cast. A broker non-vote occurs when a
nominee holding shares for a beneficial holder does not have discretionary
voting power and does not receive voting instructions from the beneficial owner.
All votes will be tabulated by the inspector of elections appointed for the
Annual Meeting. The inspector of election will separately tabulate affirmative
and negative votes, abstentions and broker non-votes.
With regard to the election of directors, votes may be cast in favor
of, or withheld from, each nominee. The directors, however, will be elected by
plurality vote of the affirmative votes cast by those shares present in person
or represented by Proxy at the Annual Meeting. Votes that are withheld from the
election of directors will be excluded entirely from the vote and will have no
effect. Stockholders may not cumulate votes in the election of directors. All
other maters to be acted upon by the stockholders at the Annual Meeting will
require the approval of the holders of a majority of the outstanding common
stock present in person or represented by Proxy and entitled to vote at the
Annual Meeting.
If your Entropin shares are held by a stockbroker, bank or other
nominee rather than directly in your own name, you are considered a beneficial
owner and not a stockholder of record. If you are a beneficial owner, your
broker or other nominee has enclosed a voting instruction form which you may
complete and return by mail to direct the nominee how to vote your shares. Most
nominees also make internet or telephone voting procedures available to their
beneficial owners. Please consult your voting instruction form for the specific
procedures available.
PROXIES
The Board of Directors has selected Higgins D. Bailey and Thomas
Tachovsky, and each of them, to serve as Proxy holders for the Annual Meeting.
If a stockholder signs and returns the enclosed form of Proxy, the Proxy holders
will vote the shares represented by such Proxy at the Annual Meeting in
accordance with the instructions the stockholder writes on the Proxy. If the
Proxy does not specify how the shares are to be voted, the Proxy will be voted
FOR the election of the directors nominated by the Board of Directors unless the
authority to vote for the election of such director is withheld and, if no
contrary instructions are given, the Proxy will be voted FOR the approval of
Proposal 2 described in the accompanying Notice of Annual Meeting of
Stockholders and this Proxy Statement. In addition, the shares represented by
the Proxy will be voted in accordance with the discretion of the Proxy holders
on all other matters that properly come before the Annual Meeting, or at any
adjournments or postponements thereof.
REVOCABILITY OF PROXY
If you execute and return the enclosed Proxy, it will be voted on the
proposals as you indicate. You may revoke your Proxy at any time prior to its
use by notice in writing to our corporate secretary at our principal executive
offices at 45926 Oasis Street, Indio, California 92201, by executing a later
dated Proxy and delivering it to us prior to the Annual Meeting or by voting in
person at the Annual Meeting.
SOLICITATION
We will pay the cost of preparing, assembling and mailing the Notice of
Annual Meeting, the Proxy Statement and the Proxy, as well as miscellaneous
costs with respect to the Proxy materials and solicitation of the Proxies. We
also may use the services of our directors, officers and employees to solicit
proxies, personally or by telephone and telegraph, but at no additional salary
or compensation. We intend to request banks, brokerage houses and other
custodians, nominees and fiduciaries to forward copies of the Proxy materials to
those persons for whom they hold such shares and request authority for the
execution of the proxies. We will reimburse them for the reasonable
out-of-pocket expenses incurred by them in so doing. We expect to incur total
expenses of less than $10,000 in connection with the preparation and mailing of
this Proxy Statement and solicitation of stockholders.
DISCRETIONARY AUTHORITY
The Proxy solicited by the Board of Directors for the Annual Meeting
will confer discretionary authority to vote on any stockholder proposal
presented at that meeting.
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MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
Three directors will be elected at the Annual Meeting. Our Board of
Directors currently consists of eight (8) persons and is divided into three
classes with staggered terms, each class serving three years. The Class III
directors nominated to be elected by the Nominating and Corporate Governance
Committee of the Board of Directors at the Annual Meeting are Higgins D. Bailey,
Dennis K. Metzler and Thomas G. Tachovsky. The Class III directors will serve
until the date of the 2006 Annual Meeting of Stockholders, or until their
respective successors have been duly elected and qualified. At each Annual
Meeting, directors will be elected to succeed those directors whose terms then
expire, and each person so elected will serve for a three-year term. The Class I
directors, Paul V. Maier and Randall L. Carpenter, will continue to serve until
the 2004 Annual Meeting of Stockholders; the Class II directors, Wilson S.
Benjamin, Joseph R. Ianelli and Bruce R. Manning, will continue to serve until
the 2005 Annual Meeting of Stockholders.
Directors are elected by a plurality of the votes present in person or
represented by Proxy and entitled to vote at the Annual Meeting. You do not have
the right to cumulate votes in the election of directors. If, prior to the
Annual Meeting, any nominee should become unavailable for election, an event
which currently is not anticipated, the Proxy holders will vote for the election
of a substitute nominee or nominees proposed by the Board of Directors. Each
person nominated for election has agreed to serve if elected and management has
no reason to believe that any nominee will be unable to serve.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a director or nominee. None of the nominees has any family relationship to
any other nominee or to any executive officer of the Company.
DIRECTORS AND NOMINEES
Set forth below is biographical information for the three nominees for
election to the Board of Directors at the Annual Meeting and each of the other
individuals who serve on our Board of Directors. Information regarding each
nominee's and director's beneficial ownership of our common stock as of
September 30, 2003 is set forth in Principal Stockholders below.
The names, ages and current positions of our Directors and Executive
Officers are as follows:
Name Age Position
- ---- --- --------
Higgins D. Bailey. Ed.D. 73 Chairman of the Board and Director
Joseph R. Ianelli, M.B.A. 64 Vice Chairman of the Board and Director
Thomas G. Tachovsky, Ph.D. 56 President, Chief Executive Officer and Director
Patricia G. Kriss, M.B.A. 52 Chief Financial Officer, Vice President of Finance &
Administration and Secretary/Treasurer
Wilson S. Benjamin 59 Director
Randall L. Carpenter, M.D. 50 Director
Paul V. Maier, M.B.A. 55 Director
Bruce R. Manning, R.Ph. 60 Director
Dennis K. Metzler, J.D. 63 Director
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NOMINEES FOR THE TERM ENDING AT THE 2006 ANNUAL MEETING OF STOCKHOLDERS
HIGGINS D. BAILEY, ED.D., joined us as an officer and director in July
1992 and is currently our Chairman of the Board. From July 1995 to December
1996, Dr. Bailey was President and Chief Executive Officer for the
Pharmaceutical Educational and Development Foundation at the Medical University
of South Carolina, Charleston, South Carolina, which formulates and manufactures
pharmaceutical products. Since 1991, he has served as the business manager for
Thomas T. Anderson Law Firm, Indio, California. Thomas T. Anderson is one of our
principal stockholders. Dr. Bailey currently serves as Chairman of the Board for
Criticare Systems, Inc., a public company that manufacturers and sells vital
signs medical monitoring equipment. Dr. Bailey received a B.A. degree in biology
from Eastern Washington University, an M.S. degree in program planning and
personnel and an Ed.D. degree in administration and management from the
University of California, Berkeley, California.
DENNIS K. METZLER, J.D., joined us as a director in January 2002. Mr.
Metzler is an attorney and entrepreneur with over 30 years of business
experience. Since 1989 Mr. Metzler has been President of Metzler Enterprises,
Inc. which engages in real estate development and various investment activities.
From 1977 to 1989 Mr. Metzler was Chief Executive Officer and co-owner of his
family's diversified and integrated farming business, H.P. Metzler & Sons, based
in Fresno, California. Prior to that Mr. Metzler practiced law in Los Angeles
for twelve years with the law firm of Shutan and Trost (now Sidley, Austin,
Brown & Wood). He received his J.D. degree from the University of Southern
California Law School.
THOMAS G. TACHOVSKY, PH.D., joined us as a director, President and
Chief Executive Officer in November 1999. Since June 1997 he has held a series
of interim senior management positions in development stage bio-pharmaceutical
companies including Redox Pharmaceuticals Corporation, Novavax, Inc. and
Paracelsian, Inc. From June 1995 to November 1997, he was a director and
executive vice-president of Protyde Pharmaceuticals, Inc. From June 1991 to
February 1998, he was general partner of MATCO & Associates, a
bio-pharmaceutical industry consulting firm for corporate partnering, technology
assessment and market valuation. He has held business development positions with
Cytogen Corporation and Creative Biomolecules and was a research and development
manager with Johnson & Johnson. Dr. Tachovsky received a B.S. degree in biology
from Gonzaga University; a M.S. degree in management from Lesley College; and a
Ph.D. degree in microbiology from the University of Rochester School of
Medicine.
CONTINUING DIRECTORS AND EXECUTIVE OFFICERS
WILSON S. BENJAMIN joined us as a director in February 2000. Since 1992
he has been the President and Chief Executive Officer of Al Fawaris Co., a large
investment group dealing in real estate and financial sectors specializing in
Middle Eastern countries, where he is responsible for Al Fawaris' investments
and participates in the management of certain of its portfolio companies. Since
1992 he has also served as the Chairman of the Board of Directors and Chief
Executive Officer of ATO Ram 2 Ltd., an international investment group, where he
is responsible for managing ATO's operations and its investments in public and
private companies in the United States, Europe and the Persian Gulf States. Mr.
Benjamin received a B.A. degree in business administration from Al Hikma
University in Baghdad, Iraq.
RANDALL L. CARPENTER, M.D., joined us as a director in January 2001.
Since 2001 he has been the Chief Executive Officer and a member of the Board of
Directors for Sention, Inc., a pharmaceutical development company focused on the
discovery and development of drugs to treat memory impairment and other central
nervous system disorders. From 1998 though 2000, Dr. Carpenter served as Vice
President, Clinical Research & Development for Adolor Corporation, a publicly
held biopharmaceutical company. Dr. Carpenter was the Director, 1998, and
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Associate Director, 1997 of Astra USA, and Astra Pain Control, now AstraZeneca,
an international research based pharmaceutical company engaged in the
development, manufacture and marketing of prescription pharmaceutical products.
He has also served as an adjunct Associate Professor in the Department of
Anesthesiology at Duke University Medical Center since 1998. From 1994 to 1997,
he was an Associate Professor in the Department of Anesthesia at the Bowman Gray
School of Medicine of Wake Forest University. Dr. Carpenter received his M.D.
degree from the University of Michigan Medical School.
JOSEPH R. IANELLI, M.B.A., joined us as a director in February 2000.
Since June 2002 he has been Vice President of Licensing for Paratek
Pharmaceuticals. From August 2000 to June 2002, Mr. Ianelli owned and operated
Ianelli Associates, LLP, a consulting firm focused on serving the
pharmaceutical, biotechnology and medical device industries. From 1999 through
2000 he was the President and Chief Executive Officer of PharmaConnect, Inc.
responsible for design and development of an internet website for physicians.
From 1999 through 2000 he also served as the President and Chief Executive
Officer of Renaissance Pharmaceuticals, Inc., a development stage company
involved in drug delivery technologies. From 1983 to January 1999 he served as
the Senior Vice President of Business Development for Astra USA, Inc. where he
was responsible for acquisitions and licensing. At Astra, he served on the
Executive Committee and was a member of the Management Advisory Board. Mr.
Ianelli currently serves as a director of Bioject Medical Technologies, Inc. a
leading developer of needle-free drug delivery systems. Mr. Ianelli received a
B.A. degree in Biology from Marist College, an M.A. degree in Biology from the
State University of New York and an M.B.A. degree from Iona College.
PAUL V. MAIER, M.B.A., joined us as a director in July 2000. Since 1992
he has been the Senior Vice President and Chief Financial Officer of Ligand
Pharmaceuticals, Inc., a specialty pharmaceutical company, and has been a
director and Chief Executive Officer of several of its subsidiaries. Mr. Maier
also served as a director, Vice Chairman and Treasurer of The Wellness Community
in San Diego, California from 1993 until April 2003. Mr. Maier received a B.S.
degree in Business Logistics from Pennsylvania State University and an M.B.A.
degree from Harvard University.
BRUCE R. MANNING, R.PH., joined us as a director in July 2001. Mr.
Manning is the president of New England Biomedical Research, Inc., or NEBR, a
consulting firm organized to provide regulatory affairs and product development
services to the pharmaceutical, medical device and biotechnology industries.
Prior to founding NEBR in 1990, he was vice president of regulatory affairs and
product development for Astra Pharmaceutical Products. During his 20-year career
with Astra, he was part of teams responsible for development and obtaining
regulatory approval for over 150 medical products. Mr. Manning's extensive
experience with the FDA began early in his career when he was employed by the
agency as a reviewer. He is a registered pharmacist with a B.S. degree in
Pharmacy from the Massachusetts College of Pharmacy in Boston.
PATRICIA G. KRISS, M.B.A., joined us in January of 2000 from
Kendall-Jackson Winery, where she was employed since January 1995, serving
initially as Director of Finance and since 1997, as Corporate Treasurer. From
1984 to 1994, she was employed by Bay View Federal Bank where she held a number
of increasingly responsible management positions, ultimately becoming Senior
Vice President of Finance. Earlier in her career, Ms. Kriss served as Chief
Financial Officer of Atlantex Industries, a manufacturing, sales and
distribution company located in New Jersey, and Vice President of Harris,
Bretall & McEldowney, Inc., an investment management firm located in San
Francisco. Ms. Kriss received a B.S. degree in Business from the University of
Missouri and an M.B.A. degree in Finance from the College of Notre Dame.
All members of our Board hold office until the election and
qualification of their successors, or until death, resignation or removal.
Wilson S. Benjamin, Randall L. Carpenter, Joseph R. Ianelli, Paul V. Maier,
Bruce R. Manning and Dennis K. Metzler are independent directors.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR HIGGINS D. BAILEY, DENNIS
K. METZLER AND THOMAS G. TACHOVSKY, AS CLASS III DIRECTORS.
It is the intention of the persons named in the accompanying Proxy to
vote the shares represented thereby in favor of election of the proposed
directors unless otherwise instructed in the Proxy.
DIRECTOR COMPENSATION
Our non-employee directors receive $1,000 for each meeting of our Board
of Directors they attend in person, $500 for each meeting of our Board of
Directors they participate in by telephone conference and $500 for each
committee meeting they participate in, either in person or by telephone
conference. We also reimburse our directors for out-of-pocket expenses incurred
to attend meetings of the Board of Directors or its committees. In addition, on
April 1, 2002, each of our directors other than Dr. Tachovsky received options
to purchase 20,000 shares of our common stock. Such options were fully vested as
of March 31, 2003, remain exercisable for a period of five years after the date
of grant and have an exercise price of $3.85 per share. In addition, on January
1, 2002, our Chairman, Dr. Bailey, and our Vice Chairman, Mr. Ianelli, received
options to purchase 40,000 and 30,000 shares of our common stock, respectively.
Such options were fully vested as of December 31, 2002, remain exercisable for a
period of five years after the date of grant and have an exercise price of $1.05
per share.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors held a total of five meetings during the fiscal
year ended December 31, 2002, and six meetings between January 1 and September
30, 2003. During 2002, each incumbent director attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors and (ii)
the total number of meetings held by all Board Committees on which he served.
During 2002, our Board of Directors approved two resolutions by unanimous
written consent.
The Board of Directors has five standing committees: the Audit
Committee, the Compensation and Benefits Committee, the Nominating and Corporate
Governance Committee, the Scientific Committee and the Executive Committee.
AUDIT COMMITTEE
Our Audit Committee attends to and reports to our Board of Directors
with respect to matters regarding: our independent public accountants; an annual
review of its charter; recommending the firm to be engaged as our independent
public accountants for the next fiscal year; reviewing with our independent
public accountants the scope and results of their audit and any related
management letter; consulting with our independent public accountants and our
management with regard to our accounting methods and adequacy of our internal
accounting controls; approving the professional services rendered by our
independent public accountants; reviewing the independence, management
consulting services and fees of our independent public accountants; inquiring
about significant risks or exposures and methods to minimize such risk; ensuring
effective use of audit resources, and preparing and supervising Securities and
Exchange Commission reporting requirements as set forth in the section entitled
"Report of the Audit Committee". Our Audit Committee currently consists of Paul
V. Maier, Joseph R. Ianelli and Wilson S. Benjamin. All members of the Audit
Committee are "independent" as that term is defined in the listing standards of
the National Association of Securities Dealers. Our audit committee is required
meet to at least four times in each fiscal year. The Audit Committee held four
meetings during 2002. The Board of Directors has adopted a written charter for
the Audit Committee, a copy of which is attached hereto as EXHIBIT A.
6
COMPENSATION AND BENEFITS COMMITTEE
Our Compensation and Benefits Committee was formed to attend to and
report to our Board of Directors with respect to the appropriate compensation of
our directors and executive officers and is responsible for administering all of
our employee benefit plans. The Compensation and Benefits Committee currently
consists of Joseph R. Ianelli, Wilson S. Benjamin and Bruce R. Manning. The
Compensation and Benefits Committee held one meeting during 2002.
There are no Compensation and Benefits Committee interlocks between the
Company and other entities involving the Company's executive officers and board
members who serve as executive officers or board members of such other entities.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
Our Nominating and Corporate Governance Committee was formed to attend
to and report to our Board of Directors with respect to establishing criteria
for the selection and selecting individuals qualified to become directors,
developing corporate governance principles and reviewing the Company's
Director's and Officers Liability insurance coverage. The Nominating and
Corporate Governance Committee currently has no policies or procedures regarding
the consideration of director nominees received from our security holders. The
Nominating and Corporate Governance Committee currently consists of Dennis K.
Metzler, Paul V. Maier and Joseph R. Ianelli. The Nominating and Corporate
Governance Committee held three meetings during 2002.
SCIENTIFIC COMMITTEE
Our Scientific Committee was formed to attend to and report to our
Board of Directors with respect to clinical trials and scientific issues. The
Scientific Committee currently consists of Thomas G. Tachovsky, Randall L.
Carpenter and Bruce R. Manning. The Scientific Committee held one meeting during
2002.
EXECUTIVE COMMITTEE
Our Executive Committee was formed to attend to and report to our Board
of Directors on day-to-day operating, financial, regulatory and other matters.
The committee consists of Higgins D. Bailey, Joseph R. Ianelli, Thomas G.
Tachovsky and Patricia G. Kriss. The duties of the Executive Committee members
are in addition to their duties as executive officers and members of our Board
of Directors. The Executive Committee held six meetings during 2002.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of our Board of Directors has selected Deloitte &
Touche LLP to serve as our independent accountants for the fiscal year ending
December 31, 2003. Deloitte & Touche LLP has audited our financial statements
for the fiscal year ended December 31, 2002. The Audit Committee of our Board of
Directors considers Deloitte & Touche LLP to be well qualified. Neither Deloitte
& Touche LLP nor any of its members has any relationship with the Company nor
any of its officers or directors, except in the firm's capacity as our
independent auditors.
Although it is not required to do so, the Audit Committee of our Board
of Directors is submitting its selection of our independent accountants for
ratification at our Annual Meeting in order to ascertain the views of
stockholders regarding our selection. If the selection is not ratified, the
Audit Committee of our Board of Directors will reconsider its selection. Even if
the selection is ratified, the Audit Committee of the Board of Directors, in its
discretion, may direct the appointment of a different independent auditing firm
at any time during the fiscal year if it feels that such a change would be in
the Company's and its stockholders best interests.
7
The affirmative vote of the holders of a majority of the shares of
Common Stock represented and voting at the Annual Meeting will be required to
ratify the selection of Deloitte & Touche LLP.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP for professional
services rendered for the audit of our financial statements during the fiscal
year ended December 31, 2002 and for the reviews of our financial statements
included in our Quarterly Reports on Form 10-QSB for that fiscal year were
approximately $61,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Deloitte & Touche LLP did not render any services for us in 2002 for
financial information systems design and implementation.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche for services rendered
during 2002, other than the services described above under "Audit Fees", were
approximately $8,000. These fees consisted of services performed in connection
with tax preparation and tax advisory services. The Audit Committee considers
the provision of these services to be compatible with maintaining the
independence of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR RATIFICATION OF THE
SELECTION OF DELOITTE & TOUCHE LLP TO AUDIT OUR FINANCIAL STATEMENTS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2003.
It is the intention of the persons named in the accompanying form of
Proxy to vote the shares represented thereby in favor of such ratification
unless otherwise instructed in the Proxy.
A representative of Deloitte & Touche LLP will be present at the Annual
Meeting, and will have an opportunity to make a statement at the Annual Meeting
if he or she desires to do so, and is expected to be available to respond to
appropriate questions.
PROPOSAL 3
TRANSACTION OF OTHER BUSINESS
At the date of this Proxy Statement, the only business which the Board
of Directors intends to present or knows that others will present at the Annual
Meeting is as set forth above. If any other matter or matters are properly
brought before the Annual Meeting, or any postponements or adjournments thereof,
it is the intention of the persons named in the accompanying form of Proxy to
vote the Proxy on such matters in accordance with their best judgment. If you
wish to deny the Proxy holders the power to act on other matters, you must check
the WITHHOLD box on the attached Proxy card.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
the beneficial ownership of our common stock as of September 30, 2003, by:
o each person known by us to own beneficially 5% or more of our
common stock,
o each of our executive officers, directors and director
nominees, and
o all of our officers and directors as a group.
The beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock issuable on
exercise of currently exercisable or convertible securities or securities
exercisable or convertible within 60 days after September 30, 2003 are deemed
beneficially owned and outstanding for computing the percentage owned by the
person holding such securities, but are not considered outstanding for computing
the percentage of any other person. Except as indicated by footnote, and subject
to community property laws where applicable, the persons or entitles named in
the table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. Except as otherwise noted
below, the address of each person is 45926 Oasis Street, Indio, California
92201.
Number of Number of Total Number
Outstanding Shares Shares of Shares of Percentage
of Common Stock Underlying Common Stock of Shares
Beneficially Exercisable Beneficially Beneficially
Name of Beneficial Owners Owned Options Owned Owned
- ------------------------- ----- ------- ----- -----
5% STOCKHOLDERS:
Thomas T. Anderson 1,394,093 (1) 1,394,093 12.07%
DIRECTORS AND EXECUTIVE OFFICERS:
Higgins D. Bailey 1,301,316 (2) 405,834 1,707,150 14.28%
Wilson S. Benjamin 125,000 (3) 63,334 188,334 1.62%
Randall L. Carpenter 1,334 40,000 41,334 *
Joseph R. Ianelli -- 123,334 123,334 1.06%
Patricia G. Kriss 10,250 (4) 73,250 83,500 *
Paul V. Maier 6,003 40,000 46,003 *
Bruce R. Manning -- 36,667 36,667 *
Dennis K. Metzler 5,000 25,000 30,000 *
Thomas G. Tachovsky 19,000 (5) 245,200 264,200 2.24%
All directors and executive officers
as a group (9 persons) 1,467,903 1,052,619 2,520,522 21.25%
- -------------------------------------------------------------------------------------------------------------
* Represents beneficial ownership of less than one percent of the
outstanding shares of the Company's common stock.
(1) The address for Thomas T. Anderson is: Law Firm of Thomas T. Anderson,
45926 Oasis Street, Indio, California 92201.
(2) Includes shares owned in joint tenancy with Shirley A. Bailey, the spouse
of Dr. Bailey.
(3) Includes 50,000 shares owned indirectly by ATO Ram 2, Ltd. in which Mr.
Benjamin is a partner.
(4) Includes shares owned jointly by Patricia G. Kriss and Ronald F. Kriss and
shares held by Ronald F. Kriss, spouse of Ms. Kriss.
(5) Includes shares held jointly with Lynn Baird, spouse of Dr. Tachovsky.
9
EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2002 with
respect to the shares of our common stock that may be issued under our existing
equity compensation plans:
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Plan Category Number of securities to be Weighted-average exercise Number of securities
issued upon exercise of price of outstanding remaining available for
options, warrants and options, warrants and future issuance under
rights rights equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by our 0 -- 393,780
stockholders(1)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Equity compensation plans not 1,455,119 $3.34 0
approved by our
stockholders(2)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Total 1,455,119 $3.34 393,780
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(1) Consists solely of the 1998 Compensatory Stock Plan.
(2) Consists of option grants to officers, directors and employees pursuant to
individual non-qualified stock option agreements. These option grants have
exercise prices ranging from $1.00 per share to $6.00 per share. Each option
generally vests in installments over the optionee's period of service, although
some options vest upon the achievement of certain milestones related to the
development of our products and some options are fully vested on the date of
grant. The options will vest on an accelerated basis in the case of any merger
or consolidation of the Company with or into another corporation or any other
type of reorganization which results in a change of control whereby the
Company's board of directors prior to the reorganization represents less than a
majority of the Company's board of directors after the reorganization. Each
option generally has a maximum term of five to ten years. In addition, upon the
death of an optionee, any options that the optionee was entitled to exercise on
the date of death will be exercisable until the stated expiration date of the
optionee's option by the person or persons to whom the optionee's rights pass
under a will or by the laws of descent and distribution. All of the options are
non-statutory options under the Federal tax laws.
EXECUTIVE OFFICERS
The following table lists the names, ages and positions of our
executive officers and directors:
Name Age Position
- ---- --- --------
Thomas G. Tachovsky 56 President, Chief Executive Officer and Director
Higgins D. Bailey 73 Chairman of the Board
Joseph R. Ianelli 64 Vice Chairman of the Board
Patricia G. Kriss 52 Chief Financial Officer, Secretary and Treasurer
Officers serve at the discretion of our Board of Directors.
10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid to our chief executive officer and each of our other executive
officers for the calendar years 2000, 2001 and 2002, whose salary and bonus for
the fiscal year ended December 31, 2002 was in excess of $100,000 for services
rendered in all capacities to the Company. The listed individuals shall be
referred to in this Proxy Statement as the "Named Executive Officers."
Long-term
Compensation
Awards
Annual ------
Compensation Underlying
------------ Options
Name and Position Year Salary($) (# shares)
- ----------------- ---- --------- ----------
Thomas G. Tachovsky, 2002 $242,000 42,000
President and Chief Executive Officer 2001 $220,000 123,200
2000 $200,000 0
Patricia G. Kriss, (1) 2002 $151,250 13,750
Chief Financial Officer, Vice President of 2001 $137,500 109,500
Finance & Administration, Secretary/Treasurer 2000 $100,000 20,000
__________________________________
(1) Options granted in 2001 include options to purchase 70,000 shares of common
stock that become exercisable upon the achievement specific performance
objectives.
STOCK OPTION GRANTS
The following table sets forth certain information regarding grants of
stock options to the Named Executive Officers during 2002. No stock appreciation
rights were granted to the Named Executive Officers during 2002.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
Number of % of Total
Securities Options Potential Realizable Value at
Underlying Granted to Exercise Assumed Annual Rate of Stock
Options Employees in Price(s) Expiration Appreciation for Option Term
Name and Position Granted Fiscal Year ($/share) Date 5% ($) 10% ($)
----------------- ------- ----------- --------- ---- --------------
Thomas G. Tachovsky, 22,000 39.46% $ 2.05 6/14/07 $40,538 $62,965
President and Chief
Executive Officer 20,000 35.87% $ 3.05 6/14/07 $36,853 $57,241
Patricia G. Kriss, Chief
Financial Officer, Vice 13,750 24.67% $ 2.05 6/14/07 $25,337 $39,353
President of Finance &
Administration,
Secretary and
Treasurer
11
AGGREGATED OPTIONS EXERCISED DURING LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning the number and
intrinsic value of stock options held by the Named Executive Officers on
December 31, 2002. Year-end values are based on the fair market value of $0.31
per share as of December 31, 2002, as reported on the OTC Bulletin Board. They
do not reflect the actual amounts, if any, which may be realized upon the future
exercise of remaining stock options and should not be considered indicative of
future stock performance. No Named Executive Officer exercised any options
during 2002.
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Fiscal Year-End (#) Options at Fiscal Year-End ($)
------------------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Thomas G. Tachovsky 245,200 300,000 $ -0- $ -0-
Patricia G. Kriss 73,250 70,000 $ -0- $ -0-
EXECUTIVE EMPLOYMENT AGREEMENTS
We entered into an employment agreement with Dr. Tachovsky on December
1, 1999, under which Dr. Tachovsky serves as our president and chief executive
officer. Dr. Tachovsky was granted options in conjunction with his employment
agreement to purchase up to 400,000 shares of common stock at a purchase price
of $5.00 per share. These shares vest over time based on the achievement of
specified performance objectives. If the performance objectives are not met, Dr.
Tachovsky will not be eligible to vest in these performance vesting shares. Dr.
Tachovsky assigned options to purchase 20,000 shares of our common stock to
Patricia G. Kriss, our Chief Financial Officer. In the event of a change of
control, merger or consolidation, all unvested options shall become fully vested
at the effective date of such merger, consolidation or change of control. Dr.
Tachovsky's employment agreement may be terminated by either party at any time,
with or without cause, by providing written notice and is not for any specific
period of time. In the event of termination of the employment agreement, all
non-vested options will also terminate.
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
We sublease approximately 800 square feet of office space from Thomas T.
Anderson, one of our principal stockholders. The rent on the sublease is $800
per month. We believe this is a competitive lease rate for similar real estate
in the area where the office is located.
At the time of this transaction we did not have any independent
directors. However, this transaction was believed to be as favorable at the time
as could have been obtained from any third party and was approved by our
directors who did not have an interest in the transaction. We have not entered
into any other related party transactions. There are no loans by the Company to
management.
BOARD COMMITTEES
THE FOLLOWING REPORTS OF OUR AUDIT COMMITTEE, REFERENCES TO THE
INDEPENDENCE OF THE AUDIT COMMITTEE MEMBERS AND THE AUDIT COMMITTEE CHARTER ARE
NOT DEEMED FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND SHALL NOT BE
DEEMED INCORPORATED BY REFERENCE IN ANY PREVIOUS OR FUTURE DOCUMENTS WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OR THE
SECURITIES EXCHANGE ACT.
12
REPORT OF THE AUDIT COMMITTEE
Our Audit Committee has implemented procedures to ensure that during
the course of each fiscal year it devotes the attention that it deems necessary
or appropriate to each of the matters assigned to it under its charter. To carry
out its responsibilities, the Audit Committee met four times during fiscal year
2002.
In overseeing the preparation of our audited financial statements for
the fiscal year ended December 31, 2002, included in our Company's Annual Report
on Form 10-KSB for that year, the Audit Committee has discussed, with both
management and our independent auditors, these financial statements prior to
their issuance and discussed significant accounting issues. Our management
advised the Audit Committee that all our financial statements were prepared in
accordance with generally accepted accounting principles, and our Audit
Committee discussed the statements with both our management and our independent
auditors. Our Audit Committee's review included discussion with our independent
auditors of matters required to be discussed pursuant to Statement on Auditing
Standards No. 61, (Codification of Statements on Auditing Standards, AU Section
380) as amended. With respect to our independent auditors, the Audit Committee
has discussed with the auditors the auditors' independence and has received the
written disclosures and the letter from Deloitte & Touche LLP required by
Independence Standard No. 1, Independence Discussions with Audit Committees, as
amended, by the Independence Standards Board.
Based on the reviews and discussions referred to above, our Audit
Committee recommended to our Board of Directors that our audited financial
statements for the fiscal year ended December 31, 2002 be included in our Annual
Report on Form 10-KSB, for filing with the Securities and Exchange Commission.
Our management is responsible for our financial reporting process, including our
system of internal controls, and for the preparation of our financial statements
in accordance with generally accepted accounting principles. Our independent
auditors are responsible for auditing our financial statements. The members of
our Audit Committee are not professionally engaged in the practice of accounting
or auditing and are not experts in the fields of accounting or auditing,
including with respect to auditor independence. Members of our Audit Committee
rely, without independent verification, on the information provided to them and
on the representations made by our management and our independent auditors.
Submitted by the Audit Committee:
Paul V. Maier (Chairman)
Wilson S. Benjamin
Joseph R. Ianelli
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
officers and directors, and persons who own more than 10% of a registered class
of our equity securities, to file reports of ownership and changes in ownership
with the SEC. Our officers and directors and greater than 10% stockholders are
required by SEC regulation to furnish us with copies of all Section 16(a)
reports they file. Based solely upon the copies of Section 16(a) reports which
we received from such persons or written representations from them regarding
their transactions in our equity securities, we believe that during the period
from January 1, 2002 through December 31, 2002, all Section 16(a) filing
requirements applicable to our officers, directors and persons known to us who
own more than 10% of our common stock were met in a timely manner, except that
Higgins D. Bailey did not file a timely Form 4 with respect to the disposition
by bonafide gift of 10,000 shares of common stock on March 14, 2002. Dr. Bailey
subsequently filed a Form 5/A reporting such disposition.
13
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT THE NEXT ANNUAL MEETING
Stockholders interested in presenting a proposal for consideration at
our Annual Meeting of stockholders in the year 2004 may do so by following the
procedures prescribed in Rule 14a-8 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Under Rule 14a-8, to be eligible for inclusion
in our 2004 Proxy Statement, stockholder proposals would need to be received by
our corporate secretary no later than July 13, 2004 (120 days prior to the
anniversary date of mailing this year's Proxy Statement) and meet all the other
requirements as specified in our bylaws. However, we may move the date of our
annual meeting of stockholders for 2004 by more than 30 days from the date we
are holding the 2003 Annual Meeting. If we do move the meeting date by more than
30 days we will disclose the revised date in one of our periodic reports on Form
10-QSB. In such an event, to be timely, stockholder proposals will need to be
received by our corporate secretary no later than 30 days following our
disclosure of the revised annual meeting date or, if later, 45 days before the
date of the 2004 annual meeting.
In addition, the proxy solicited by the Board of Directors for the 2004
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless we receive notice of
such proposal not later than the dates indicated in the paragraph above.
14
FINANCIAL STATEMENTS AND INFORMATION
Our financial statements for the fiscal year ended December 31, 2002
were included in our Form 10-KSB/A filed with the Securities and Exchange
Commission on April 30, 2003. A copy of our Form 10-KSB/A is available on the
Securities and Exchange Commission's Website at www.sec.gov and is also
available upon request, without charge, at our offices by writing to Entropin,
Inc. 45926 Oasis Street, Indio, California 92201, Attn: Patricia G. Kriss, Chief
Financial Officer or calling at (760) 775-8333. We may satisfy SEC rules
regarding delivery of proxy statements and annual reports by delivering a single
proxy statement and annual report to an address shared by two or more of our
stockholders. This delivery method can result in meaningful cost savings. In
order to take advantage of this opportunity, we may deliver only one proxy
statement and annual report to multiple stockholders who share an address,
unless contrary instructions are received prior to the mailing date. We
undertake to deliver promptly upon written or oral request a separate copy of
the proxy statement and/or annual report, as requested, to a stockholder at a
shared address to which a single copy of these documents was delivered. If you
hold stock as a record stockholder and prefer to receive separate copies of a
proxy statement or annual report either now or in the future, please so notify
us in writing or by telephone. If your stock is held through a brokerage or bank
and you prefer to receive separate copies of a proxy statement or annual report
either now or in the future, please contact your brokerage or bank.
By Order of the Board of Directors
/s/ HIGGINS D. BAILEY
Higgins D. Bailey
Chairman of the Board
15
ENTROPIN, INC.
PROXY
FOR THE ANNUAL MEETING OF STOCKHOLDERS, DECEMBER 10, 2003
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Higgins D. Bailey and Thomas G.
Tachovsky, and each of them, as Proxy Holders of the undersigned, with full
power of substitution to represent the undersigned and to vote all shares of
common stock of Entropin, Inc. ("the Company") which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at the
offices of Heller Ehrman White & McAuliffe LLP, 4350 La Jolla Village Drive, 7th
Floor, San Diego, California 92122 on Wednesday, December 10, 2003 at 8:00 a.m.
Pacific Standard Time (i) as hereinafter specified upon the proposals as more
particularly described in the Proxy Statement of the Company and (ii) in their
discretion upon such other matters as may properly come before the Annual
Meeting, or any postponements and adjournments thereof. The undersigned revokes
all previous Proxies and acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement for the Annual Meeting of Stockholders to be
held December 10, 2003.
THE SHARES REPRESENTED HEREBY SHALL BE VOTED AS SPECIFIED BELOW. IF NO
SPECIFICATION IS MADE, SUCH SHARES SHALL BE VOTED IN FAVOR OF THE ELECTION OF
THE NOMINATED DIRECTORS AND IN FAVOR OF ALL OTHER PROPOSALS.
A vote FOR the following proposals is recommended by the Board of
Directors:
1. To elect the following nominees as proposed in the Proxy Statement to
serve as Class III directors for a three year term ending in the year
2006, or until their successors are duly elected and qualified.
Higgins D. Bailey FOR ALL WITHHOLD ALL FOR ALL EXCEPT
Dennis K. Metzler [ ] [ ] [ ]
Thomas G. Tachovsky
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE MARK "FOR ALL
EXCEPT" AND WRITE THE NOMINEE'S NAME ON THE LINE BELOW:
_______________________________________________________________________
2. To ratify the selection of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 2003.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In accordance with the discretion of the Proxy holders, to act upon
all matters incident to the conduct of the Annual Meeting and upon
other matters as may properly come before the Annual Meeting, or any
postponements or adjournments thereof.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW. [ ]
_____________________________________________________
_____________________________________________________
_____________________________________________________
Even if you are planning to attend the meeting in person, you are urged
to sign and mail the Proxy in the return envelope so that your stock may be
represented at the meeting.
DO YOU PLAN TO ATTEND THE ANNUAL MEETING ON DECEMBER 10, 2003: [ ] YES [ ] NO
_______________________________________
Date
_______________________________________
Signature(s)
Sign exactly as your name(s) appears on
your stock certificate. If shares of
stock stand on record in the names of
two or more persons or in the name of
husband and wife, whether as joint
tenants or otherwise, both or all of
such persons should sign the above
Proxy. If shares of stock are held of
record by a corporation, the Proxy
should be executed by the President or
Vice President and the Secretary or
Assistant Secretary, and the corporate
seal should be affixed thereto.
Executors or administrators or other
fiduciaries who execute the above Proxy
for a deceased stockholder should give
their title. Please date the Proxy.
EXHIBIT A
---------
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
ENTROPIN, INC.
I. PURPOSE
The purpose of the Audit Committee is to assist the Board in monitoring
(1) the selection and independence of the Company's external auditors, (2) the
audit, compliance and financial reporting procedures of the Company, (3) the
adequacy of the Company's internal financial controls, and (4) the overall
integrity of the Company's financial statements.
The Committee's function is one of oversight only and shall not relieve
the responsibilities of the Company's management for preparing financial
statements which accurately and fairly present the Company's financial results
and condition, or the responsibilities of the independent auditors relating to
the audit or review of financial statements. Nothing in this charter is intended
to preclude or impair the protection provided in Section 141(e) of the Delaware
General Corporation Law for good faith reliance by members of the Committee on
reports or other information provided by others.
II. COMPOSITION OF THE COMMITTEE
The membership of the Audit Committee shall consist of at least three
non-employee directors, as determined by the Board, each of whom shall be
"independent," as that term is defined in Section 10A(m) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Rules and
Regulations (the "Regulations") of the Securities and Exchange Commission (the
"Commission") under the Exchange Act, and shall meet the independence and
financial literacy requirements of the Nasdaq Stock Market. At least one member
of the Committee shall be an "audit committee financial expert," as that term is
defined in the Regulations, and shall have past employment experience in finance
or accounting, requisite professional certification in accounting, or any other
comparable experience or background which results in the individual's financial
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with oversight responsibilities.
III. SELECTION AND REVIEW OF INDEPENDENT AUDITORS
The Audit Committee shall have the ultimate authority to select,
evaluate and, if appropriate, replace or rotate the independent auditors,
subject to any action that may be taken by the Board and any ratification by the
Company's stockholders proposed by the Board at the annual meeting of
stockholders. It is the policy of the Board and the Committee that the ultimate
accountability of the independent auditors shall be owed to the Board and the
Committee as representatives of the Company's stockholders.
1
The Committee will review at least annually:
o the qualifications of the responsible partner or manager of the
independent auditors who is engaged on the Company's account;
o the quality control procedures of the independent auditors;
o the amount billed or to be billed for audit services and the
portion of this work being performed by persons who are not
full-time, permanent employees;
o whether the proposed audit team complies with the applicable
auditor rotation rules; and
o whether there are any expertise, personnel, reputation, or other
matters affecting the independent auditors which are brought to
the Committee's attention and which may affect the auditing firm's
services to the Company.
The Committee shall have the sole authority to approve, in accordance
with Sections 10A(h) and (i) of the Exchange Act and Regulations, all
professional services to be provided to the Company by the independent auditor,
provided that the Committee may shall not approve any non-audit services
proscribed by Section 10A(g) of the Exchange Act in the absence of an applicable
exemption. The Committee shall adopt policies and procedures for the
pre-approval of non-audit services, which may include delegation of authority to
a designated member or members of the Committee to approve such non-audit
services so long as any such approvals are disclosed regularly to the full
Committee.
The Committee may provide policy guidance to the Board concerning the
Company's hiring of employees of the independent auditor who were engaged on the
Company's account.
IV. ANNUAL FINANCIAL REPORTING
In connection with the audit of each fiscal year's financial
statements, the Committee will:
o meet with representatives of the independent auditor prior to the
audit to review planning and staffing of the audit;
o review and discuss the audited financial statement and related
accounting and auditing principles and practices with appropriate
members of the Company's management;
o discuss with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, including (1)
the quality as well as acceptability of the accounting principles
applied in the financial statements, and (2) new or changed
accounting policies; significant estimates, judgments,
uncertainties or unusual transactions; and accounting policies
relating to significant financial statement items;
o review with appropriate management and auditor representatives
their analysis of significant matters which relate to (1) the
selection, application and effects of critical accounting policies
applied by the Company, (2) internal auditing, financial
management and control personnel, systems and procedures, (3) the
status of any new, proposed or alternative accounting or financial
reporting requirements, and (4) issues raised by any management
letter from the auditors, difficulties encountered in the audit,
disagreements with management, or other significant aspects of the
audit;
2
o receive from the independent auditors a written disclosure and
statement of all relationships between the auditors and the
Company consistent with Independence Standards Board Standard No.
1;
o discuss with the auditors any disclosed relationships or services
that may impact the objectivity or independence of the auditors;
o obtain from the independent auditors a statement of the audit fees
and other categories of fees billed for the last fiscal year which
are required to be disclosed in the Company's proxy statement for
its annual meeting under the Commission's proxy rules, and
consider whether the provision of any non-audit services is
compatible with maintaining the auditors' independence;
o recommend whether or not the audited financial statements should
be included in the Company's Annual Report on Form 10-KSB for
filing with the Commission; and
o recommend to the Board the selection of the independent auditors.
V. QUARTERLY FINANCIAL REPORTING
At a Committee meeting or through the Chair of the Committee, the
Committee will review with the independent auditors and appropriate Company
officers the Company's interim financial results to be included on each Form
10-QSB. The Committee's review will normally include:
o the results of the independent auditors' review of the quarterly
financial statements;
o management's analysis of any significant accounting issues,
changes, estimates, judgments or extraordinary items relating to
the financial statements; and
o the selection, application and effects of critical accounting
policies applied by the Company.
VI. INTERNAL CONTROLS
The Committee will:
o review and approve all related party transactions other than
compensation transactions;
o establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and
o establish procedures for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters.
The Committee will review annually:
o internal control systems and procedures of the Company;
o status of management responses to prior period audit
recommendations by the independent auditors;
o succession planning and staffing levels for the Company's finance
and accounting employees; and
3
o the status and implementation of conduct codes concerning related
party transactions, conflicts of interest, ethical conduct, and
compliance with applicable laws and regulatory policies.
VII. OTHER COMMITTEE REVIEW FUNCTIONS
The Committee will review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board.
The Committee may discuss and review with Company management, internal
or outside legal counsel, or the independent auditors any other topics relating
to the purpose of the Committee which may come to the Committee's attention,
including:
o published reports, regulatory or accounting initiatives, or
communications from employees, government agencies or others,
which raise significant issues concerning Company financial
statements or accounting policies;
o off balance sheet, related party, or other transactions which
could affect the Company's financial results or condition;
o any issues concerning the Company which the independent auditors
have discussed with their national or supervisory office;
o reports concerning significant subsidiary or foreign operations;
and
o pending or threatened litigation that has the potential to have a
material adverse effect on the Company, regulatory issues, or
alleged violations of law or corporate conduct codes.
In order to perform the functions of a Qualified Legal Compliance
Committee ("QLCC"), the Committee will make such examinations as are necessary
with respect to attorney reports of certain material violations ("Attorney
Reports") that are required under applicable standards of professional conduct
established by the Commission. In connection with its functions as a QLCC, the
Committee will:
o Establish written procedures for the confidential receipt,
retention and consideration of Attorney Reports.
o Inform the Company's Chief Executive Officer or person acting in
such capacity (the "Chief Legal Officer") of any report of
evidence of a material violation contained in such Attorney
Reports, unless the Committee decides that reporting the evidence
to one or both such persons would be, under the circumstances,
futile.
o Decide if an investigation is necessary to determine whether the
material violation specified in the Attorney Report has occurred,
is occurring or is about to occur.
o If such an investigation is undertaken, the Committee will:
o notify the full Board;
o initiate the investigation, which may be undertaken either by
the Chief Legal Officer or person acting in such capacity, or
by outside counsel; and
o retain such additional expert personnel as the Committee
deems necessary to complete the investigation.
4
o At the conclusion of any such investigation, the Committee will:
o direct the Company to adopt appropriate remedial measures,
including appropriate disclosures or the imposition of
appropriate sanctions; and
o inform the Chief Legal Officer and the Board of the results
of the investigation and the appropriate remedial measures to
be adopted.
If the Company fails in any material respect to take any of the
remedial measures recommended by the Committee, the Committee has the authority
to take all other appropriate action, including notifying the Commission.
VIII. MEETINGS, REPORTS AND RESOURCES OF THE COMMITTEE
The Committee will meet at least quarterly. The Committee may also hold
special meetings or act by unanimous written consent as the Committee may
decide. Committee meetings will be governed by the quorum and other procedures
generally applicable to meetings of the Board under the Company's bylaws, unless
otherwise stated by resolution of the Board or the Committee.
The Committee, as it may determine to be appropriate, will meet in
separate executive sessions with the chief financial officer, controller or
principal accounting officer, and representatives of the independent auditors,
and may meet with other Company employees, agents or representatives invited by
the Committee.
The Committee will prepare the audit committee report required to be
included in the Company's annual meeting proxy statement, and report to the
Board on the other matters relating to the Committee or its purposes, as
required by the Commission proxy rules.
The Committee is at all times authorized to have direct, independent
access to the independent auditors and to the Company's management and internal
audit and finance personnel. The Committee is authorized to communicate in
confidence with any of these individuals.
The Committee is authorized to conduct investigations, and to retain,
at the expense of the Company, independent legal, accounting, or other
professional consultants selected by the Committee, for any matters relating to
the purpose of the Committee. The Committee is further authorized to retain at
the expense of the Company, separate accounting or finance professional advisers
that the Committee may consider necessary or helpful in reviewing the Company's
accounting policies and financial statements. The Committee will advise the
Board in advance of engaging outside professional services and the expected fees
and costs to be incurred.
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