SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
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[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
Catalina Lighting, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Catalina Lighting, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on the table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(2) Aggregate number of securities to which transaction applies:
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CATALINA LIGHTING, INC.
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2001
The Annual Meeting of Stockholders of Catalina Lighting, Inc., a Florida
corporation (the "Company") will be held on June 15, 2001 at 9:00 a.m. local
time at the Company's corporate office located at 18191 N.W. 68th Avenue, Miami,
Florida 33015, for the following purposes:
1. To elect six persons to the Company's Board of Directors to hold
office until their respective terms of office shall expire and until
their respective successors are duly elected and qualified;
2. To ratify the appointment of Deloitte & Touche LLP, independent
certified public accountants, as the Company's auditors for the year
ending September 30, 2001; and
3. To transact such other business as may properly come before the Annual
Meeting of Stockholders and any and all adjournments or postponements
thereof.
The Board of Directors has fixed the close of business on May 16, 2001 as
the record date for determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting of Stockholders and at any adjournments or
postponements thereof.
By order of the Board of Directors
/s/ David W. Sasnett
DAVID W. SASNETT, Secretary
Miami, Florida
May 22, 2001
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON. THOSE
STOCKHOLDERS WHO ARE UNABLE TO ATTEND IN PERSON ARE RESPECTFULLY URGED TO
EXECUTE AND RETURN THE ENCLOSED PROXY CARD AT THEIR EARLIEST CONVENIENCE.
STOCKHOLDERS WHO EXECUTE A PROXY CARD MAY ATTEND THE MEETING, REVOKE THEIR
PROXY, AND VOTE THEIR SHARES IN PERSON.
CATALINA LIGHTING, INC.
18191 N.W. 68TH AVENUE
MIAMI, FLORIDA 33015
PROXY STATEMENT
2001 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 15, 2001
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Catalina Lighting, Inc., a Florida corporation (the
"Company"), of Proxies for use at the 2001 Annual Meeting of Stockholders of the
Company (the "Annual Meeting") to be held at the Company's corporate office,
18191 N.W. 68th Avenue, Miami, Florida 33015, on June 15, 2001 at 9:00 a.m.
local time, and at any and all adjournments or postponements thereof.
The cost of preparing, assembling and mailing the proxy material and of
reimbursing brokers, nominees and fiduciaries for the out-of-pocket and clerical
expense of transmitting copies of the proxy material to the beneficial owners of
stock held in their names will be borne by the Company. Certain officers and
regular employees of the Company or its subsidiaries, without additional
expense, may use their personal efforts, by telephone or otherwise, to obtain
proxies.
The purpose of the Annual Meeting is to elect six persons to the Board of
Directors, to ratify the appointment of auditors and to transact such other
business as may properly come before the meeting.
The Annual Report of the Company for the fiscal year ended September 30,
2000 accompanies this Proxy Statement.
You are urged to date, sign and promptly mail the enclosed proxy in the
enclosed addressed envelope, which requires no postage in the United States.
OUTSTANDING STOCK AND VOTING RIGHTS
In accordance with the Bylaws of the Company, the Board of Directors of the
Company (the "Board") has fixed the close of business on May 16, 2001 as the
record date for determination of stockholders entitled to notice of, and to vote
at, the Annual Meeting (the "Record Date"). Only stockholders of record on that
date will be entitled to vote. A stockholder who submits a proxy has the power
to revoke it by notice of revocation directed to the proxy-holders or the
Company at any time before it is voted. Proxies which are properly executed will
be voted in accordance with the instructions contained therein. If instructions
are not given therein, properly executed proxies will be voted for the election
of the Directors nominated by the Board of Directors of the Company and for
ratification of the appointment of auditors. Although a stockholder may have
given a proxy, such stockholder may nevertheless attend the Annual Meeting,
revoke the proxy before it is exercised and vote in person.
Each share of the common stock of the Company, $.01 par value (the "Common
Stock"), outstanding on the Record Date will be entitled to one vote on all
matters. The six candidates for election as Directors at the Annual Meeting who
receive the highest number of affirmative votes will be elected. The
ratification of the independent auditors for the Company for the current year
will require the affirmative vote of a majority of the shares of the Company's
Common Stock present or represented and entitled to vote at the Annual Meeting.
2
Because abstentions with respect to any matter other than the election of
Directors are treated as shares present or represented and entitled to vote for
the purposes of determining whether that matter has been approved by the
stockholders, abstentions have the same effect as negative votes for each
proposal other than the election of Directors. Broker non-votes are not deemed
to be present or represented for purposes of determining whether stockholder
approval of that matter has been obtained, but they are counted as present for
purposes of determining the existence of a quorum at the Annual Meeting.
As of May 16, 2001, the Record Date, there were 7,357,880 issued and
outstanding shares of the Common Stock. The holders of a majority of the shares
of stock entitled to vote at any meeting of stockholders must be present in
person or represented by proxy to constitute a quorum for the transaction of any
business at the Annual Meeting.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information with respect to the Company's
Common Stock beneficially owned by those who were the beneficial owners of more
than 5% of the Company's stock. Except as otherwise noted, beneficial ownership
is as of May 16, 2001 and, other than as provided by community property and
other such laws, consists of sole voting and investment power.
Name and Address of Common Stock
Beneficial Owner Beneficially Owned/1/ Percentage
- ------------------------------------ --------------------------- -----------------------
Robert Hersh........................ 1,110,800/2/ 14.7%
18191 N.W. 68th Avenue
Miami, Florida 33015
Dean Rappaport...................... 890,100/3/ 11.8%
18191 N.W. 68th Avenue
Miami, Florida 33015
Heartland Advisors, Inc............. 865,100/4/ 11.8%
789 North Water Street
Milwaukee, WI 53202
Nathan Katz......................... 630,742/5/ 8.4%
55 Norfolk Avenue
Easton, MA
Lionheart Group, Inc................ 601,500/6/ 8.2%
36 East 22/nd/ Street, 7/th/ Floor
New York, NY 10003
Wai Check Lau....................... 558,200/7/ 7.6%
6/F, Kenning Industrial Bldg.
19 Wang Hoi Road
Kowloon, Hong Kong
Dimensional Fund Advisors, Inc. 491,800/8/ 6.7%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
1. Includes shares which may be acquired pursuant to vested stock options
and options which become exercisable through July 15, 2001 or shares
for which the stockholder has the power to direct the vote. As of May
16, 2001, there were 7,357,880 shares outstanding.
2. Includes 675,500 shares as to which voting power is shared (see note 7
below) and shares purchasable through the exercise of options as
follows: 50,000 shares at $3.375 per share, 50,000 shares at $4.875
per share, 50,000 shares at $4.125 per share and 62,500 shares at
$6.75 per share.
3. Includes 675,500 shares as to which voting power is shared (see note 7
below) and 212,500 shares purchasable through the exercise of options
at $2.4375 per share.
4
4. Based solely upon a Schedule 13G filed with the Securities and Exchange
Commission as of December 31, 2000, 865,100 shares may be deemed
beneficially owned within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934 by (1) Heartland Advisors, Inc. by virtue of its
investment discretion and in some cases voting power over client
securities, which may be revoked; and (2) William J. Nasgovitz, as a result
of his position with and stock ownership of Heartland which could be deemed
to confer upon him voting and/or investment power over the shares Heartland
beneficially owns. Of these 865,100 shares, 710,000 shares also may be
deemed beneficially owned within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934 by Mr. Nasgovitz as a result of his
position as an officer and director of Heartland Group, Inc. which could be
deemed to confer upon him voting power over the shares Heartland Group
beneficially owns.
5. Includes 162,500 shares purchasable through the exercise of options at
$2.4375 per share.
6. Based solely on a Schedule 13D filed with the Securities and Exchange
Commission on February 16, 2001.
7. Of the number of shares beneficially owned by Wai Check Lau, 477,500 shares
are owned by Go-Gro Holdings Limited, which is owned by Wai Check Lau,
6,000 shares are owned by Amy Yuen Ying Lau Cheung, the wife of Wai Check
Lau and 21,500 shares are owned jointly by Wai Check Lau and Amy Yuen Ying
Lau Cheng. In July 1994, as part of Company's acquisition of Go-Gro
Industries Limited ("Go-Gro"), Wai Check Lau and Amy Yuen Ying Lau Cheng
each delivered an irrevocable proxy to Catalina Asia, a partnership
controlled by the Company. Catalina Asia was dissolved in 2000 and its
proxy transferred to Go-Gro. Go-Gro has a proxy to vote the 558,200 shares
beneficially owned by Mr. Lau and an additional 117,300 shares of the
Company also issued to previous stockholders of Go-Gro upon the
acquisition. The 675,500 shares are voted at the direction of Messrs. Hersh
and Rappaport, members of the Board of Directors of Go-Gro. Except as to
such shared voting power, each of Messrs. Hersh and Rappaport disclaims
beneficial ownership of such shares.
8. Based solely on a Schedule 13G filed with the Securities and Exchange
Commission as of December 31, 2000, Dimensional Fund Advisors Inc.
("Dimensional"), an investment advisor registered under Section 203 of the
Investment Advisers Act of 1940, furnishes investment advice to four
investment companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other investment vehicles,
including commingled group trusts. These investment companies, trusts and
accounts are the "Funds". In its role as investment adviser or manager,.
Dimensional possesses both voting and/or investment power over 491,800
shares of Catalina Lighting, Inc., stock as of December 31, 2000. The
shares are owned by the Funds and Dimensional disclaims beneficial
ownership of such securities.
5
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth, to the best knowledge of the Company, the
shares of Common Stock beneficially owned at May 16, 2001 by each Director and
Executive Officer and by all Directors and Executive Officers of the Company as
a group.
Common Stock
Name of Beneficial Owner Beneficially Owned/1/ Percentage
--------------------------------------------- --------------------------- ------------------
Robert Hersh............................... 1,110,800/2,8/ 14.7%
Ryan Burrow................................ 24,150/3,9/ *
Robert Lanzillotti......................... 6,672/10/ *
Henry Latimer.............................. 17,945/4,9/ *
Jesse Luxton............................... 3,450/9/ *
Howard Steinberg........................... 23,450/9/ *
Brion Wise................................. 3,450/9/ *
Dean Rappaport............................. 890,100/5,8/ 11.8%
Nathan Katz................................ 630,742/6/ 8.4%
David W. Sasnett .......................... 46,666/7/ *
All Directors and Executive
Officers of the Company and its
subsidiaries as a group
(10 persons)............................... 2,081,925/8/ 26.0%
* less than 1%
____________________________________________________________________________________________________________
1. Includes shares which may be acquired pursuant to vested stock options and
options which become exercisable through July 15, 2001 or shares for which
the stockholder has the power to direct the vote. As of May 16, 2001, there
were 7,357,880 shares outstanding.
6
2. Includes shares purchasable through the exercise of options as
follows: 50,000 shares at $3.38 per share, 50,000 shares at $4.88 per
share, 50,000 shares at $4.13 per share and 62,500 shares at $6.75 per
share.
3. Includes 500 shares owned by Mr. Burrow's wife and shares purchasable
through the exercise of options as follows: 2,000 shares at $6.63 per
share, 2,000 shares at $10.75 per share, 2,000 shares at $6.25 per
share and 12,000 shares at $3.75 per share.
4. Includes shares purchasable through the exercise of options as
follows: 2,000 shares at $6.25 per share and 12,000 shares at $3.75
per share.
5. Includes 212,500 shares purchasable through the exercise of options at
$2.4375 per share.
6. Includes 162,500 shares purchasable upon the exercise of options at
$2.4375 per share.
7. Includes shares purchasable through the exercise of options as
follows: 4,666 shares at $4.00, 5,000 shares at $3.94 per share,
15,000 shares at $2.125 per share and 20,000 shares at $2.4375 per
share.
8. Includes 675,500 shares owned by previous shareholders of Go-Gro
Industries Limited which Messrs. Hersh and Rappaport jointly have a
power to vote pursuant to irrevocable proxies. Except as to such
shared voting power, Messrs. Hersh and Rappaport disclaim beneficial
ownership of these shares.
9. Includes 1,672 shares and 1,778 shares received on May 9, 2000 and May
10, 1999, respectively, as annual retainer for serving on the
Company's Board of Directors. The shares are restricted and vest after
one year or on a prorata basis if the Director ceases to serve on the
Board during the year.
10. Includes 1,672 shares received on May 9, 2000 as annual retainer for
serving on the Company's Board of Directors - see 9 above.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Pursuant to its authority under the Company's Certificate of
Incorporation and Bylaws, the Board of Directors has set the number of Directors
on the Board at six. The Nominating Committee of the Board has recommended, and
the Board of Directors has nominated, the six persons named below for election
as Directors at the Annual Meeting. The six nominees currently serve as
Directors and all of them, except for Mr. Hersh, are independent Directors, as
defined by the NYSE and NASDAQ .
The Bylaws of the Company provide that each Director is to hold office
until the next Annual Meeting of Stockholders and until his successor is elected
and qualified or until his earlier death, resignation or removal. Each of the
Company's nominees has consented to being named as such in this proxy statement
and to serve as a Director if elected. It is not expected that any of the
following nominees will be unable to stand for election or be unable to serve if
elected , except under the circumstances explained in the following paragraph.
In the event that any nominee is unable to serve for any reason, the proxies
will be voted at the discretion of the proxy-holders or the Board may choose to
reduce the number of Directors.
7
As previously disclosed, on April 5, 2001 the Company entered into
definitive agreements with Sun Catalina Holdings LLC ("SCH"), an affiliate of
Sun Capital Partners, Inc. (a merchant banking firm based in Boca Raton,
Florida), which contemplate a junior capital infusion for the Company of $20.5
million. Under these agreements, the Company will receive a cash investment of
$13 million from SCH in return for (i) 6 million shares of common stock; (ii) a
secured subordinated promissory note in the principal amount of $10 million;
and, (iii) a warrant to purchase additional shares of common stock. Assuming
exercise of the warrant immediately after closing, SCH would own (including the
6 million shares) 52.5% of the Company's common stock. SCH also has the right
under the agreements to appoint two-thirds of the Company's directors at
closing. Although progress is continuing as of the date of this proxy statement
toward completion of this transaction, there can be no assurance as to when or
whether the proposed transaction with SCH will be consummated. If the
transaction is consummated prior to the date of the Annual Meeting, the Annual
Meeting may be delayed. If the transaction is consummated on or after the date
of the Annual Meeting, some of the nominees named below may step down from the
Board in order to accommodate SCH's appointees to the Board.
The following table sets forth certain information with respect to the
Company's nominees for Director.
NOMINEES OF THE COMPANY
Director
Name Age Position With the Company Since
- ------------------------- ----------- --------------------------------------------------- --------------
Robert Hersh 54 Chairman, Chief Executive Officer, President, 1988
Director
Robert Lanzillotti 79 Director 2000
Henry Latimer 63 Director 1996
Jesse Luxton 58 Director 1999
Howard Steinberg 71 Director 1999
Brion Wise 55 Director 1999
Robert Hersh is a co-founder of the Company, has been the President and
Chief Executive Officer of the Company since April 1991, Chairman of the Board
since June 1991 and a Director of the Company since April 1988. Mr. Hersh served
as the Executive Vice President of the Company from 1985 to April 1991 and as
Secretary from June 1989 until June 1991.
Robert Lanzillotti has been a Director of the Company since May 2000.
Mr. Lanzillotti has since 1986 held the positions of Dean Emeritus, Eminent
Scholar, Emeritus and Professor, Emeritus of Economics at the University of
Florida Graduate School of Business. From 1969 to 1986 Mr. Lanzillotti served
as the Dean of the Graduate School of Business of the University of Florida.
Mr. Lanzillotti has served as a consultant for a number of major corporations
including General Electric, International Materials Corp., Hughes Helicopters,
Jaguar Motor Company, Imperial Chemicals, Inc.; several large law firms in
Washington, D.C., New York and Miami, a number of governmental entities
including ten state Attorneys General, the
8
Federal Trade Commission, The United States Department of Justice, United Arab
Emirates, U.S. Government Accounting Office, the U.S. Department of Commerce,
and U.S. Census Bureau. Mr. Lanzillotti also received a Presidential appointment
as a member of the United States Price Commission (1971-1973). Mr. Lazillotti
has published extensive articles and books regarding economic analysis of
industry and competition and has served as a Director of numerous public
corporations including Florida Progress, Jim Walter, Talquin Corporation and
Florida First Service Corporation. He holds Doctoral honorary degrees in
Literature (University of Tampa, 1979) and in Science (Florida Institute of
Technology, 1979). He is President of the International Schumpeter Society and
is a member of the Antitrust Committee of the American Bar Association; honorary
member of the Florida Council of 100; Phi Beta Kappa; Beta Gamma Sigma; Omicron
Delta Kappa; Florida Blue Key (Distinguished Faculty); Who's Who in America;
Who's Who in Mid-West; Who's Who in the South and Southwest; Who's Who in
American Education; Who's Who in the World and American Men in Science.
Henry Latimer has been a Director of the Company since February 1996. As of
March 26, 2001, Mr. Latimer joined the law firm of Greenberg Taurig as a
shareholder. From 1994 until March 2001, Mr. Latimer was partner in charge of
the Ft. Lauderdale office of the law firm of Eckert, Seamans, Cherin & Mellott,
a national law firm employing over 200 attorneys in nine cities. He is the
Managing Partner of the Fort Lauderdale office and serves on the National
Executive Committee and Compensation Committee of Eckert, Seamans, Cherin &
Mellott. Mr. Latimer was formerly a partner with the law firm of Fine, Jacobson,
Schwartz, Nash & Block from 1983 to 1994, served as a Circuit Court Judge in and
for the Seventeenth Circuit, Broward County, Florida, from 1979 to 1983 and each
year, was voted the most qualified Judge in that circuit by lawyers in that
circuit. Mr. Latimer presently serves as a director of Boca Resorts, Inc.,
formerly Florida Panthers Holding, Inc., a company which owns luxury resort
hotels with shares traded on the New York Stock Exchange under the symbol "RST".
Mr. Latimer also serves on the Board of Trustees of the University of Miami and
the Broward Partnership for the Homeless.
Jesse Luxton has been a Director of the Company since May 1999. He has
since 1997 served as a consultant to manufacturers and distributors of houseware
consumer products on issues raised in exporting from Asia and importing and
selling products in the U.S. From 1987 to 1997, Mr. Luxton served as a Director,
the President and Chief Executive Officer of National Picture and Frame Company,
a manufacturer of picture frames with annual sales of $73 million in 1997, whose
shares were traded on the NASDAQ from 1993 until 1997 under the symbol "NPAF".
Mr. Luxton serves on the Board of Directors of Glass Master Group, LLC, a
company involved in automotive and commercial replacement glass, was a
facilitator for the National Housewares Manufacturing Association and has
extensive experience in sales to retailers such as mass merchants, home centers,
hardware and specialty and warehouse clubs. Mr. Luxton serves on the marketing
advisory board of International Resources, Inc., a company that designs, sources
and markets Christmas collectibles to department and gift retailers and has
served on the Board of the National Housewares Manufacturing Association and
Southwest Texas State University Development Foundation. Mr. Luxton was also
honored as a Distinguished Alumnus in 1998 from Southwest Texas State
University.
Howard Steinberg has been a Director of the Company since May 1999. He has
since August 1997 served as Chief Executive Officer and Director of PGM
Products, LLC, a supplier of wood products and ceramic tile to the country's
major home centers. PGM Products is the successor to Ply*Gem Manufacturing, a
division of PlyGem Industries, Inc., which was acquired by Nortek Industries in
August 1997. From 1975 until 1997, Mr. Steinberg served as Chief Executive
Officer of the Ply*Gem Manufacturing division of PlyGem Industries, Inc. From
1964 until 1975, he served as President and Chief Operating Officer of Ply*Gem
Paneling Centers, a paneling retail division of Ply*Gem Industries, Inc. Mr.
Steinberg is also the President and a Director of Acorn USA Holding LLC, a
holding company owning a majority interest in PGM Products, and is also a member
of the Board of Directors of the International Wood Products Association, which
represents the wood industry on legislative and regulatory matters affecting
imported wood products.
9
Brion Wise has been a Director of the Company since May 1999. He is a
founder and served as Chief Executive Officer and Chairman of the Board of
Western Gas Resources ("WGR") from 1972 until 1999. He currently serves as
Chairman of the Board of WGR. WGR is an independent gas gathering, processor,
energy marketer, and oil and gas producer. Its shares are traded on the New York
Stock Exchange under the symbol "WGR". Mr. Wise is also a Chemical Engineer.
Prior to founding WGR, Mr. Wise worked as a gas processing engineer for Shell
Oil Company.
The Board of Directors recommends a vote IN FAVOR of the Company's nominees.
Unless a contrary choice is specified, proxies solicited by the Board of
Directors will be voted IN FAVOR of each of the Company's nominees.
PROPOSAL NUMBER TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends that the stockholders ratify the
appointment of Deloitte & Touche LLP, independent certified public accountants,
as the Company's auditors for 2001. A representative of Deloitte & Touche LLP
is expected to appear at the Annual Meeting to make a statement if he so desires
and to be available to answer appropriate questions from stockholders.
The Board of Directors recommends a vote FOR ratification of the
appointment of Deloitte & Touche LLP as independent auditors for the Company for
the current year. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR ratification of the appointment.
DISCLOSURE OF AUDITOR FEES
Audit Fees - The aggregate fees billed by Deloitte & Touche LLP, the member
firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively
"Deloitte") for professional services rendered for the audit of the Company's
annual financial statements for the fiscal year ended September 30, 2000 and for
the reviews of the financial statements included in the Company's Quarterly
Reports on Form 10-Q for that fiscal year were approximately $380,000.
All Other Fees - The aggregate fees billed by Deloitte for services rendered to
the Company, other than the services described above under "Audit Fees" for the
fiscal year ended September 30, 2000 were approximately $88,000. Such other fees
include fees related to tax services and the audit of the Company's 401 (K)
plan.
10
AUDIT COMMITTEE REPORT
The Audit Committee reviews 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. The Company's
independent auditors are responsible for expressing an opinion of the conformity
of our audited financials statements to generally accepted accounting
principles, in this context, and in connection with the September 2000 financial
statements, the Audit Committee: (1) reviewed and discussed the audited
financial statements with management; (2) discussed with the auditors the
matters required by generally accepted auditing standards (SAS 61); (3) received
and discussed a letter relating to the independence of Deloitte & Touche LLP, as
required by rules promulgated by the Independence Standards Board; and (4)
considered whether Deloitte & Touche LLP's provision of non-audit services to
the Company is compatible with independence. Based on these reviews and
discussions, the Audit Committee recommended to the Board of Directors that the
audited financial statements be included in the Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
Jesse Luxton, Chairman
Robert Lanzillotti
Brion Wise
OTHER MATTERS
Management is not aware of any other business that may come before the
Meeting. However, if additional matters properly come before the Meeting,
proxies will be voted at the discretion of the proxy-holders.
MEETINGS AND COMMITTEES OF DIRECTORS
Board of Directors - Six meetings of the Board were held during the past fiscal
year; in addition, the Directors acted through unanimous written consent on two
occasions. During fiscal 2000, each Director attended at least 75% of the
aggregate of the meetings of the Board held while he was a Director and the
number of meetings held by all committees of the Board on which he served.
Compensation and Stock Option Committee - The Compensation and Stock Option
Committee is responsible for developing the Company's Executive compensation
strategy and for administering the policies and programs that implement this
strategy. Since May 2000, the Committee has consisted of Messrs. Burrow,
Steinberg and Lanzillotti, all of whom are independent Directors. During fiscal
2000, the Compensation and Stock Option Committee met one time.
Nominating Committee - The Nominating Committee recommends nominees to the Board
of Directors. The Board will consider nominees recommended by stockholders of
the Company if submitted to the Chairman of the Board in writing a sufficient
time in advance of the Annual Meeting of Stockholders. Since May 2000, the
Committee has consisted of Messrs. Latimer, Luxton and Wise. During fiscal
2000, the Nominating Committee met one time.
Audit Committee - The Audit Committee of the Board of Directors recommends a
firm to be selected as the independent auditors to audit Catalina's financial
statements and to perform other audit-related services. In addition, the Audit
Committee reviews the scope and results of the audits that are conducted by the
independent auditors, reviews interim and year-end results with management and
considers the adequacy of Catalina's internal accounting procedures. Since May
2000, the Committee has consisted of Messrs. Luxton, Wise and Lanzillotti. The
Committee has adopted a written charter which has been reviewed by the Board and
is attached as appendix A. During fiscal 2000 the Audit Committee met one time.
11
COMPENSATION OF DIRECTORS
Salaried employees of the Company do not receive any additional
compensation for serving as a Director or Committee member. For 2000, non-
employee Directors received an annual retainer of $14,000 payable $7,000 in
cash and in the number of shares equal to $7,000 calculated on the basis of the
fair market value of the Common Stock on the date of the Annual Meeting. The
stock is restricted and vests after one year or on a pro rata basis if the
Director ceases to serve on the Board during the year. Directors also receive
$1,000 per Board meeting and Committee meeting attended. Messrs. Burrow,
Lanzilotti, Luxton, Steinberg and Wise are reimbursed for their travel expenses
to the meetings.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's Executive officers. Mr. Hersh's biography is set forth above under
"Election of Directors."
Name Age Position With the Company
- --------------------- ---------- -------------------------------------
Robert Hersh 54 Chairman, Chief Executive Officer,
President, Director
Dean Rappaport 49 Executive Vice President, Chief
Operating Officer
Nathan Katz 45 Executive Vice President
David W. Sasnett 44 Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
Dean Rappaport became an Executive Vice President of the Company in January
1988 and was a Director of the Company from April 1988 until May 1999. From
January 1988 to November 1996 Mr. Rappaport was Chief Financial Officer and
Treasurer of the Company. Mr. Rappaport became Chief Operating Officer of the
Company in November 1996.
Nathan Katz has been an Executive Vice President of the Company since
October 1, 1993 and Chief Executive Officer of Catalina Industries (formerly
known as Dana Lighting), a wholly-owned subsidiary of the Company, since August
1989. From October 1983 to August 1989, Mr. Katz was the Chief Executive Officer
of Dana Imports, Inc., an importer of lamps located in Boston, Massachusetts.
David W. Sasnett became a Vice President of the Company in November 1994.
In January 2001, Mr. Sasnett became Treasurer and Secretary of the Company. In
November 1997, he was promoted to Senior Vice President of the Company. In
November 1996, Mr. Sasnett became the Chief Financial Officer of the Company.
Prior to that time, he was the Company's Controller. From 1993 until he joined
the Company, Mr. Sasnett was the Vice President - Finance of Hamilton Bank, N.A.
and prior to 1993 was employed as a senior manager by the international
accounting and consulting firm of Deloitte & Touche.
12
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information about the compensation for
services in all capacities of the Company's CEO and each of the other four most
highly compensated Executive Officers of the Company serving as an Executive
Officer as of the end of each of the fiscal years ended September 30, 2000, 1999
and 1998.
Summary Compensation Table
Annual Compensation /1/
-----------------------------
Name and Long Term Compensation All Other
Principal Fiscal Awards Compensation ($) /4/
Position Year Salary ($) Bonus ($) /2/ Securities Underlying Options /3/
- ------------------------------------------------------------------------------------------------------------------------------------
Robert Hersh 2000 329,815 - - 3,200
Chairman, CEO 1999 314,109 168,500 - 2,480
and President 1998 299,151 26,190 - 1,600
Dean Rappaport 2000 296,832 - - 3,200
Executive 1999 282,697 168,500 212,500 /6/ 2,480
Vice President, 1998 269,235 26,190 - 22,600 /9/
Chief Operating
Officer
Nathan Katz 2000 296,832 - - 3,200
Executive Vice 1999 282,697 168,500 162,500 /6/ 2,480
President 1998 269,235 26,190 - 22,600 /9/
David W. Sasnett 2000 190,000 20,000 15,000 3,200
Senior Vice 1999 169,100 20,000 42,000 /7/ 2,480
President, Chief 1998 151,068 15,000 - 1,549
Financial Officer
Thomas M. Bluth /5/ 2000 160,000 10,000 15,000 3,200
Senior Vice 1999 143,333 45,000 32,500 /8/ 2,241
President, 1998 132,667 10,000 1,340
Treasurer,
Secretary
- --------------------------------------------------------------------------------
1. Perquisites and personal benefits furnished to the named Executive Officers
do not meet the disclosure thresholds established under SEC regulations.
2. In accordance with their employment agreements, amounts for each of Messrs.
Hersh, Rappaport and Katz were equal to 1.67% of consolidated pre-tax
income for the respective fiscal years ended September 30, 1999 and 1998.
There were no bonuses for fiscal 2000.
3. Stock options vest annually in increments of one-third of the options
4. The amounts disclosed in this column for 2000 represent the Company's
matching contributions to the Company's 401(k) plan. The amounts disclosed
for 1999 and 1998 represent such contributions except for the amounts
disclosed in 1998 for Messrs. Rappaport and Katz which included $1,600 for
such contributions.
5. Mr. Bluth submitted his resignation from the Company effective December 15,
2000. Pursuant to an Agreement Mr. Bluth will provide consulting services
to the Company through July 31, 2001.
6. Represents options granted in prior years which were repriced on December
11, 1998.
7. Includes 20,000 options granted in prior years which were repriced on
December 11, 1998.
8. Includes 22,500 options granted in prior years which were repriced on
December 11, 1998.
9. Include $21,000 in connection with the achievement of certain goals and the
ongoing renegotiation of the executive's
13
employment agreement with the Company.
OPTIONS GRANTED
The following table shows all grants of options to the named Executive
Officers of the Company during the fiscal year ended September 30, 2000.
Pursuant to SEC rules, the table also shows the value of the options granted at
the end of the option terms (ten years) if the price of the Company's stock was
to appreciate annually by 5% and 10%, respectively. There is no assurance that
such stock price will appreciate at the rates shown in the table.
Option Grants in Fiscal Year 2000
Potential Realizable
Value at Assumed Annual
Rates of Stock
Appreciation for Option
Individual Grants Term ($) /2/
----------------------------------------------------------------------------- -----------------------
% Total Options
Number of Granted to
Underlying Employees in Exercise Price Per
Name Options Granted Fiscal Year 2000 Share ($)/1/ Expiration Date 5% 10%
- ------------------- --------------- ---------------- ------------------ --------------- -------- ------
Robert Hersh - - - - - -
Dean Rappaport - - - - - -
Nathan Katz - - - - - -
David W. Sasnett 15,000 3.3% 3.9375 6/4/2010 37,144 94,130
Thomas M. Bluth 15,000 3.3% 3.9375 6/4/2010 37,144 94,130
1 Represents the fair market value of the common stock on the date of grant.
For purposes of the option plan, fair market value is the closing market
price of the common stock as reported on the New York Stock Exchange.
2 The amounts disclosed in these columns reflect appreciation of the Company's
common stock price at the 5% and 10% rates dictated by the Securities and
Exchange Commission. They are not necessarily reflective of expected
appreciation or actual holding.
14
OPTION EXERCISES AND HOLDINGS
The following table provides information as to options exercised by each of
the named Executive Officers of the Company during the fiscal year ended
September 30, 2000 and the value of options held by such officers at September
30, 2000 in terms of the closing price of the Company's stock on September 30,
2000.
Aggregated Option Exercises in Fiscal Year 2000
and Fiscal Year End 2000 Option Values
Shares Value Number of Securities Value of
Acquired Realized Underlying Options at In-the-Money Options at
Name on Exercise ($) /1/ September 30, 2000 September 30, 2000 ($)/2/
- ---------------------------------------- -------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ---------------- ---------------
Robert Hersh 45,000 90,000 212,500 - 2,875 -
Dean Rappaport 50,000 106,250 212,500 - 212,500 -
Nathan Katz 55,000 158,125 162,500 - 162,500 -
David W. - - 27,333 29,667 26,563 13,125
Sasnett
Thomas M. Bluth - - 25,833 21,667 22,500 -
1 The value realized is computed by multiplying the difference between the
exercise price of the stock option and the market price of the Common Stock on
the date of exercise by the number of shares of Common Stock with respect to
which the option was exercised.
2 Based on the closing price of the stock on September 30, 2000 $3.4375.
15
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company entered into employment agreements with Robert Hersh, Dean
Rappaport and Nathan Katz, which expire on September 30, 2001. Commencing
October 1, 1993, Messrs. Hersh, Rappaport and Katz's base annual salaries were
$246,112, $221,500 and $221,500, respectively, with annual increases of the
greater of 5% or the percentage increases in the consumer price index published
by the U.S. Department of Labor ("U.S. Consumer Price Index"). Messrs. Hersh
and Rappaport each received options to purchase 50,000 shares of Common Stock
during each of the fiscal years 1990 through 1993 under the terms of their
respective contracts. Mr. Katz received options to purchase 50,000 shares of
common stock in both 1992 and 1993. Messrs. Hersh, Rappaport and Katz each
received options to purchase 62,500 shares of Common Stock during fiscal year
1995. No options were given during fiscal years 1994, 1996, 1997, 1998, 1999 and
2000. The aforementioned were issued under the Company's 1987 Stock Option and
Stock Appreciation Rights Plan.
In connection with the employment agreements of Messrs. Hersh, Rappaport
and Katz, the Company agreed to fund a management bonus pool (the "Pool") with
5.0 % of the Company's consolidated pre-tax profits, at the end of each of the
Company's fiscal years beginning with the year ending September 30, 1990 (Mr.
Katz was entitled to participate in the bonus pool beginning October 1, 1993).
Under the employment agreements described above, Messrs. Hersh, Rappaport and
Katz were each entitled to one-third of the Pool. Bonuses were waived in 1990,
no amounts were distributed in 1991 and 1997 due to pre-tax losses and amounts
earned under the Pool in fiscal 1993, 1994, 1995, 1996, 1998, and 1999 totaled
approximately $356,000, $461,000, $45,000, $131,000, $79,000 and $506,000,
respectively. In October 1999, the Company amended their employment agreements
to eliminate the pool. No bonuses were paid in fiscal 2000. The Company
anticipates establishing a new bonus arrangement with Messrs. Hersh, Rappaport
and Katz for future fiscal years.
The employment agreements with Messrs. Hersh, Rappaport and Katz each
provide that, in the event that (i) there is an Acquisition of Control, and (ii)
either the employee is employed by the Company on the 180/th/ day following the
date on which the Acquisition of Control occurs, or the employee's employment
with the Company is terminated either by the Company without Cause or by the
employee with good reason within 180 days after the date on which the
Acquisition of Control occurs then the Company shall pay to the employee an
amount equal to three times the sum of the employee's salary for the then
current fiscal year and the bonus payable to the employee for the fiscal year
immediately preceding the current fiscal year. In addition, the Company shall
continue to provide benefits to the employee for a three-year period. If the
employee's employment with the Company terminates for any reason other than for
cause within one year following an Acquisition of Control, then the employee
shall have the option, for thirty days after the date of such termination of
employment, to enter into a three-year consulting and non-competition agreement
for $250,000 per year which shall take effect as of the date it is executed and
delivered to the Company. Payments under the agreements by the Company after an
Acquisition of Control are however, limited to the amount which would be
deductible by the Company under the Internal Revenue Code of 1986, as amended.
An Acquisition of Control is deemed to occur upon (i) the acquisition of 21% of
the Company's voting power, (ii) the election of three or more directors without
approval of the incumbent directors, as defined, within a twelve-month period,
or (iii) the incumbent directors becoming less than a majority of the Board of
Directors of the Company. The agreements also provide for payments of three
times annual compensation if employment is terminated without cause by the
Company or for good reason by the employee, and a lump sum payment equal to two
times the employee's annual salary and two times the employee's annual benefits
if the agreement is not renewed upon its expiration.
Effective October 1, 2000, the Company entered into an employment agreement
with David W. Sasnett that replaced his change in Control agreement with the
Company. This agreement expires September 30, 2001 and provides for an annual
salary of $210,000 and a severance payment equal to (i) the prorata portion of
the employee's annual salary for the remainder of the agreement term plus an
amount
16
equal to the employee's annual salary and benefits if the employee is terminated
without "cause", as defined in the agreement or (ii) the employee's annual
salary and annual benefits if the agreement is not renewed upon its expiration.
This employee agreement also provides for a lump sum payment equal to two times
the sum of the employee's annual salary and annual benefits upon an "Acquisition
of Control" of the Company, which is defined by the agreement as (i) the
acquisition, without majority approval of the incumbent Board of Directors, of
20% or more of the combined voting power of the Company's outstanding common
stock; (ii) the election of three or more directors of the Company within any
twelve-month period without the approval of a majority of the then incumbent
directors; or (iii) the incumbent directors ceasing at any time to constitute a
majority of the Company's Board of Directors. If the employee's employment with
the Company terminates for any reason other than for cause within one year
following an Acquisition of Control, then the employee shall have the option,
for thirty days after the date of such termination of employment, to enter into
a two-year consulting and non-competition agreement for $50,000 per year which
shall take effect as of the date it is executed and delivered to the Company.
The Company pays its proportional share of a reverse split-dollar life
insurance policy for Mr. Rappaport and Mr. Katz. In the event of the death of
Mr. Rappaport or Mr. Katz during the term of their employment agreements, the
Company would receive $1,000,000.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Stock Option Committee is responsible for developing
the Company's executive compensation strategy and for administering the policies
and programs that implement this strategy. Since May 2000, the Committee has
been composed of Ryan Burrow, Robert Lanzillotti and Howard Steinberg.
The Committee is charged with reviewing and approving compensation of the
Company's Executives each year. The Company's four most senior Executive
Officers, including the Chief Executive Officer, are parties to employment
agreements with the Company. Reference is made to "Employment contracts and
Termination of Employment and Change-in-Control Arrangements" above for a
discussion of the Company's employment and other agreements with its Executive
Officers. In reviewing these Executives' compensation for 2000, the Committee
subjectively determined that corporate and individual performance was adequately
compensated under the terms of the Executive's employment agreements.
Accordingly, the Executives' salaries and bonuses were established at the
minimum level prescribed under such agreements, with bonuses being based upon
the Company's profitability as measured by a percentage of pretax earnings and
in certain cases the Company advancing amounts toward the cost of reverse split-
dollar life insurance policies. The Executives also participated in the
Company-wide 401(k) plan, under which the Company, subject to the statutory
limits, matches 25% of an employee's contributions up to 1% of the employee's
salary. For the Company's other Executive Officers, the Compensation
Committee's determinations regarding base salary and cash bonuses are based upon
the Committee's determinations regarding individual experience and capabilities,
performance issues specific to the Executive's particular responsibilities, and
salaries paid by other companies for comparable positions. Consistent with its
policies for the Executive Officers with whom the Company has employment
agreements and in order to assist in retaining key executives, in 2000 the
Compensation Committee authorized the execution of change-in-control agreements
with Executives who were not parties to employment agreements.
The Compensation Committee did not grant any stock options or restricted
stock to Executive Officers during fiscal 2000, other than 15,000 stock options
granted to each of David W. Sasnett and Thomas M. Bluth. On December 11, 1998,
the Compensation Committee approved the repricing of 1,074,733 options issued to
employees (including the named Executive Officers). Mr. Hersh, Chairman, Chief
Executive Officer and President declined to have his options re-priced.
The compensation for Mr. Hersh for 2000 was determined in accordance with
the provisions of his
17
employment agreement entered into in August 1989, which provided for a base
salary and a cash bonus based upon the Company's profitability as measured by
1.67% of pretax earnings (calculated prior to any bonus accruals). Mr. Hersh's
did not receive a bonus in fiscal 2000. Mr. Hersh is not a beneficiary under
Company sponsored reverse split-dollar life insurance policies such as those
that cover certain other Executive Officers.
The Revenue Reconciliation Act of 1993 added Section 162(m) to the Internal
Revenue Code of 1986 (the "Code"). Code Section 162(m) provides that
compensation paid to a company's chief executive officer and the four other
highest paid executive officers employed by the company at year-end will not be
deductible by the company for federal income tax purpose to the extent such
compensation individually exceeds $1 million. Code Section 162(m) excepts from
this limitation certain "performance-based compensation."
Although base salary and bonuses paid to the named Executive Officers have
traditionally been well under $1 million, compensation from the exercise of
stock options could potentially cause a named Executive Officer to have
compensation in excess of $1 million. The Compensation Committee has not
adopted a policy requiring that all compensation arrangements qualify for
deductibility under Code Section 162(m), meaning thatoptions granted after
April 10, 1997 may not be deductible if and to the extent their value ever
causes one of the Company's Executives to receive more than $1 million in
compensation during any one year. However, all options granted to the named
executive officers prior to April 10, 1997, the date of the Company's 1997
Annual Meeting, are exempt from Code Section 162(m) under a "grandfather"
provision.
SUBMITTED BY THE 2000 COMPENSATION AND STOCK
OPTION COMMITTEE
Ryan Burrow
Robert Lanzillotti
Howard Steinberg
18
PERFORMANCE GRAPHS
The following line graph compares the cumulative total return of the
Company's Common Stock to the total return index for the Standard & Poors 500
Index and a Peer Group Index of five stocks for the five year period from
September 30, 1995 through September 30, 2000. The graph assumes $100 invested
at the beginning of the period and reinvestment of dividends.
The Peer Group consists of Applica Inc., formerly known as Windmere-Durable
Holdings, Inc., Helen of Troy Corporation, Thomas Industries, Inc., Genlyte
Group, Inc. and Craftmade International, Inc. The companies included as part of
the Peer Group Index were selected on the basis of the similarity of such
companies to the Company, considering such factors as products sold, sourcing of
products, distribution channels and the industry within which such companies
operate.
GRAPHIC OMITTED
Cumulative Total Return
-----------------------------------------
9/95 9/96 9/97 9/98 9/99 9/00
CATALINA LIGHTING, INC. 100 71 110 43 79 65
PEER GROUP 100 143 279 236 211 187
S&P 500 100 120 169 184 236 267
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a reorganization of the Company's executive management
structure, Mr. William Stewart, an Executive Vice President, left the Company in
December 1999. The Company agreed to settle its contractual employment
obligation to Mr. Stewart for a payment of $788,000 in January 2000. Mr. Stewart
will continue to provide consulting services under a three-year non-compete and
consulting agreement for annual payments of $250,000 through December 2002. In
January 2000, Mr. Stewart repaid his notes and advances from the Company
amounting to approximately $65,000.
The Company leased a facility located in Massachusetts from an entity in
which an executive officer and a former officer had an ownership interest. The
lease expired in June 1999. Rent expense related to this lease was approximately
$99,000, $159,000, for the years ended September 30, 1999, 1998, respectively.
The Company leases its Hong Kong office from a company owned by Wai Check
Lau, a shareholder of the Company. The lease expires in 2004 but may be
extended for an additional year. Rent expense related to this lease was
approximately $255,000 for the years ended September 30, 2000, 1999 and 1998.
During the years ended September 30, 2000, 1999 and 1998, Go-Gro, a wholly-
owned subsidiary of the Company, purchased $2.7 million, $1.7 million and $1.0
million, respectively, in raw materials from an affiliate which is fifty percent
owned by the Company and which includes Wai Check Lau, a shareholder of the
Company, as one of its directors.
Notes and advances receivable from Dean Rappaport totaled approximately
$130,000 at March 31, 2001 and included a $100,000 note bearing interest at
LIBOR plus 250 basis points, collateralized by stock option agreements to
purchase 100,000 shares of the Company and maturing in December 2000. The
Company is presently renegotiating the terms of this note receivable with Mr.
Rappaport.
Notes and advances receivable from Nathan Katz totaled approximately
$85,000 at March 31, 2001 and included a $70,000 note bearing interest at LIBOR
plus 250 basis points, collaterized by stock option
19
agreements to purchase 50,000 shares of the Company and maturing in January
2001. The Company is presently renegotiating the terms of this note receivable
with Mr. Katz.
STOCKHOLDER PROPOSALS
Stockholder proposals which are requested to be included, pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, in the proxy materials of the
Company at its next Annual Meeting must be received by the Company no later than
January 22, 2002 to be eligible for consideration. Such a proposal must comply
with requirements as to form and substance established by applicable laws and
regulations in order to be included in the proxy statement.
Alternatively, under the Company's Bylaws, a proposal or nomination that
the stockholder does not seek to include in the Company's proxy materials for
the next Annual Meeting pursuant to Rule 14a-8 must be submitted in writing to
the Secretary of the Company by February 24, 2002, unless the date of the next
Annual Meeting changes by more than 40 days from the date of the 2001 Annual
Meeting. If the date of the next Annual Meeting changes by more than 40 days
from the date of the 2001 Annual Meeting, such proposal or nomination must be
delivered no later than the close of business on the later of 120 days preceding
the next Annual Meeting or 10 days after the public announcement of the date for
the next Annual Meeting. The stockholder's submission must include certain
specified information concerning the proposal or nominee, as the case may be and
information as to the stockholder's ownership of the Common Stock of the
Company. Proposals or nominations not meeting these requirements will not be
entertained at the next Annual Meeting. If the stockholder does not also comply
with the requirements of Rule 14a-4 under the Securities Exchange Act of 1934,
the Company may exercise discretionary voting authority under proxies it
solicits to vote in accordance with its best judgment on any such proposal or
nomination submitted by a stockholder.
20
Appendix A
AUDIT COMMITTEE CHARTER
The Audit Committee is a committee of the Board of Directors. Its primary
function is to assist the Board in fulfilling its oversight responsibilities by
reviewing the financial information which will be provided to the shareholders
and others, the systems of internal controls which management and the Board of
Directors have established, and the audit process.
In meeting its responsibilities, the audit committee will seek to achieve
the following goals and objectives:
1. Provide an open avenue of communication between the independent accountants
and the Board of Directors.
2. Review and update the committee's charter annually.
3. Recommend to the Board of Directors the independent accountants to be
nominated, approve the compensation of the independent accountants, and
review and approve the discharge of the independent accountants.
4. Confirm and assure the independence of the independent accountants,
including a review of management consulting services and related fees
provided by the independent accountants.
5. Inquire of management and the independent accountants about significant
risks or exposures and assess the steps management has taken to minimize
such risk to the company.
6. Consider, in consultation with the independent accountants, the audit scope
and plan of the independent accountants.
7. Consider with management and the independent accountants the rationale for
employing audit firms, if any, other than the principal independent
accountants.
8. Review with the independent accountants the coordination of audit effort to
assure completeness of coverage, reduction of redundant efforts, and the
effective use of audit resources.
9. Consider and review with the independent accountants and the Company's
accounting personnel:
1. The adequacy of the company's internal controls including computerized
information system controls and security.
2. Any related significant findings and recommendations of the independent
accountants together with management's responses thereto.
10. Review with management and the independent accountants at the completion of
the annual examination:
1. The company's annual financial statements and related footnotes.
2. The independent accountants' audit of the financial statements and his
or her report thereon.
3. Any significant changes required in the independent accountants' audit
plan.
21
4. Any serious difficulties or disputes with management encountered
during the course of the audit.
5. Other matters related to the conduct of the audit which are to be
communicated to the committee under generally accepted auditing
standards.
11. Consider and review with management:
1. Significant findings during the year and management's responses
thereto.
2. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
3. Any changes required in the planned scope of their audit plan.
4. The internal auditing department staffing.
12. Review annual reports, quarterly reports, proxy materials with the SEC and
Registration Statements prior to filing.
13. Review legal and regulatory matters and related company compliance policies
that may have a material impact on the financial statements.
14. Meet with the independent accountants, and management in separate executive
sessions to discuss any matters that the committee or these groups believe
should be discussed privately with the audit committee.
15. Report committee actions to the Board of Directors with such
recommendations as the committee may deem appropriate.
16. Prepare a letter for inclusion in the annual report that describes the
committee's composition and responsibilities, and how they were discharged.
17. The audit committee shall have the power to conduct or authorize
investigations into any matters within the committee's scope of
responsibilities. The committee shall be empowered to recommend to the
Board of Directors the retention of independent counsel and accountants to
assist it in the conduct of any investigation.
18. The committee shall meet at least two times per year or more frequently as
circumstances may require. The committee may ask members of management or
others to attend the meeting and provide pertinent information as
necessary.
19. The committee will perform such other functions as assigned by the Board of
Directors.
The membership of the audit committee shall consist of at least two
independent members of the Board of Directors who shall serve at the pleasure of
the Board of Directors. Audit committee members and the committee chairman
shall be designated by the full Board of Directors upon the recommendation of
the nominating committee.
The duties and responsibilities of a member of the audit committee are in
addition to those duties set out for a member of the Board of Directors.
22