<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the
[X] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12
FRITZ COMPANIES, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, $0.01 par value
(2) Aggregate number of securities to which transaction applies:
$_________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): $_________________
(4) Proposed maximum aggregate value of transaction: $_____________
(5) Total fee paid: $_________________
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
FRITZ LOGO
FRITZ COMPANIES, INC.
706 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94103
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, SEPTEMBER 27, 2000, 10:30 A.M.
------------------------
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of Fritz
Companies, Inc. will be held at The Bank of America NT&SA, 555 California
Street, San Francisco, California, on Wednesday, September 27, 2000, at 10:30
A.M. for the following purposes:
1. To elect five directors.
2. To amend the Employee Stock Purchase Plan to increase the number of
shares authorized for issuance thereunder by 200,000.
3. To amend the 1992 Omnibus Equity Incentive Plan to increase the number
of shares authorized for issuance thereunder by 2,000,000.
4. To transact such other business as may properly come before the meeting.
Only stockholders of record on the books of the Company as of 5:00 PM, July
31, 2000 are entitled to vote at the meeting and any adjournment thereof. A
complete list of stockholders of record as of the close of business on July 31,
2000 will be available for inspection during normal business hours ten days
before the Annual Meeting at 706 Mission Street, San Francisco, California.
By Order of the Board of Directors
Jan H. Raymond,
Secretary
Dated: August 18, 2000
STOCKHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE.
<PAGE> 3
FRITZ LOGO
FRITZ COMPANIES, INC.
706 MISSION STREET
SAN FRANCISCO, CALIFORNIA 94103
------------------------
PROXY STATEMENT
------------------------
The enclosed proxy is solicited by the Board of Directors of Fritz
Companies, Inc. (the "Company") to be used at the Annual Meeting of Stockholders
on September 27, 2000, for the purposes set forth in the foregoing notice. This
proxy statement and the enclosed form of proxy were first sent to stockholders
on or about August 23, 2000.
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election of
the five directors proposed by the Board unless the authority to vote for the
election of directors (or for any one or more nominees) is withheld and as
recommended by the Board of Directors as to any other matters. Any stockholder
signing a proxy in the form accompanying this Proxy Statement has the power to
revoke it prior to or at the Annual Meeting. A proxy may be revoked by a writing
delivered to the Secretary of the Company stating that the proxy is revoked, by
a subsequent proxy signed by the person who signed the earlier proxy, or by
attendance at the Annual Meeting and voting in person.
VOTING SECURITIES
Only stockholders of record on the books of the Company as of 5.00 P.M.,
July 31, 2000, will be entitled to vote at the Annual Meeting.
As of the close of business on July 31, 2000, there were outstanding
36,696,432 shares of Common Stock of the Company, entitled to one vote per
share. The holders of a majority of the outstanding shares of the Common Stock
of the Company, present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting or any adjournment thereof.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the election inspectors appointed for the Meeting and will determine whether or
not a quorum is present. The election inspectors will treat abstentions and
broker non-votes as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. With regard to the election of directors,
votes may be cast "For" or "Withhold Authority" for each nominee; votes that are
withheld will be excluded entirely from the vote and will have no effect. Item 2
(the proposal to amend the Employee Stock Purchase Plan) and Item 3 (the
proposal to amend the 1992 Omnibus Equity Incentive Plan) require the
affirmative vote of a majority of the shares present in person or by proxy and
entitled to vote. Accordingly, abstentions on Items 2 and 3 will have the effect
of a negative vote on these items. If a broker indicates on the proxy that it
does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter. Therefore, a broker non-vote will have no
effect on the election of directors or on Items 2 and 3, which require the
affirmative vote of a majority of the shares represented at the Annual Meeting
and entitled to vote thereon.
<PAGE> 4
ELECTION OF DIRECTORS
The persons named below are nominees for director to serve until the next
Annual Meeting of Stockholders and until their successors shall have been
elected. The nominees constitute the present Board of Directors.
In the absence of instructions to the contrary, shares represented by the
proxy will be voted and the proxies will vote for the election of all such
nominees to the Board of Directors. If any of such persons is unable or
unwilling to be a candidate for the office of director at the date of the Annual
Meeting, or any adjournment thereof, the proxies will be voted for such
substitute nominee as shall be designated by the persons appointed in the
proxies. The management has no reason to believe that any of such nominees will
be unable or unwilling to serve if elected a director. Set forth below is
certain information concerning the nominees, which is based on data furnished by
them.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE DURING PAST SERVED AS
NOMINEES FOR DIRECTOR AGE FIVE YEARS AND OTHER INFORMATION DIRECTOR SINCE
--------------------- --- -------------------------------- --------------
<S> <C> <C> <C>
Lynn C. Fritz.................. 58 Chairman of the Board. Mr. Fritz was the 1977
Company's Chief Executive Officer from 1986 until
May 31, 2000. Mr. Fritz is a director of
Manugistics Corporation (developer of software
for supply chain management).
James Gilleran................. 67 Chairman of the Board and Chief Executive Officer 1992
of The Bank of San Francisco and its parent, The
San Francisco Company since November 1994. Mr.
Gilleran was Superintendent of the California
State Banking Department from 1989 until November
1994. Mr. Gilleran is a director of Zindart
(Holdings) Ltd. (toys and collectibles).
Preston Martin................. 76 Chairman, President and Chief Executive Officer 1992
of Martin Holdings, Inc. (bank asset holding
company), Chairman of Earthbank (internet based
bank), Martin Associates (consulting firm) and
Chairman of LINC Group, Inc. (insurance agency).
Mr. Martin is a director of SoCal Savings
(financial institution holding company) and INCO
Homes (home builder). Mr. Martin was previously
Vice Chairman of the Board of Governors of the
Federal Reserve Board.
Paul S. Otellini............... 49 Executive Vice President of Intel Corporation 1998
(semiconductor manufacturer). Mr. Otellini is a
director of Autodesk Corp. (software provider).
William J. Razzouk............. 52 From September, 1998 until August, 2000, Mr. 1998
Razzouk was Chairman of the Board of PlanetRx
(internet pharmacy and healthcare company). From
September 1997 until May 1998, Mr. Razzouk was
President and Chief Operating Officer of Storage
USA (real estate investment trust). From February
1996 until June 1996, Mr. Razzouk was President
of America Online (internet services). Prior to
February 1996, Mr. Razzouk was Executive Vice
President of Federal Express Corporation
(provider of global transportation logistics).
Mr. Razzouk is a director of Waste Connections,
Inc. (waste management).
</TABLE>
2
<PAGE> 5
FURTHER INFORMATION CONCERNING
THE BOARD OF DIRECTORS
COMMITTEES OF THE BOARD
During the fiscal year ended May 31, 2000 ("Fiscal 2000"), the Board of
Directors held six meetings and acted by unanimous written consent on a number
of occasions. The Board of Directors has three committees: the Audit Committee,
the Compensation Committee and the Projects Committee.
The members of the Audit Committee are James Gilleran, Preston Martin and
Paul S. Otellini. The functions performed by this committee are detailed in the
Audit Committee Charter set forth in Appendix I to this proxy statement.
The members of the Compensation Committee are Preston Martin and William
Razzouk. Among the functions performed by this committee are to review and make
recommendations to the Board of Directors concerning the compensation of the key
management employees of the Company and to administer the Company's equity
incentive plan.
The members of the Projects Committee are Paul S. Otellini and William
Razzouk. The functions performed by this committee are to review and consider
discrete projects and initiatives referred to the committee by the Board of
Directors.
During Fiscal 2000, the Audit Committee held three meetings, the
Compensation Committee held three meetings and the Projects Committee did not
hold any meetings.
ATTENDANCE AT MEETINGS
During Fiscal 2000, there were no members of the Board of Directors who
attended fewer than seventy-five percent of the meetings of the Board of
Directors and all committees of the Board on which they served.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company are paid directors' fees
consisting of $24,000 per year and $1,000 for each Board meeting attended.
Directors who attend committee meetings receive an additional $1,000 for each
meeting not held on the same day as a Board meeting. Of the $24,000 annual
retainer paid to nonemployee directors, 60% is paid in Common Stock pursuant to
the Nonemployee Director Restricted Stock Plan.
3
<PAGE> 6
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The compensation paid to the Company's Chief Executive Officer and the four
other most highly compensated executive officers for services in all capacities
to the Company and its subsidiaries during the fiscal years indicated is set
forth below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
----------------------------------------- ---------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
SALARY BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) OPTIONS(#) ($)
--------------------------- ---- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lynn C. Fritz................ 2000 $500,000 -- $18,419 -- 150,000 --
Chairman of the Board(3) 1999 $500,000 -- $ 8,040 -- 250,000 --
1998 $500,000 -- $ 8,040 -- 50,000 --
Raymond Smith................ 2000 $300,000 -- -- $ 73,100(7) 35,000 --
Chief Executive Officer(4) 1999 $112,500 -- -- -- 10,000 --
1998 -- -- -- -- -- --
Ronald Dutt.................. 2000 $235,000 -- -- -- -- --
Executive Vice President 1999 $ 19,583 $ 35,000 -- -- 7,500 --
and Chief Financial 1998 -- -- -- -- -- --
Officer(5)
Jan H. Raymond............... 2000 $240,000 -- -- $182,100(8) -- --
Executive Vice President, 1999 $220,417 -- -- $211,370(8) 20,000 --
Secretary and 1998 $200,000 -- -- $118,562(8) 15,000 --
General Counsel
Graham R.F. Napier........... 2000 $187,500 $250,000 -- $120,000(9) 25,000 --
Chief Operating Officer(6) 1999 -- -- -- -- -- --
1998 -- -- -- -- -- --
</TABLE>
---------------
(1) While the named executive officers enjoy certain perquisites, for fiscal
years 1998, 1999 and 2000 these did not exceed the lesser of $50,000 of 10%
of each officer's salary and bonus.
(2) As of the end of fiscal year 2000, the aggregate restricted stock holdings
for the named executives consisted of 69,340 shares worth $728,070 at the
then current fair market value (as represented by the closing price of the
Company's Common Stock on May 31, 2000), without giving effect to the
diminution of value attributable to the restrictions on such stock. Such
amount includes $147,000 for Mr. Fritz (14,000 shares), $56,133 for Mr.
Smith (5,346 shares), $454,934 for Mr. Raymond (43,327 shares) and $70,004
for Mr. Napier (6,667 shares). Dividends are paid on the restricted shares
to the extent payable on the Company's Common Stock generally. Except as set
forth in footnotes 7, 8 and 9 below, no shares granted to the named
executives vest in less than three years from the date of grant.
(3) Mr. Fritz served as Chairman of the Board and Chief Executive Officer during
all of Fiscal 1998, 1999 and 2000. He resigned as Chief Executive Officer at
the end of Fiscal 2000.
(4) Mr. Smith joined the Company in Fiscal 1999 as Chief Operating Officer. He
was promoted to Chief Executive Officer effective the beginning of Fiscal
2001.
(5) Mr. Dutt joined the Company in Fiscal 1999.
(6) Mr. Napier joined the Company in Fiscal 2000 as Executive Vice-President,
Engineering. He was promoted to Chief Operating Officer effective the
beginning of Fiscal 2001.
(7) Certain restricted stock awarded during Fiscal 2000 ($14,620) to Mr. Smith
vested upon grant. The remaining restricted stock awarded to Mr. Smith
during Fiscal 2000 will vest one-fourth each on July 18, 2000, July 18,
2001, July 18, 2002 and July 18, 2003.
(8) Certain restricted stock awarded during Fiscal 1998 ($8,562), Fiscal 1999
($46,370) and Fiscal 2000 ($36,420) to Mr. Raymond vested upon grant. The
remaining restricted stock awarded to Mr. Raymond during Fiscal 1998, Fiscal
1999 and Fiscal 2000 will vest on January 1, 2001.
4
<PAGE> 7
(9) Certain restricted stock awarded during Fiscal 2000 ($39,996) to Mr. Napier
vested upon grant. The remaining restricted stock awarded to Mr. Napier
during Fiscal 2000 will vest one-half each on August 16, 2000 and August 16,
2001.
OPTIONS GRANTED TO EXECUTIVE OFFICERS
The following table sets forth certain information regarding stock options
granted during Fiscal 2000 to the executive officers named in the foregoing
Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL MARKET VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS PRICE RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE ON DATE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE OF TERM(4)
GRANTED(#) IN FISCAL PRICE GRANT EXPIRATION -----------------------
NAME (1) YEAR ($/SH)(2) (2) DATE(3) 5%($) 10%($)
---- ------------- ----------- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Lynn Fritz............ 150,000 34.40% $ 11.50 $ 11.50 6/1/2009 1,084,843 2,749,206
Raymond Smith......... 35,000 8.03% $ 11.50 $ 11.50 6/1/2009 253,130 641,481
Ronald Dutt........... 0 0%
Jan Raymond........... 0 0%
Graham Napier......... 25,000 5.73% $10.938 $10.938 7/2/2009 180,807 458,201
</TABLE>
---------------
(1) All such options become exercisable (a) as to 1/3 (33.3%) of the shares on
the day after the first anniversary of the grant, (b) as to an additional
1/3 (33.3%) of the shares on the day after the second anniversary of the
grant, and (c) as to the remaining 1/3 (33.3%) of the shares on the day
after the third anniversary of the grant.
(2) All options were granted at fair market value at date of grant.
(3) All options granted in fiscal 2000 were granted for a term of 10 years.
(4) Realizable values are reported net of the option exercise price. The dollar
amounts under these columns are the result of calculations at the 5% and 10%
rates (determined from the price at the date of grant, not the stock's
current market value) set by the Securities and Exchange Commission and
therefore are not intended to forecast possible future appreciation, if any,
of the Company's stock price. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock as
well as the optionholder's continued employment through the vesting period.
The potential realizable value calculation assumes that the optionholder
waits until the end of the option term to exercise the option.
5
<PAGE> 8
None of the Company's executive officers exercised any stock options during
Fiscal 2000. The following table sets forth certain information with respect to
stock options held by each of the Company's executive officers as of May 31,
2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Lynn C. Fritz...................... 286,666 333,334 111,458 204,167
Raymond Smith...................... 3,333 41,667 1,042 2,083
Ronald Dutt........................ 2,500 5,000 0 0
Jan H. Raymond..................... 38,666 18,334 73,916 17,709
Graham R.F. Napier................. 0 25,000 0 0
</TABLE>
---------------
(1) Based on the price per share of $10.50, which was the price of the Common
Stock on the Nasdaq National Market at the close of business on May 31,
2000.
EMPLOYMENT AGREEMENTS
In January 1999, the Company entered into an employment agreement with
Raymond Smith. The Agreement provides for an initial annual base salary of
$300,000, a grant of 10,000 stock options at fair market value vesting one-third
per year for three years and a severance benefit of $500,000 in the event of
involuntary termination without cause during the term of the contract. The
agreement also provided for Mr. Smith to participate in the Company's
Performance Based Retention Plan. Effective June 1, 2000, this agreement was
superceded by a new employment agreement entered into in recognition of Mr.
Smith's promotion to Chief Executive Officer. That Agreement provides for an
initial base salary of $450,000, a grant of 200,000 stock options at fair market
value vesting one-fifth per year for five years and severance benefits of one
year's salary and pro-rata bonus continuation in the event of involuntary
termination without cause during the term of the contract.
In April 1999, the Company entered into an employment agreement with Ronald
Dutt. The Agreement expires on May 16, 2001. It provides for an initial annual
base salary of $235,000, a signing bonus of $35,000, a grant of 7,500 stock
options at fair market value vesting one-third per year for three years and a
severance benefit of $300,000 in the event of involuntary termination without
cause during the term of the contract. The agreement also provides for Mr. Dutt
to participate in the Company's Performance Based Retention Plan.
In January 1999, the Company entered into an employment agreement with Jan
Raymond. The Agreement expires on December 31, 2001. It provides for an initial
annual base salary of $240,000 and a severance benefit of the amount of salary
payable over the remainder of the contract term in the event of involuntary
termination without cause during the term of the contract and one year's base
salary in the event of termination due to a change of control of the Company
within one year of such change of control. The agreement also provides for Mr.
Raymond to participate in the Company's Performance Based Retention Plan.
In July 1999, the Company entered into an employment agreement with Graham
Napier. The Agreement expires on August 1, 2004. It provides for an initial
annual base salary of $200,000, a grant of 25,000 stock options at fair market
value vesting one-third per year for three years, a grant of 3,333 shares of
stock vesting upon grant, a grant of 6,667 shares of restricted stock vesting
one-half per year for the following two years and a severance benefit of between
nine months and twelve months base salary in the event of involuntary
termination without cause during the term of the contract. The agreement also
provides for Mr. Napier to participate in the Company's Performance Based
Retention Plan. Effective June 1, 2000, this agreement has been superceded by a
new employment agreement entered into in recognition of Mr. Napier's
6
<PAGE> 9
promotion to Chief Operating Officer. That Agreement provides for an initial
base salary of $350,000, a grant of 125,000 stock options at fair market value
vesting one-fifth per year for five years and severance benefits of one year
salary and pro-rata bonus continuation in the event of involuntary termination
without cause during the term of the contract.
The Company entered into change-in-control agreements in January 2000 with
its executive officers other than Mr. Fritz, including Messrs. Smith, Dutt,
Raymond and Napier. The agreements provide generally that, if the executive
officer is terminated other than for cause (as defined in the agreements) or
disability, but including a termination by the executive officer for good reason
(as defined in the agreements), within thirty-six months following a
change-in-control of the Company (as defined in the agreements), the executive
officer will receive certain severance benefits including a lump sum equal to
2.5 times the executive officer's annual rate of base compensation plus 2.5
times the target annual bonus for the executive officer but not to exceed the
IRS tax deductibility standards for such payments.
TRANSACTIONS WITH THE COMPANY
None.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
To the Board of Directors:
As members of the Compensation Committee, it is our duty to evaluate and
determine the appropriate levels of compensation for officers and directors and
to administer the Company's 1992 Omnibus Equity Incentive Plan. Our general
policy is to discharge these responsibilities in a manner which links executive
performance to long term shareholder value. Our specific objectives are to
enhance the long term performance of the Company, enable the Company to attract
and retain outstanding executives and employees and provide meaningful
incentives, without subjecting the Company to excessive cost.
Competitive Compensation Information
Annually, the Compensation Committee reviews with management competitive
data from recognized national surveys concerning executive compensation levels
and practices as part of the process of establishing an appropriate level of
overall executive compensation. These surveys include some of the companies that
are included in the Peer Group used by the Company in the comparison of
five-year cumulative total return set forth below, as well as many other
companies not in the Peer Group. The Committee has chosen not to limit the
survey information to companies in the Peer Group because the search to attract
new executives is not limited to companies within the same industry, and the
competition that the Company faces to recruit and retain existing executives
comes from companies in many different industries.
Base Salary
The Compensation Committee approves all salary changes for the Company's
executive officers, and bases decisions with respect to changes in individual
salary on a combination of factors including the performance of the executive,
changes in the responsibilities of the executive, salary level relative to the
competitive market and the recommendations of the Company's Chief Executive
Officer. Mr. Fritz' base salary was $500,000 and has not been increased since
the Company went public in 1992. Mr. Fritz requested of the Committee that given
the operating performance of the Company in Fiscal 1999, his salary not be
increased during Fiscal 2000. The Committee agreed to Mr. Fritz' request and
therefore determined that no adjustment to base pay was in order for Mr. Fritz.
Effective at the beginning of Fiscal 2001, Mr. Fritz has resigned as Chief
Executive Officer and Mr. Smith was promoted to that position from Chief
Operating Officer. In determining the appropriate base salary for Mr. Smith as
Chief Executive Officer, the Committee reviewed surveys of Chief Executive
Officer compensation in the Peer Group and other relevant companies as well as
considering the base salary of the former Chief Executive Officer and the
performance of Mr. Smith during his tenure as Chief Operating
7
<PAGE> 10
Officer. Taking all of those factors into consideration, it was determined that
a base salary of $450,000 was appropriate for Mr. Smith for the next fiscal
year.
Bonus
The cash bonus provides an annual reward for exceptional performance which
exceeds expectation. Bonus awards are subject to significant variability
depending on the annual performance of the Company, individual business units
and individual performance. The bonus for the Chief Executive Officer is based
solely on the performance of the Company. In recognition of the Company's Fiscal
1999 performance, no cash bonuses were paid to any executive officers during
fiscal 2000 other than a cash bonus paid to Mr. Napier to assist in his
relocation to San Francisco.
Stock Based Incentives
Stock based incentives are used as a means of rewarding executives for
making decisions which lead to substantial growth in stockholder value and for
the perceived long term value of the executive to the Company. No specific
minimum holdings of Fritz stock have been required formally in the past. However
executives are encouraged to hold significant stock in the Company and,
effective with awards to be made in Fiscal 2001, executives will be required to
have minimum stock holdings in order to be eligible to receive stock option
awards.
Stock options and restricted stock are the primary long term incentive
awards for executives. We believe that stock options and restricted stock focus
attention on managing the Company from the perspective of an owner with an
equity stake in the business. In this regard, the Company has approved and
implemented a Performance Based Retention Plan that utilizes restricted stock as
a key element of performance recognition and retention value. Under the current
terms of the Performance Based Retention Plan, awards are made in restricted
stock that vests 20% at the date of grant and 20% annually on the anniversary
date of the grant so long as the executive remains continuously employed by the
Company until the vesting date. Mr. Fritz does not participate in the
Performance Based Retention Plan but the other named executives do and Messrs.
Smith and Raymond received awards under the Plan in Fiscal Year 2000.
Effective with Fiscal Year 2001, the Committee has determined that the
interests of the Company are better served by rewarding performance achievement
through cash bonuses rather than restricted stock. As such, effective with
payments to be made commencing in Fiscal 2001, it is the intention of the
Committee to discontinue any further awards under the Performance Based
Retention Plan and, in lieu thereof, grant cash bonuses for performance
achievements.
The Committee continues to support the leadership that Mr. Fritz brings to
the organization and the importance of his long-term value. In that regard, in
June 1999 the Committee awarded Mr. Fritz a grant of 150,000 market based
nonqualified stock options. In June 1999 the Committee awarded Mr. Smith 35,000
market based nonqualified stock options in his capacity as Chief Operating
Officer. The Committee has increased the level of stock option awards to Mr.
Smith in the next fiscal year in recognition of his responsibilities as Chief
Executive Officer.
As a matter of policy, the Company believes it is important to retain the
flexibility to maximize the Company's tax deductions. Amendments to Section
162(m) of the Internal Revenue Code have eliminated the deductibility of most
compensation over $1,000,000 in any given year unless the specifications
outlined in Section 162(m) are met. It will continue to be the policy of this
Committee to consider the impact, if any, of Section 162(m) on the Company and
to document as necessary specific performance goals in order to seek to preserve
the Company's tax deduction.
8
<PAGE> 11
The Committee is committed to a goal oriented compensation system based on
how the Company performs. In years when the Company meets its aggressive
business plan, we intend to recognize this achievement with substantial bonus
awards.
Compensation Committee
PRESTON MARTIN
WILLIAM RAZZOUK
July 30, 2000
AUDIT COMMITTEE REPORT TO SHAREHOLDERS
The Board of Directors has established an audit committee. The audit
committee consists of three members: James Gilleran, chairman, Preston Martin
and Paul Otellini. The Board of Directors, in its selection of the members of
the audit committee, has determined that each of the members of the audit
committee is independent and able to read and understand fundamental financial
statements. The Board of Directors has also determined that at least one member
of the audit committee has past employment experience in finance or accounting.
The Board of Directors has reviewed the adequacy of, and approved a revised
audit committee charter, a copy of which is appended hereto.
In connection with the May 31, 2000 financial statements of the Company,
the audit committee:
1. reviewed and discussed the audited financial statements with management
2. discussed with the auditors the matters required by Statement on
Auditing Standards No. 61
3. received and discussed with the auditors the matters required by
Independence Standards Board Statement No. 1
Based upon 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.
Audit Committee
JAMES GILLERAN
PRESTON MARTIN
PAUL OTELLINI
July 30, 2000
9
<PAGE> 12
PERFORMANCE GRAPH
The following graph compares the percentage change in the Company's
cumulative total stockholder return on its Common Stock for the period from June
1, 1995 to May 31, 2000 with the cumulative total return of the NASDAQ Market
Index and a peer group index consisting of Circle International Group, Inc. and
Expeditors International of Washington, Inc.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG FRITZ
COMPANIES INC., THE NASDAQ MARKET INDEX AND THE PEER GROUP INDEX
<TABLE>
<CAPTION>
CUSTOMER SELECTED STOCK
FRITZ COS INC LIST NASDAQ MARKET INDEX
------------- ----------------------- -------------------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 130.81 126.41 141.15
1997 41.23 206.79 158.37
1998 49.29 254.13 201.08
1999 40.76 304.36 277.03
2000 39.81 410.98 395.93
</TABLE>
Assumes $100 Invested on June 1, 1995 with Reinvestment of Dividends.
10
<PAGE> 13
OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table indicates, as to (i) each person who is known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) each named executive officer, and (iv) all
directors and executive officers as a group, the number of shares and percentage
of the Company's Common Stock beneficially owned as of July 15, 2000.
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
AS OF JULY 15, 2000
---------------------------
EXECUTIVE OFFICER OR DIRECTOR NUMBER OF SHARES PERCENT
----------------------------- ---------------- -------
<S> <C> <C>
Lynn C. Fritz(1).................................... 13,400,196 36.5%
Westport Asset Management, Inc...................... 2,460,724 6.7%
State of Wisconsin Investment Board................. 1,969,300 5.4%
Raymond Smith(2).................................... 52,235 0.1%
Ronald Dutt(3)...................................... 5,199 *
Jan H. Raymond(4)................................... 108,209 0.4%
Graham R.F. Napier(5)............................... 23,527 *
James Gilleran...................................... 11,290 *
Preston Martin...................................... 14,790 *
Paul S. Otellini.................................... 3,451 *
William J. Razzouk.................................. 4,851 *
All directors and executive officers as a group (13
persons)(6)....................................... 13,664,633 37.2%
</TABLE>
The address of Mr. Fritz is 706 Mission Street, San Francisco, California 94103.
Mr. Fritz may be deemed to be a "control person," of the Company within the
meaning of the rules and regulations of the Securities and Exchange Commission
by reason of his stock ownership and positions with the Company. The address of
Westport Asset Management is 253 Riverside Avenue, Westport, Connecticut 06880;
and the address of State of Wisconsin Investment Board is P.O. Box 7842,
Madison, Wisconsin 53707.
---------------
* Less than 1/10 of 1%
(1) Includes employee stock options exercisable within 60 days to purchase
436,666 shares.
(2) Includes employee stock options exercisable within 60 days to purchase
14,999 shares.
(3) Includes employee stock options exercisable within 60 days to purchase 2,500
shares.
(4) Includes employee stock options exercisable within 60 days to purchase
50,333 shares.
(5) Includes employee stock options exercisable within 60 days to purchase 8,333
shares.
(6) Includes shares which the directors and executive officers have the option
to purchase within 60 days.
PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1996, the Company adopted the Employee Stock Purchase
Plan (the "Plan"). The Plan was approved by the stockholders at the Annual
Meeting in October 1996. Amendment of the Plan is subject to the approval of a
majority of the shares of the Company's common stock which are present in person
or by proxy and entitled to vote at the Annual Meeting. The principal features
of the Plan are summarized below.
PURPOSE
The purpose of the Plan is to promote the success, and enhance the value,
of the Company, by providing eligible employees of the Company and its
participating subsidiaries with the opportunity to purchase common stock of the
Company through payroll deductions. The Plan is intended to qualify as an
employee stock purchase plan under Section 423 of the Internal Revenue Code of
1986, as amended.
11
<PAGE> 14
ELIGIBILITY TO PARTICIPATE
Most employees of the Company and its participating subsidiaries, who have
been so employed for at least three months, are eligible to elect to participate
in the Plan. However, an employee is not eligible if he or she normally is
scheduled to work less than or equal to twenty hours per week, or if he or she
has the right to acquire 5% or more of the voting stock of the Company or of any
subsidiary of the Company. Approximately 2,066 employees currently are eligible
to participate in the Plan, and approximately 250 have elected to participate in
the Plan.
ADMINISTRATION, AMENDMENT AND TERMINATION
The Plan is administered by a committee (the "Committee") appointed by the
Board of Directors of the Company. The members of the Committee serve at the
pleasure of the Board.
Subject to the terms of the Plan, the Committee has all discretion and
authority necessary or appropriate to control and manage the operation and
administration of the Plan, including the power to designate the subsidiaries of
the Company which will be permitted to participate in the Plan. The Committee
may make whatever rules, interpretations and computations, and take any other
actions to administer the Plan that it considers appropriate to promote the
Company's best interests, and to ensure that the Plan remains qualified under
Section 423 of the Internal Revenue Code. The Committee may delegate one or more
of its functions to any one of its members or to any other person.
The Company's Board of Directors, in its discretion, may amend or terminate
the Plan at any time and for any reason.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PLAN
200,000 shares of common stock have been registered for issuance pursuant
to the Plan. As of May 31, 2000, 162,981 shares had been issued under the Plan
leaving 37,019 shares available for issuance under the Plan. Upon approval of
the proposal to increase by 200,000 the number of shares of common stock to be
made available for issuance under the Plan, 237,019 will be available for
issuance under the Plan. Shares purchased under the Plan will be purchased on
the open market. In the event of any stock split or other change in the capital
structure of the Company, the Company's Board of Directors may make such
adjustment, if any, as it deems appropriate in the number, kind and purchase
price of the shares available for purchase under the Plan.
ENROLLMENT AND CONTRIBUTIONS
Eligible employees elect whether or not to enroll in the Plan as of the
first business day of February, May, August or November of any year. The
enrollment period is three months and eligible employees automatically are
re-enrolled every three months; provided, however, that employees may cancel
their enrollment at any time (subject to Plan rules).
Employee contributions to the Plan are made through payroll deductions.
Participating employees generally may contribute up to 10% of their compensation
through after-tax payroll deductions. An employee later may increase or decrease
his or her contribution percentage, in accordance with Plan rules.
PURCHASE OF SHARES
Each quarter, each participating employee's payroll deductions are used to
purchase shares of Company stock for the employee. The price of the shares
purchased will be the lower of (1) 100% of the stock market's value on the
business day immediately preceding the first day of the quarter, or (2) 90% of
the "average closing price per share." The "average closing price per share" is
the simple average of the stock's market value on the purchase date and on the
two business days immediately before the purchase date. Market value under the
Plan means the closing price of Company common stock on the NASDAQ/National
Market for the day in question. The purchase price for shares under the Plan is
subject to increase if necessary to ensure that the Plan continues to qualify
under Section 423 of the Internal Revenue Code. Shares purchased for the
employees will be deposited into individual brokerage accounts established for
each employee.
12
<PAGE> 15
TERMINATION OF PARTICIPATION
Participation in the Plan terminates when a participating employee's
employment with the Company ceases for any reason, the employee withdraws from
the Plan, or the Plan is terminated or amended such that the employee is no
longer eligible to participate.
TAX ASPECTS
Based on management's understanding of current federal income tax laws, the
tax consequences of the purchase of shares of common stock under the Plan are as
follows.
An employee will not have taxable income when the shares of common stock
are purchased for him or her, but the employee generally will have taxable
income when the employee sells or otherwise disposes of stock purchased through
the Plan.
For shares which are not disposed of until more than 12 months after the
enrollment date under which the shares were purchased (the "12-month holding
period"), gain up to the amount of the discount (if any) from the market price
of the stock on the enrollment date (or re-enrollment date) is taxed as ordinary
income. Any additional gain above that amount is taxed at long-term capital gain
rates. If, after the 12-month holding period, the employee sells the stock for
less than the purchase price, the difference is a long-term capital loss. Shares
sold within the 12-month holding period are taxed at ordinary income rates on
the amount of discount received from the stock's market price on the purchase
date. Any additional gain (or loss) is taxed to the stockholder as long-term or
short-term capital gain (or loss). The purchase date begins the holding period
for determining whether the gain (or loss) is short-term or long-term.
The Company will receive a deduction for federal income tax purposes for
the ordinary income an employee must recognize when he or she disposes of stock
purchased under the Plan within the 12-month holding period. The Company will
not receive such a deduction for shares disposed of after the 12-month holding
period.
REQUIRED VOTE
The affirmative vote of a majority of shares present in person or by proxy
at the Annual Meeting and entitled to vote is required to approve the proposed
amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL TO AMEND THE 1992 OMNIBUS EQUITY INCENTIVE PLAN
In October 1992, the Company adopted the 1992 Omnibus Equity Incentive Plan
(the "Plan") pursuant to which an aggregate of 1,520,000 shares of Common Stock
were originally reserved for issuance to key employees of the Company and its
subsidiaries. The principal features of the Plan are summarized below.
GENERAL
The Plan provides for awards of both nonqualified stock options and
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code, stock appreciation rights, restricted stock and performance awards
entitling the recipient to receive cash or Common Stock in the future following
the attainment of performance goals determined by the committee administering
the Plan.
At the Annual Meeting held in May 1994, the stockholders of the Company
approved an amendment to the Plan to increase the number of shares authorized
for issuance under the Plan to 3,040,000 shares. At the Annual Meeting held in
October 1996, the stockholders approved an amendment to the Plan to increase the
number of shares authorized for issuance to 4,540,000 shares. At the Annual
Meeting held in September 1998, the stockholders approved an amendment to the
Plan to increase the number of shares authorized for issuance to 6,040,000
shares. In July 2000, the Board of Directors of the Company conditionally
amended the Plan,
13
<PAGE> 16
subject to stockholder approval at the 2000 Annual Meeting, to increase the
number of shares authorized for issuance under the Plan by an additional
2,000,000 shares.
The reason for this increase is to ensure that a sufficient number of
shares of the Company's common stock is available under the Plan for awards to
attract, retain and motivate selected employees with outstanding experience and
ability. As of June 30, 2000, the number of shares remaining available for
future awards was 459,356, which would increase to 2,459,356 if the proposal is
approved. Set forth below is a summary of the principal features of the Plan.
PURPOSE
The purpose of the Plan is to promote the success and enhance the value of
the Company by linking the personal interests of participating employees and
consultants to those of the Company's stockholders and by providing such
employees and consultants with an incentive for outstanding performance. The
Plan is further intended to provide flexibility to the Company in its ability to
motivate, attract and retain the services of participating employees and
consultants upon whose judgment, interest and special efforts the Company is
largely dependent for the successful conduct of its operations.
ELIGIBILITY TO RECEIVE AWARDS
Key employees of the Company and its subsidiaries, and persons who provide
significant services to the Company or its subsidiaries, but who are neither
employees of the Company or its subsidiaries nor directors of the Company
("consultants") are eligible to be granted awards under the Plan. However,
incentive stock options (see below) may be granted only to employees. In 1994,
the Plan was amended to restrict eligibility for awards under the Plan to a
maximum of 400,000 shares per recipient in any twelve month period.
ADMINISTRATION
The plan is administered by the Compensation Committee of the Board of
Directors of the Company (the "Committee").
OPTIONS
The price of shares of the Company's Common Stock subject to each option
(the "option price") is set by the Committee but may not be less than 50% of the
fair market value on the date of grant in the case of an option that is not an
incentive stock option (a nonqualified stock option"), and not less than 100% of
the fair market value in the case of an incentive stock option.
Options granted under the Plan are exercisable at the times and on the
terms established by the Committee, provided that options granted to officers
who are subject to section 16(b) of the Securities and Exchange Act of 1934
("Section 16(b)") may not be exercised until six months following the date of
grant. Subject to the foregoing limitations, the Committee may accelerate the
exercisability of any option.
The option price must be paid in full in cash or its equivalent at the time
of exercise. The Committee also may permit payment of the option price by the
tender of previously acquired shares of the Company's stock or such other legal
consideration which the Committee determines to be consistent with the Plan's
purpose and applicable law.
STOCK APPRECIATION RIGHTS
The Plan permits the grant of three types of SARs: Affiliated SARs,
Freestanding SARs and Tandem SARs, or any combination thereof. An Affiliated SAR
is an SAR that is granted in connection with a related option and which will be
deemed to automatically be exercised simultaneously with the exercise of the
related option. A freestanding SAR is an SAR that is granted independently of
any option. A Tandem SAR is an SAR that is granted in connection with a related
option, the exercise of which requires a forfeiture of the right to purchase a
share under the related option (and when a share is purchased under the option,
the SAR is similarly cancelled).
14
<PAGE> 17
The Committee has complete discretion to determine the number of SARs
granted to any optionee or recipient and the terms and conditions pertaining to
such SARs. However, the grant price must be at least equal to the fair market
value of a share of the Company's Common Stock on the date of grant in the case
of a Freestanding SAR and equal to the option price of the related option in the
case of an Affiliated SAR or Tandem SAR. An SAR that is granted to an officer
who is subject to Section 16(b) may not be exercised until at least six months
following the date of grant.
RESTRICTED STOCK AWARDS
The Plan permits the grant of restricted stock awards which are restricted
Common Stock bonuses that vest in accordance with terms established by the
Committee. The Committee may impose restrictions and conditions on the shares,
including, without limitation, restrictions based upon the achievement of
specific performance goals (Company-wide division and/or individual), and/or
restrictions under applicable federal or state securities law. The Committee may
accelerate the time at which any restriction lapses, and/or remove any
restrictions. During the lifetime of the recipient, all rights with respect to
the restricted stock granted to the recipient under the Plan will be available
only to such recipient.
PERFORMANCE UNIT/SHARE AWARDS
The Plan permits the grant of performance unit and performance share awards
which are bonuses credited to an account established for the recipient and
payable in cash, Common Stock or a combination thereof. Each performance unit
has an initial value that is established by the Committee at the time of its
grant. Each performance share has an initial value equal to the fair market
value of a share of the Company's Common Stock on the date of its grant. The
number and/or value of performance units/shares that will be paid out to
recipients will depend upon the extent to which performance goals established by
the Committee are satisfied. The payment date for performance unit/share awards
granted to officers and directors subject to Section 16(b) may not be less than
six months from the date of grant.
After a performance unit/share award has vested, the recipient will be
entitled to receive a payout of the number of performance units/shares earned by
the recipient, to be determined as a function of the extent to which the
corresponding performance goals have been achieved. The Committee also may waive
the achievement of any performance goals for such performance unit/share.
Subject to the applicable award agreement, performance units/shares awarded
to recipients will be forfeited to the Company upon the earlier of the
recipient's termination of employment or the date set forth in the award
agreement.
NONTRANSFERABILITY OF AWARDS
Awards granted under the Plan may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
applicable laws of descent and distribution. However, an optionee or recipient
may designate one or more beneficiaries to receive any exercisable or vested
awards following his or her death.
STOCK OPTIONS AND RESTRICTED STOCK
As of June 30, 2000, no Awards had been made under the Plan in the form of
stock appreciation rights or performance units; restricted stock grants of
481,080 shares of Common Stock were outstanding under the Plan, options to
purchase 3,509,500 shares of Common Stock were outstanding under the Plan, and
459,356 shares remained available for future awards under the Plan.
NEW PLAN BENEFITS
Regulations adopted by the Securities and Exchange Commission require
disclosure of benefits to the executive officers of the Company named in the
summary compensation table and to certain other categories of award recipient,
if such benefits are determinable. In addition to the grants of stock options
and restricted
15
<PAGE> 18
stock set forth below, it is likely that substantial additional grants will be
made to all of such persons and others during the life of the plan, and it is
impossible to determine the amount of terms of such future grants.
The following table sets forth as of May 31, 2000 (a) the aggregate number
of shares of the Company's Common Stock subject to awards granted under the Plan
since June 1, 1999 (all of which were in the form of stock options or restricted
stock), and (b) the fair market value of options based on the difference between
the exercise price and $10.50 per share, the closing price of the shares of
Common Stock on May 31, 2000 and the fair market value of restricted stock based
on $10.50 per share.
<TABLE>
<CAPTION>
DOLLAR VALUE OF
NUMBER OF OPTIONS OPTIONS AND SHARES
NAME OF INDIVIDUAL GROUP AND SHARES GRANTED GRANTED
------------------------ ------------------ ------------------
<S> <C> <C>
Lynn C. Fritz...................................... 150,000 $ 0
Raymond Smith...................................... 41,682 $ 70,161
Ronald Dutt........................................ 0 $ 0
Jan H. Raymond..................................... 16,648 $ 174,804
Graham R.F. Napier................................. 35,000 $ 105,000
All executive officers as a group.................. 281,012 $ 483,127
All employees who are not executive officers as a
group............................................ 472,938 $2,438,087
All directors who are not executive officers as a
group............................................ 5,384 $ 56,532
</TABLE>
REQUIRED VOTE
The affirmative vote of a majority of shares present in person or by proxy
at the Annual Meeting and entitled to vote is required to approve the proposed
amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE AMENDMENT TO THE 1992 OMNIBUS EQUITY INCENTIVE PLAN.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
June 1, 1999 to May 31, 2000 all filing requirements applicable to its officers,
directors, and greater than ten-percent beneficial owners were complied with the
exception that one Form 4 was filed one day late.
AUDITORS
KPMG LLP serves as the Company's principal independent accountants.
Representatives of KPMG LLP will be present at the Annual Meeting with the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
OTHER MATTERS
As of the date of this Proxy Statement, there are no other matters which
management intends to present or has reason to believe others will present to
the meeting. If other matters properly come before the meeting, those who act as
proxies will vote in accordance with their judgment.
16
<PAGE> 19
STOCKHOLDER PROPOSALS
If any stockholder intends to present a proposal for action at the
Company's 2001 Annual Meeting and wishes to have such proposal set forth in
management's proxy statement, such stockholder must forward the proposal to the
Company so that it is received on or before April 20, 2001. Proposals should be
addressed to the Company at 706 Mission Street, San Francisco, California 94103,
Attention: Corporate Secretary.
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the 2001 Annual Meeting of Stockholders of the Company,
which proposal is not intended to be included in the Company's proxy statement
and form of proxy relating to such meeting, the stockholder should give
appropriate notice no later than July 8, 2001. If a stockholder fails to submit
the proposal by such date, the Company will not be required to provide any
information about the nature of the proposal in its proxy statement and the
proxy holders will be allowed to use their discretionary voting authority if the
proposal is raised at the 2001 Annual Meeting of Stockholders of the Company.
COST OF SOLICITATION
All expenses in connection with the solicitation of this proxy, including
the charges of brokerage houses and other custodians, nominees or fiduciaries
for forwarding documents to stockholders, will be paid by the Company.
By Order of the Board of Directors
Jan H. Raymond
Secretary
Dated: August 18, 2000
17
<PAGE> 20
APPENDIX I
AUDIT COMMITTEE CHARTER
The Company has adopted a charter for its audit committee and has filed
this charter with NASDAQ. The charter is as follows:
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
- Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
- Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the NASDAQ National
Market or such other stock exchange on which the Company's stock shall be
listed. The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent nonexecutive
directors, free from any relationship that would interfere with the exercise of
his or her independent judgment All members of the Committee shall have a basic
understanding of finance and accounting and be able to read and understand
fundamental financial statements, and at least one member of the Committee shall
have accounting or related financial management expertise.
Audit Committee members shall be appointed by the Board. If an audit
committee Chair is not designated or present, the members of the Committee may
designate a Chair by majority vote of the Committee membership.
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Audit Committee Chair shall prepare and/or approve
an agenda in advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the director of the
internal auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe should be
discussed. In addition, the Committee, or at least its Chair, should communicate
with management and the independent auditors quarterly to review the Company's
financial statements and significant findings based upon the auditors limited
review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
18
<PAGE> 21
3. In consultation with the management, the independent auditors, and the
internal auditors, consider the integrity of the Company's financial
reporting processes and controls. Discuss significant financial risk
exposures and the steps management has taken to monitor, control, and
report such exposures. Review significant findings prepared by the
independent auditors and the internal auditing department together with
management's responses.
4. Review with financial management and the independent auditors the
company's quarterly financial results prior to the release of earnings
and/or the company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with SAS 61 (see item 9). The Chair
of the Committee may represent the entire Audit Committee for purposes
of this review and will include the other members in the review if he
determines there are significant items to be considered.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually recommend
to the Board of Directors the appointment of the independent auditors
or approve any discharge of auditors when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors. Review and approve requests for significant
management consulting engagements to be performed by the independent
auditors' firm and be advised of any other significant study undertaken
at the request of management that is beyond the scope of the audit
engagement letter.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors audit plan -- discuss scope, staffing,
locations, reliance upon management, and internal audit and general
audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Internal Audit Department and Legal Compliance
11. Review the budget, plan, changes in plan, activities, organizational
structure, and qualifications of the internal audit department, as
needed.
12. Review the appointment, performance, and replacement of the senior
internal auditor.
13. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
14. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from regulators
or governmental agencies.
Other Audit Committee Responsibilities
15. Annually prepare a report to shareholders as required by the Securities
and Exchange Commission. The report should be included in the Company's
annual proxy statement.
19
<PAGE> 22
16. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
17. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
Other Optional Charter Disclosures
18. Ensure that management has established a system to enforce the
Company's Statement of Core Values.
20
